Limiting Independent Institutions
Continuing the preview of my paper comparing and contrasting central bank and judicial independence:
How does an independent body maintain its political standing? Put another way, how do you prevent an independent institution from abusing its power? Much of the discussion of judicial review focuses on this question, and it is interesting to think about how the related debate plays out at the Federal Reserve.
1. One answer is that elites are sensitive to criticism and do worry about curbs on their power from Congress, even if the possibility is remote.
2. A second thought is that the elected branches can, over time, change judicial interpretation or monetary policy. This is easier to do for the Fed because the Chairman (who serves only 4 years of his term as Chair) is considered first-among-equals by his colleagues in a way that the Chief Justice is not.
3. Another option is a unanimity rule. The Federal Reserve usually operates on an informal understanding that major decisions should be by consensus, even though the Chairman is the leader. The Court has embraced this view from time-to-time (the Marshall Court, some highly controversial cases), though not to anywhere near the same degree.
4. There could be a norm against taking decisions that will directly influence the election. The Fed typically avoids dramatic moves in an election year (though not in 2008), and one might say that Chief Justice Roberts’ opinion on the Affordable Care Act was motivated by the same consideration.
5. Greater transparency. The Fed used to be the most secretive organization in Washington (apart from the CIA), but now it is more open about its activities. The Court is moving in that direction (albeit much more slowly).
The last one is precedent, of course. Stare decisis limits what the Supreme Court does in a meaningful way. Can the same be true for the Federal Reserve? And how would that work? That’s my next post.