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F&L Blog – Are we all Lisa Cook?

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Are we all Lisa Cook? Central Bank Independence and the Politics of Depoliticization

by Pavlos Roufos

04.12.2025

Recent authoritarian attacks on central bank independence have provoked a fierce defence of this institutional form not only as an anchor of economic stability, but as a foundation of democratic rule. Below, political economist Pavlos Roufos argues that such a depiction obscures its actual historical trajectory and reinforces the false belief that we must choose between technocratic insulation and authoritarian intervention. A closer look, he suggests, calls into question whether defending central bank independence makes sense at all.

The contemporary authoritarian shift observed across the globe – led most visibly by the Trump administration in the United States – has amplified state cruelty, undermined the rule of law, and eroded trust in the resilience of democratic checks and balances. More than anything else, ours appears as a transitional era, structured around relentless challenges against existing institutions and a widespread sense of uncertainty. Ours is also an era of profound confusion, exacerbated by algorithmically designed distraction. In the context of such a dizzying bundle of uncertainties, the desire to return to a nostalgically constructed past ‘normality’ acquires particular force.

Recent responses to authoritarian challenges on central bank independence represent an exemplary case of this dynamic. Central bank independence is not a democratic alternative to authoritarianism, but an institutional form historically grounded on the insulation of monetary policy from democratic structures. Maintaining a misleading conceptualization of CBI as concomitant with democratic rule can only result in the reproduction of a framework largely responsible for the present predicament.

Central Bank Independence (CBI) as Uncontested Good

Trump’s repeated jabs at the US Federal Reserve—undermining its chair Jerome Powell and attempting to fire Fed Board Member Lisa Cook—have provoked outrage across the global community of central bankers, economic analysts and liberal commentators. And we are cordially invited to share this outrage.

According to Bundesbank President Joachim Nagel, independence is part and parcel of the “DNA of central banks,” a critical anchor of stable markets whose erosion brings “global risks.” Investment researcher William M. Cunningham informed us in the magazine American Banker  that CBI has long been a cornerstone of price stability, an institutional guarantee of “long-term economic health,” and a crucial defence mechanism against “hyperinflation, currency devaluation and economic crises.” The Economist  lambasted “the insidious threats to central bank independence …by meddling politicians,” setting the stage for David Wessel, Director of the Hutchins Center for Fiscal and Monetary Policy, to describe Trump’s gestures as “undermining the foundations of our democracy,” adding that “history teaches that when central banks fall under political control, the consequences are severe”. American economist and Nobel laureate, Paul Krugman’s rallying cry, “We Are All Lisa Cook”, emerges as the appropriate cherry at the top of this wonderful cake.

The Anti-Democratic Interwar Roots of CBI

Since the end of the 1990s, CBI has been the dominant institutional set up of the lion’s share of central banks across the globe. Justifications for CBI drew overwhelmingly from literature which expanded dramatically after the 1970s energy crisis and resulting decade of ‘stagflation’ (high inflation coupled with high unemployment). This literature chastised political authorities’ tendency to undermine price stability due to their inherent prioritization of short-term electoral goals. CBI thus emerged as the optimal, safe and long-term solution.

Hidden behind this seemingly ‘common-sense’ narrative is the actual historical emergence and trajectory of CBI, which emerged during the interwar years as a response to the concurrent collapse of the global monetary order of the gold standard and, crucially, the advent of mass democracy.

"[...] CBI proponents joined the widespread chorus of fellow liberals and conservatives and openly decried the destabilizing forces of ‘excess democracy’ and the threats it posed for the world of capital and private property."

As Polanyi noted in The Great Transformation, the gold standard, one of the key pillars of the pre-1914 world, had become destructive for both labor and capital. Yet, the world of haute finance remained too entangled within this framework and its purported ‘political neutrality’ to abandon it without a fight. Faced with the incompatibility between mass democracy and maintaining the gold standard (as described by economists Eichengreen and Temin in 1997), officials within nation-states and international institutions began promoting CBI as a temporary institutional arrangement that could fulfil three simultaneous objectives: deprive democratic governments of discretionary powers over monetary policy; curtail rising demands for expansionary fiscal policies; and, lastly, provide an institutional return path for the eventual re-instatement of the gold standard.

‘Lords of Finance’ like Montagu Norman of the Bank of England and Benjamin Strong of the US Fed adapted their voices to the tune of international monetary conferences organized by the League of Nations – such as the Brussels and Genoa conferences of 1920 and 1922 – and vigorously promoted CBI as the optimal institutional setup for insulating monetary decisions from mass democracy and its so-called inherent inflationary bias. Though elements survive until today in more sophisticated forms, outright hostility towards mass democracy was, at the time, entirely explicit. Shocked by the forceful entrance of the ‘masses’ into the newly contested public space, CBI proponents joined the widespread chorus of fellow liberals and conservatives and openly decried the destabilizing forces of ‘excess democracy’ and the threats it posed for the world of capital and private property.

The 1970s Reframing of CBI as Democratic Foundation

Despite various interwar attempts, the turbulence caused by the Great Depression, shifts towards protectionism and the proliferation of visions of ‘planned economies’ undermined the potential for a wider adoption of CBI. Moreover, the aftermath of World War II saw both widespread support for liberal democracy (often presented as a counterexample to Soviet totalitarianism) and the proliferation of a macroeconomic framework of fiscal and monetary coordination that had no space for independent monetary bodies. With the potential exception of the German Bundesbank, no postwar central bank enjoyed ‘institutional loneliness’. Monetary decisions (primarily centred around credit policy) had to be embedded within wider fiscal, industrial and welfare targets.

A cursory examination of that period challenges the incredible (i.e. with little credibility) mantra which portrays CBI as an indispensable fortification against economic instability. Not only do such portrayals tend to focus on historically exceptional moments of monetary collapse (most notably, the interwar German hyperinflation of 1923), they glaringly ignore the impressive stability that took place in the two decades after the war—remarkable growth rates and noticeable inequality reduction—a period characterized by the complete absence of CBI.

It is not difficult to piece together the reasons why CBI-promoting publications proliferated towards the mid-1970s. Renewed interest in this institutional form was sparked by the return of a turbulent and socially explosive period, a generalized crisis that was also blamed on ‘excess democracy’ (something largely forgotten today). Having shed its anti-democratic, interwar origins, CBI came to be defined, as Wessel would claim 50 years later, as “a foundation of our democracy.” The re-conceptualization was, by all means, impressive. It was underpinned by a neoliberal framing of democracy that decomposes class relations in favor of the abstract individual endowed with standardized consumer rights. As a consequence, non-majoritarian technocratic institutions become the (rational) voice of the majority and, as the social scientist Philip Becher and his colleagues pointedly note, “anti-democratic tendencies are portrayed as genuinely democratic, whereas democratic advances are depicted as totalitarian threats.”

The Discursive Transformation: CBI as Democratization

"rather than promoting central bank independence as a safeguard against ‘excessive democracy’ (as in the interwar years), independent monetary policy now became a means of protecting democracy against abuses by corrupt and self-interested politicians"

The success of this transformation hinges on the key concept of ‘depoliticization’ and the underlying work it has performed in the time since. By superficially adopting expressions of discontent towards formal politics during the 1970s , proponents of CBI successfully portrayed the placing of limits and constraints on ‘political interference’ (i.e. democratic control) as tools of democratization. In this contextshort-sighted politicians (and, by definition, the equally unsuitable public) access to important decision making, insulated technical expertise should take charge. In this context, the previous conviction about the inherent inflationary bias of democratic society was also discursively reformulated: it is actually inflation, we are told today by ECB president Christine Lagarde, that “kills democracy”. This is why we are all suddenly Lisa Cook.

Progressive and left-wing commentators aware of this historical trajectory are, however, still faced with a dilemma: even while recognizing CBI as a bulwark of neoliberal depoliticization and a form of class politics, surely one cannot embrace authoritarian attempts of politicization?  “If central bank independence serves finance,” asked Ümit Akçay, “should the left side with the populists who want to end it?”. Along similar lines, economic historian Adam Tooze pointed out that while Krugman’s call to identify with Lisa Cook in defending “our democracy,” is “silly,” it is also “painfully true.”

Can Central Banks be Democratized?

"[Authoritarianism] does not politicize economic and monetary relations; instead, it (re)organizes politics as a mirror of the economic realm of domination, exclusion, and dehumanization."

A potential way out of this dilemma would be to question its construction. Describing authoritarian attacks on CBI as politicization betrays an inadvertent support for the concept of depoliticization. This is more than a discursive slip. There is no such thing as depoliticized monetary policy, but neither are authoritarians interested in exposing it to democratic or social pressure. CBI’s ‘depoliticization’ reflects the deeply political choice to insulate monetary policy from democratic meddling. But it also represents an institutional response to the potential existence of such meddling. Authoritarian or fascist regimes, on the other hand, have no interest in such institutional insulation.   Authoritarianism is associated with the suspension of legal procedures, repression, and the normalization of cruelty.

Responding to authoritarian developments by defending a historically anti-democratic institution makes little sense. At the same time, however, progressive calls to democratize money and central banks (Downey 2025; Monnet 2024) continue to uphold the need for (monetary) technical expertise as inevitable, forgetting that social and economic relations are a field of political and class contestation, not one of expertise. Reproducing such a disconnect between the political and the monetary fields inadvertently strengthens the neoliberal euphemism of depoliticization. At the same time, a nostalgic reconstruction of the postwar era of fiscal and monetary coordination can also be misleading as a democratisation alternative. Despite its divergence from CBI, there is nothing inherently democratic about this macroeconomic framework—it was as much adopted by authoritarian regimes (like postwar Greece) as it was by social-democratic ones.

If democratization is to have any substantial meaning, it can only be in opposition to the totality of capital’s rule—and that includes the artificial separation of the economic and the political.

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Pavlos Roufos is a political economist working on the history of neo- and ordoliberalism, central banks, constitutional law and global governance.

References

  • Becher, Philip; Becker, Katrin; Rösch, Kevin & Seelig, Laura (2021) ’Ordoliberal White Democracy, Elitism, and the Demos: The Case of Wilhelm Röpke’, Democratic Theory, Vol. 8, Issue 2, Winter 2021, pp. 70-96
  • Downey, Leah (2025) Our Money: Monetary Policy as if Democracy Matters, Princeton University Press
  • Eichengreen, Barry J & Temin, P (1997) ‘The Gold Standard and the Great Depression’, Working Paper 6060, National Bureau of Economic Research, Massachusetts
  • Monnet, Eric (2024) Balance of Power: Central Banks and the Fate of Democracies, University of Chicago Press

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F&L Blog – Balanced Budgets, Broken Democracies

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Balanced budgets, Broken Democracies: the urgent need to democratize money

Colleen Schneider

25.09.2025

Colleen Schneider is a PhD researcher at the Vienna University of Economics and Business in the Institute for Ecological Economics. Her work focuses on the political economy of monetary and fiscal policy in a social-ecological transition. In this piece she explores how ideas about money greatly shape states’ capacity for governance, explaining how the neoliberal ideology of “balanced budgets” has been used consistently and across party lines to justify austerity. As Polanyi saw governments’ adherence to the Gold Standard during the 1930s as enabling the rise of fascism, today’s attachment to arbitrary fiscal rules risks emboldening the far-right while worsening social and ecological crises. To counter this, Schneider calls for a “deficit owl” approach to budgeting focused on the effects of fiscal spending, supported by a politicization and democratization of money.

“The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity. Money will cease to be master and will then become servant of humanity.”
Abraham Lincoln, 1985
“Well, we’re out of money now.”
Barak Obama, 2009

How ideas about money shape the capacity to govern ​

For the last 5,000 years money has served as a tool of governance. Through the Middle Ages Monarchs regularly reminted coins to increase the money supply, often to fund war. This was possible because the value of coinage was set by political decree and reinforced by trust in the governing authority. Today, we operate in a fiat money system, meaning that money is created through the spending of currency-issuing governments. Governments’ ability to create money is limited by ideas about the desirability of fiscal spending and the role of government debt.

Ideas about money shape the potential and structure of governance. The idea of “balanced budgets” has delimited the political imaginary of the last several decades. The shift to understanding balanced budgets as a good in-and-of themselves, and to the institutionalization of this idea, is a core tenet of the neoliberal era. It has been used, consistently and across party lines, to justify austerity. This includes cuts to social welfare programs as well as spending cuts on necessary public infrastructure, health, and education.  

To illustrate the importance of these ideas and how they shape the capacity for governance, we can define three distinct positions. The first two are orthodox positions of “deficit hawks” and “deficit doves.” Hawks insist government deficits are always problematic. Their thinking goes that when governments spend more than they receive in taxes, they “crowd out” private sector spending, ultimately leading to lower growth and risking default. In contrast, doves acknowledge running government deficits can be useful and necessary in the short term, such as during recession. Like hawks, they hold with the position that balanced budgets should be prioritized in the longer term. Both hawks and doves present this constraint not as a political rule, but as economic law.

The third position is that of “deficit owls.” Owls see the constraints on spending by sovereign currency-issuing governments as access to real resources, their ability to maintain price stability, and political will. Owls place the focus on the results of fiscal spending. For governments (or supra-national regions, like the Eurozone) that issue their own currency, hard limits come into play if there is a need to access foreign currency for, say, import purchases or paying foreign-denominated debts. Utilizing domestic resources, however, is constrained by the availability of those resources and the effects on the macroeconomy—namely, inflation. Owls point out that public sector deficits are nothing more than private sector surpluses. Running public surpluses, thereby driving the private sector to take on more debt, has consistently preceded recessions.   

In short, politically imposed limits on debt and deficits are the result of certain ideas about money, and of political decisions taken in specific historical and ideological contexts. In our present case, the hegemonic status of neoliberal ideology has provided the container for institutionalizing fiscal limits.

The neoliberal de-democratization of the monetary system stripped money as a tool of governance

The post-WWII Keynesian era of fiscal dominance relied upon democratic coordination for macroeconomic stability. In contrast, the 1980s were marked by a distinct shift in how the monetary system was understood and operationalized as a governance tool. Under neoliberalism, politically-embedded management of the monetary system was replaced with technocratic management and a reverential deference to bond markets. This construction of monetary scarcity can be understood through the apparent “naturalization” and “depoliticization” of money that is central to the neoliberal project. This logic found academic justification in the neoclassical treatment of money as a neutral veil over market exchange.

This naturalization of money makes the management of the monetary system a matter of technocratic efficiency best left to economists at “apolitical” and “independent” central banks. Through the shift in central banking and the deference of elected governments to the need for balanced budgets, money as a mode of governance was effectively removed from the democratic political sphere while being simultaneously stripped of morality and subjectivity. Depoliticization went hand-in-hand with de-democratization. 

Balanced budgets paved the way for austerity in the United States and Europe

Following the rhetoric of American Presidents vis-a-vis the fiscal situation of the United States provides an enlightening perspective on the shift toward deference of balanced budgets and its effects. While Lincoln, and those that came after him for the next century, discussed the fiscal budget in reference to its effects in the economy – such as employment and social provision – the 1970s mark a break from this functional understanding of monetary governance.  

In the 1980s Ronald Reagan relied heavily on the rhetorical trope of balanced budgets to impose austerity, pledging to “discipline the federal Government to live within its means”. He signed deficit reduction into law while lowering taxes and cutting spending on housing, education, and agriculture (before going on to enact massive increases in military spending in his second term). George Bush Senior went so far as to attempt to write balanced budgets into the constitution. James Buchanan supported this effort, arguing that it would be an effective and permanent barrier against democratic demands for social spending. This was democracy, insulated from too much democracy—a marker of neoliberal politics.

Buchanan’s effort was not successful, and, in place of constitutional amendment, Bush Senior institutionalized a pay-as-you-go (PAYGO) spending rule, intended to limit fiscal capacity and “solve the problem of budget deficits.”  Clinton, too, oversaw vast cuts and, in some cases, complete withdrawal of social welfare programs in the name of deficit reduction. G.W. Bush then used the“left over” money from Clinton’s budget surplus then to justify tax cuts. Obama focused on the need for fiscal discipline and restored the PAYGO rule.

Both the Democratic and Republican parties have consistently taken the positions of fiscal doves or hawks, treating public goods as liabilities and economic growth as the highest good. The consistent result has been the gutting of social protections.  

The fiscal limits of the European Union—enshrined in the Maastricht Criteria and enacted through the Stability and Growth Pact (SGP)—are emblematic of the de-democratization of monetary governance. Several European states have also enshrined balanced budgets into their constitutions. Switzerland amended their constitution in 2001, and Germany constitutionalized the debt brake in 2009, among others. These limits are not based on any sound empirical relationship between debt, deficits, and growth, while institutionally embedding an incapacity to effectively deal with unemployment, the climate crisis, and myriad other crises.

The COVID pandemic revealed the fragile state of public services in the EU after years of austerity, and the activation of the SGP’s escape clause during the pandemic made clear the extent to which the debt and deficit rules inhibit effective social (and ecological) spending. In 2024 the SGP was revised and reinstated by the European Council with only minor changes, and now imposes an estimated €100 billion in cuts for EU governments, which will hit low-income households hardest.  

From neoliberal balanced budgets to far-right extremism

Just as Karl Polanyi referred to faith in the gold standard as an ideology shared by whole nations in the 19th century, balanced budgets play this role in the neoliberal era. The result is governments that have been heavily constrained in their capacity to address social ills, driving skyrocketing inequality, and escalating ecological crises. A line can be drawn from the disenfranchisement driven by years of neoliberal austerity to recent fascistic counter-movements. Consider the rise of the Golden Dawn party in the midst of the Greek government debt crisis driven by the Troika. Or the rise of Alt-Right groups in the United States in the last two decades.

In The Great Transformation Polanyi blamed the “stubbornness” of economic liberals in prioritizing the maintenance of the gold standard system in the late 19th and early 20th century for the “decisive weakening of the democratic forces that might otherwise have averted the fascist catastrophe”. Polanyi contended that the United States, in leaving the Gold Standard in 1933, showed themselves to be “masters not servants of the currency” and utilized their newfound fiscal capacity to fund the New Deal program. Two converging factors enabled this to happen: a claiming of the fiscal capacity of the government, and a government that was held accountable to the needs of the working class. The New Deal demonstrated how democratic politics and social protection can go hand-in-hand to mitigate the effects of increasing marketization and to forestall shifts toward fascism. Politicization and democratization of the monetary system are essential in this.

With this in mind, we can question where cracks in the ideology of balanced budgets exist today, and toward what ends they are directed.

Deficits for war, not peace?

For decades now neoliberal dominance has delimited the political imaginary. Attempts to question the validity of fiscal rules and to explore alternatives have been dismissed as “unrealistic” or “irresponsible.”  But government responses to the financial crisis of 2007-08 and to the pandemic created cracks in the veneer of “there is no alternative”. Recently, the European Council has granted the activation of national escape clauses specifically for defense spending and, as of July 2025, 15 nations have signed on to this option. This means, simply, that spending on defense is not counted toward debt and deficit limits. A political choice made manifest, while holding on to the rhetorical insistence that the limits are necessary. Following the pause on the SGP during the pandemic, a coalition of EU nations called for social and ecological spending to be permanently exempted from debt and deficit limits, but a stronger coalition pushing “fiscal responsibility” effectively opposed this.  

Donald Trump has stated that he wants to scrap the U.S. debt limit entirely. While he has not managed to do this, the One Big Beautiful Bill Act passed in July 2025 raises the debt ceiling by $5 trillion, and will add an estimated $3.4 trillion to the national debt over the next decade. Most of the economic benefits will go to the rich. The middle class will see little, if any benefit, and poorer households will lose. In doing so, Trump can frame himself as breaking with the (much maligned) status quo, while simultaneously serving corporatist and wealthy financial interests. This is money as a tool of plutocratic governance.  

To confront our crises we must politicize and democratize money

To effectively address the multiple social and ecological crisis of the present day, we must make explicit the political nature of money, and thus the capacity for money as a mode of governance. However—as Polanyi witnessed in Europe in the 1930s and the US is witnessing today—a politicized monetary system can serve as a tool of fascism just as easily as one of socialism. Given this, it is essential that politicization takes place alongside strengthening and expanding democracy, including monetary and economic forms of democracy.

In focusing on the effects of public spending, not arbitrary budget rules, the approach of deficit owls creates a coherent alternative to neoliberal rhetoric, a counter to austerity logic, and offers the capacity to build out robust forms of social protection and effective responses to ecological crises.

Colleen Schneider is a PhD researcher at the Vienna University of Economics and Business in the Institute for Ecological Economics.

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