The Fed: Independence vs. Accountability

Needing a break from the social sickness displayed so prominently in recent days, I will distract myself with a post on economic policy, specifically, Federal Reserve independence and Lisa Cook.

I get the point about Fed independence. But the sacralization of it in recent days by commentators of virtually all stripes ignores the flip side of independence: accountability.

A Fed that is totally independent of political influence, or influence by other interests, is also totally unaccountable. And unaccounability has its own costs. Indeed these costs can be large.

The Fed is not immune to error. Indeed, the history of the Fed is riddled with colossal errors. I am an intellectual grandson of Milton Friedman (my PhD advisor being a Friedman student), so that fact is burned into my brain.

Indeed, even some of what are widely considered the Fed’s shining moments–e.g., Bernanke’s interventions during the GFC–were necessitated by its previous errors. Should you get credit for putting out the fire you threw gasoline on earlier?

What are the feasible mechanisms for identifying and correcting such errors, and more importantly, for preventing them? That is a hard problem, but complete freedom from accountability ain’t one of them.

The Fed likes to portray itself as a wizard-like entity. Well it is. The problem is, the wizard it most resembles is Oz.

That is, lack of accountability is the flip side of independence. Imperfect people and institutions that are not accountable are prone to make major mistakes, and to persist in making them even when outsiders identify them.

In other words, like all things human, there are trade-offs. Those clutching pearls at Trump’s Fed-bashing abdicate from grappling with those trade-offs.

The potential for Fed F-ups is amplified by another matter of current controversy swirling about Trump, also related to administrative agency independence. Specifically, the wretched record of the Bureau of Labor Statistics in its unemployment/employment statistics.

The huge revisions of the reports originally made in 2024 and early-2025 testify to the potentially wildly misleading nature of these statistics. Of course, Trump being Trump, he ascribes dark political motives to the overstatements of job creation under Biden. But regardless of the motive, the performance is appalling.

Meaning the BLS has to be held accountable. Those bewailing the firing of the agency head are objectively supporting the principle that it should not be so held.

This is of course relevant to the discussion of the Fed, because the Fed touts that its policies are “data driven.”

Garbage in, garbage out, anyone?

Should the Fed be held blameless for failing to identify and call out systemic failings in the production of the data on which it relies? Mightn’t it be better to spend billions on creating independent data sources, rather than, say, building Jerome Powell’s Taj Mahal?

I should also note that Fed independence will not survive a fiscal crisis in the United States. Listening to Treasury Secretary Scott Bessent, rather than Trump, I get the sense that it is fiscal and budgetary issues that lie at the heart of the administration’s hostility to Powell.

Meaning that the Original Sin here is American fiscal incontinence. Arguing about Fed independence focuses on a symptom, rather than the real problem.

As for the issue that has driven the latest “Oh My God Trump is Threatening the Fed!!!” panic–the firing of Fed Governor Lisa Cook–it is also really about competence and accountability.

Lisa Cook is utterly incompetent and unqualified for the position she holds. Full Stop. She is not a macroeconomist–not that that alone should be disqualifying, but it is relevant. She has credentials as an economist–but that is neither necessary or sufficient to demonstrate competence or qualification, especially for a job as vital as Fed governor.

Let me be blunt: she is an embarrassment to the economics profession. She plagiarized. Her CV is laughable. Her most widely cited paper–and the one she is most proud of, regarding the alleged causal role of lynching in stifling innovations by blacks–is so bad that I doubt I am capable of doing justice to its awfulness. She got hired at, and tenured at, Michigan State University. Yeah, and we know how that happened.

In a nutshell. If a la William F. Buckley you open the directory of the American Economic Association to a random entry, the person on whom your finger lands would be more qualified to be a Fed governor than Lisa Cook. Indeed, that would be true of you performed this exercise N times, with large N.

I will also point out that she is a nasty piece of work. Poor, poor pilloried Lisa was front and center in the efforts to cancel (persecute, really) an actually talented economist, Harold Uhlig, over his wrongthink in the George Floyd frenzy.

Which makes it particular disgusting that “450 prominent economists” have rallied around her.

450 prominent economists rally around an embarrassment to the economics profession. She is a plagiarist. Her CV is worse than a joke. Her most cited publication is a farce. The travesty here is not that she has been fired. It is that she was appointed in the first place. https://t.co/A3GSJF75M5

— streetwiseprof (@streetwiseprof) September 2, 2025

Probably an outbreak of Malcom Gladwell-ism by cowardly academics.

Think you are being unfairly attacked, Lisa? Well, karma is a bitch.

The real travesty here is that Lisa Cook was appointed to her august position by a mentally incompetent, race card dealing president, and the Senate confirmed her.

And so we have an indisputably incompetent person on the Fed. Fed independence is so sacred that error cannot be addressed? (Would that there were a way of making the Senate and “Biden” accountable).

As for the pretext for her removal, incompetence should be sufficient “for cause.” Given that’s probably too difficult and too precedential to get courts to buy, credible allegations of mortgage fraud will do.

And that is another testament to her incompetence, and the Senate’s failure of due diligence. She, through arrogance or stupidity or just plain dishonesty, gave Trump the means to remove her.

In addition to the screeching about “independence,” there are also wails about lack of due process.

FFS. you don’t get a trial by jury with a presumption of innocence for everything. The amount of process due depends on the context.

If you are an at-will employee, your due process is basically bupkus. If you can be fired “for cause,” the due process is typically a senior decision maker evaluating your conduct and determining whether sufficient cause exists.

If you are a financial regulator, yes, credible allegations of violating financial laws is pretty much a drop-dead cause. Caesar’s wife, etc.

Note that she has never denied that she lied on multiple mortgage applications. So she’s not even denying the cause. Just saying that it is not sufficient.

Well, what would be then?

Siding with her renders the entire concept of for cause termination null and void. Which would further immunize the Fed from accountability.

In sum, the whole Fed independence battle has been framed in typically Manichean terms, with Trump, as always, cast in the role of Demiurge.

That’s BS. It’s not good v. evil. It’s about difficult trade-offs. If you don’t take that seriously, I won’t take you seriously.