Binder is a professor of political science at George Washington University and is affiliated with the Brookings Institution, while Spindel works at his own hedge fund, Potomac River Capital. The two bring to the book differing perspectives, representing both the academic world and the practitioner world.

It is useful to compare and contrast Binder and Spindel’s book with Conti-Brown’s, as both focus on the issues at the core of the Fed’s independence: its interactions with Congress, its underlying enabling legislation, and its evolving governance. Notwithstanding these areas of overlap, the two books are very different in their approach to the topic of independence. Whereas Conti-Brown spends a great deal of time on the broad range of functions housed within the Fed, Binder and Spindel concentrate almost entirely on monetary policy. Conti-Brown also focuses much more on the individual chairmen and staff who have stood out over time and influenced the Fed’s development, allowing his somewhat stronger storytelling skills to show through. In contrast, Binder and Spindel spend much of their time diving into the minutiae of the politics of the Fed, as revealed through the recitation of vote counts on many of the 19 times that Congress chose to revisit the Federal Reserve Act after its enactment in 1913 through the Dodd–Frank Act in 2010.

Independent or interdependent? / The title of the book makes clear that the Fed is actually not independent of its government creators, notwithstanding the lip service given to the concept both inside and outside the government. “We challenge the most widely held tenet about the modern Fed: central bankers independently craft monetary policy, free from short-term political interference,” write Binder and Spindel. They convincingly make their case that the concept of the Fed’s power is still evolving when they discuss the cycle that has characterized the Fed’s century of existence: “Crisis begets blame and blame begets reform.”

The authors go a step further when they repeatedly argue throughout the book that

Congress and the Fed are interdependent. From atop Capitol Hill, Congress depends on the Fed to both steer the economy and absorb public blame when the economy falters.… In turn, the Fed remains dependent on legislative support.… Fed power—and its capacity and credibility to take unpopular but necessary policy steps—is contingent on securing as well as maintaining broad political and public support.

Three foundings / Conti-Brown labeled the major sequential benchmarks in the Fed’s early development as the “three foundings of the Federal Reserve”: the Federal Reserve Act of 1913; the Banking Act of 1935; and the Fed–Treasury Accord of 1951. Three of Binder and Spindel’s eight chapters of the book crosswalk nicely to these same three milestone periods.

The authors first focus on the Fed’s enabling legislation, its decentralized system, and the choice of the cities for the 12 individual reserve banks by the Reserve Bank Organization Committee (RBOC). Some of the choices by the RBOC were obvious financial centers (New York, Chicago, and Philadelphia), but at the time others were not (Dallas, Richmond, and Atlanta). Binder and Spindel conclude that thanks to President Woodrow Wilson’s appointments to the RBOC, “Democrats exploited their delegated power to mold a politically optimal system—one that would simultaneously attract the support of the system’s member banks and benefit the credit-poor, Democratic South.”

According to the authors, this decentralized system was a contributing factor to the Depression within a few decades of its creation: “The signature achievement of Wilson’s administration proved incapable of generating effective monetary policy in the 1920s, contributing directly to the onset and severity of the Great Depression in the early 1930s.” The aftermath of the Depression is the initial instance of crisis/​blame/​reform that Binder and Spindel use as a case study for their political models, as they identify two major power struggles within the decentralized Federal Reserve System: disagreements over discount rates and open market operations.

Although there were multiple amendments to the Federal Reserve Act from 1933 to 1935, the power center for governance took a decidedly Washington-based turn:

The Fed emerged far more centralized and more powerful in 1935 than its 1913 design…. The regional reserve banks retained a role in making national monetary and credit policies. But enactment of the 1935 Banking Act diminished their ability to resist policy decisions made by a reconstituted, reinvigorated Board.

The focus of The Myth of Independence then turns to the third and final of the three foundings of the Federal Reserve, which had even greater implications for its independence. Binder and Spindel write:

Even as lawmakers moved to centralize monetary policy decisions in Washington, the Fed did not become measurably more independent…. The Fed found itself under the thumb of the Treasury throughout the subsequent war years.

The Fed–Treasury Accord of 1951 transformed the relationship between the two major government players in the financial markets. Binder and Spindel explain:

As the ultimate buyer of U.S. government bonds, the Fed had been compelled to effectively monetize U.S. debt at a low, fixed rate. The Accord ended this clear subordination of monetary policy to fiscal authorities and empowered the Fed to set interest rates unencumbered by the Treasury’s postwar financing needs.

What they bring to light is Congress’s involvement in developing the Accord:

Congress was at the center of the 1951 dispute [as] … key lawmakers empowered the Fed to reassert its control over monetary policy…. In short, the Fed–Treasury divorce allowed Congress to rebalance legislative oversight over monetary and fiscal policy.

A few years earlier, the 1946 Employment Act laid the groundwork for a clearer mandate and enhanced accountability for the Fed’s operations.

Name, blame, and shame / A period of strong growth and modest inflation during the years of William McChesney Martin’s Fed chairmanship came crashing to an end with the stagflation of the mid- and late-1970s. Under the crisis/​blame/​reform cycle, a heavy dose of blame was laid at the doorstep of the Federal Reserve. As a result, the now-familiar Humphrey–Hawkins “dual mandate” of maximum employment and stable prices (with moderate long-term interest rates) was formally imposed:

The public held the Fed responsible for the economic downturn…. Lawmakers blamed the Fed as well…. Unlike previous cycles that largely endowed the Fed with more centralized power, an emboldened Congress imposed an explicit macroeconomic mandate on the Fed, and required far more transparency and accountability—enduring reforms that continue to shape Congress and Fed interdependence.

During this timeframe, there was also what the authors call “The Original Audit the Fed” movement. This transparency mandate is now largely championed by Republicans, but during the 1970s it was promoted by the Democratic Party. Not surprisingly, there was pushback from the Fed in a defense of operational opaqueness: “The Burns Fed orchestrated an aggressive lobbying campaign against each of these legislative efforts.” The smoking gun for this lobbying can be found in former chairman Arthur Burns’s papers, which “detailed the Fed press office’s efforts to place ‘horror stories’ about potential audits in the Wall Street Journal, Washington Post, and other prominent news and business papers.”

Unfortunately, Burns’s campaign worked to keep government auditors from reviewing the most sensitive of Fed policy issues. Binder and Spindel write:

Burns’s efforts paid off…. With the [General Accounting Office, now known as the Government Accountability Office] banned from auditing monetary policy decisions, the limited audit has survived nearly four decades since its creation in the wake of the Fed’s 1970s failures.

Binder and Spindel devote the final historical chapter (“The Only Game in Town”) to the Fed’s response to the crisis in 2008 and 2009: “Starting in late 2008, the Fed’s unconventional, untested and exigent central bank tools blurred the lines between monetary and fiscal policy, exacerbating the Fed’s already-tense relationship with Congress at a time of severe economic stress.” Congress in particular fought the Fed on its opaque implementation of propping up the financial system:

The Fed sparked public and elite outrage. First, critics demanded public disclosure of the recipients of the Fed’s loans. Given the Fed’s resistance to disclosure, it took legal and ultimately congressional action to force the Fed to reveal the recipients of its emergency loans…. Lawmakers from both parties rejected the Fed’s position that disclosure would undermine the effectiveness of their emergency lending programs.

Typical of previous episodes of the crisis/​blame/​reform cycle, “in reopening the Federal Reserve Act, lawmakers gave the Fed more responsibility while imposing more transparency and clipping some of its powers,” Binder and Spindel write. The increased transparency did not include the “Audit the Fed” efforts that have now become much more of a cause-célèbre for Republicans than Democrats.

Conclusion / The Myth of Independence puts in historical perspective the evolution of the Fed’s powers and its imposed restrictions, making clear that politics more than any other factor drove its creation and maintains its continued existence. Based on my reading of Binder and Spindel, the Federal Reserve Act we are left with still concentrates far too much power to influence the economy in the hands of the Fed’s management and only requires minimal transparency and restrictions on the Fed’s underlying operations.