It seems that mission creep at the Fed (although “creep” is becoming too leisurely a word) may be on the edge of speeding up once more.
The Wall Street Journal’s editorial board explains that President Biden “has a chance to remake the Federal Reserve Board of Governors by filling multiple vacancies.” It adds, not unfairly, that “this is especially important given inflation’s breakout, yet Mr. Biden’s latest nominees seem less worried about prices than pushing progressive policies that aren’t the Fed’s job.” Mission creep, in other words. And a spot of mission neglect, too.
The nominees?
Former treasury official Sarah Bloom Raskin, who is slated to be the Fed’s vice chair for supervision, along with economists Lisa Cook and Philip Jefferson. The paper’s editors focus on Raskin because of what “would be her regulatory power over banks and finance.” She has been a Fed governor before, but some recent public statements from her on climate change are, the Journal believes, of particular concern, especially when it comes to the question of “using financial regulation to steer capital from fossil fuels to green energy.”
Over at his blog, John Cochrane takes a look at these latest nominations to the Fed, at least two of which (those of Raskin and Cook) he greets with what could be read as something of a backhanded compliment:
We can now have an honest conversation about where the Fed is going, and whether and how the Fed should use its tools, primarily regulation, to advance the Administration’s agenda on climate, race, and inequality.
Cochrane looks at the Wall Street Journal report, which gives some indications of how much further Raskin might go in taking the central bank into climate policy. Raskin, it turns out, had wanted to see fossil-fuel companies excluded from the lending programs established by the Fed to help otherwise sound companies from being felled by pandemic-related lockdowns.
As the Wall Street Journal’s editorialists observed:
This showed colossally bad judgment. The crisis of the hour was Covid and a potential depression, not climate. Yet at that perilous moment Ms. Raskin was urging the Fed to discriminate against an industry that employed hundreds of thousands of people. Had the Fed taken her advice, many more oil and gas producers would have gone bankrupt, and energy prices would be even higher today.
Then, central planners are known for arrogance, not good judgment. And, at least where climate policy is involved (something which, increasingly, appears to seeping into every nook and cranny of the economy), Raskin bears more than a passing resemblance to a central planner.
The Journal quoted from an introduction she had written for a June 2020 paper published by the Ceres Accelerator for Sustainable Capital.
The Ceres Accelerator for Sustainable Capital Markets (the “Ceres Accelerator”) aims to transform the practices and policies that govern capital markets in order to accelerate action on reducing the worst financial impacts of the global climate crisis and other sustainability threats. The Ceres Accelerator will spur capital market influencers to act on these systemic financial risks and drive the large-scale behavior and systems change needed to achieve a net-zero carbon economy and a just and sustainable future.
In other words, it’s another part of the growing network designed to push the power of capital-market players, who, are not, of course, accountable to voters, behind the current version of climate policy.
Raskin:
At the very least, we must rebuild with an economy where the values of sustainability are explicitly embedded in market valuation. This transformation will come, in part, from urging the leaders of our financial regulatory bodies to do all they can — which turns out to be a lot – to bring about the adoption of practices and policies that will allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.
That doesn’t look too far removed from central planning to me.
The Wall Street Journal:
Note that phrase “allocate capital.” Among other things, the report recommended the Fed use climate stress tests to make banks account for the risk of government anti-carbon policies such as electric-car mandates and carbon taxes. It also suggested that the Fed deem fossil fuels risky assets and require banks to calculate the carbon emissions of their loans and investments.
John Cochrane:
For the last year that I have been following the issue, it has all been clouded in what I regard as deceitful misinformation — Oh, we’re not trying to regulate climate policy. That’s beyond our mandate. We just look around at risks to the financial system and lo and behold we find that climate poses an important risk to the financial system. So we’re just doing our job as dispassionate financial regulators. The idea of climate risk to the financial system is, in my view (and my reading of the scientific literature) so farcical that I called this out as a subterfuge. But there the argument lay.
No more. Thank you Ms. Raskin for stating the truth so clearly. Now we’re ready to put that nonsense smokescreen aside and have an honest debate. Should the Fed get involved in allocating capital in order to pursue climate policies? Especially to go beyond what Congress, Administration, and EPA are willing to do, for fear of wrathful voters?
Ms. Raskin is superbly qualified and experienced. If you don’t like these policy preferences, that makes her more dangerous as she has the knowledge and skill to implement them. That’s great too — the discussion can’t get derailed over qualifications.
For an example of John Cochrane’s thoughts on climate change as a risk to financial stability (this is not an argument about climate change itself), there’s this recent article he wrote for Capital Matters.
In his post on the blog, Cochrane also surveys the published writings of another Fed nominee, Lisa Cook, observing as he does so that she is an academic, “so her main qualification is her writing, not business or other experience which some other Fed board members bring.”
And so he looks at “her extensive writing for academic journals and think tank essays listed under “publications,” but finds there “essentially nothing related to monetary policy, monetary effects on employment, interest rates, inflation, financial regulation or other traditional Fed topics.”
Oh.
On the other hand:
Lisa Cook is superbly qualified, by written word, experience, and connections — if the job is to bring the Administration and progressive supporters’ racial policies to the Fed. That might mean requiring DEI or ESG practices at banks, or to companies that banks lend to, directing credit to some areas or by race, and strengthening the DEI initiatives and race based hiring and promotion practices within the Fed.
Should the Fed be doing that? Again, thanks Mr. President, we can now have a straightforward discussion.
Let’s see how “straightforward” these discussions will be. I have my doubts. And I don’t feel too good about they will end.