Chapter 4
CULTURE CLASH
Experts and the Public
In the last chapter we saw that central banks are cultural institutions. But what about the relationship between the central bank and the public at large? The response of market and citizenry to central bank communications and policies—and hence the effectiveness and effect of those policies—are also culturally framed. Carlo Tognato, a sociologist of central banks, argues that central banks owe their independence and legitimacy largely to wider cultural elements: “the set of cultural resources and practices that are being mobilized to anchor stability-oriented monetary institutions (i.e., central bank independence and the goal of price/monetary stability) to national identity.”1 He gives the example of the European Central Bank (ECB), which, legally speaking, is the most independent of all central banks, since its independence is enshrined in the Maastricht Treaty and hence cannot be changed by national legislatures. Yet compared with the Bundesbank, Tognato argues, the ECB enjoys far less political latitude in response to a financial crisis. This is because of the place of the Bundesbank and the deutschmark in the wider German psyche and their importance to German postwar political identity.2 The point is that central bank independence turns on a set of larger cultural assumptions and ideas, and they would be wise to tap into these.
Culture therefore pervades the relationship between central banks and the public and shapes the terms and the limits of the policy options. A good example is the recent struggles of the European Union. The problem with the European project, according to many economists, among them Joseph Stiglitz and Paul Krugman, is that it naïvely presumed that financial integration alone would lead to a more complete integration: “One of the reasons for the failure of the eurozone is that economic integration has outpaced political integration. The hope was that the politics would catch up with the economics. But as divisiveness and the democratic deficit has grown, the likelihood that that will happen has diminished.”3
Most European policymakers now acknowledge that financial integration is impossible without cultural integration. People need to feel genuinely a part of a common cultural project first. The backlash against European financial integration is, in part, the result of the fact that the euro is as much a unit of cultural accountability as it is a unit of financial accounting. Regardless of the merits of the financial structures, policies, and economic toolkit that undergird it as a currency, one cannot ignore what it stands for, as a matter of a unified European cultural identity. The lesson here for central bankers is clear: if you want to understand your policy options, you must understand the cultural environment in which you operate.
In each country, the political terrain has a slightly different topography. The history and the issues that resonate with the public are different. Differences in corporate culture and differences in consumer spending and saving traditions can mean that the same monetary policy succeeds in one place and fails, or even leads to financial instability, in another. These political, cultural, and social differences can have direct financial implications. For example, former member of the Bank of Japan Policy Committee Sayuri Shirai argued in a recent Meridian 180 forum that Japanese young people’s lack of trust in the government is impacting the Japanese financial system, as almost a third refuse to make payments to the national pension system. This would not necessarily be true in the same way elsewhere, both because of the unique institutional configuration of the pension system and because of the particular hopelessness of Japanese youth. This variation needs to be understood as a relevant dimension of financial politics, and incorporated into central bank policymaking because different forms of capitalism produce different kinds of problems and deserve different kinds of responses.4 So attention to culture clash also demands attention to cultural variations among different countries.
Populism and Finance
All of this leads us to the current political situation in Europe, the United States, and other parts of the world, where we are witnessing muscular demonstrations of populism. One of its targets is the central bank. The government bailouts of domestic and international banks, and the extension of “swap lines” to selected central banks, set the Federal Reserve up as lender of last resort to the world.5 In the United States, with the Audit the Fed movement on the right and the Occupy Wall Street movement on the left, the central bank has emerged as a target of populist rage. In the United Kingdom, the Bank of England and its governor, Mark Carney, were swept up into the campaign’s ambit of discontent with cosmopolitan elites, becoming the target of derogatory statements from crowd-pleasing politicians. There is an increasing lack of public trust in central bankers’ ability to avert or manage financial crises. The failure of conventional monetary tools, the use of untested alternatives, and the delayed recovery from the economic crisis have eroded public confidence in central banks’ capacity to operate effectively, much less independently.
In a recent survey of twenty advanced European economies across 154 years, Manuel Funke, Moritz Schularick, and Christoph Trebesch found that financial crises correlate significantly with a rise in right-wing populism: “After a crisis, voters seem to be particularly attracted to the political rhetoric of the extreme right, which often attributes blame to minorities or foreigners,” the authors write. “On average, far-right parties increase their vote share by 30% after a financial crisis.”6 Financial crises can alter the political and cultural landscape in ways that impact societies on issues far beyond finance.
Yet the roots of popular discontent with central banks are deeper and more diffuse than economics alone. After all, central bankers are not the only targets of popular frustration. The public seems to have lost confidence in experts across the spectrum—from doctors to professors to journalists to climate scientists.
The gulf between experts and the public was long managed by one foundational myth. When anthropologists use the word “myth,” we do not mean to suggest that something is false. Rather, a myth is just an idea, an explanation, or a set of assumptions that is fairly universally accepted and provides a justification for given institutional and social relationships. If you do not like the word myth, you can substitute the term “political theory.”
The myth was that there are two kinds of things government actors do. Some things are political—those are things that in a democracy are properly decided by the people through their elected officials. Political decisions should be taken by prime ministers, presidents, and legislatures. But there is another category of things that are technical. In this area, the public does not need to be consulted; in fact, the public should not be consulted. Rather, experts should decide what is best for everyone as a whole. The decision to build a bridge may be a political one, but the decision about what materials to use to build it is a technical decision for the engineers. The myth was that there are spheres of life that belong to the public, and there are spheres of life in which it is best to trust the experts.
In the world of central banking, it has long been assumed that most of what central banks do—from monetary policy to bank regulation—is technical, not political, and therefore should be decided by experts. This is the assumption that underlay debates about central bank legitimacy discussed in chapter 2. In the days when the problem was how to control inflation, a number of studies sought to show that central bank independence from politicians correlated with low inflation because, it was argued, politicians made decisions that were popular with constituents in the short run but not in everyone’s best interest in the long run. Independent experts, in contrast, were respected because they could make the better but more difficult choices.
Across many domains of culture in many societies, however, this myth of a division of authority grounded in the pure authority of scientific expertise seems to be unraveling. One only has to look at popular culture—movies, science fiction novels, music—to find endless plot lines and verses about experts who do not know how to manage crises, or who are acting for their own benefit rather than the benefit of the public at large. In the wider society, we witness an increasingly politicized encounter of expert versus nonexpert cultures. The public has increasingly lost confidence in expertise itself.
The sources of this cultural shift are multiple and complex. The Hollywood story line of the incompetent, corrupt, or dangerous expert builds upon a strand of academic thought that has been prevalent in the academy since the 1970s. Loosely labeled postmodernism or poststructuralism, this strand of thought challenges the authority of experts and the authoritative status of science. Media studies experts have also noted the impact of changes in media structures over the past ten years, from a “hierarchically organized system” in which “news and other information flowed downstream from centralized news organizations to audiences,” to an Internet-based system in which “audiences have more input into the news system and more control over the flow of news.”7
Yet to all these wider sources of populist anger against central banks we should add the actions of central banks themselves. Federal Reserve funds were used in the last crisis to bail out financial firms outside the United States. Banks and bankers in London, Frankfurt, and Tokyo were saved by loans from U.S. taxpayers. The fact that these loans were ultimately paid back with interest and that there were good economic reasons for the Federal Reserve’s actions does not change the fact that these policies, and the failure fully to engage the public in their crafting and implementation, had other cultural effects.
Anthropologists have studied what has happened in many societies when core myths are destroyed, either through colonialism, invasion, modernization, or conversion. For example, the Japanese people at one point claimed to believe that their emperor was a god. One key goal of U.S. general Douglas MacArthur’s occupation project was to demonstrate to the Japanese people that the emperor was just an ordinary man. He attempted to do this by summoning the emperor to General Headquarters and staging a now iconic photograph of this tiny man standing next to the towering MacArthur. In such cases, there will always be a radical few who try to return to the old faith—in Japan, they show up on the emperor’s birthday waving flags and shouting slogans—but even for them, things are not like before. That faith now has to be continually defended. For the majority, it is impossible to go back.
So today, the central bank is on the public’s radar. Populist attacks are framed explicitly as attacks on the expertise of central bankers. The trigger for these attacks is the fact that the economic impact of central bank interventions is less and less predictable. In defiance of mainstream economic theory, major central bank stimulus measures often produce little response from the market. This has fueled public doubts about the expertise of central bankers and indeed the need for independent central banks. The following blog post from the Breitbart website is representative of the new right-wing populist rhetoric. It moves from a mocking distrust of experts’ claims to authority to threats of possible violence:
The Federal Reserve is often spoken about as if it possesses some divine intelligence. Reminiscent of the EF Hutton commercials, the CNBC crowd behaves similarly, falling all over themselves to dissect every word for some hidden message or insight—when, in fact, there isn’t one. Most of the Fed’s statements can be best surmised by Shakespeare:
It is a tale. Told by an idiot, full of sound and fury,
Signifying nothing.
—Macbeth Act 5, scene 5
The Fed is essentially a one-trick pony that attempts to solve every problem by juicing the system. Sold to the public as above the fold, and a group beyond reproach, they and their fellow Central bank accomplices around the world are creating a massive sovereign debt crisis that can never be unwound with sound money or honest accounting.
…
The rise in popularity of Bernie Sanders and Donald Trump is a clear sign that the public is waking up to the high-stakes games being played in the financial arena, and what losing ultimately costs them. There will be an ocean of tears to be shed by the masses if these problems are not addressed and dealt with appropriately.… The real fear, however, is that the next time something seriously goes wrong, what if the people of these United States pick up pitch forks in lieu of ballots?8
What all this suggests is that the story experts tell about central banks as technocratic machines, and about central bankers as financial engineers without values of their own, no longer convinces the public at large, the politicians, or insiders themselves. It has ceased to serve any useful cultural purpose. It also suggests that the cultural effects of central bank policies are critically important. They matter independently of the economic effects of central bank policies.
Nationalism and Globalism
In many cases, this anti-expert populism fuses with new forms of nationalism. Abe and Trump both came to power as nationalists who promised to force the central bank to yield to their agendas for the good of the nation. In the United States, attacks on the Federal Reserve were launched at the same political rallies and from the same political mouthpieces as calls of “America First” and “Make America Great Again.” Likewise, in the UK, pro-Brexit politicians decried the European Central Bank as a bunch of faceless “Bureaucrats in Brussels” acting without supervision and against British national interests.
It is an interesting irony that central banks should emerge as targets of nationalism. Historically, central banks have often been the economic engines of nationalist projects. Most of the great wars have been financed by central bank monetary policies, and, indeed, in Japan today one powerful argument for central bank independence, in an era of rising nationalism, is that it is important not to repeat the past.
Yet in many parts of the world, we have seen popular misgivings about globalization of late. People are crying foul on some of the promises made on behalf of globalization over the past several decades—promises that without borders, all will be better off financially. They point out that even if, on average, everyone benefits from globalization, there are distributional effects. Some benefit a great deal, while others (for example, workers whose jobs are relocated) suffer more than their fair share. The globalization dream did not adequately address the inequalities globalization inevitably creates on the way to creating a bigger pie for all.
Likewise, the promise of globalization was that economic integration would inevitably lead to cultural integration. The experience of the European Union has amply demonstrated that this is not the case: economic integration without adequate attention to cultural and political differences is a recipe for political as well as economic disaster.
How central banks respond to nationalist pressure, in turn, shapes the wider political and cultural environment. In the European case, central banks have been involved in efforts to craft a more cosmopolitan political narrative to counter rising nationalism. Anthropologist Doug Holmes argues that we should understand many of ECB president Mario Draghi’s speeches, and indeed the policies of the ECB more generally, as attempts to create a political conversation that will build the groundwork for a palatable pan-European political identity. Likewise, in Sweden, Holmes argues, central bankers are using talk about the market to engage in a political project of nation and region building (Holmes 2014).
It would be far too simplistic to suggest that central bank policies and pronouncements are either causes of, or bulwarks against, populist nationalism. Yet there is no doubt that central banks are now drawn into an unfolding nationalist cultural moment. Central bank policies participate in the emergence of new cultural narratives. Their actions may contribute to the crystallization of new group identities. We could even say that they may give rise to new moods, new cultural moments. What we normally think of only in terms of financial or economic policy turned out to be profoundly culturally transformative. In the next chapter we will begin to think about what to do about this.