When a special federal court panel struck down the Gramm-Rudman law's system of automatic budget cuts, it did more than throw in doubt whether the highly touted deficit reductions will ever take place.
Because of the legal underpinnings of the decision, it also exposed the Federal Trade Commission and other regulatory agencies that have been considered "independent" -- especially the Federal Reserve Board -- to a new form of attack: from conservatives who believe these agencies should be subordinated to executive power.
The shoe has often been on the other political foot. For most of the Eisenhower presidency, Democrats complained about the independence of the Fed under chairman William McChesney Martin. The Democrats argued that tight-money policies pushed by Martin, and acquiesced in by Ike, led to three recessions and high interest rates.
In the 1960 campaign for the presidency, John F. Kennedy's advisers talked freely of the need to fire Martin, or somehow box him in. At that stage of history, preservation of the "independence" of the Fed became a rallying cry for conservatives. It was so effective that Kennedy was forced to tone down his assaults.
Actually, Kennedy as president and Martin hit it off well, and JFK in 1962 reappointed Martin to a four-year term. As most recent chairmen have privately acknowledged, the American central bank can be independent within the government, but not truly independent of the wishes of any national administration.
All "independence" has ever meant is general acceptance of the view that the chairman and governors, who have long (up to 14-year) terms of tenure, are not part of the usual political process. That is, they do not have to fear being removed by the president if the president happens to disagree with Fed policy.
The Fed board "was given political independence so that it would be able, when necessary, to point out that the public interest required a halt to inflationary pressures," wrote former governor Sherman J. Maisel in "Managing the Dollar," published in 1973.
Now, in the wake of the Gramm-Rudman ruling, that sense of security of tenure is precisely what is being questioned. Bruce Fein, former general counsel of the Federal Communications Commission, now a scholar at the American Enterprise Institute, goes so far as to say that the decision paves the way for "a wholesale re-examination" of past precedents supporting the independence of the regulatory agencies, and an invalidation of "their independence from presidential removal."
Here's why. In the Gramm-Rudman case, the lower court said that the comptroller general could not make the final decision triggering automatic budget cuts: that is a proper function of the executive branch, and the comptroller general is responsible to Congress, not to the president.
Since the comptroller general cannot be removed by the president, that official cannot exercise executive powers, the court said. Thus, the panel seems to be saying that only someone who can be removed by the president can exercise executive powers.
So where does that leave the Fed, and the Federal Trade Commission, and other regulatory agencies whose governors or commissioners cannot be removed by the president (except for neglect of duty, inefficiency or malfeasance, subject to judicial review)?
Fed General Counsel Michael Bradfield said in a brief conversation that the ruling "raises a question, but it's premature to be seriously concerned." To adopt the full implications of the lower-court ruling, he said, the Supreme Court would have to reverse 150 years in which the concept of the independence of agencies with quasi-judicial or quasi-legislative powers has prevailed.
Fein nonetheless argues that if the Supreme Court upholds the lower court on Gramm-Rudman, the other agencies will be able to carry out their functions only if the commissioners and governors are for the first time subject to being dismissed by the president.
The Federal Reserve System is especially vulnerable, in Fein's view. That's because the Federal Open Market Committee -- the main policy-making mechanism of the system -- "has a majority of persons who aren't even appointed by the president, much less removable (by the president)."
He's not quite right: the 12-member FOMC is composed of the seven presidentially appointed reserve board governors and five of the 12 presidents of regional Fed banks, selected by those banks. The five presidents (the head of the New York Bank and a rotating four out of the other 11) constitute an important power bloc -- and all 12 attend the FOMC meetings -- but they are not a majority.
Nonetheless, if the Supreme Court upholds the reasoning by which the lower-court panel erased the comptroller general from the Gramm-Rudman process, we can anticipate lawsuits by disgruntled citizens or banks who will ask that various decisions of the Fed or other agencies be held invalid. If that happens, the long-term result could be to dilute or even eliminate the exercise of executive powers outside the president's control.