The Rule of Law or the Rule of Central Bankers?

Abstract

Economists often prescribe that countries seeking economic development should embrace the principle of the rule of law. I want to suggest that we listen to our own advice and apply it to our monetary and financial system. The principle of the rule of law could usefully guide us in resolving the extraordinary situation we have been in for the past two years or so, and even more importantly help us to avoid future crises. The approach of Federal Reserve and Treasury officials during this crisis, unfortunately, has been to consider every possible remedy but applying the rule of law.

Keywords: 2008 financial crisis, rule of law, central banking in the united states, federal reserve bank policy, monetary policy reforms, too big to fail

JEL Classification: G01, E50, E58, E60