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We provide an overview of the monetary policy failures that resulted in the 2007–2008 financial crisis and ensuing Great Recession, focusing on the United States. Before the crisis, monetary policy was too loose, which fueled the bubble. After the bubble burst, monetary policy became too tight, hindering the recovery. These failures are fundamentally due to the Federal Reserve’s discretionary monetary policy. Furthermore, the popular approach of “constrained discretion” is really just discretion. Hence, it is sensitive to all the usual problems with discretionary monetary policy. Only firm monetary rules, ones that actually bind, can maintain macroeconomic stability and prevent crises.
Orthodox monetary policy scholarship assumes that central bankers act to maximize the public welfare. If imperfect incentives enter the model, it is on the part of the public. We challenge this assumption. Monetary policymakers are just as prone to incentive problems, which cause them to act according to their own self-interest. Furthermore, the self-interest of policymakers is not always the same thing as the public welfare. The two diverge frequently, in fact. We survey the history of the Federal Reserve and show the numerous ways discretionary central bankers have been compromised. These incentive problems are an inherent feature of discretion. They can only be eliminated by embracing true monetary rules.
We analyze the information problems inherent in discretionary monetary policy. Discretionary central bankers confront immense informational burdens. Some of these are technical problems only, and can in principle be overcome. But there is also a genuine knowledge problem involved in discretionary monetary policy: reacting in real time to changes in the demand for money. This problem is unsolvable. It renders discretionary central banking systematically unlikely to achieve macroeconomic stability. In contrast, rules-based policy does not confront a knowledge problem.
We conclude by situating the theory and practice of monetary policy within liberal political economy more generally. As we have seen, there are significant tensions between existing monetary institutions (discretionary central banking) and liberal ideals. This has been made even clearer by the Federal Reserve’s response to COVID-19. In brief, the Fed is now engaging in not only monetary policy but fiscal policy as well. This represents an immense expansion in its mandate, one that poses serious challenges for general and predictable monetary policy. The way out of this mess is embracing a comparative institutions approach to monetary policy. We cannot be satisfied with technical refinements to existing models and data. We need to explore alternative monetary policy rules, ones that are effective at providing macroeconomic stability while also respecting the requirements of democracy.
At root, the problems with the Federal Reserve (and many other central banks) are institutional. The repeated recessions and crises in the era of the Fed show that we need a radical reimagination of the basic institutions of monetary policy. In this chapter, we survey the work of the three great classically liberal Nobel laureates of the twentieth century – James Buchanan, F. A. Hayek, and Milton Friedman – to show that each of them gave serious consideration to monetary-institutional fundamentals. Our focus is not on their particular conclusions, but on how they thought about the problems of monetary institutional design. This represents a very different style of scholarship than macroeconomists and monetary economists currently practice. Unless scholars engage the research projects of Buchanan, Hayek, and Friedman, research in monetary economics will not be of much help in achieving lasting macroeconomic stability.
Financial crises are widely perceived to be the reason monetary rules cannot work. The extraordinary challenges posed by crises require policymakers to act discretionarily. We show that this argument is not only wrong but backward: It is more important than ever to have true rules for monetary policy, which actually bind, to cope with financial crises. We show how the Fed failed to respond appropriately to the 2007–2008 crisis. Contrary to the then chairman Bernanke’s public statements, the Fed did not behave as an orthodox lender of last resort. Instead, it experimented with dubious policies that further entrenched moral hazard in the financial system. We criticize these policies, as well as an approach to economics, which we call “triage economics,” that mistakenly supposes the basic rules of price theory provided no guidance in crafting policy responses to crises. A rules-based approach to monetary policy is thus consistent with extreme market turbulence. In fact, rules are how such turbulence is pacified.
In this chapter, we focus on the idea of the rule of law in the classical liberal tradition. The rule of law is a basic jurisprudential norm that undergirds liberal democracies. We show that discretionary central banking is inconsistent with the rule of law. Discretionary central banking fails the test of generality: It benefits special interests, but not the public as a whole. Also, discretionary banking fails the test of predictability: It does not create an environment conducive to reliable public expectations of future policy. For these reasons, it is unlikely that discretionary central banking can be reconciled with self-governance. We reaffirm the imperative of liberal democracy, as well as uncovering monetary institutions that are compatible with liberal democracy. Until we do so, we fail to meet the basic challenge of self-governance.
Contemporary monetary institutions are flawed at a foundational level. The reigning paradigm in monetary policy holds up constrained discretion as the preferred operating framework for central banks. But no matter how smart or well-intentioned are central bankers, discretionary policy contains information and incentive problems that make macroeconomic stability systematically unlikely. Furthermore, central bank discretion implicitly violates the basic jurisprudential norms of liberal democracy. Drawing on a wide body of scholarship, this volume presents a novel argument in favor of embedding monetary institutions into a rule of law framework. The authors argue for general, predictable rules to provide a sturdier foundation for economic growth and prosperity. A rule of law approach to monetary policy would remedy the flaws that resulted in misguided monetary responses to the 2007-8 financial crisis and the COVID-19 pandemic. Understanding the case for true monetary rules is the first step toward creating more stable monetary institutions.
Systemic inflammation has been linked with mood disorder and cognitive impairment. The extent of this relationship remains uncertain, with the effects of serum inflammatory biomarkers compared to genetic predisposition toward inflammation yet to be clearly established.
We investigated the magnitude of associations between C-reactive protein (CRP) measures, lifetime history of bipolar disorder or major depression, and cognitive function (reaction time and visuospatial memory) in 84,268 UK Biobank participants. CRP was measured in serum and a polygenic risk score for CRP was calculated, based on a published genome-wide association study. Multiple regression models adjusted for sociodemographic and clinical confounders.
Increased serum CRP was significantly associated with mood disorder history (Kruskal–Wallis H = 196.06, p < 0.001, η2 = 0.002) but increased polygenic risk for CRP was not (F = 0.668, p = 0.648, η2 < 0.001). Compared to the lowest quintile, the highest serum CRP quintile was significantly associated with both negative and positive differences in cognitive performance (fully adjusted models: reaction time B = −0.030, 95% CI = −0.052, −0.008; visuospatial memory B = 0.066, 95% CI = 0.042, 0.089). More severe mood disorder categories were significantly associated with worse cognitive performance and this was not moderated by serum or genetic CRP level.
In this large cohort study, we found that measured inflammation was associated with mood disorder history, but genetic predisposition to inflammation was not. The association between mood disorder and worse cognitive performance was very small and did not vary by CRP level. The inconsistent relationship between CRP measures and cognitive performance warrants further study.
Policy in many high-income settings supports giving pregnant women with previous caesarean section a choice between an elective repeat caesarean section (ERCS) or planning a vaginal birth after previous caesarean (VBAC), provided they have no contraindications to VBAC. Despite the potential for this choice to influence women's mental health, evidence about the associated effect to counsel women and identify potential targets for intervention is limited. This study investigated the association between planned mode of birth after previous caesarean and women's subsequent use of psychotropic medications.
A population-based cohort study of 31 131 women with one or more previous caesarean sections who gave birth to a term singleton in Scotland between 2010 and 2015 with no prior psychotropic medications in the year before birth was conducted using linked Scottish national datasets. Cox regression was used to investigate the association between planned mode of birth and being dispensed psychotropic medications in the first year postpartum adjusted for socio-demographic, medical, pregnancy-related factors and breastfeeding.
Planned VBAC (n = 10 220) compared to ERCS (n = 20 911) was associated with a reduced risk of the mother being dispensed any psychotropic medication [adjusted hazard ratio (aHR) 0.85, 95% confidence interval (CI) 0.78–0.92], an antidepressant (aHR 0.83, 95% CI 0.76–0.90), and at least two consecutive antidepressants (aHR 0.83, 95% CI 0.75–0.91) in the first year postpartum.
Women giving birth by ERCS were more likely than those having a planned VBAC to be dispensed psychotropic medication including antidepressants in the first year postpartum. Further research is needed to establish the reasons behind this new finding.
The COVID-19 pandemic and mitigation measures are likely to have a marked effect on mental health. It is important to use longitudinal data to improve inferences.
To quantify the prevalence of depression, anxiety and mental well-being before and during the COVID-19 pandemic. Also, to identify groups at risk of depression and/or anxiety during the pandemic.
Data were from the Avon Longitudinal Study of Parents and Children (ALSPAC) index generation (n = 2850, mean age 28 years) and parent generation (n = 3720, mean age 59 years), and Generation Scotland (n = 4233, mean age 59 years). Depression was measured with the Short Mood and Feelings Questionnaire in ALSPAC and the Patient Health Questionnaire-9 in Generation Scotland. Anxiety and mental well-being were measured with the Generalised Anxiety Disorder Assessment-7 and the Short Warwick Edinburgh Mental Wellbeing Scale.
Depression during the pandemic was similar to pre-pandemic levels in the ALSPAC index generation, but those experiencing anxiety had almost doubled, at 24% (95% CI 23–26%) compared with a pre-pandemic level of 13% (95% CI 12–14%). In both studies, anxiety and depression during the pandemic was greater in younger members, women, those with pre-existing mental/physical health conditions and individuals in socioeconomic adversity, even when controlling for pre-pandemic anxiety and depression.
These results provide evidence for increased anxiety in young people that is coincident with the pandemic. Specific groups are at elevated risk of depression and anxiety during the COVID-19 pandemic. This is important for planning current mental health provisions and for long-term impact beyond this pandemic.
Dietary protein is a pre-requisite for the maintenance of skeletal muscle mass; stimulating increases in muscle protein synthesis (MPS), via essential amino acids (EAA), and attenuating muscle protein breakdown, via insulin. Muscles are receptive to the anabolic effects of dietary protein, and in particular the EAA leucine, for only a short period (i.e. about 2–3 h) in the rested state. Thereafter, MPS exhibits tachyphylaxis despite continued EAA availability and sustained mechanistic target of rapamycin complex 1 signalling. Other notable characteristics of this ‘muscle full’ phenomenon include: (i) it cannot be overcome by proximal intake of additional nutrient signals/substrates regulating MPS; meaning a refractory period exists before a next stimulation is possible, (ii) it is refractory to pharmacological/nutraceutical enhancement of muscle blood flow and thus is not induced by muscle hypo-perfusion, (iii) it manifests independently of whether protein intake occurs in a bolus or intermittent feeding pattern, and (iv) it does not appear to be dependent on protein dose per se. Instead, the main factor associated with altering muscle full is physical activity. For instance, when coupled to protein intake, resistance exercise delays the muscle full set-point to permit additional use of available EAA for MPS to promote muscle remodelling/growth. In contrast, ageing is associated with blunted MPS responses to protein/exercise (anabolic resistance), while physical inactivity (e.g. immobilisation) induces a premature muscle full, promoting muscle atrophy. It is crucial that in catabolic scenarios, anabolic strategies are sought to mitigate muscle decline. This review highlights regulatory protein turnover interactions by dietary protein, exercise, ageing and physical inactivity.