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Keeping the Fed Out of Climate Policy

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eye on the news

Keeping the Fed Out of Climate Policy

The defeat of President Biden’s nominee for banking regulator deals another blow to environmental regulation by fiat. March 23, 2022
Politics and law
Economy, finance, and budgets

Last week, Sarah Bloom Raskin withdrew from consideration as the Federal Reserve’s vice chairwoman of supervision. Progressives framed the story as the latest example of how Congress—especially Senator Joe Manchin, whose opposition to Raskin sank the White House nominee—doesn’t take climate change seriously. In reality, the battle involves a deeper concern: whether sweeping, controversial policy decisions can be outsourced to unelected officials staffing federal institutions.

Raskin’s ideas for how financial authorities should handle climate change proved contentious. The New Yorker, which broke the story of Raskin withdrawing her nomination, wrote that her opponents objected to her “frank acknowledgement that climate change could pose a threat to economic stability.” Indeed, in an op-ed published in the New York Times last year, Raskin criticized the Fed for letting oil and gas companies participate in its Main Street Lending Program at the height of the Covid-19-driven economic crisis, describing such companies as “risky investments.” The argument raised eyebrows among Republican politicians, given that the program’s purpose was not to generate returns to a central bank that essentially creates its own funds but rather to save jobs and stabilize the economy.

Raskin’s past work on the issue was still more revealing. A 2020 report published by Ceres, a left-wing think tank, contained a laundry list of regulatory proposals designed to “address climate as a systemic risk.” Raskin wrote the foreword and contributed to the report, which calls on the Fed to “examine its asset purchases,” asks it to “keep in mind the climate exposure of the businesses it lends to,” and praises the European Central Bank’s decision to rethink its policy of “market neutrality.” In a September 2021 column for Project Syndicate, Raskin wrote that the Fed already “has a mandate broad enough” to begin taking such steps, without permission from Congress or voters. “If we want to create a sustainable climate, we need to transition to a net-zero carbon economy,” she wrote in the foreword. “This transition is not going to happen without guidance.”

Contrary to the suggestion that Raskin simply wanted to require “climate stress tests” for banks, such “guidance” would launder sweeping policies through the politically insulated Fed. A central bank that implemented these proposals would no longer be simply maintaining price stability and full employment—it would be putting its thumb on the economic scale. Even granting the premise that climate change poses a risk to future economic stability, it’s not clear why financial institutions should worry more about that than, say, a nuclear war in Europe.

No other Democratic senator objected to the scheme. Thus, when Manchin announced his opposition to Raskin, he came under fire for allegedly being captured by the oil and gas industry. Indeed, energy companies donate heavily to Manchin, whose state is a national leader in natural gas and coal production. Wall Street firms also donate millions to New York senators Chuck Schumer and Kirsten Gillibrand, as do defense contractors to senators in Virginia. Such arrangements may not be ideal, but they’re a fixture of our politics.

And Raskin’s nomination posed a unique threat to the West Virginia economy. According to West Virginia University’s Bureau for Business and Economic Research, the coal-mining and coal-fired electric-power generation industry makes up around 17 percent, or nearly $14 billion, of the state’s total economic output. According to the BBER, nearly one-third of West Virginia’s GDP comes from the fossil fuel industry. A report from the University of Massachusetts found that those employed in West Virginia’s fossil fuel industry earn around $77,000 a year, thousands of dollars above the state’s average income. Coal miners in West Virginia, according to the Bureau of Labor Statistics, can make nearly $90,000 a year. Claims that these jobs can be replaced by new industries amount to a central planning scheme—and there is no reason to believe that the potential jobs killed in West Virginia by policies such as Raskin favors would be immediately replaced. A coal miner cannot simply transform into a hospital administrator, even with subsidized community college training.

Manchin shouldn’t have to explain why he voted in a manner that reflected the concerns of his constituents. As for Raskin, her underhanded approach to environmental regulation is another indicator that climate-change advocates can’t accomplish their most ambitious goals through democratic means. Expect more attempts to circumvent the political process on environmental issues—and more complaints when the popular will rears its head.

Photo by Bill Clark-Pool/Getty Images

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