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Megan McArdle has an interesting thought progression:

I've been thinking a lot lately about the political theory of an independent central bank....There's little doubt in my mind that if we had not had an independent central bank, unemployment would be many percentage points higher, GDP would have contracted much more strongly, and we wouldn't now be making optimistic noises about the thing bottoming out....

I think that the political process will hopelessly screw up the management of this crisis (something which libertarians are perfectly able to see when the government screwing things up is a left-wing populist one in Latin America). But maybe The People, God bless them, deserve to screw up their economy if they want. On principle, I am opposed to saving people from themselves. And anyway, maybe I'm wrong and the wisdom of crowds will prevail.

On the other hand, do they have a right to screw things up for everyone else? Should a populist 60% be allowed to plunge their neighbors deeper into crisis? In the case of America, to plunge the whole world deeper into crisis?

The uncomfortable conclusion I'm coming to is that yes, they should. Ben Bernanke should be hamstrung even though it's likely that this would make everyone worse off. And people who advocate for ending the independence of the central bank should be willing to accept all that this entails: inflationary monetary policy (the people love inflation!), bad and unpredictible banking policy, the collapse of the US economy. I just wish I didn't have to go along for the ride.

I confess that I am not a diehard libertarian and so this kind of thinking leaves me a little stunned. I don't believe that monetary policy should be any more influenced by popular opinion than heart surgery - it's an incredibly complicated task and belongs in the realm of experts. I am perfectly willing to admit that the experts can be wrong, but they are likely to be less consistently wrong than the population at large. Besides, there's a reason why we have checks and balances.

Let's revisit this sentence: "Ben Bernanke should be hamstrung even though it's likely that this would make everyone worse off." That's an awfully big leap of princple. I guess Megan thinks economic policy is like Voltaire's free speech: she disagrees with your policy prescriptions, but will defend your right to implement them to the death (of the economy). Call me an elitist, but I'm not convinced.

So maybe there are really good arguments for why the Fed has too much autonomy. But there's an awful lot of wiggle room between a fully independent central bank and a collection of monetary policies decided by direct democracy. And the number of times I've seen Ben (or Hank, or Tim) sitting in front of a collection of Congresspeople that are grilling him with questions suggests to me that he's not that politically isolated.

What think you?

UPDATE: In a rather creepy coincidence, Patrick at zzzeitgeist is thinking pretty much the exact same thing.