by Lawrence H. White
September 11, 2013
The principle of the rule of law—as opposed to the arbitrary rule of those in authority—would have helped us to properly resolve the financial crisis of 2007–10, and can help us to avoid future financial crises. As David Hume said more than two hundred years ago, the benefits of consistently adhering to rule of law greatly outweigh any short-term convenience from ad hoc measures. The approach of Federal Reserve and Treasury officials during the crisis, unfortunately, was to consider every possible remedy but following the rule of law. Fed chairman Ben Bernanke was quoted by the New York Times as declaring in 2008, at a strategy meeting with other Fed and Treasury officials, “There are no atheists in foxholes and no ideologues in financial crises.” The implication was that anything goes in a crisis: the Fed can ignore durable principles and its own statutory limits.