Autonomy and Accountability
Let’s return to my project about “The Constitutional Principle of Central Bank Independence” and compare how the courts and the Federal Reserve maintain their autonomy within a democratic system.
Part of the answer is structural. Federal judges are appointed with life tenure. Federal Reserve Bank Presidents, who make up a significant part the FOMC, are not appointed by the President, while the members of the Fed Board of Governors receive long terms when confirmed by Congress. The Chairman serves only a four-year term as Chairman, but that term is staggered such that a new President must work with an old chairman for a period of time.
Part of the answer is norms. We accept the principle, for example, that judges who make unpopular decisions should not be impeached and that their clerks should not be fired by Congress, even though both would be constitutional. A similar tradition of restraint applies to Fed officials. It is interesting to note that for the central bank this norm did not develop until the 1950s. (During the 1940s, the Federal Reserve, in practice, was run by the Treasury). William Martin, the Fed Chairman from 1951 to 1970, was the John Marshall of the Fed who firmly established its power and status.
Finally, politicians support judicial and central bank independence because it suits their interests. People who study judicial review often note that elected officials like empowering courts because it lets them dodge difficult choices. The same is true with respect to monetary policy (i.e., raising interest rates to fight inflation). This is in addition to the substantive reasons for autonomy (specialization and the idea that the rule of law and price stability respectively are promoted by insulation from politics).
The more interesting comparison between courts and central banks, though, is how their independence is constrained so that they don’t go mad with power. Stare decisis is one part of that story for courts, and we may be seeing the emergence of a similar practice at the Fed. That will be the subject of the next post.
UPDATE: I should also note that both the courts and the Fed are given some fiscal independence as well. Congress may not reduce the salaries of federal judges, and the Fed can largely self-finance its operations through interest on bank reserves and Treasuries.