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The World Financial Crisis and the Unitary Executive

By Jack M. Balkin

While everyone seems to be focused on which sermons Barack Obama heard from his minister and what the Second Amendment means, the United States, and by extension the world, is on the brink of a financial melt-down, which the Federal Reserve Board is doing its best to prevent.

The Fed is now taking emergency actions-- for example approving a 30 billion dollar loan to J.P. Morgan to purchase Bear Stearns-- that it would not dream of taking in ordinary circumstances. In essence, the Fed is trading loans that are very low risk for loans that are very high risk and while simultaneously taking control of Bear Stearn's portfolio in order to protect itself. It has also announced that it will offer loans to other similarly endangered Wall Street investment firms.

It is still unclear whether the Fed's strategies will work. From a constitutional standpoint, however, what is interesting is that few people seem to doubt the Fed's authority to take these steps without consulting anyone, including the President and Congress. That is, few people currently doubt the Fed's unilateral authority to make decisions that shape the fate of the world's most powerful economy. Indeed, not only do most people not object to this quasi-dictatorial power, they expect and even demand that the Fed take action immediately to stem the crisis. And what is even more interesting, not only do they not expect President Bush to take control of these matters, they do not even want him to.

As an independent federal agency, the members of the Fed cannot be removed at the President's pleasure-- as other members of the executive branch can be; they can only be removed on a showing of cause. Conversely, the President cannot simply order the Fed to take certain steps-- or refrain from taking them-- because the President cannot credibly threaten to fire them if they refuse. (Put another way, nobody currently thinks that the mere refusal to obey a presidential directive is "cause" for removal under the meaning of the statute).

There are, to be sure, good structural reasons to keep day to day control of the money supply out of the hands of the political branches and place it in the hands of technocrats relatively isolated from politics. (Note that the members of the Fed are not completely isolated from politics, only relatively so.). The history of the United States after the Civil War was a series of bitter fights over control of the money supply-- one need only recall William Jennings Bryant's famous "Cross of Gold" speech. These bitter struggles, which shaped the American party system in the 19th and early 20th centuries, have largely vanished from the public's consciousness because of the decision made in the Progressive era to move toward a central bank controlled by experts rather than by politicians. Since that point, Congress and the President have largely affected the economy through decisions about the budget and about federal expenditures, rather than through control of the money supply.

Yet this feature of our constitutional system, which we now take for granted, is an embarrassment to the well-known theory of the Unitary Executive touted by the Bush Administration and its originalist allies. In fact, there are several different versions of the Unitary Executive, some of which are quite reasonable, and others which are not. The version I have in mind, however, is the notion that all executive authority must reside in the President, and therefore that all those who exercise executive authority must take orders from the President and cannot ignore his directives.

It takes considerable work to see how our current system of monetary policy making, with an independent Federal Reserve, can be squared with this version of the Unitary Executive. One might argue that the President merely allows the Fed to act unilaterally as a matter of custom, that he always retains the power to micromanage their actions, and that the statutes that create the Federal Reserve are unconstitutional to the extent that they allow the members of the Fed to ignore the President's direct orders. (You may recall a similar argument in John Yoo's torture memos, in which Yoo argued that laws that sought to restrict the President's ability to order his subordinates to torture were unconstitutional and therefor should be read not to permit this limitation.).

I doubt, however, that many people are encouraged by the thought of George W. Bush directing the country's monetary policy. After all, if he handles the financial markets the way he handled Iraq and Katrina, we will all be on the streets selling pencils in a cup.

None of this is to endorse the particular policies the Fed adopts in the weeks to come, or even the notion that there should be no political oversight over the its decisions. In essence, the Fed's policies are bailing out people who preached a particularly aggressive form of free market ideology, made particularly stupid decisions, and now have come hat in hand to the government seeking a handout. The Fed may have to bail them out-- and create a moral hazard for the future-- because otherwise we will all suffer for the arrogance of a few.

But the constitutional point is quite different: Within the halls of the Bush Administration, nobody seems to be thumping the pulpit, arguing about the framers and demanding the sacred prerogatives of the Unitary Executive. Messrs. Cheney and Addington are nowhere to be heard from defending the President's powers to take responsibility for the money supply and for the financial crisis we are now in. President Bush doesn't want the buck to stop in his office. He likes the dictatorship of the Fed just fine.

Of course, if the Fed were charged with interrogating prisoners, it would be a different matter entirely. . . .

Full post as published by Balkinization on March 17, 2008 (boomark / email).