Lev Menand and Nathan Tankus on Why Fed Independence Is Now Hanging by a Thread

Episode Summary

Executive Summary: The episode examines a Supreme Court split that carved out the Federal Reserve from broader rulings weakening removal protections for agency heads. Guests argue the Court’s reasoning is historically shaky, misreads Hamilton, and leaves the Fed on unstable constitutional ground while eroding the broader New Deal administrative state.

Main Topics: Humphrey’s Executor and the removal-power battle (Priority: 5/5): The discussion centers on the 1935 Humphrey’s Executor case, which upheld for-cause protections for FTC commissioners and limited presidential removal power over multi-member agencies. The Fed’s constitutional exception (Priority: 5/5): The hosts and guests unpack the Court’s recent carve-out for the Fed, which preserved Lisa Cook’s position while implying the Fed may be uniquely protected from at-will presidential removal. History-and-tradition reasoning and the Rahimi analogy (Priority: 4/5): The guests criticize the Court’s use of Second Amendment-style ‘history and tradition’ analysis to justify the Fed exception, arguing it is doctrinally awkward and selective. Hamilton, banking history, and misapplied precedent (Priority: 5/5): A major theme is that the Court’s reliance on Alexander Hamilton is misplaced because the First Bank of the United States was privately owned, not a federal agency regulator. Administrative state vs. unitary executive theory (Priority: 5/5): The conversation situates the rulings in a long-running struggle between the New Deal administrative state and maximalist theories of presidential control over the executive branch. Monetary policy, regulation, and fiscal implications (Priority: 4/5): The guests debate whether the Fed’s regulatory tools blur into fiscal policy, noting that central-bank lending, capital rules, and balance-sheet operations can have macroeconomic effects. Instability of the Fed carve-out (Priority: 4/5): The panel concludes the Fed exception is likely unstable because only a small number of justices appear to support the current logic, making future reversal plausible.

Key Arguments: Humphrey’s Executor remains the foundational case for insulating quasi-legislative and quasi-judicial agencies from direct presidential firing power. The recent Supreme Court rulings largely dismantle removal protections for agencies other than the Fed, expanding presidential control over the administrative state. The Court’s Fed carve-out is doctrinally incoherent because it borrows a Second Amendment ‘history and tradition’ method and applies it to executive removal law. Hamilton is an unreliable basis for the carve-out because the First Bank was a private commercial bank, not a government regulator, and thus not an analog to the modern Fed. The Fed’s legal structure matters because its independence intersects with Congress’s power of the purse and broader checks on executive power. If the Court accepts financial-stability or necessity-based reasoning, it could open the door to broader constitutional protection for other agencies. The constitutional crisis concern is not just removal power; if the executive can ignore legal duties and courts cannot enforce compliance, rule-of-law constraints weaken dramatically.

Data Points: Humphrey’s Executor year: 1935 - The unanimous Supreme Court decision upholding for-cause removal limits for FTC commissioners. Myers v. United States year: 1926 - Earlier decision allowing the president to fire a postmaster, later cabined by Humphrey’s Executor. Interstate Commerce Commission creation: 1887 - Described as the first independent multi-member regulatory commission. Federal Reserve creation: 1913 - Discussed as an ICC-style body for banking regulation and monetary administration. Federal Reserve Board members: 7 - The Board of Governors is described as a seven-member multi-member commission. Supreme Court outcome on Fed carve-out: 5-4 - The case preserving Lisa Cook in office is described as a narrow majority. Justices who broadly support the carve-out logic: 2 of 9 - Only Roberts and Kavanaugh are presented as clearly embracing the Fed-specific equilibrium. Justices in the Cook majority: 5 - Roberts, Kavanaugh, Kagan, Sotomayor, and Jackson are said to be in the majority. Federal Reserve System funding: Assessments on Federal Reserve Banks - The Board’s operating expenses are funded outside the appropriations process through assessments on Federal Reserve Banks. Federal Reserve Bank of the New York ownership structure: Membership cooperatives owned by investor-owned banks - Used to distinguish the Banks from the government Board. First Bank of the United States government stake: 20% - The government initially subscribed to 20% of shares before selling them. Bank of North America founding: Before the Constitution - Cited as an early proto-central-bank institution. State-chartered bank general incorporation: Late 1830s - Used to show how banking regulation evolved long after the founding era. Administrative Procedure Act: 1946 - Mentioned as central to the post-New Deal compact governing administrative review. Federal Reserve / Treasury Accord: March 1951 - Referenced as an informal but important milestone in Fed independence. Lisa Cook case footnote: Footnote 6 - Roberts limits the Fed carve-out to the Fed as currently constituted and with existing enforcement authorities.

Pivotal Quotes: "the Federal Reserve Board, which is the seven-member multi-member commission that Congress created in 1913" — Lev Menand: Explaining the Fed’s legal status as a government agency rather than a bank. "the First Bank of the United States ... was an investor-owned commercial bank. It was not in any way abrogating the president's rights to remove executive officers." — Lev Menand: Arguing Hamilton is being misread as support for the modern Fed exception. "the Fed is not safe. This is not a good situation that the Fed has found itself in." — Lev Menand: Summarizing why the Fed carve-out remains precarious despite the Court’s narrow protection.

Implications: The Fed may have survived this round, but the Court’s logic leaves it vulnerable and signals broader hostility to independent agencies. Future fights over executive power, banking oversight, and administrative legitimacy are likely.