The Political Independence of the Fed

As anybody who’s ever read about a Supreme Court nomination knows, the business of appointing top judges has become highly political. But when it comes to the Federal Reserve, it seems that presidential appointees are still chosen the old-fashioned way: on their merits, rather than on their politics.

Mark Thoma has put together quite a startling list of the five members of the board of governors of the Federal Reserve as well as the twelve district bank presidents. Of those seventeen individuals, just one, William Poole, was appointed by under a Democratic administration. Still, says Thoma:

I don’t want to imply that the Fed is driven by politics or ideology, because (now that Greenspan is gone?) it isn’t.

Certainly with names like Tim Geithner on the list, one can hardly complain that all of the appointees have been Republicans. (Geithner was a political appointee at Treasury during the Clinton administration.) And even people who object to the Fed’s decisions don’t think that they’ve been made in an attempt to prop up the Bush administration.

It seems to me that the world of finance in general is much less politicized than any other area of government, and that attempts to politicize it generally fail miserably. Clearly there’s a lot of politics surrounding the area of fiscal policy concerned with tax cuts. And there might be a very weak correlation between the hawk-dove spectrum and the Republican-Democrat spectrum. But it’s very easy to think of Republican doves and Democratic hawks. And the Fed, in particular, seems to have done a very good job of remaining genuinely independent, which is one reason why Greenspan’s testimony in favor of the Bush tax cuts was so very shocking.

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