LEILA FADEL, HOST:
The Supreme Court said this week that President Trump cannot fire Federal Reserve Governor Lisa Cook, at least not right now. They will hear the case in January. This is one part of President Trump's push to gain more control over the nation's central bank and its various economic powers. That includes setting interest rates, regulating commercial banks and controlling how much money to print. All of this has alarmed economists who monitor central banks around the world. Our Planet Money team checked in with a few. Here's Mary Childs.
MARY CHILDS, BYLINE: Carolina Garriga is a political scientist at the University of Essex in the U.K. She studies central banks losing their independence and what happens to their economies after, like in her native Argentina, where the president famously pressured the central bank to do what the president wanted - and it did.
CAROLINA GARRIGA: And that resulted in spiraling inflation, loss of credibility in the currency.
CHILDS: Argentinians faced inflation, shortages. Garriga saw basically the same thing play out in Turkey, Zimbabwe, Hungary. She analyzed the statutes and bylaws of 192 countries for indicators of independence like how long central bank governors are appointed for, if they can hold another job in government that may be a conflict of interest. Then she cross-checked that with economic data.
GARRIGA: The harm is that monetary policy decisions may be made by political interests that can cause damage in the long term.
CHILDS: Countries where central banks have become less independent, their economies have suffered - more inflation and volatility. In countries that had reforms to make their central banks more independent, like Croatia and Morocco, their economies have been more stable. Now she is seeing the early phases of central bank independence erosion here in the U.S.
GARRIGA: It's troubling because we know the consequences. It's one of the pillars of rational policymaking in economics.
CHILDS: Garriga's research focuses on the laws that govern central banks, what's known as de jure independence. But there's another important component, de facto independence - whether those laws are followed, how people actually act. Carola Binder is an economist at UT Austin. She combed through news sources from 2010 to 2018 for reports of political pressure on central banks.
CAROLA BINDER: It would have to say something like, we anticipate that the central bank might cut interest rates due to pressure from the government. It would be pretty explicit.
CHILDS: She found that in any given year, 10% of central banks got political pressure - at least.
BINDER: If anything, the 10% is, like, the lowest estimate because there could have been political pressure that was so sly that the analysts writing these country reports didn't know about it.
CHILDS: The pressure is nearly always to cut interest rates, which if the central banks succumb to the pressure, prices go up more - higher inflation. And, she found, the more reports of central bank pressure and political interference, the longer the inflation sticks around because of that erosion of credibility. Garriga and Binder agreed, if a central bank loses independence, it is quite hard to regain it.
GARRIGA: Once you show the institution is unable, or that the rules are unable, to control political meddling, well, the trust in the system, or the long-term trust in the institutions, is hurt, and that takes a long time to rebuild.
CHILDS: A long, expensive time. Mary Childs, NPR News.
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