“The problem is that the standard account of Fed independence—the story of Ulysses and the sirens, of the dance hall and the spiked punch bowl—often doesn’t work. Sometimes politicians whip up popular sentiment in favor of taking away the punch bowl—precisely the opposite of what we expect in a democracy. Sometimes the central bankers make headlines not for being boring chaperones but for bailing out the financial system. And in every case the creaky, hundred-year-old Federal Reserve Act leaves a governance structure that makes it so we barely know who the chaperone is even supposed to be.

… I argue that each of the five elements of that standard account—that it is law that creates Fed independence; that the Fed is a monolithic “it,” or more often an all-powerful “he” or “she”; that only politicians attempt to influence Fed policy; that the Fed’s only relevant mission is price stability; and that the Fed makes purely technocratic decisions, devoid of value judgments—is wrong.”