It’s no secret: things have been a bit tense between the White House and the Federal Reserve.
President Donald Trump has criticized the Fed, accusing it of recklessly endangering the ongoing economic boom. Fed officials, in response, have raised concerns about political interference in monetary policy. In recent months, two potential nominees to the Fed’s Board of Governors, Stephen Moore and Herman Cain, withdrew after lackluster support from senators in the president’s own party. The president is reportedly considering long-time Fed critic Judy Shelton for one of the open seats. (Shelton once served as director of the Sound Money Project, of which I am a fellow.)
No doubt most Americans consider such issues uninteresting and unimportant. The political aspects of central bank behavior and the technical aspects of monetary policy are highly specialized topics. Why should Americans care?
The Fed is one of the most important public institutions in the country. It has significant power to influence the state of the macroeconomy. Furthermore, in the years since the 2007-08 financial crisis, the Fed has acquired additional discretionary and wide-ranging powers. Rather than engaging strictly in monetary policy, the Fed’s behavior since 2008 looks more and more like direct and preferential credit allocation. Indeed, its actions resemble fiscal policy more than monetary policy.
The bottom line is this: the Fed’s increasing power and lack of oversight over the past decade represents a usurpation of authority by would-be macroeconomic and financial “experts” at the expense of the citizenry. This is contrary to the spirit of a self-governing republic. No institution chartered by the public is above public scrutiny.
Experts might object, arguing that the technical knowledge needed to conduct monetary policy or grapple with the political aspects of central banking cannot be acquired by most citizens. Whether this is true is irrelevant. We should not insist on direct democratic control of the Fed, but that the Fed submit itself to the rule of law. We demand no less of other public institutions in a constitutional democracy.
Ultimately, the results of the latest White House-Fed kerfuffle or the identity of the next nominee to the Board of Governors is of secondary importance. What matters is the big picture. Ordinary citizens must, through the duly constituted organs of government, block monetary technocrats from becoming a law unto themselves. Up through now, they have been. This is a concern not only for those with advanced degrees in economics, but for all those who have an interest in preserving consensual government by constitutional means.
It matters greatly to ordinary citizens how the Fed behaves and whether it’s held accountable. It is not a matter of macroeconomic expertise. It is a matter of self-governance itself.
Alexander William Salter is an assistant business professor at Texas Tech University and the Comparative Economics Research Fellow at the university’s Free Market Institute. He is also a fellow with the American Institute for Economic Research’s Sound Money Project. He wrote this column for The Dallas Morning News.