Saddling an already struggling Fed with political activists
WASHINGTON » Today’s Federal Reserve illustrates this axiom: When a government entity cannot, or would rather not, adequately perform its primary function, or when it feels that its primary function is insufficiently grand, the agency will expand its mission, thereby distracting attention from its core inadequacy.
Next Thursday, the Senate Banking Committee will hold confirmation hearings for two presidential nominees to the Federal Reserve Board — Lisa Cook, to a seat on the Fed’s Board of Governors, and Sarah Bloom Raskin, to be vice chair of the Board for bank supervision and regulation. Both would ratify the current Fed’s penchant for mission creep — actually, mission gallop. The Senate should tell both to express their abundant political passions through more suitable institutions.
Cook is a Michigan State University professor whose peer-reviewed academic writings pertinent to monetary policy are, to be polite, thin. The White House noted that she “is on the Board of the Directors of the Federal Reserve Bank of Chicago.” She was put there two weeks before Biden proposed promoting her. But she strokes progressivism’s erogenous zones: She appears to favor racial reparations. And, evidently, defunding the police: When a University of Chicago economist criticized this idea in 2020, she termed the criticism “racial harassment” for which he should be fired as editor of the Journal of Political Economy and denied “access” to students.
Putting Cook on the Fed’s board would be a travesty akin to President George W. Bush’s 2005 nomination of Harriet Miers to the Supreme Court. Raskin, of the Duke University School of Law, has different monomania: “climate risk” threatening the financial system.
Does she mean huge, abrupt and unpredicted weather events that will (herewith the flavor of her rhetoric) “flatten” the economy and “grind it to dust”? Or decades-long climate changes that she knows the system cannot adapt to?
As part of a “broader reimagining of the economy,” the professor favors starving traditional energy companies that are hungry for credit: She advocated making fossil fuel companies ineligible for participation in the lending overseen by the Fed under the 2020 Cares Act. She anticipates “climate risk data” guiding the Fed’s asset purchases. And she hopes for “reimagined” fiduciary duty rules. And capital allocation toward government-approved, non-carbon, non-fossil fuel investments. There are many definitions of socialism, but its essence always is government, meaning political, allocation of capital.
As the Fed in Washington wades waist-deep into politics, trickle-down politicization spreads into its regional banks. For example, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, is campaigning for an amendment to the Minnesota Constitution that would create a “fundamental right to a quality education” and declare it a “paramount duty of the state to ensure quality public schools.”
This is not partisan politics because it does not involve support for a particular party, but it is politics, for two reasons: It involves a policy agenda of public spending. And its patent motivation is to shift political power away from Minnesota’s legislature, toward courts that, by defining the word “quality,” would impose policies, thereby elbowing aside the legislature.
Kashkari’s agitating for the amendment violates the Minneapolis bank’s code of conduct, which says that “although an employee may participate or may become involved in issues of general public concern or debate, the employee’s association with the Bank must not be publicized in connection with any political activity.” The Minneapolis Fed’s website proclaims the bank a “partner” of those campaigning for the amendment, which would enable lawsuits through which courts can construe “quality” public education as something requiring more money than the legislature is appropriating.
A Minneapolis Fed spokesperson blithely says Minnesota’s educational disparities are “unacceptable” because they “impede” the Fed’s “mandate to achieve maximum employment.” There you have it: The Fed, having slipped the leash of its primary job — to preserve the currency as a store of value — now claims a roving commission to do whatever it wants.
The Federal Reserve is an admirable reservoir of talent: Its economists constitute one of the world’s finest economic “faculties.” Fed Chair Jerome H. Powell should be mortified that political activists like Raskin and Cook are being insinuated into the Fed’s operations. And that Kashkari, who was once California Republicans’ gubernatorial nominee, feels free to bend the Fed to his political activities.
When you ask for trouble, the world often obliges. Powell has invited trouble by sailing the Fed obedient to the winds of Washington fashion. Under him, the Fed is becoming the government’s Swiss Army knife — an all-purpose tool. But with too many purposes to do its primary job adequately.