Why the lack of movement on the Fed? Faced with similar vacancies, then President-elect Obama moved relatively quickly. Daniel Tarullo was announced in the first group of regulatory appointments, in December 2008. Granted, that was during a financial crisis: President-elect Obama may have felt early enthusiasm for filling those vacancies that President Obama didn’t share. Obama has kept vacancies at the Fed’s Board longer than in any other time in history, including when Democrats controlled the Senate. It’s possible that President Trump will treat Fed vacancies with a similar disregard.
Possible, but I wouldn’t count on it. President Trump is likely to assert himself early in influencing the Fed, as is his right. But Fed defenders and critics should also take careful note: how he uses that authority will tell us much about whether the central bank will continue in its present form as a policy-making body steeped in traditions of expertise and independence, or whether it will become another arm for partisan and political warfare.
As he has with the rest of his economic appointments, the President sits at a cross-roads with respect to the Fed given the inherent incompatibility of economic coalition members. With admitted reductionism, I’ll call these halves Bannonist, in honor of Trump’s chief political strategist Stephen Bannon; and Priebusian, for his chief of staff Reince Priebus.
A Priebusian appointment is what one might have expected from a President Mitt Romney. Sure, a hypothetical Priebusian probably had a lot to say about the Bernanke and Yellen Fed during the last eight year, most of it negative. That Governor probably opposed the Fed’s monetary policies as too dovish and thought experiments with unconventional monetary policy too extreme. That would put the Priebusian in the mainstream of the Republican majority. But whatever those priors, a Priebusian Fed Governor is also an expert. He knows an awful lot about central banking, monetary policy, banking regulation, and the like. Perhaps he’s a political operator, perhaps not, but more likely he’s someone with undisputed credentials. If the President-elect appoints a Priebusian Governor, he sends a signal to the broader economy that while the election may mean a regime change coming at the Fed, the President is not going to dispute the central vitality of a central bank using its extraordinary powers consistent with its traditions of independence and expertise.
A Bannonist appointment is entirely different. A Bannonist is likely to be an economic nationalist who wants to drain the swamp. Maybe he’s got some ties to Wall Street—Steve Bannon himself is a former employee of Goldman Sachs, of course—but the posture is hostility toward the technocracy and its many conceits. A Bannonist is likely to be fond of Fed conspiracy theories, which are ubiquitous in popular discussions of the Fed and will have real purchase among those who view all technocratic decision-making with hostility. And a Bannonist is also likely to have no obvious expertise on these matters. I don’t mean that a Bannonist is unlikely to have a PhD in economics, although that is almost certainly true. A PhD in economics isn’t (and shouldn’t be) a prerequisite to be a superb central banker. I mean that a Bannonist won’t have experience in central banking really at all.
To be clear, there is merit to the argument that central bankers use their claims to independence and expertise as a mask for more ideological maneuvering. As I have written, how central bankers use the significant machinery of monetary policy to resolve uncertain questions necessarily reflects their ideologies and worldviews. They are political institutions embedded within the political system. This is why presidential elections matter so much to their governance, and rightly so. We can invoke Churchill in his celebration lament: democracy is a pretty terrible system for selecting these technocrats, except for everything else we’ve ever tried.
The point is that a Bannonist rejection of expertise and independence as pure applesauce is a dramatic and destabilizing overreaction. If central bankers don’t look like aeronautical engineers plotting a satellite’s orbit, neither are they the same as a Karl Rove or David Axelrod trying to do what is best for the political prospects of their sponsors. The institutional innovation of central banking is the ability to protect citizens from their own worst short-term instincts by protecting the integrity of the currency against laments that money should flow more freely and easily. That experts disagree doesn’t mean they aren’t exercising expertise.
Many Democrats will reflexively oppose a Priebusian candidate because she will be a Republican. I hope they don’t. Opposition may come after vetting—there are plenty of Priebusian candidates who, for a variety of reasons, shouldn’t be given the keys to that particular kingdom. But, as the saying goes, elections have consequences. The guide here should be Sen. Lindsey Graham’s approach to judicial nominations. Democrats to adopt the same approach for Fed appointments. It won’t be easy, of course, as the debates around the eminently qualified Supreme Court nominee Neil Gorsuch demonstrates: most Republicans haven’t followed this example when evaluating President Obama’s own highly qualified Fed appointments.
But the Fed is more important than to waste opposition on mainstream candidates with the relevant expertise to accomplish their assigned tasks, assuming they survive a reasonable vetting. A Priebusian Fed Governor probably hasn’t cheered Democratic initiatives, but he has an undisputed expertise. If the appointment that President Trump announces qualifies in that way, then the work of congressional accountability, not congressional obstruction, should begin.
If, on the other hand, the President appoints Bannonists to those open vacancies, it’s essentially a declaration of war against the idea of independent central banking, as tangled as that label can be. At that point, the hard-money types in the Republican coalition, Democrats virtually everywhere, and perhaps especially Fed insiders will be on notice: if they value the idea of expert decision-making in the central bank, then the stakes couldn’t be higher. As the dust settles on this first generation of President Trump’s cabinet appointments, we should not let these two seemingly obscure appointments go unnoticed. They will be among the most important the President will make.