The Federal Reserve Bank exists for precisely the same reason that the Bill of Rights exists, to shield us from our democratic impulses.
The Constitution protects freedom of speech from the mob, which is to say from the will of a Democratic majority, precisely because that is not a matter to be decided by counting noses. So it is when it comes to exercising judgment about interest rates that makes or breaks an economy. We have intentionally created an institution in the Federal Reserve that is to a great degree immune from the Democratic process.
In one sense at least, the Supreme Court is an analogous institution. To shield it from popular control, the framers installed Justices with lifetime appointments. We have passed statutes creating felonies for intimidating Justices. Similarly, we have installed Fed governors with seven-year tenures to insulate them from political pressure by the very president who appoints them. Indeed, the power of the president to fire Powell is not clear and would probably have to be litigated in the Supreme Court, no doubt for the same reason: to insulate the institution from political pressure, and from the will of the people.
As a chorus singing in unison, we conservatives deplored the lawfare that was mounted against Donald Trump because it was a means to circumvent our constitutional system. It sought to substitute (corrupt) judicial process for a Democratic process. There is a constitutional process to be brought against the president, impeachment, or elections if brought against a candidate for president, but lawfare was corruptly used against Donald Trump to evade the Constitution and the will of the people.
It now appears that criminal action might be brought against duly elected US Senator Schiff for, ironically, the same infractions that were corruptly brought against Donald Trump in New York. Is this a legitimate exercise of police powers, or is it illegitimate lawfare? Much would depend on the actual motivation of the prosecutors and on the facts of the case.
More, we can at least say that a United States Senator is not in the same class as a Justice of the Supreme Court or the Chairman of the Federal Reserve Bank. A Senator is a political actor by definition, whereas the other two individuals have been intentionally immunized to some degree from political pressure. Honest prosecutions against political players like senators or even presidential candidates should proceed if and when the facts warrant.
I for one will savor all the schadenfreude about Schiff without the slightest qualms of guilt or hypocrisy. Donald Trump was quoted yesterday as saying words to the effect that the office of Chairman of the Federal Reserve Bank does not require intelligence. That is just a silly statement equivalent to saying the Chief Justice's role requires no intelligence.
The Federal Reserve Bank was and is created as an effort to pry decision-making away from politicians because they are stupid and because they are whores. It is bad enough that our fiscal destiny is determined by a Parliament of whores, God save us from a monetary destiny determined by politicians.
That is not to say that we would be better ruled by experts and elites; that is to say that expertise must be balanced by checks and balances and a commitment to the Democratic will. It means that our institutions, whether the Supreme Court, the Federal Reserve Bank, or the United States Army, must be accountable to the people, even though the people are represented by a Parliament of whores.
Economics is not called the dismal science for nothing; it is opaque, plagued by lags and buffeted by forces that are as difficult to anticipate as a black Swan. There is virtually no economic issue upon which we are unanimous. That's why we have stock markets. A decision made today about raising or lowering interest rates will probably not show its effect for six months. Get it wrong and we can't get a mortgage, buy a car, or keep our jobs. So every hiccup in interest rates convulses the markets.
The temptation for politicians to monkey with interest rates is irresistible. Yet, the decisions are about matters coming months or years ahead, the tea leaves are difficult to read, the fog of uncertainty hangs over every decision. But politicians' horizons stop at the next election, yet they never want for confident opinions about what to do.
So we pass the buck to the Federal Reserve Bank just as we pass the buck to the Supreme Court, because we have to.
Attempts by presidents to influence decisions of the Fed, almost always in favor of lowering interest rates, is nothing new. Jimmy Carter and Paul Volcker are clear examples. Historically, presidents jawbone and even threaten Fed chairman. So Trump has threatened to fire Powell, but without much conviction, he has already said that he will now wait until the expiry of Powell's term next May.
Beyond earnestly wanting interest rates to drop to boost the economy to further his plan of growing our way out of our fiscal crisis, Trump probably wants to set up a scapegoat in case the economy goes south and his plan fails. So, jawboning and threatening to fire is well within the historic norm of presidents clashing with Fed Chairmen.
But Trump has done something more, he has threatened the chairman of the Federal Reserve Bank with criminal prosecution, and that over a preposterous complaint, alleged overspending on an office building for the bank. A billion-dollar overrun in a $7 trillion federal budget and a $30 trillion national economy. Do we really want the chairman of the Federal Reserve Bank to be forced to divert attention away from the economy to monitor the construction of a building?
Now, perfectly on cue, members of Congress picked up the cry and demanded criminal implications of the chairman of the Federal Reserve Bank. Quite expectedly, the very conservatives who decried lawfare against President Trump now formed a vigilante committee on another thread to persecute Chairman Powell. That is regrettably to be expected as the normal an all-too-familiar routine reflex by too many of us.
Do we want to sacrifice the independence of the Federal Reserve Bank over this bagatelle? Do we want to open the door for sore-headed presidents to wage lawfare against the Federal Reserve Bank?
How will we get uniquely competent men who have risen in the private sector on merit to the point where they are making hundreds of millions of dollars to sacrifice that income and submit themselves and their fortunes to petulant criminal charges brought over differences of policy?
Is that what we should wish for?
