Is Monetary Policy Boring? What Trump Could Do with it is Terrifying
Maybe Donald Trump's promise to use criminal prosecutions to punish those who displease him is not enough to scare you to death. After all, even if Trump carries through on his threats, that reign of terror might not directly affect you. Why not? As one possibility, you might be a person who thinks of yourself as simply an average American -- OK, not truly average so much as the 1950's version of "normal" that thrills the Republican Party, making you a white non-LGBTQ+ Christian dude with higher than average income and wealth.
If so, you will not only feel unthreatened by the culture warriors who would accompany Donald Trump back to Washington, but if you have never done anything that puts you in the category of "enemies of the state," you would never be rounded up with MSNBC's Chris Hayes or late-night comedians like Jimmy Kimmel and Seth Meyers when the time comes. Nothing for you to worry about when the rule of law is tossed aside for political retribution, right?
Before I analyze that question, I will note in passing two of the items in today's news cycle that seem important at different levels but about which there is not much to say.
First, Nikki Haley has at last announced publicly that she will vote for Trump. I cannot resist quoting myself from a Dorf on Law column on March 7, in which I discussed how some former Trump aides are actively opposing his candidacy, whereas the current Senate Minority Leader and others bend the knee: "[O]ne cannot help but applaud people in [the former aides'] position for refusing to do what McConnell and (soon enough) Haley cannot stop themselves from doing: caving and enabling a would-be dictator." I would be prouder of myself if this were not so utterly predictable.
Second, New York Times reporter Jodi Kantor has followed up her bombshell report regarding a "stop the steal" flag flying at Sam Alito's house eleven days after the January 6 insurrection, now breaking the news that Alito flew a different Trumpist flag at his vacation home. With Professor Dorf having already provided a serious take-down of Alito's response to the first story, and Professor Segall just yesterday offering a top (as in bottom) 10 list of Alito's inglorious career, there is not enough to say about this news to justify writing a full column about the latest outrage.
I will note in passing, however, that Kantor's stellar reporting did include one detail that caught my eye, where she (along with two co-authors credited on the byline) wrote that a far-right evangelical Trump supporter "described Justice Alito, the member of the court most committed to expanding the role of faith in public life, as their great hope: a vocal defender of religious liberty and opponent of the right to abortion and same-sex marriage."
Although I have no doubt that this was accurate reporting of the Alito acolyte's words, I do feel it necessary to remind everyone of what the late Professor Sherry Colb described vividly in 2022: Samuel Alito is not a defender of religious liberty but rather of a very particular brand of far-right Christian nationalist license. We would not call a genocidal maniac a defender of human rights for advancing the rights of a subset of all humans, and we should similarly not forget that Alito's version of religious liberty is one that grants freedom to a tiny subset of humans at the expense of everyone else's liberty, religious and otherwise. Again, that is not an error in Kantor's reporting about these extremists, but it is essential not to concede the word "liberty" to people who would deny it to those they deem heretics.
Again, it makes sense that those two stories made it into today's news cycle, the second being obviously much more important than the first. At this point, however, there is simply nothing more to say about either topic.
The under-appreciated story that I wish to discuss instead is how Trump could pervert the rule of law in a much less newsworthy way, using the financial system in ways that would harm even those people who have never done anything to Trump that would anger him. This story is all about the inherent fragility of the financial system, which means that it is about whether even the few people who think they have stable incomes and safe retirement accounts could be ruined by terrible, politically motivated decisions in a Trump perma-presidency.
A few months ago, in "How Trump's Theocrats Can Punish Everyone They Hate," I described how Trump could install people in relevant executive agencies and empower those minions to use various laws to harm his enemies. Comparing this to a plot line from "The Handmaid's Tale" (which I continue to think of as a "pre-documentary"), I described how a motivated autocrat could change laws and abuse regulatory authority to steal people's money. In Gilead, women's financial assets were legally seized, leaving them penniless and dependent on men (which in some cases was part of the plan to force some of those women into sexual slavery). The cold reality is that what we think of as our money is ours only so long as the laws of property, contract, tort, securities markets, and so on can be relied upon.
As important as all of that is, however, my purpose today is to discuss how policies can hurt people who are not political targets. The story here is thus not about targeted vengeance in a Trumpian dictatorship, where the "good people" are able to look the other way and happily live their upper- or upper-middle-class lives. It turns out that MAGA conservatives are not only planning to replace all neutral civil servants with political hacks who will do the bidding of a rampaging Trump. They are also openly discussing the outright politicization of monetary and financial policy.
A month ago, a Wall Street Journal article ran under the headline: "Trump Allies Draw Up Plans to Blunt Fed’s Independence." This morning, The Times added this: "What Trump 2.0 Could Mean for the Federal Reserve." In both articles, the story is the same, which is that Trump's longstanding anger at the Fed is leading some of his advisors to suggest a range of possible strategies to bring the nation's central bank under his control.
I happen to care about this issue quite deeply, as demonstrated by Don't End or Audit the Fed: Central Bank Independence in an Age of Austerity, a 60-page Buchanan-Dorf law review article from 2016. In those carefree pre-Trumpian days, Professor Dorf and I were mostly concerned with relatively marginal -- but still dangerous -- ideas that had long floated around on the libertarian far right (and occasionally on the fringes of the left) that were purportedly designed to let "the people" control monetary policy. In that piece, we took care to describe the delicate balance between democratic accountability and technocratic decision making, and although we acknowledged that the Fed's current level of political insulation might arguably not be just right in the Goldilocks sense, we concluded that we would not do anything to make the Fed less independent than it currently is.
Guess what the Trumpists would do? Their most aggressive idea is to end the Fed's political independence entirely, with some slightly less extreme versions including having Trump "play a role" in setting policy. Both of the news articles linked above go out of their way to say that the most extreme moves are unlikely, with The Times saying that "[c]urbing the central bank’s ability to set interest rates without direct White House influence would be legally and politically tricky." Such calming thoughts necessarily rely on how difficult things are under current law to reduce Fed independence, but one of the points of this thought exercise is to ask what Trump would do after he has established his iron rule.
Even so, let us play the incrementalist game and see what could happen. It is true that some of Trump's strongest supporters are the billionaires and hard-right business types who love his anti-union, anti-consumer, and anti-environmental policies but who would hate it if Trump were to mess up the financial system. Even so, there are plenty of things that a Trump-led executive branch could do, and plenty of other things that a Republican Congress could pass, that would be harmful not only to Trump's enemies but also to his voting base.
A few decades ago, it took federal legislation to protect credit card users from financial liability when their cards were stolen. Card issuers then started bragging about how they would not charge account holders for fraudulent transactions, acting as if they were doing so out of the goodness of their hearts. More broadly, we can think about all of the ways that our financial lives depend on a complex web of rules that could be changed at any time. What if, for example, it became possible for banks to change the length of time before an account were deemed to be dormant, which would then allow an institution to seize a depositor's funds? And do not forget that there is no irreverisble right under the law for such institutions to provide fair notice of such changes.
Politicized Trumpian financial regulations could thus benefit the people who run the financial sector but harm people who never did anything that should have caused them to suffer under Trump. (They would also be breathing dirtier air as well as buying unsafe consumer products, food, and drugs, but never mind.) The larger point is that the financial rules that can be used to harm people in a targeted way (seizing, say, Oprah's assets) can also be used to enrich some at the expense of others across the board.
Moreover, there is every reason to believe that the people who are now saying that it is "unthinkable" that Trump could be given direct power over setting interest rates will quickly fall in line (a la Nikki Haley) and say that they have no problem with Trump doing what Trump wants to do. After all, the less openly autocratic Trump is, the more Republicans have to worry about losing elections. And the more the Republicans have to worry about losing elections, the more of an incentive they have to allow Trump to carry out politically driven monetary policy. Even the autocracy-lite version of Trumpism, then, runs the danger of harming everyone's financial security and our ability to control and predict our financial fates.
I will close by reminding readers that there is no "neutral" set of financial laws and regulations to which a government should be expected to adhere. Every law, regulation, and rule can be changed, and every change has the possibility of being made with corrupt intent in a system that is no longer limited by the niceties of anti-corruption statutes or guided by independent expert judgments. Moreover, even people who do not wish to destroy the financial system on which they themselves rely can nonetheless run disastrously off course, taking the rest of us down with them. The details are boring, but the stakes are impossibly high.