When grand buildings signal institutional decay

Ammon

4 days ago

Ammon News -
PRINCETON — Central-bank independence, one of the late twentieth century's most consequential policy revolutions, led to a decline in inflation rates around the world. Today, however, the foundations of that institutional paradigm are eroding, particularly in the very countries that once epitomized it: the United Kingdom and the United States.
While US President Donald Trump's attacks on Federal Reserve Chair Jerome Powell have been unusually abusive, tensions between the Fed and the White House are nothing new, especially when national security dominates the political agenda. During the Korean War, President Harry Truman pushed the Fed to keep interest rates low to help finance defense spending. President Richard Nixon openly bullied the hapless Fed Chair Arthur Burns, and even Ronald Reagan made no secret of his frustration with Paul Volcker's tight monetary policies.
In the aftermath of the Cold War, the so-called 'peace dividend' and a much-improved fiscal position made US economic policymaking relatively harmonious. But today, persistent deficits and the prospect of a new Cold War with China have reignited the fundamental tension between the executive branch and the Fed.
Trump's relentless barrage of insults directed at Powell, calling him a 'numbskull,' a 'stubborn mule,' and 'always too late' – adds a particularly pungent flavor to the relationship. His latest target is the cost of the ongoing renovation of the Fed's Washington headquarters, denouncing the 'palatial' project as needlessly extravagant and wildly over budget.
Trump's new line of attack echoes a classic observation by British satirist C. Northcote Parkinson. Writing in the 1950s, Parkinson noted that lavish new headquarters often signal institutional decline. As he put it, 'a perfection of planned layout is achieved only by institutions on the point of collapse.'
To illustrate his 'law of buildings,' Parkinson cited the example of Louis XIV, who moved his court to Versailles in 1682, just as France was reeling from a string of military defeats. He also pointed to the interwar League of Nations, which began construction of its bombastic Palais des Nations in Geneva in 1929 – at the onset of the Great Depression – and completed it in 1938, by which point the League had become irrelevant.
Trump's new line of attack echoes a classic observation by British satirist C. Northcote Parkinson. Writing in the 1950s, Parkinson noted that lavish new headquarters often signal institutional decline. As he put it, 'a perfection of planned layout is achieved only by institutions on the point of collapse.'
To illustrate his 'law of buildings,' Parkinson cited the example of Louis XIV, who moved his court to Versailles in 1682, just as France was reeling from a string of military defeats. He also pointed to the interwar League of Nations, which began construction of its bombastic Palais des Nations in Geneva in 1929, at the onset of the Great Depression – and completed it in 1938, by which point the League had become irrelevant.
Central banking offers several telling examples. In the 1930s, the then-privately owned Bank of England undertook a major reconstruction, designed by the architect Herbert Baker. The project, completed in 1939, coincided with the Bank's loss of credibility following its policy failures during the Great Depression. By 1946, its critics had succeeded in nationalizing it.
Similarly, the German government built a new headquarters for the Reichsbank between 1933 and 1938, just as the institution was being transformed into an instrument of government spending and rearmament. By contrast, the most independent central banks of the postwar era occupy modest buildings: the Swiss National Bank remains in its original quarters, while the German Bundesbank still operates from an unattractive Brutalist structure built in the 1960s.
The European Central Bank broke with that tradition. Its striking Frankfurt headquarters – designed by the architectural firm Coop Himmelb(l)au and completed in 2014 – was intended to embody 'transparency, communication, efficiency, and stability.' But a year later, the ECB launched a major quantitative easing (QE) program with little transparency, rendering the gleaming new building a symbolic substitute for policy effectiveness.
During the COVID-19 pandemic, central banks around the world pursued QE, triggering a renewed surge in asset purchases. This significantly expanded their balance sheets and set the stage for structural challenges, particularly in the UK and the US: having taken on large amounts of long-term debt, central banks became vulnerable to substantial losses when interest rates rose.
This risk can be managed through a formal government guarantee, as in the UK, where the Treasury explicitly covers the BOE's portfolio losses. Alternatively, it can be addressed through an implicit understanding, as in the US, where it is universally assumed that the Fed will never be allowed to fail.
At the same time, government deficits widened, prompting a shift toward short-term debt and leading to a sharp rise in servicing costs. In the US, interest payments on the national debt increased from $223 billion in 2015 to $345 billion in 2020. This figure is projected to exceed $1 trillion in 2026 – surpassing even the defense budget. The UK's numbers are similarly striking, with £110 billion ($147 billion) of the £143 billion total borrowing requirement allocated to servicing existing debt.
Governments and central banks thus find themselves increasingly interdependent, undermining the notion of true policy autonomy. The US, where the codependence between the government and the Fed lies at the heart of today's policy malaise, is a prime example. In this regard, Trump's aggressive rhetoric is likely a preview of how future administrations may behave.
Treasury Secretary Scott Bessent highlighted these tensions when he calledfor an inquiry into the 'entire Federal Reserve institution.' In a post on X, he warned that the Fed's policy autonomy 'is threatened by persistent mandate creep into areas beyond its core mission.' The phrase 'mandate creep' is another way of describing the entanglement between monetary and fiscal authorities, both operating within the constraints of a single, increasingly burdened government balance sheet. Bessent's remarks, while historically accurate, offered no path forward short of aggressive fiscal consolidation – a politically implausible solution.
Architecture offers a symbolic lens through which to view the evolving relationship between governments and central banks. Notably, while the Trump administration criticizes the scale and opulence of the Fed's renovation, it is also planning a costly construction agenda of its own. One of Trump's first acts upon returning to the White House was to call for the redesign of federal buildings to 'respect regional, traditional, and classical architectural heritage,' aiming to 'uplift and beautify public spaces and ennoble the United States and our system of self-government.'
Is the federal government, then, falling prey to Parkinson's law? Should the obsession with neoclassical architecture be seen as a sign that the administration has entered its late-Louis XIV phase, characterized by extravagance and fiscal peril? All signs point in that direction.
Harold James is Professor of History and International Affairs at Princeton University. A specialist on German economic history and on globalization, he is a co-author of The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, Making the European Monetary Union, The War of Words, and, most recently, Seven Crashes: The Economic Crises That Shaped Globalisation (Yale University Press, 2023). Copyright: Project Syndicate, 2025. www.project-syndicate.org