The Myth of Independence: How Congress Governs the Federal Reserve

Binder and Spindel have written an extremely thorough study of the Federal Reserve that shows how the institution, while in theory insulated from politics, is in reality anything but. Binder and Spindel persuasively argue that Congress and the Federal Reserve are interdependent entities. By giving the Fed the power to control monetary policy and steer the economy, lawmakers gain their own convenient scapegoat when the economy sours. Likewise, the Fed relies on Congress for political support to implement “unpopular but necessary” policies. The authors chart the history of the Federal Reserve, from its formation under the Federal Reserve Act of 1913 (following the Panic of 1907) to its present-day role as “the only game in town” for setting economic policy, given a divided government unable to agree on tax cuts or fiscal stimuli. Throughout, fascinating graphics depict the interrelationship between the Fed and congressional politics: one chart links the number of bills introduced to govern Fed policy with the unemployment rate. Binder and Spindel convincingly dispel the “myth” of the Fed’s independence as one of the Capitol’s urban legends. [em](Sept.) [/em]