Democratic Dilemmas of Elite Institutions: Comparing the Court and the Fed

Abstract

The Supreme Court and the Federal Reserve, twin pillars of the liberal market order, have never been systematically compared. Yet, as elite institutions in a democratic political world, they face parallel problems in carrying out similar functions of maintaining the precommitments to a stable rule of law and a stable value of money respectively. Both face a countermajoritarian difficulty of justifying their decisions on occasion to go against popular will. In response, both tie themselves to rules in order to cabin their own discretion and to prevent epistemic mistakes common in small groups of insulated decisions makers. Yet as a descriptive matter in emergencies both transcend rules to keep the republic steady.

The comparison illuminates parallel dilemmas sometimes recognized in the context of one institution yet denied or ignored in the other. For instance, commentators appreciate the epistemic difficulty of small-group decision making as a major problem for the Fed, while this is not often seen as an issue for the Court. Moreover, the Fed admits it acts differently based on its own evaluation of an emergency, but the Court often does not acknowledge altering its jurisprudence in an emergency. Yet decisions like Bush v. Gore and Wickard v. Filburn are best explained as rooted in emergency judgments similar to the Fed’s. More transparent acknowledgment of the decisiveness of such emergent circumstances would make it easier for the Court, like the Fed, to unwind from its prior judgments in non-emergent circumstances.

In addition, the parallel independence of these entities is not only necessary for their purposes but also face similar perils in a time of polarization like our own. Today, the central bank is considering whether it should engage in new forms of activism to address such problems as climate change and inequality. The Supreme Court’s history shows the substantial risk that such activism will undermine the diffuse support among elites. That loss of support leads to political movements, like court packing or favoring structural change for the Fed, that make it more difficult for such institutions to preserve their independence and sustain their precommitments.

Keywords: Supreme Court, Federal Reserve, countermajoritarian difficulty, emergency, polarization

JEL Classification: K10, K30