Document Type


Publication Date

Summer 2015

Publication Citation

22 Indiana Journal of Global Legal Studies 665 (2015)


The literature on austerity, by scholars and policymakers alike, has largely downplayed the important role of central banks in designing and implementing global austerity both before and since the 2008 financial crisis. This article considers how and why the world's leading central banks display an inherent bias toward austerity. As central banks have become increasingly influenced and even captured by large private banks and financial institutions, they have pursued policy agendas that favor those same private interests. The structure of the U.S. Federal Reserve suggests a central bank that has been captured by design and is rife with inherent conflicts of interest in its governance, regulatory, and monetary policy functions. These conflicts are often overlooked because of the myth of central bank independence, which has rested on truncated empirical studies and flawed readings of economic history. Yet, the myth has legitimized the Federal Reserve's policy agenda-particularly beginning in the 1980s when Alan Greenspan became chair of the Federal Reserve-when deregulation, liberalization, and privatization came to serve the private interests of Wall Street banks while creating a boomand- bust bubble economy. The austerity bias of central banks was also revealed in both the academic work and monetary policy approach of Ben Bernanke, who succeeded Greenspan as Federal Reserve chairman just ahead of the 2008 financial collapse. Not only was the Federal Reserve's response to crisis a reflection of the domination of Wall Street interests, it also revealed a complete misreading of the lessons from the Great Depression by Bernanke and other mainstream economists. The result has been a flawed "trickle-down" response to the financial crisis, as the Federal Reserve and other leading central banks have provided massive subsidies to financial institutions and markets while relegating other sectors of the economy and society to the pains of austerity. A more balanced economic approach will require reform of central bank governance to include representatives of a wider range of social interests in monetary policymaking.