Politics and the Fed? A recipe for disaster

It's funny. I always assumed that, by this time in my life I would be involved heavily in the political process. But, other than my non-partisan position as a government official and enjoying reading about and watching the world, I'm not involved. And I expect I'll be staying that way.

I had the chance to see the Illinois legislature in (in)action on May 31 (yes, a Saturday -- the last day a budget can be passed without requiring a super-majority and it reminded me of how much politics and how little statesmanship is involved in government these days.

Now I read in The Economist that Congress is holding up not just judicial appointments but nominees for the Board of Governors of the Federal Reserve. Why?

No one doubts Mr Bush's candidates are qualified. The hold-up is ideological. Democrats want to wait until after November's election so that a new president can, as one senator put it, “remake the Fed” by appointing a clutch of new people at once. That is reckless on several counts.

In the short term, the central bank will be starved of talent and leadership at an extremely tricky time. Power in monetary policy will also shift.

The piece goes on to say:

The real danger, however, lies further ahead. Mr Bernanke's term as Fed chairman expires in 2010. With lots of governors to appoint at once, and the prospect of a new chairman within two years, the next president will have unprecedented power to reshape the Fed. Governors are appointed for overlapping 14-year terms precisely to avoid this concentration of power.

The governors already have to make tough choices about fiscal and regulatory policy. Politicizing this process only makes things worse. And, yes, I think this is a bad idea regardless of who wins the election. And to the extent the current or previous presidents have politicized the process, shame on them. Not everything is or should be political. And our lives and livelihoods should not be among them. Imagine the potential impact on the real estate market with a politicized Fed.