By all accounts, Janet Yellen is a decent person and a well-trained economist. Yet she will begin her Federal Reserve chairmanship with less political support than any of her recent predecessors—and among growing skepticism about the Fed’s (lack of) transparency.
While there are reasonable grounds for such concerns, the deeper problem with the Fed is the unrepublican belief among many of its defenders that a panel of experts with only limited political accountability can and should manage the national economy.
The Federal Reserve System was established as part of a flurry of Progressive legislation approved during President Woodrow Wilson’s first term in office. During President Franklin Roosevelt’s first term, twenty years later, its responsibilities were expanded and organization changed to give more power to a more politically-independent body, now led by a Board of Governors (the group Yellen will chair) whose seven members serve staggered 14-year terms. That is more than twice as long as any elected official and just two years short of the average Supreme Court Justice’s tenure.
The intellectual origins of these reforms and the system as a whole are well explained by FDR’s most influential (and radical) intellectual associate, R.G. Tugwell, in advocating the establishment of a single board that would have complete control over the nation’s production and consumption:
Planning is by definition the opposite of conflict; its meaning is aligned to coordination, to rationality, to publicly defined and expertly approached aims . . . Planning will necessarily become a function of the federal government; either that or the planning agency will supersede the government, which is why, of course, such a scheme will eventually be assimilated to the state, rather than possess some of its powers without its responsibilities.
For Tugwell, FDR, and others in FDR’s “Brains Trust,” the challenge for progressives wasn’t figuring out what was best for the country (they knew that), but rather how they could prevent any political interference by the ignorant, intransigent, and uncharitable. In this sense, open markets and republican politics were equally problematic: both enabled a free people to upset the best-laid plans of mice and men.
Of course, Tugwell never attained his ultimate dream. Nevertheless, over the last century Progressive legislators, executives, and judges have established and given the constitutional seal of approval to a system now comprised of seventy independent agencies and government corporations (including the Fed) that operate, to varying degrees, outside normal channels of political accountability. And according to the official US government website, members of this system “are responsible for keeping the government and economy running smoothly.”
Such a system strikes at the heart of the founders’ republic, beginning with the purportedly apolitical responsibilities attributed to it: “keeping the government and economy running smoothly.” Is this an apt description of all the EPA (another such agency) is up to? The FCC? The Federal Trade Commission? How about the National Labor Relations Board? The Social Security Administration? The Securities and Exchange Commission?
As anyone who has dealt with these agencies knows well, each, like the Fed, makes decisions and implements policies grounded in ideological presuppositions–which in a republic ought not be shielded, even partially, from political debate and examination. Far from producing an environment without conflict, our experiences with government agencies and their experts often leave us asking, “who the heck do they think they are?” and “who gave them the power to tell me that I must do x?”
The actions of the Fed tend not to produce such a visceral response among the American electorate, since most who are aware of its activities grant that questions about the size of the money supply ought to be nonpolitical. Yet the Fed has taken up (and been charged with) responsibilities, especially in recent years, that go far beyond its relatively narrow original mandate: regulate the banking industry, keep unemployment and inflation low (its “dual mandate”)–and now, perhaps, lead the Progressive fight against income inequality. As Michael Hersh notes in his National Journal report, chairman-elect Yellen views her appointment as an opportunity to advance her idea of social justice:
Yellen is also the product of an old progressive tradition of activist, pro-government economics. Above all, according to colleagues, she takes the nation’s worst problems, especially unemployment, as a deeply personal challenge. Yellen, who was confirmed Monday night, represents a strain of interventionist thinking that has not found expression at such a high level in Washington in decades. . . .
Keen observers have never doubted that economists are human beings, who therefore have non-scientific political yearnings like the rest of us. Keen observers of human nature have never doubted that those with more authority and less accountability will use their power to advance their personal political yearnings.
That’s perhaps why the two most important words in the debate over the Constitution were “confidence” and “jealousy.” Leaders on both sides employed them in trying to sketch out the proper relationship between the people and their government. “Jealousy” was demanded by the flaws of human nature, which suggested the danger of reposing too much “confidence” in the good behavior of political leaders. Too much “jealousy,” on the other hand, made a representative republic impossible and forced citizens to take up the day-to-day business of government in its stead. The question that divided federalists and anti-federalists (all of whom advocated responsible republican government), then, was not confidence versus jealousy, but the proper balance between the two.
In Federalist 26, Hamilton argues that those wanting to take away Congress’s power to establish a standing army have erred too far on the side of jealousy: “Is it presumable, that every man, the instant he took his seat in the national Senate or House of Representatives, would commence a traitor to his constituents and to his country?” At the same time, Hamilton does not assume that every member of Congress will be a publicly-spirited patriot–nor, elsewhere in the Federalist, does Madison. Rather, both rest their hope for decent republican government on the character of the people. Confidence, not blind trust, follows accountability: the more an officeholder is accountable to the people, the more confidence the people may have that he will serve them rather than himself (of course other constitutional means are needed to help ensure that serving the people means pursuing justice).
We do not presume that every man (or woman)–or, for that matter, any man–becomes a traitor the instant he takes his seat on the Fed. But he does become a politician. As less-than-amateur economists ourselves, we understand well the reticence of those in Congress to debate the technical points of monetary policy with the Fed’s distinguished members. But it is imperative that Congress–and the American people–recognize that too often hidden just beneath the surface of purportedly “scientific” claims are moral judgments of profound political significance. And these judgments have policy consequences that shape, for better or worse, who we are as a people.
Above all else, the Fed should serve the American regime, not be an instrument for transforming it–or accomplishing by fiat, as is so often the case with the courts, what cannot be accomplished at the ballot box. Auditing the Fed is a good step to promoting government transparency. The more pressing question of the 21st century, to use a Tocquevillian expression, is whether Americans will continue to abstain from lifting the veil off of the secular sanctuary that leaves many an apolitical government agency like the Fed extending a cult-like influence over American politics.
David Corbin is a Professor of Politics and Matthew Parks an Assistant Professor of Politics at The King’s College, New York City. They are co-authors of “Keeping Our Republic: Principles for a Political Reformation” (2011). You can follow their work on Twitter orFacebook.