Introduction
The independence of central banks, a significant political revolution of the late 20th century, led to a decrease in inflation rates worldwide. However, the foundations of this institutional paradigm are now eroding, particularly in the United Kingdom and the United States.
Historical Context
President Donald Trump’s attacks on Federal Reserve Chair Jerome Powell have been unusually harsh, but tensions between the Federal Reserve and the White House are not new, especially when national security dominates political agendas. For instance, President Harry Truman pressured the Federal Reserve to keep interest rates low during the Korean War, while President Richard Nixon openly intimidated Federal Reserve Chair Arthur Burns. Even Ronald Reagan didn’t hide his frustration with Paul Volcker’s restrictive monetary policies.
Post-Cold War Era
After the Cold War, a “peace dividend” and significantly improved fiscal conditions fostered relatively harmonious economic policy in the U.S. However, persistent deficits and the prospect of a new Cold War with China have reignited the fundamental tension between executive power and the Federal Reserve.
Trump’s Attacks on Powell
Trump’s relentless insults against Powell, calling him “stupid,” “stubborn mule,” and “always too late,” add a particularly caustic touch to their relationship. His latest target is the ongoing renovation of the Federal Reserve’s headquarters in Washington, denouncing the “palace” project as unnecessary extravagance and overbudget.
Parkinson’s Law of the Institutional Building
Trump’s new line of attack echoes a classic observation by British satirist C. Northcout Parkinson. In his 1950s writings, Parkinson noted that opulent new headquarters often signal institutional decay. He wrote, “Planned distribution is perfected only in institutions on the verge of collapse.”
Parkinson’s Examples
- Louis XIV: Moved his court to Versailles in 1682, just as France was recovering from a series of military defeats.
- League of Nations: Began construction of its grandiose Palace of the League of Nations in Geneva in 1929, at the start of the Great Depression, and completed it in 1938, when the League had lost relevance.
- Central Banks:
- The Bank of England, then privately owned, undertook a significant reconstruction in the 1930s, coinciding with its loss of credibility after policy failures during the Great Depression. By 1946, critics had succeeded in nationalizing it.
- The German government built a new headquarters for the Reichsbank between 1933 and 1938, as it transformed into a public spending and rearmament instrument. In contrast, post-war central banks with the most independence occupy modest buildings: the Swiss National Bank remains in its original facilities, while the German Bundesbank operates from a less attractive brutalist structure built in the 1960s.
- European Central Bank: Broke this tradition with its imposing Frankfurt headquarters, designed by Coop Himmelb(l)au and completed in 2014, intending to symbolize “transparency, communication, efficiency, and stability.” However, a year later, the ECB launched a significant quantitative easing (QE) program with little transparency, turning the new building into a symbolic stand-in for political effectiveness.
Quantitative Easing and Fiscal Challenges
During the COVID-19 pandemic, central banks worldwide implemented quantitative easing (QE) measures, triggering another surge in asset purchases. This significantly expanded their balance sheets and set the stage for structural challenges, especially in the U.K. and the U.S.: after assuming large amounts of long-term debt, central banks became vulnerable to substantial losses when interest rates rose.
Managing the Risk
This risk can be managed through a formal government guarantee, as in the U.K., where the Treasury explicitly covers the Bank of England’s losses. Alternatively, it can be addressed through an implicit understanding, as in the EU, where it’s universally assumed that the Federal Reserve can never fail.
Expanding Public Deficits
Persistent deficits have led to a trend towards short-term debt and a strong increase in servicing costs. In the U.S., national interest payments rose from $223 billion in 2015 to $345 billion in 2020, projected to surpass a trillion dollars by 2026, even exceeding defense budgets. The U.K.’s figures are equally striking: of the £143 billion it needs to borrow, £110 billion goes towards servicing existing debt.
Interdependence and Loss of Political Autonomy
Governments and central banks are increasingly interdependent, undermining the notion of true political autonomy. The U.S., where government-central bank interdependence fuels current political unrest, exemplifies this. Trump’s aggressive rhetoric may foreshadow how future administrations behave.
Treasury Secretary Scott Bessent’s Call for Investigation
Treasury Secretary Scott Bessent highlighted these tensions by requesting an investigation into the Federal Reserve’s entire institution. In a X post, he warned that the Fed’s political autonomy is threatened by persistent encroachment of its mandate into areas beyond its primary mission.
Architectural Symbolism
Architecture provides a symbolic lens through which to observe the evolving relationship between governments and central banks. While Trump criticizes the scale and opulence of the Federal Reserve’s renovation, he also plans his own costly construction program. One of Trump’s first actions upon returning to the White House was to request a redesign of federal buildings to “respect regional, traditional, and classical architectural heritage,” aiming to “elevate and embellish public spaces and enhance the United States and our system of self-governance.”
Conclusion: The Late Louis XIV Phase?
Is the federal government falling victim to Parkinson’s Law? Should the obsession with neoclassical architecture be interpreted as a sign that the administration has entered its late Louis XIV phase, marked by extravagance and fiscal problems?
The Author
Harold James, Professor of History and International Affairs at Princeton University, is the author of Seven Crashes: The Economic Crises That Shaped Globalization (Yale University Press, 2023).
Copyright: Project Syndicate, 1995 – 2025
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