The price of expertise

How independent agencies save us from political whiplash and spawn populist backlash.

Trump photo by Joe Raedle/Getty Images; Powell photo by Kent Nishimura/Getty Images; artful composition by Jerusalem Demsas/The Argument

Yesterday, Federal Reserve Chair Jerome Powell put out an astonishing statement revealing that the Trump administration was using the threat of a criminal indictment to punish him for not setting interest rates at the whim of the president.

Powell’s statement is the model of resistance — if only we’d seen the same from universities, law firms, and big business throughout the last year. In response, the price of gold shot through the roof as markets finally began to price in the administration’s threat to political stability.

President Trump has been clear that he wants to see aggressive rate cuts. Powell, worried about reigniting inflation, has taken a more conservative stance.

From one perspective, Trump’s aggressive posture against Powell is bizarre. The last administration was brought down by high prices, and Trump’s own term has been dogged by reports that his signature economic policy — tariffs — is leading to higher prices. He should be worried that another bout of inflation could wreck his approval ratings and pull the Senate into play.

Trump isn’t an idiot. So why does he keep insisting that inflation is over? Why would he risk it?

Well, for one, the short-term incentives are alluring. Cutting rates would be felt quickly by businesses and consumers alike as car loans, credit cards, and even mortgages became cheaper. And in his first term, Trump’s insistence that Powell run the economy hot coincided with good policymaking.

But more importantly, a core plank of Trump’s populism is the idea that unelected bureaucrats need to be brought to heel. From bringing on Elon Musk to tear apart the civil service to purging inspectors general to asserting control over independent regulatory agencies, this latest escalation with Powell was the natural next step. Hostility toward elites, experts, and the swamp is a core part of Trumpism, as much as the anti-immigration fervor and obsession with protectionism.

The allure of short-termism in policymaking is one of the hardest problems to solve. The best solutions help insulate important parts of policymaking away from short-term electoral pressures. Independent central banks, for one, allow technocrats to make decisions about policymaking even if it comes with short-run pain at a politically inopportune moment.

These types of solutions have grown in popularity — particularly among the wonk class. We already have an independent judiciary, but automatic stabilizers (programs that expand and contract when certain benchmarks are hit, like unemployment insurance) have become increasingly popular. And among the YIMBYs, taking the discretionary parts out of permitting processes is a core policy aim.

But the tension between democracy and technocracy is real, and when technocrats insulate too much from democratic approval, it can lead to a populist backlash, as we are all learning too well.

The technocrat’s dilemma

The rise of technocratic institutions has insulated important policy decisions from voter input. Real people feel this lack of control in their day-to-day lives: Mortgage rates jump, energy prices surge, borrowing costs rise, and no one you voted for seems to be in charge.

From climate policy to central bank independence to austerity measures, attempts to prevent elected officials — and by extension voters — from messing with experts’ preferred policies have created fertile ground for populist revolt.

This is the core argument from a recent paper by political economist Gabriele Gratton and his coauthor Jacob Edenhofer (you can listen to Gratton and I talk about his work on The Argument podcast here).

Research has indicated that without central bank independence, countries are more likely to experience high and variable inflation. The best illustration of why this happens is Trump’s current behavior: If he were in charge, we would have cut rates dramatically last year, risking a resurgence of inflation. Delegation to an independent authority is a commitment device not to allow short-term political pressures to influence macroeconomic policy.

But the commitment device is straightforwardly anti-majoritarian. The risk is that policymakers will take steps that the public doesn’t like. That means backlash is inherent to these systems.

As Gratton and Edenhofer wrote, “central bank policy has fueled support for populists promising to return power over monetary policymaking to the ‘people’.”

And it’s not like delegation is foolproof. Experts fail often.

Arguably, the slow recovery from the Great Financial Crisis aided Trump’s 2016 victory. Experts believed that we were nearing full employment and began raising rates in December 2015, which led to a mini-recession. It was Powell, during Trump’s first term, who forged ahead with rate cuts strengthening the economy.

This is the second way that technocracies stoke backlash. If the public is going to trade its short-term power for the promise of expertise, well, experts better get it right! But failure is inevitable.

Technocratic governance produces two grievances: That elites are overruling the people and that elites are incompetent. Populists can win on both.

Democrats aren’t immune to populist fever

One of the early signs that frustration with technocrats was becoming bipartisan was early reporting about the Biden administration’s turn on economists.

As Obama Council of Economic Advisers Chair Jason Furman told Vox, “There are certain commonalities between Biden and Trump, in their rejection of a technocratic approach that thinks seriously about trade-offs … I often find myself in despair about the direction.”

I think the clearest sign that populism threatens the Democratic Party beyond the Biden White House is the growing wave of interest in rent control.

With housing policy, the technocrats are nearly all aligned — we need a lot more supply and we can get there by eliminating unnecessary zoning and permitting requirements. Politicians are slowly coming on board with this long-held elite consensus, but supply-side policies work on the order of months and years, and politicians yearn for a magic button.

In New York, Massachusetts, Maryland, and Los Angeles, serious efforts at implementing new rent control policies or revitalizing existing ones have taken off.

As someone who publicly changed their mind on the value of rent control policies, I’ve been mulling these shifts carefully. As I wrote in 2021, rent control is not a solution to the problem of housing affordability, but it can help policymakers “redistribute the pains of scarcity in the near term.”

At the time, I was clear that future construction should be exempt from rent control, that landlords should still be able to raise rents by a moderate sum, and that when tenants choose not to renew their lease, landlords should be able to raise rents as they wish (vacancy decontrol). Further, unless cities or states have already credibly committed to significantly expanding housing supply by eliminating needless zoning and permitting requirements, rent stabilization is a no-go.

The goal of rent stabilization policies should be to insure existing residents against unexpected shocks so that they aren’t priced out while the supply of new housing catches up. They are not and cannot solve the problem of housing affordability.

I finished my piece by warning that if economists “don’t get on board and help design these policies, cities may be doomed to repeat the mistakes of the past.” I was worried that rising housing unaffordability was going to spawn disastrously unproductive housing policies. I regret to report that this prediction has come true:

In Massachusetts, a ballot measure is gaining steam that would cap annual rent increases at the rate of inflation or 5%, whichever is lower. Even Boston’s pro-rent stabilization mayor, Michelle Wu, called the 5% cap “quite restrictive,” having supported a 10% measure in her own city. The ballot measure also doesn’t allow for vacancy decontrol, and it applies to new construction after 10 years, significantly depressing the profit incentive to build more housing.

In my home county in Maryland, Montgomery County, a rent stabilization measure went into effect that capped increases at 6% or inflation plus 3%, whichever is lower. According to data from the Department of Permitting Services, multifamily permits have dropped by 96%.

In Los Angeles, landlords of apartments built before Oct. 2, 1978, (roughly 650,000 homes) are barred from raising rents more than 4%.

And in New York, it appears that Mayor Zohran Mamdani, who built his campaign on housing affordability, has indicated that he opposes vacancy decontrol.

I don’t think economists are to blame for these developments, but I do think we’re in a bad place if the experts best equipped to think about trade-offs refuse to reckon with the trade-off between majoritarian preferences and maximizing social welfare.

As Gratton and Edenhofer wrote, “technocratic democracies do not fall because they fail to provide policies that maximize welfare … [They fall] because technocratic policies prioritize overall welfare, rather than majority preferences,” thereby provoking opposition.

How to be a good expert

The technocrats’ dilemma isn’t carte blanche to support any bad policy just because there’s popular support for it. Experts build credibility by being right, not by being yes men.

And a recent New York Times op-ed by former Biden administration economic policy advisers is unfortunately an example of the latter.

The problem, Neale Mahoney and Bharat Ramamurti wrote, is that “voters want immediate cost relief, but standard policy tools can’t always provide it.” But neither can rent control!

Even the draconian measures being proposed across the country today do not seek to cut rents, they merely slow their growth. I repeat myself: Rent control is not an affordability strategy; at its best, it can only ever be an anti-displacement policy.

Perhaps more frustrating is that the op-ed was written while several rent control measures were being proposed, and the authors spent no time critiquing any of them.

The purpose of delegating power to experts is to resist the temptation to chase immediate, visible, counterproductive policies. Experts are supposed to narrow the space for self-defeating moves, not expand it.

Populism comes with its own internal contradictions. Rent control will not actually pacify voters frustrated by high housing costs, and ending the Federal Reserve’s independence will lead to worse economic outcomes.

What will happen to populists’ public support when their rent control measures don’t bring down prices and instead exacerbate shortages? Or if Trump appoints a new, more easily cowed Fed Chair in a few short months who cuts rates too soon, too fast, leading to another bout of inflation?

Expertise will be in vogue again. And the people who managed the tricky dance of “saying true things” and “respecting majoritarian preferences” will be the only ones with credibility to rebuild what populism will inevitably break.