It has been a key tenet in the current ideology of liberal democracy that, while regulatory powers are being transferred from Congress to the presidency, fiscal authority remains firmly in the hands of Congress. The power to tax and spend is at the core of sovereign power, and so as long as Congress retains this power, we aren’t really yet in a system of presidential primacy, as some people have argued.
Yet there are clues that even the fiscal power is drifting over to the executive branch, or at least away from Congress. The New York Times today reports on efforts by economists and central bankers to persuades legislatures to spend more money in order to stipulate economic growth. But Congress won’t; it’s gridlocked as always. So who is going to do it?
The central banks, of course. It has long been understood that while central banks are supposed to limit themselves to “monetary policy” (controlling the money supply by buying and selling securities, lending to and borrowing from banks, and so on), they have in recent years been engaging in fiscal policy as well. They do this mainly by purchasing long-term government bonds, private bonds, and quasi-government bonds (like GSE bonds). These purchases are premised on the assumption that, by promoting economic growth, they will eventually drive up interest rates, which will result in the loss of value of those bonds, in which case the central bank will lose money and pass those losses onto the “government” (Congress and the president), which will need to raise taxes or cut spending.
This has always been true—indeed, in my own hazy understanding the distinction between monetary and fiscal policy is not very clear, since the government expects to receive the “profits” from monetary policy in any event and plans accordingly—but the key point, as reflected in the Times article, is that the more overtly fiscal aspects of central bank activity is being normalized, as a result of lingering post-crisis economic stagnation, here and in other developed countries, along with legislative gridlock.
True, the president does not control fiscal policy—not yet—but the gradual, barely noticed, shift of fiscal policy from Congress to a regulatory agency deserves more attention than it has received.