As Janet Yellen prepares to replace Ben Bernanke at the head of the Federal Reserve and as that institution commences its 100th year of operation, it is time to enact one simple reform: the chairman of the Fed should be limited to serving two full four-year terms.
The obvious precedent for this measure is the 22nd Amendment to the U.S. Constitution, which imposes a similar term limit on the president of the United States. The president is restricted in this way to prevent one person from accumulating too much power and influence over our national institutions.
Because the chairman of the Federal Reserve is often described as the second most powerful person in the country, we should curtail his or her ability to hold onto the job for an indefinite period for the same reason.
For 150 years, U.S. presidents were guided by George Washington's precedent of serving two terms and then voluntarily stepping aside. This mold was broken by Franklin Delano Roosevelt during World War II, when he ran -- and won -- a third, and then a fourth term.
Less than two years after FDR's death Congress proposed the 22nd Amendment, limiting the president to two full terms -- only one, if a vice president succeeded to the office with more than two years remaining in the unexpired term.
Currently, there is no effective limit on a Fed chairman's term. Chairmen must be members of the Board of Governors, who serve 14-years non-renewable terms. However, because a governor can be appointed to fill an unexpired term and then be appointed to a new term, the theoretical maximum length of service is just short of 28 years.
Most Fed chairmen, like most presidents, have served no more than eight years. Three exceptions stand out: Mariner Eccles, who served for 13 years in the 1930s and '40s; William McChesney Martin, who served almost 19 years in the 1950s and '60s; and Alan Greenspan, who served nearly 18-and-a-half years between 1987 and 2006.
Presidents have an incentive to reappoint the Fed chairman. Financial markets are happy with the status quo so reappointing an outgoing chairman is often the path of least resistance. Yet, this "devil that you know" strategy carries a serious risk.
The average length of service on the Fed's main policy-making body, the Federal Open Market Committee, is less than six years. Having a Fed chairman stay in the job for a decade or more risks entrenching one person -- and one viewpoint -- for too long.
Alan Greenspan is the poster boy for term limits. By the end of his term, he was a revered figure with disproportionate influence on the policymakers around him. The focus on Greenspan was so intense that journalists speculated that the size of the briefcase he carried into meetings could help predict the future course of interest rates.
And we now know that the deeply flawed policy during Greenspan's last years as chairman, when he was at his most influential, helped generate the subprime crisis.
Greenspan's successor, Ben Bernanke, has taken a stand more in line with Washington the president, rather than Washington the city.
Bernanke made it clear that he had no desire to remain in the job longer than eight years. He does not think of himself as indispensable to Fed policy, and is on record as saying, "I don't think that I'm the only person in the world" who can manage the next stage of Fed policy.
The modest step of limiting the Fed's chairman to a two-term limit would not be the first, or most radical, reform of the Federal Reserve in its 100-year history.
In 1935, the independence of the 12 regional Federal Reserve banks was dramatically curtailed and monetary power was vested in the Federal Reserve Board in Washington. This sensible reform was adopted in recognition of the fact that the decentralized Federal Reserve had been unable to mount a coherent response to the Great Depression, making today's Fed a much more effective central bank.
Despite the consolidation that took place almost 80 years ago, the legacy of having 12 independent regional banks constitutes an important strength of the Fed today. Each of these regional banks has its own research department and distinct view of the economy. The Fed's top policymakers are able to draw upon this diverse set of views and economists who are not afraid to challenge the conventional wisdom -- and each other.
The Federal Reserve stands in marked contrast to other central banks with less diversity of thought. A 2012 review of the Bank of England concluded that staff members tended to "filter" their advice in order to make it more palatable to the senior management, promoting an unhealthy "groupthink," where the status quo was rarely challenged.
The best economic policy is informed by robust debate. Enacting term-limits for the Federal Reserve chairman would help prevent one person -- or ideology -- from becoming too entrenched in one of our most important economic institutions.
Such a reform would serve the Fed well as it enters into its second century.
Richard S. Grossman is a professor of economics at Wesleyan University and a visiting scholar at the Institute for Quantitative Social Science, Harvard University.