Following there are two hypothetical ways in which the Federal Reserve
Board might be appointed.  Would you favor either of these two methods
over the present method?  Why or why not?

A.  Upon taking office, the U.S. president appoints seven people to
the Federal Reserve Board, including a chair.  Each appointee must be
confirmed by a majority vote of the Senate, and each serves the same
4-year term as the president.

B.  Congress selects seven members from its ranks (four from the House
of Representatives and three from the Senate) to serve at its pleasure
as the Board of Govenors of the Federal Reserve System.

Hi Vonsedric, 

Neither of the proposals you have listed is an improvement over the
current FRB appointment process.  I'll briefly explain the current
system and then I'll give you some reasons why each of the proposals
is worse than the current system.  At the end of the answer I'll
include some links you may want to check out to learn more about the
board and convince yourself that the current appointment process is
better than the two presented here.

Currently board members are appointed by the President and confirmed
by the Senate.  They are appointed for a term of 14 years.  The law
requires that the appointments should yield a "fair representation of
the financial, agricultural, industrial, and commercial interests and
geographical divisions of the country."
The appointments are staggered so that one expires on January 31 of
every even numbered year.  This creates continuity in the makeup of
the board.

One of the board's strengths is its political independence.  Like
supreme court judges, once a governor is appointed he or she cannot be
removed for his or her policies.  This separation allows the board to
pursue sound monetary policy without fear of political repercussions.

The problems with the two proposals you outlined are as follows:

Proposal A Problems:
---------------------

- Appointments that coincide with presidental elections would surely
end up being highly political.

- A 4-year term is too short for the board members to maintain long
time horizons in their policy decisions.  Monetary policy works
relatively slowly and members need to have terms long enough to see
policy changes take effect.

- Appointment of the whole board at the same time would cause extreme
disruption in monetary policy.  The uncertainty this would cause in
the financial markets would have serious consequences for the currency
and equity markets.  This would be exacerbated by the coincidence of
appointments with the presidential elections which already create
uncertainty.

Proposal B Problems:
---------------------
- Appointments of members of the House and Senate would almost
certainly not be experts in economics and monetary policy.  They would
also be less likely to meet the requirement of fair representation.

- Appointees who serve at the pleasure of Congress could be dismissed
at any time if their actions were not politically popular.  This would
eliminate the independence that the board currently enjoys. 
Ultimately this would lead to bad policy-making.

- The variable length terms would add extreme uncertainty to the
markets.  As with the previous proposal, this would have a negative
effect on currenty and equity markets.

- As with the previous policy, the terms are too short for effective
monetary policy decisons.

-----------------------

Some links you might want to check out for further reading on the subject:

The Federal Reserve Board site: 
http://www.federalreserve.gov/

Wikipedia article on the Federal Reserve:
http://en.wikipedia.org/wiki/Federal_Reserve

How the Fed works from howstuffworks.com:
http://money.howstuffworks.com/fed.htm

Some anti-Federal Reserve information:
http://www.federal-reserve.net/

----------------------

I hope this information proved useful to you.  Let me know if you need
any clarification.

Hibiscus