Edited by Ugo Mattei and John D. Haskell
Chapter 4: The new global dis/order in central banking and public finance
Central banks are widely recognized for their vast financial powers and the pivotal role they play in shaping the political economy of nations. The US Federal Reserve is widely seen as the most powerful of the world’s central banks and one of the primary catalysts of financial globalization and the related shift to a more orthodox and liberalized political economy. Law clearly plays an important role, providing the institutional structure of central bank governance and vesting central banks with vast discretionary authority in the conduct of monetary and regulatory policies. A review of the law’s changing contours reveals the flaws in today’s political economy of central banking while suggesting alternative paths for reform. The past century has brought profound changes in political economy and central banking. In the United States, the crisis of the 1930s Great Depression ushered in a period of increased Federal Reserve accountability to elected branches of government. From the 1930s to 1970s, banking, finance, and other key industries were more heavily regulated to balance the competing interests of various social and political constituencies. This New Deal regulatory model corresponded with a more Keynesian and interventionist approach to political economy. Since the 1970s, as political power in the US and elsewhere shifted ideologically to the right and in the interests of big business, law came to play a decidedly different role in shaping a new political economy marked by a return to pre-Keynesian orthodoxies.
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