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Judging from the response to the Fed's three-year battle against systemic financial collapse and the risk of deflation, it is difficult to escape the conclusion that financial crises and their aftermaths can pose greater challenges to central bank independence than the more traditional pain associated with combating inflation.

Prior to the financial crisis that began to unfold in 2007, it was received wisdom that central bank independence should largely be viewed in terms of the need to insulate the central bank from the political process that would tolerate higherthan- optimal inflation. Writing on central bank independence in 1993, Alberto Alesina and Lawrence Summers drew on the experience and literature tied to the inflationary 1970s and the epic Volcker win over inflation in the early 1980s to suggest that "delegating monetary policy to an agent whose preferences are more inflation-adverse than are society's preferences serves as a commitment device that permits sustaining a lower rate of inflation than would otherwise be possible." The requirement for political independence of the central bank was seen to be derived from "time inconsistency" whereby the median voter, as represented by politicians, would want to curb central bankers who impose economic pain by tightening monetary policy to lower inflation and inflation expectations.

John H. Makin is a resident scholar at AEI.