Whose Fed is it anyway?
Nobody is ever satisfied with the way the Federal Reserve Board does its job. That's the way it works. In a city of anomalies the role of the Fed is the strangest of all. In a week or two President Reagan will or won't reappoint Paul A. Volcker as chairman. Then we can all reexamine the matter.
When the Fed was established in 1913 Congress provided an unusual relationship. Other nations had a privately owned central bank at the heart of things; the Wilson administration settled for a quasi-independent agency nominally the creature of Congress. Members required the advice and consent of the Senate. The board would report annually to the House of Representatives. Terms of service would be long; political association attenuated.
The Fed holds the complicated levers that turn the faucet of money and credit. The Constitution gave Congress, not the executive, the money power. The Fed exercises it. Members of the board of governors (though not the officers of the 12 Federal Reserve Banks) are named by the president; he designates who shall be chairman (in this case Mr. Volcker or his successor). In short, the Fed is theoretically independent, ruling the most critical of all commodities, money.
In theory a modern full-employment society moves inexorably toward inflation. Look at the deficit. The US lives beyond its means: Deficits are staggering; they indicate $200 billion of red ink a year, for the next two or three years. Surely things should be tightened up. Nowhere else in the Western world, observed the London Economist a quarter century ago, could such a system be tolerated. Foreigners all say that it is a little amazing that our improbable system works so well.
It is always hard to know who's in charge. Is the tendency toward stalemate growing? Just now there seems near breakdown in agreeing on a formal budget. (Sometimes I think our system here works by habit rather than formal rules.) At any rate, here we are face to face again with the problem of deciding who controls the dollar deficit: Is it Congress, or the White House, or the Fed?
I have watched Mr. Volcker over the years; he is quiet and firm even though subdued. He is a huge man, six foot seven, and it is never quite certain to me whether he really wants the job over which all the fuss is about - a detachment that doubtless adds to his strength. He was picked by Jimmy Carter in 1979. Has his incumbency been a success?
Why yes, in many particulars: Inflation previously was 13 percent, now it is below 4. There are signs of business recovery.
Unemployment is still a savage 10 percent and not changing much. President Reagan argues that he has restimulated recovery by tax cuts and by defense expenditures. Many economists, however, fear the business revival is weak: Wait and see. Mr. Volcker was the first Fed chairman, many declare, to shift the main force of monetary policy from interest rates, and to apply the monetarist technique of money-supply control.
As chairman of the Fed the unflappable Mr. Volcker took a cut in salary to $ 69,800; if he left he could get 10 times that on Wall Street. In last Sunday's television talk shows the well-known Dr. Henry Kaufman of Salomon Brothers told CBS News that Mr. Volcker had saved the nation from inflation: ''He deserves to be reappointed on several grounds.'' Almost simultaneously, over on ABC's ''This Week with David Brinkley'' economists Arthur Laffer and Lester Thurow were praising the same man and Sen. Robert Dole (R) of Kansas, chairman of the Senate Finance Committee, summed it up: ''I'm not the president, but I agree with Art Laffer, that would be an appointment that would be well received not only in the Congress but all across this country, particularly in the financial institutions.''
Such unanimity might almost irritate Mr. Reagan. Who's running this administration anyway? The President might feel more comfortable with his own appointee. He needs a firm understanding with any chairman. In fact in a city of extraordinary intangibles the relationship between White House and Federal Reserve Board is one of the most intangible around as well as the most important and critical.
