Is norm-breaking America ‘Cooked’?
President Trump’s attempt to sack Fed Governor Cook is part of a broader pattern, not only for his administration but an increasingly partisan US. Other high-income countries are not going the same way.
- US President Trump’s attempts to sack Fed Governor Lisa Cook are part of a pattern of norm-breaking behaviour for the administration. While extreme compared with the past, they are also a culmination of decades-long political trends in the US.
- It is unlikely that other countries will follow the US example. More likely is that they will tack in the other direction to distinguish themselves from the Trump administration.
- As with disruptive personalities in volunteer organisations, the norm-breaking behaviour of the Trump administration is working because others are acquiescing to it. A principled rebuttal from Cook, and CDC head Monarez, could even be the beginnings of a cascade of resistance, if it succeeds.
Back in April, many investors were still reeling about the Trump administration’s rapid-fire policy announcements and break from earlier norms. It was not just the tariffs: the DOGE goings-on, attacks on universities and rising deportation rates were among the other concerns I heard on my client trip that month. All of these issues contributed to a general feeling that the US was no longer a nation of laws. One investor even commented to me that ‘America is cooked’.
Events of recent weeks have continued in this vein. Trump’s attempt to fire Federal Reserve Governor Lisa Cook is part of a pattern of summary firings designed to give the executive more control over institutions and policy, including the heads of the Bureau of Labor Statistics (BLS) and Center for Disease Control (CDC). Financial market participants have been especially focused on the Cook firing, given the importance of the Fed in the global financial system and the weight traditionally placed on central bank independence. Where the enabling legislation stated that officials served at the pleasure of the President, exits have been confirmed. The Federal Reserve is in a different position legislatively, meaning that Governor Cook has so far resisted dismissal by Truth Social post. (Like Cook, CDC head Susan Monarez has refused to resign.)
The Trump administration’s actions, while much more extreme than the past, represent the culmination of a longer-term pattern in US politics. For the past 30 or so years, we have seen increased partisanship and refusal in some quarters to fully accept the results of Presidential elections – from the constant investigation of Bill Clinton, to ‘hanging chads’, to ‘born in Kenya’, to ‘Russian disinformation’, to ‘stop the steal’. We have also seen – as previously noted – a decades-long decline in state capacity in the US. Its political system now struggles to take collective action and make difficult choices in the pursuit of the common good. And the Trump administration has not been the first group to attempt to ruin people’s careers based on mere accusations without due process – that is what some of the more egregious so-called ‘cancellations’ were about.
The acquiescence of other US institutions to the Trump administration’s norm-breaking is also an essential part of the current situation. Recall that Congress could take away Trump’s powers to enact tariffs, if it wanted to. This acquiescence, too, has its antecedents in broader social trends. Plenty of volunteer organisations can attest that when one norm-breaking disruptive personality joins, the organisation is so discombobulated by that person’s outrageous behaviour that it fails to set the necessary boundaries against the behaviour. Standing up to the norm-breaker and asserting the need for due process and rule of law is hard. Not all organisations have managed to find the necessary resolve when faced with a disruptive individual or a staff revolt, petition campaign or online pile-on against a person facing allegations without due process.
Markets seem, again, to be shrugging off the latest headline outrages. In any case, it pays not to take social media posts at face value, and to remember that Trump Ambit Claims Often. Surface appearances might be just that, though. Although the spread between very long US bond yields (30-year) and the usual 10-year benchmarks remains within the range of recent history, it has widened noticeably, especially in recent days. Growing concerns about US fiscal sustainability are finding expression in this way.
We see little prospect that these moves will spill over to other countries to be replicated at their central banks. If anything, other countries will increase the emphasis on the importance of central bank independence, to distinguish themselves from what is going on in the US.
For similar reasons, we see little prospect of other major advanced economies going down the route of the Trump administration. We are in fact seeing increased determination to stand as a democratic bloc apart from the US. The ‘Coalition of the Willing’ European leaders supporting Ukrainian President Zelenskyy at last week’s Washington meeting is a case in point, as is Canada’s increasing engagement with Nordic nations.
The longer-term question is whether these norm-breaking acts by the Trump Administration will do lasting damage to the US’s economic performance and place in the world. This is a question of whether the checks and balances built into US institutions will ensure that they heal themselves in future years. Some of the pivots by the US’s western and Asian allies to be more self-reliant on defence will be hard to reverse. (And it’s giving President Trump what he wants.) If the experience of Brazil and the Philippines is any guide, though, norm-breaking governments do get voted out, and their legacies tend to fade as successor governments take a more moderate approach.
We also cannot rule out that resistance by Fed Governor Cook and CDC head Monarez could be the beginnings of a preference falsification cascade. First theorised by the economist Timur Kuran, the idea is that people might believe one thing, but do not express it publicly because it does not feel safe to do so. So they think everyone else believes the socially acceptable views publicly expressed even though that is not actually true. Once a few people start stating their true beliefs and ‘survive’, others join in and reveal their own true beliefs. The previous presumed consensus can crumble quickly under these circumstances.
The independence of Fed policymaking is key to the good functioning of global financial markets. But it may be that there is more at stake in a successful resistance of Trump’s attempts to fire Cook and Monarez than the position of the central bank.
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