Fed Up?

Neil Kinkopf

At the end of last week, the Federal Reserve announced its decision to lower interest rates. The Fed’s decision was criticized on a variety of grounds: as an example of the Fed’s willingness to ride to the aid of the wealthy or, according to the New York Times, as an admission that its previous policy was mistaken. When criticism and turmoil beset other agencies of the federal government, the President can be expected to issue a statement of support for its embattled leader (as President Bush did with Defense Secretary Donald Rumsfeld and FEMA Director Michael Brown) or to fire the incompetent official (as President Bush eventually did with Rumsfeld and Brown). Yet the Administration has been silent about the Fed and its Chairman Ben Bernanke.

The Bush Administration’s silence is, in fact, not only the legitimate but the appropriate response. The Federal Reserve, unlike FEMA and the Defense Department, is an independent agency. It is designed to operate based on the economic policy judgments of its governing board, free of political calculation. The statute establishing the Fed embodies Congress’s conclusion that, if the Fed’s governors were politically accountable, it would sacrifice long-term economic fundamentals to short-term partisan advantage. To put it bluntly, the Fed would lower interest rates 6-9 months before every election so that the economy would experience robust growth to coincide with the general election campaign.

As a matter of economic policy, the Fed’s independence seems unassailable. As a matter of constitutional law, however, the Fed’s independence raises a more difficult question. After all, accountability is a constitutional value and an independent agency is by its very design not politically accountable. In the case of the Fed, the affront to democratic values is particularly acute. How can the nation’s monetary policy (perhaps the single most important aspect of our economic policy) be set outside the normal channels of democratic accountability? The unitary executive theory holds that Congress may not make agencies independent of the president’s supervision and control, in part because rendering federal agencies subordinate to the President makes them politically accountable. Adherents of this theory suggest that as to functions like those exercised by the Fed, even if they were not independent as a matter of law (e.g., if the President could remove the Fed Chairman at will), a culture of independence would nevertheless arise so as to make it politically untenable for a President to use the agency for partisan advantage.

The Bush Administration seems bent on demonstrating just how naïve the unitary executive theory is, even as it uses the theory to aggrandize its own power. One would have thought that a culture of independence would have arisen as a bulwark to preserve the impartial administration of the nation’s criminal justice system. Indeed, a strong culture of prosecutorial independence had developed within the Department of Justice. Nevertheless, as we now know, the Administration was quite willing to fire United States Attorneys who did not show themselves to be “loyal Bushies.” Ignoring this culture of independence, the primary defense offered for the Bush Administration has been that the President did nothing wrong, since U.S. Attorneys serve at the pleasure of the President. This subordination was by no means limited to the Department of Justice. As the Washington Post reported on Sunday, the White House (in the person of Karl Rove) sought systematically to deploy the assets of the executive branch for their electoral advantage. If the Fed were stripped of its independence, does anyone seriously doubt that the White House would have sought to exploit this asset?

As a matter of doctrine, the Supreme Court settled this question, decisively rejecting the unitary executive theory in Morrison v. Olson. There the Court upheld the law creating the independent counsel. What made the independent counsel independent was the provision allowing her to be removed only “for cause.” The Court held that this limitation did not violate the President’s authority as the nation’s chief executive or prevent the president from fulfilling his constitutional duty to “take Care that the Laws be faithfully executed.” Similarly, the Fed’s Board of Governors is independent because its members do not serve at the pleasure of the President but may only be removed for cause. Particularly after Morrison, the validity of the Fed’s independence is well-settled.

Or so it seemed. The newest member of the Supreme Court, Justice Samuel Alito, gave a telling speech to the Federalist Society in November 2000. This speech garnered a great deal of attention during Justice Alito’s confirmation hearing because he embraced the unitary executive theory as expressing the best reading of the Constitution. Still, Justice Alito emphasized during his confirmation hearings, he would be bound by precedent. That ended the matter for purposes of the confirmation hearing, but the Federalist Society speech went on to discuss how the unitary executive school could prevail without overruling Morrison – namely, through creative reconceptualization of Morrison. As then-Judge Alito explained, Morrison set forth “a very elastic” standard for assessing infringement of the President’s authority. The Morrison standard looks to whether Congress has “prevented the Executive from accomplishing his constitutional role.” Judge Alito suggested that “perhaps [this standard] can be read in a way that is not entirely unstructured and that heeds, if not the constitutional text …, at least the objectives for setting up a unitary executive, namely energy, faction control, and accountability. If you read it that way, if the restriction frustrates, or thwarts, the President’s ability to ability to discharge any of [his] functions, then it would be seen as violating the Morrison test. That could lead to a fairly strong degree of presidential control over the work of the administrative agencies.”

The Fed’s independence certainly reduces the agency’s accountability. In fact, that is the very purpose of its independence. Judge Alito’s reformulation of the Morrison standard thus appears to cast serious constitutional doubt over the validity of the Fed. But, of course, such a reading would be completely irreconcilable with Morrison’s rationale. That rationale was to uphold the power of Congress to insulate even some purely executive officers from the president’s at-will removal authority. Justice Scalia understood this and that is why he wrote his impassioned dissent. The Federalist Society speech, then, foreshadowed a jurisprudential division that arose starkly in the most recent Supreme Court term: the preference of Justices Roberts and Alito to overrule cases without saying so as opposed to the willingness of Justices Scalia and Thomas to overrule precedents openly. Given this, there is ample reason to suspect that Justice Alito would vote to invalidate independent agencies on a tendentious application of the Morrison standard. It is not hard to imagine Chief Justice Roberts joining this approach, with Justice Thomas joining Justice Scalia concurring but preferring to overrule Morrison directly. As with so many constitutional questions, Justice Kennedy may hold the balance. If he were to side with the Court’s unitary executive exponents, the constitutionality of independent agencies may soon be up for grabs.

Neil Kinkopf
Posted 12:00 PM by Neil Kinkopf [link]