The Supreme Court has a vacancy. The Federal Reserve has three. Anyone notice?

By Matthew Yglesias
Sunday, April 18, 2010

Federal Reserve Vice Chairman Donald Kohn declared on March 1 that he was planning to retire. Supreme Court Justice John Paul Stevens did the same on April 9. Both are important men doing important jobs for important institutions that exert vast influence over the lives of Americans. Stevens's announcement was treated as a big deal by politicians, interest groups and the news media. Kohn's? Not so much.

After the Stevens announcement, pundits leapt into a frenzy of speculation about possible replacements. Will President Obama pick Elena Kagan or Diane Wood or someone else? Will he use the nomination to rally his political base? And will Republicans filibuster? For all the words spilled on the subject, though, absolutely nobody considered the possibility that Stevens's seat would stay vacant.

Kohn's retirement, on the other hand, came nowhere close to dominating headlines. Soon after the announcement, word went out that Obama would probably pick Federal Reserve Bank of San Francisco Chairman Janet Yellen to replace him -- but the nomination still hasn't been made. Nobody has asked Mitch McConnell, the Senate Republican leader, whether he might move to block Yellen's nomination. Nobody has breathlessly speculated about dark-horse candidates. Nobody has put the chairman and ranking member of the Senate banking committee on "Meet the Press" to debate prospective Fed nominees, the way Pat Leahy and Jeff Sessions of the Judiciary Committee talked about Stevens's slot. Interest groups aren't raising money off the prospect of a Yellen nomination, and nonspecialists aren't expected to have an opinion of her.

But as little attention as Kohn's replacement has gotten, even less has been given to the two seats on the seven-member Fed board of governors that have been unfilled since before Obama's inauguration.

If there were three simultaneous vacancies on the Supreme Court, Washington would be a war zone, and the volume of direct mail would solve the post office's financial problems. Not so with the Federal Reserve. When the Fed is discussed in a political context, the talk normally comes from the fringe (as in the Ron Paul fan club's chants of "End the Fed"). Yet its decisions powerfully affect everyday life in a way that's rare for a court decision.

This is not to deny that Supreme Court rulings are important. In its past two terms, the court has issued decisions that will increase the role of corporations in funding elections, block some affirmative action practices in public-sector employment and narrow the ability of environmentalists to use the Clean Water Act. In the future, some hope and others fear that access to abortion will be further restricted or gay rights expanded. With its Ledbetter v. Goodyear decision, the court even touched on the bread-and-butter issue of when women can sue for pay discrimination.

But realistically, the number of women who'll see their household budgets affected by a sex-discrimination suit pales in comparison with the number who'll feel the impact of interest rates, whether through payments on credit cards, student loans and home mortgages, or through earnings on savings. All this and more -- in short, everything we call "the economy" -- is the domain of the Federal Reserve.

For all that elected officials talk about how their policies will create jobs or their opponents' policies will destroy them, in normal times it's the Fed -- not the White House, not Congress -- that determines the pace of job creation. (Its dual mandate from Congress, after all, is to promote stable prices with maximum employment.) When the Fed's Open Market Committee wants the economy to grow faster, it reduces interest rates. When it wants to slow things down, it raises them. The committee's willingness to cut rates to historically low levels in the wake of the 2001 terrorist attacks and the dot-com bust helped avoid a severe recession -- but many also think that its willingness to hold them so low for so long fueled the credit boom that led to our current bust.

Since the beginning of the financial crisis in 2008, the Fed has grown more powerful. It has effectively nationalized key parts of the banking system, taken loads of sketchy assets from wobbly banks onto its balance sheet and printed huge sums of money to stimulate the economy. The effects of these actions on average Americans cannot be overstated: Thanks to the Fed, we aren't hoarding money under our mattresses or making runs on banks. And we do not have to worry about the kind of deflationary downward spiral that has mired the Japanese economy for a decade.

Now the debate is turning to the cost of these emergency measures, and their impact on our national debt and on the credit-worthiness of our government. How these issues play out will directly affect how much we have to pay for mortgages or college loans, as well as the kind of returns we'll earn on our 401(k)s.

As with the Supreme Court, an administration doesn't have to be content with the Fed it inherits; it can shape the institution through its appointments. Specifically, the president appoints the Fed's chairman, vice chairman and the five other members of its board of governors, who fill seven of the 12 seats on the Open Market Committee; these appointees are confirmed by the Senate. But for months, the administration has let the board vacancies linger. Failing to replace Justice Stevens, by comparison, would leave a lopsided conservative majority on the Supreme Court. Obama's supporters would never stand for it. And that's why it won't happen.

In March, after dragging its heels for more than a year, the administration finally floated its intention to nominate, along with Yellen, MIT economist Peter Diamond and Maryland bank regulator Sarah Raskin to the Fed's board. But this revelation prompted virtually no media discussion of the candidates' views on whether, for example, the Fed should try to do more to reduce unemployment. Since then, inexplicably, neither Diamond nor Raskin has been nominated, and there's been no further word from the White House. Supreme Court nominees would never be stuck in that kind of limbo, nor would their records go unexplored by senators and journalists.

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