Tuesday , May 24 2022

Fed Nominees

Summary:
I salute President Biden's nominations for the Federal Reserve Board, especially Sarah Bloom Raskin and Lisa Cook. (Philip Jefferson seems straightforward and uncontroversial, but other than reading a CV I haven't looked that hard.) We can now have an honest conversation about where the Fed is going, and whether and how the Fed should use its ...

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I salute President Biden's nominations for the Federal Reserve Board, especially Sarah Bloom Raskin and Lisa Cook. (Philip Jefferson seems straightforward and uncontroversial, but other than reading a CV I haven't looked that hard.)

 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. 

The Wall Street Journal nicely assembled crucial quotes on Ms. Raskin and climate. In 2020,   

The Fed established broad-based lending programs to prevent businesses that were otherwise sound from failing due to the shutdowns. 

Writing in the New York Times in May 2020, 

Ms. Raskin wanted the Fed to exclude fossil-fuel companies from these facilities. “The Fed is ignoring clear warning signs about the economic repercussions of the impending climate crisis by taking action that will lead to increases in greenhouse gas emissions at a time when even in the short term, fossil fuels are a terrible investment,” she wrote. ...

“The Fed’s unique independence affords it a powerful role,” Ms. Raskin added. “The decisions the Fed makes on our behalf should build toward a stronger economy with more jobs in innovative industries—not prop up and enrich dying ones.”  

Writing for Ceres,  

“We must rebuild with an economy where the values of sustainability are explicitly embedded in market valuation,” she wrote. This will require “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.”

My emphasis. The report also 

suggests the Fed use the “community reinvestment process to bolster the resilience of low-income communities to climate change.” 

This is wonderful. 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. 

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A few journalists approached me to ask about Professor Cook's qualifications. Since they had an obvious agenda, I did not comment. But it is a line of argument you will hear. 

My answer is simple: It depends what the job is. Just spend some time on her website. Read her CV. Cook is an academic, so her main qualification is her writing, not business or other experience which some other Fed board members bring. 

Indeed, in her extensive writing for academic journals and think tank essays listed under "publications," you will find essentially nothing related to monetary policy, monetary effects on employment, interest rates, inflation, financial regulation or other traditional Fed topics. (Maybe her most cited paper “Trade Credit and Bank Finance: Financing Small Firms in Russia,” Journal of Business Venturing, 1999 counts, but on the conventional basis it's a slim basis to sit at the Fed.)0

But, to keep a blog post short, just read a selected few of the most recent publications: 

• “Can addressing inequality unleash economic growth?” (with Nela Richardson and Jim Tankersley) Business Economics 56, 5966, (2021).

• “Addressing gender and racial disparities in the U.S. labor market to boost wages and power innovation,” Washington Center for Equitable Growth, January 14, 2021.

• “Policies to broaden participation in the innovation process,” Brookings Institution, The Hamilton Project, August 14, 2020.

• “Getting money urgently to low-wage U.S. workers,” Washington Center for Equitable Growth, March 30, 2020.

• “The implications of U.S. gender and racial disparities in income and wealth inequality at each stage of the innovation process,” (with Jan Gerson) Washington Center for Equitable Growth Policy Brief, July 2019.

• “Rural Segregation and Racial Violence: Historical Effects of Spatial Racism,” with Trevon Logan and John Parman, American Journal of Economics and Sociology Volume 1, Numbers 3 and 4, (2018).

• “Racial Segregation and Southern Lynching”, with Trevon Logan and John Parman, Social Science History, vol 42 (4), pages 635-675, (2018).

It goes on like this. Her bio lists a bewildering number of institutional affiliations: 

She is currently Director of the American Economic Association Summer Program and was President of the National Economic Association from 2015 to 2016. In 2019, she was awarded the Impactful Mentor Award (for mentoring graduate students) by the American Economic Association Mentoring Pipeline Program and was elected to the Executive Committee of the American Economic Association. During the 2011-2012 academic year, she was on leave at the White House Council of Economic Advisers under President Obama and has had visiting appointments at the National Bureau of Economic Research, the University of Michigan, and the Federal Reserve Banks of New York, Chicago, Minneapolis, and Philadelphia. She serves on the Advisory Boards of the Federal Reserve Bank of Chicago (Academic Advisory Council), the National Science Foundation (Social and Behavioral Sciences), the Opportunity and Inclusive Growth Institute of the Federal Reserve Bank of Minneapolis, and the Lemelson Center for the Study of Invention and Innovation of the Smithsonian Institution. She is a member of the Council on Foreign Relations. 

(My only complaint: Her bio lists her has having been "a National Fellow at Stanford University." No, she was a National Fellow at the Hoover Institution, at Stanford University. Which signed the checks. Her CV lists it correctly. I'm only sensitive because people accuse Hoover of being right-wing, and here is contrary proof.) 

She is currently a member of American Economic Association Executive Committee (She does more than she even can keep up with on her CV and bio!), and serves on the Committee on the Status of Minority Groups in the Economics Profession of the American Economic Association, which is conducting an expansive "diversity" initiative

So, I answer the question, 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. 




John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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