Financial History Issue 131 (Fall 2019) - Page 23

for the duration of his presidency, the effective zero boundary precluded action other than a return to higher rates. In short, there was nothing to say: the only way for rates to move was “up.” Expect More of the Same The entire exercise of introducing evi- dence that the Fed isn’t politically inde- pendent is moot from the start, though. For despite what numerous media out- lets have taken the President to task for, the Q&A section of the Richmond Fed website asserts that, in fact, “the Federal Reserve can be more accurately described as ‘independent within the government’ rather than ‘independent of government.’” The Fed is independent within the gov- ernment, in part, because it is self-financed and does not depend on Congressional appropriations or Presidential recommen- dations for its funding. By the same token, neither the President or Congress can bully the Fed by cutting its budget. That’s not the case with most other federal regu- latory agencies, or even the IRS. Consider what incontestable political independence would actually require: at the very least, every one of the Fed’s polit- ical ties—appointments, testimony, the ability to expand or reduce their mandate, etc.—would have to be severed. To inocu- late them from indirect political pressure, the identity of Fed officials would have to be essentially secret. As currently structured, and consider- ing both the raft of directives that it labors under and the unique attributes of mon- etary policy, it is cogent to expect elected officials to attempt to sway Fed actions. It was going on for decades before the current President took office and, barring changes, will continue to do so. That any institution exercising as tremendous a mandate as managing the money supply of the world’s largest economy (and the world’s reserve currency, to boot) would go unheeded in the corridors of political power is unrealistic at best. In that sense, the Federal Reserve is something of an embodiment of the Hayekian adage: a reminder that, at times, economics is a constant lesson in letting people know what they cannot design.  Peter C. Earle is a Research Fellow at the American Institute for Economic Research. He spent two decades as a trader and now focuses on financial mar- kets, monetary policy and currencies. Sources Abrams, Burton A. “How Richard Nixon Pres- sured Arthur Burns: Evidence From the Nixon Tapes.” See: https://pubs.aeaweb.org/ doi/pdfplus/10.1257/jep.20.4.177 Federal Reserve Bank of Richmond. “How is the Federal Reserve System Structured?” See: https://www.richmondfed.org/faqs/frs Federal Reserve History. “Full Employ- ment and Balanced Growth Act of 1978 (Humphrey-Hawkins).” See: https://www .federalreservehistory.org/essays/ humphrey_hawkins_act Greenhouse, Steven. “Bush Calls on Fed for Another Drop in Interest Rates.” The New York Times. June 24, 1992. Lyndon B. Johnson, State of the Union Address. January 10, 1967. See: https://www .infoplease.com/primary-sources/govern- ment/presidential-speeches/state-union- address-lyndon-b-johnson-january-10-1967 Public Papers of the Presidents of the United States. Richard M. Nixon. See: https:// archive.org/stream/4731750.1970.001.umich .edu/4731750.1970.001.umich.edu_djvu.txt Tankersley, Jim. “Trump Takes a Rare Presi- dential Swipe at the Fed.” The New York Times. July 19, 2018. The American Presidency Project. Ronald Rea- gan, “Address before a Joint Session of the Congress on the Program for Economic Recovery.” February 18, 1981. See: https:// www.presidency.ucsb.edu/documents/ address-before-joint-session-the-congress- the-program-for-economic-recovery-0 Berry, John M. “The Fed Chief’s Unlikely Alli- ance.” Washington Post. March 21, 1993. Bernanke, Ben S. “Central Bank Independence, Transparency, and Accountability.” May 25, 2010. See: https://www.federalreserve.gov/ newsevents/speech/bernanke20100525a.htm Editorial Board. “Trump Violated Another Presidential Norm. Now the Fed is in a Tight Spot.” Washington Post. July 21, 2018. Employment Act of 1945, Wikipedia. See: https://en.wikipedia.org/wiki/ Employment_Act_of_1946 Left: President Richard Nixon confers with his monetary advisors at the White House. From left to right: John D. Erlichman, Domestic Council; Arthur Burns, soon to become Chairman of the Federal Reserve; President Nixon; and Budget Director Robert P. Mayo. (Credit: Bettmann) Right: Federal Reserve Chairman Alan Greenspan speaks to the media in the Oval Office of the White House beside President Bill Clinton, January 4, 2000. (Credit: Mario Tama) www.MoAF.org  |  Fall 2019  |  FINANCIAL HISTORY  21