President Trump talks to reporters from the Resolute Desk on Jan. 30.
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This first appeared in the Planet Money newsletter. You can sign up here.
President Trump vs. the independent agencies. It’s a battle for the history books — literally. To understand the significance of this showdown, we need to go back to history ourselves.
Historians generally agree that the first independent agency in the U.S. government was the Interstate Commerce Commission (ICC). Founded in 1887, the ICC had a pretty revolutionary job: regulating the powerful railroad industry. Led by “robber barons,” the monopolistic companies that controlled the railroads were accused of price gouging and other abuses of power. The creation of the ICC was one of the opening salvos of the turn-of-the-century, bipartisan Progressive movement that sought to rein in big corporations and the excesses of free-market capitalism.
Because the railroads were so critical to the United States’ economy and because the work of regulating the railroads was highly technical — think like crunching data to figure out what railroad rates should be — Congress wanted the ICC to be staffed by experts who operated above the fray of partisan politics. They designed it to be led by a board of commissioners from both major political parties. And, significantly, they decided to insulate the agency from presidential control.
The original law creating the ICC instructed, “Commissioners can only be removed by the President for ‘inefficiency, neglect of duty, or malfeasance in office.'” In other words, the president couldn’t just fire them willy-nilly. When the act creating the ICC was going through Congress in 1887, there was surprisingly little discussion about why the president was limited in this way.
The first iteration of the ICC had actually pretty weak regulatory powers. In 1906, however, Republican President Theodore Roosevelt signed a law greatly strengthening the ICC, including giving it the power to make rules regulating the railroad industry that had the force of law. This souped-up ICC became the prototype for many independent agencies to come.
President Theodore Roosevelt works at his desk circa 1905.
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Over the course of the 20th century, Congress designed and presidents signed into existence all sorts of independent agencies. These federal agencies regulate critical areas of the U.S. economy and society, including the stock market, product safety, fraud and corruption, the money supply, labor relations, monopolies, nuclear power, the media and elections. One common feature of these agencies is they have buffers against presidential control — like making it hard for presidents to fire their leaders; giving those leaders really long tenures, so new presidents don’t necessarily appoint them when they take office; and allowing these agencies to make rules and regulations without a president’s stamp of approval.
Lawmakers have offered many rationales for limiting presidential power over independent agencies (and given how many agencies there are and how different their missions are, it makes sense why there are so many reasons). These include insulating the agencies from political pressures, making their work less partisan, reducing turnover of agency leaders, promoting stability and predictability in agency decision-making, creating checks and balances within the federal bureaucracy and helping prevent corporate interference with these agencies’ technocratic work serving the American public.
However, since their inception, there have been many questions over how these agencies fit within the U.S. constitutional framework. And many have opposed insulating these agencies from presidential control, particularly since the Reagan Revolution of the 1980s. Companies don’t like being regulated, especially by unelected bureaucrats. Presidents don’t like having their power limited. And many conservatives claim this whole system is antidemocratic.
Since taking office, Trump has been asserting extraordinary power over independent agencies and trying to rein in their autonomy. For example, he issued an executive order asserting that he, as the elected head of the executive branch, has authority over independent agencies and that their rules and regulations need his approval. And he has fired the leaders of the National Labor Relations Board and the Equal Employment Opportunity Commission, among others. (Much of this is being challenged in federal courts, and one court recently ruled that the president’s firing of the head of an independent agency, the Office of Special Counsel, was unlawful.)
Democratic lawmakers and consumer advocates have criticized Trump’s attacks on agency independence. “Trump’s illegal executive order on independent agencies aims to shield corporations from accountability and centralize more power with Trump and his minions,” said Robert Weissman, a co-president of Public Citizen, a progressive consumer advocacy group, in a news release. Weissman stresses that this order will hurt the work of agencies like the Federal Election Commission, which he said “is independent of presidential control so that it can serve its election integrity mission without partisan favor.” And he points to the potential effect on the Federal Trade Commission (FTC) and Securities and Exchange Commission, which are supposed to protect investors, consumers and “market integrity.” He says, “Their independence is designed to enable them to perform these duties without undue political pressure from giant corporations, the super rich and the super-connected.”
It’s interesting that Weismann used the word “accountability,” because that’s the same word that many conservatives use when criticizing independent agencies. They condemn these agencies as not being accountable to the president, who is the only person in the government who is democratically elected by the whole country.
Many conservative legal scholars, especially those who believe in “unitary executive theory,” have long argued that independent agencies are really a part of the executive branch — and that therefore, under the Constitution, the president should have dominion over them, including the power to appoint and fire their leaders at will. In their view, independent agencies shouldn’t be independent. Some in this camp go as far as arguing that these agencies are part of an unelected “fourth branch” of government — the administrative state, or “deep state” — which undermines the constitutional system and the democratic will of voters.
“For the Federal Government to be truly accountable to the American people, officials who wield vast executive power must be supervised and controlled by the people’s elected President,” Trump states in his recent executive order.
Trump’s legal team seems eager to challenge the constitutionality of independent agencies, and conservatives on the Supreme Court have sent signals that they may be willing to play ball and declare them unconstitutional — despite legal precedents that go back at least 90 years. For instance, in 2020, the Supreme Court stripped the Consumer Financial Protection Bureau of its independence, ruling that because it was headed by a single leader, instead of a commission (like say the ICC or FTC), the president could fire its leader at will.
What does this mean for the Federal Reserve?
The most powerful independent agency is arguably the U.S. Federal Reserve, which is responsible for controlling inflation and helping make sure the economy is good enough so Americans can find jobs (to use econ jargon, its “dual mandate” is to ensure price stability and full employment).
Mainstream economists have long believed that central banks like the Fed should be independent because politicians care a lot about elections, which happen in the near term, and they’ll be incentivized to make decisions about interest rates that serve their narrow, short-term electoral goals instead of the public interest of long-term economic growth and stability. For example, a president may want the Fed to lower interest rates before an election to juice the economy — but that could end up resulting in runaway inflation and ultimately be really bad for everyone.
Making the Fed independent, the thinking goes, helps solve this political problem by taking monetary policy out of the hands of political leaders, with their short-term election pressures, and putting it into the hands of nonpartisan technocrats (for more on this, check out this awesome Planet Money episode, “Happy Fed Independence Day“).
Interestingly, in his recent executive order asserting his authority over independent agencies, Trump takes a mixed approach to the Fed. The Fed famously conducts monetary policy — like influencing how low interest rates go and how much money circulates in the economy — but it has another important job, which is overseeing and regulating the financial sector. Trump asserts authority over the Fed’s regulatory work. But he makes clear his executive order asserting his power over independent agencies “shall not apply” to the Fed “in its conduct of monetary policy.”
Many Fed watchers, however, are still worried. Legal scholars question what will happen to the Fed if the Supreme Court says independent agencies are unconstitutional. And during both his first and second terms, Trump has publicly pressured the Fed to lower interest rates. Trump reportedly even mulled the idea of firing Fed Chair Jerome Powell — whom he had appointed to head the Fed — after Powell refused to follow Trump’s preferences for lower interest rates during his first term. Things got so heated back in 2018 that, according to The Wall Street Journal, Powell even prepared a plan to “fight his removal if sought by the president.” Trump ended up backing off, but many wonder whether another clash between the president and the independent central bank is inevitable this term.
It’s within this context that Sen. Elizabeth Warren, D-Mass. — who, prior to becoming a senator, was an architect of the now not-so-independent Consumer Financial Protection Bureau — recently wrote a public letter expressing concern about Stephen Miran, who is Trump’s nominee for chair of the Council of Economic Advisers (CEA). Before working at a hedge fund, Miran got his Ph.D. in economics at Harvard University, where he studied under Martin Feldstein, who served as President Ronald Reagan’s CEA chair. The CEA is an important body that advises the president on economic matters.
Stephen Miran, who is President Trump’s nominee for chair of the Council of Economic Advisers, testifies at a hearing of the Senate Banking Committee on Feb. 27.
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In her letter, which she sent before Miran’s recent Senate confirmation hearing, Warren basically demanded that the economist publicly commit to the Fed’s independence. And she expressed concern about a March 2024 report that Miran co-authored at the Manhattan Institute titled, “Reform the Federal Reserve’s Governance to Deliver Better Monetary Outcomes,” which is critical of the Fed and offers a plan for overhauling it, including handing the president — and also state governors — greater power over it.
A plan to overhaul the Fed
Given that Miran — at the time of this writing — may be the next chair of the CEA, we figured it’d be worth reading through his proposal for overhauling the Federal Reserve. It’s pretty fascinating, offering a comprehensive blueprint for a radically new kind of Fed that he and his co-author, Dan Katz, argue would “ensure that it remains insulated from day-to-day politics while enhancing its accountability and democratic legitimacy.”
Miran and Katz begin their report by criticizing the Fed’s recent conduct. They’re critical of its large-scale purchases of assets, arguing it has distorted credit markets (this policy is known as “quantitative easing” — listen to this illuminating Planet Money radio segment about this here). They’re critical of the Fed’s response to the COVID-19 pandemic, which they argue “contributed to two years of declining real incomes and the highest inflation in four decades.” They are critical of the Fed’s work to address climate change and to increase the racial and gender diversity of its staff, suggesting these policies have been partisan. They are critical of what they call the Fed’s “revolving door,” in which economists move back and forth between the executive branch and the Fed. And they accuse the Fed of falling victim to “groupthink,” which they suggest has undermined the efficacy of its policies.
“Scrutiny of Fed rhetoric and actions makes it clear that the Fed has moved beyond its traditional narrow, technocratic role and instead has pursued a much more expansive monetary and regulatory agenda that is more consistent with an explicitly political institution,” Miran and Katz write in their Manhattan Institute report.
For these reasons and more, Miran and Katz “propose a fundamental overhaul of the Fed’s governance.”
Miran and Katz recommend a number of big reforms. “The core” of these reforms is their proposal to hand the president greater power over the Fed’s leadership, the Board of Governors, and give state governors greater power over the Fed’s 12 regional Reserve banks (read more about the Fed’s structure here).
First, presidential power over the Fed. They propose that Fed leaders be “subject to at-will removal by the president to ensure their accountability to the democratic process.” They also propose that Fed leaders serve shorter terms, which would give presidents more opportunities to appoint people to it.
However, Miran and Katz acknowledge that it’s important to insulate monetary policy from short-term political whims. So they offer a counterbalance: “To offset increased presidential influence on the Board of Governors, we recommend increasing the influence and independence of the regional Reserve Banks,” they write.
While the Fed’s Board of Governors is an independent government agency, the Fed’s 12 Reserve banks are essentially private corporations that, Miran and Katz write, are currently “controlled by local private banks, nonprofits, and corporations, without democratic legitimacy.” These Reserve banks are sometimes called “bankers’ banks” because they do a lot of things for banks that banks do for consumers, like providing loans, processing electronic payments and so on. Their leaders also play a significant role voting on the Fed’s monetary policy decisions, because a rotating group of them gets to vote on those decisions.
It’s rare that you hear conservatives advocate for nationalizing — that is, the government taking over — anything. However, that’s what Miran and Katz argue when it comes to the 12 Reserve banks.
“We propose nationalizing Reserve Banks, empowering governors of the states in their districts with the selection of their boards of directors, which, in turn, will continue to appoint Reserve Bank leadership,” Miran and Katz write. “Allowing Reserve Bank leadership to vote at every meeting of the Federal Open Market Committee (FOMC)—the 12-member branch of the Federal Reserve that determines the direction of monetary policy—will balance increased White House control over the Federal Reserve Board of Governors.”
Essentially, Miran and Katz argue that the 12 Reserve banks should be government entities that are under the sway of state governors and that they should play a bigger role in determining policies that set interest rates and the circulation of money in the economy. “Positioning the Reserve Banks as a check on the Board of Governors is a classic expression of American federalism, a formula that has proved successful for over two centuries,” they write.
Miran and Katz argue their plan balances the needs of “increased political accountability against the need to keep day-to-day politics out of monetary policy.” However, state governors also worry about elections — and it’s unclear how much of a check they would provide against a president wanting to juice the economy with lower interest rates — so it’s unclear how successful this plan would be at striking that balance.
As for the Interstate Commerce Commission, it was actually shut down in 1995. It might prove to be a pioneering independent agency in more ways than one.
