Think you miss an important part of the policy demands here: forcing climate risk considerations into financial stability tests enables climate policy by government.
John Cochrane has had a couple of posts on how ridiculous it is for climate change considerations to be part of financial stability concerns. And on physical risk, he's probably right, on any time horizon that current policymakers should be concerned with. But he's very wrong on transition risk.
Transition risk is policy that makes formerly profitable businesses bust. The Fed forcing banks to conduct climate stress tests will mean that businesses exposed to transition risk will not get loans. So monetary policy authorities implement some climate policy in this way. And it also means the banks don't go bust when transition risk is realised. Which makes climate policy by the government easier to implement (as they won't be killing the financial sector when they do so).
So I understand entirely the Squad's insistence that climate change be part of the Fed's remit.
I'm kind of confused by this piece. The Squad is _obviously_ not interested in criticizing Powell about _monetary policy_, they're interested in criticizing him on issues of prudential regulation, which are a related area but not the same thing.
The American Prospect has had a drumbeat of stories criticizing Powell on regulation issues. Not specifically the "climate is a risk factor" angle (which various people have been discussing for like twenty years), but just generally. I think it absolutely is fair to say that if your bank is extending a bunch of credit to coal-burning power companies, that you are risking massive losses, because the coal industry is dying just from being undercut by newly-cheap solar and wind, and the same thing is eventually going to happen to basically all fossil power generators. If the Fed is not requiring banks to assess those risks, then the Fed is failing in its mission to keep the financial system stable.
the US is headed the way of most other countries, where a few big banks are heavily politicized and the industry is non competitive. helping middle tier banks is a good attempt to keep it dynamic.
I don't think this has anything to do with interest rates or unemployment, but more to do with the direction of where the easy money is targeted. Instead of pumping money into large banks and buying corporate debt, why can't the Fed finance the transition of our economy from one built on fossil fuels to alternative energy infrastructures, buying student loan debt, etc.
I believe there is a huge emphasis on breaking up the big banks and moving toward a public banking system. In addition, stop providing easy money to banks that have large portfolios of fossil-fuel loans.
If capitalism is stalling the transition desperately needed to move this country from the status quo to a faster rate of change, why not seek a forward-thinking Fed Chairman.
Our educational system is on the brink of getting flattened by knowledge services and decentralized money is moving global transactions as people shift from traditional banking. We now have the beginning of a metaverse that is supporting completely decentralized companies which will redefine work completely. It will redefine capital and the corporation.
Meanwhile, at the Fed, we have this 90's status quo mindset where "big banks must be fed easy money to support the stock market" minus the $1 quadrillion derivatives market.
I think the Squad is seeking a leader with a sense of urgency and a spark of innovation.
Sometimes it is hard to mobilize support for very specific minor improvements, so using some infamous buzzwords is a good way to say "you choose the concessions to make us happy, our staffing budgets aren't really high enough for us to know what we want". Maybe Biden offers more dovish appointments, maybe Powell says bonds of semiconductor firms building plants in the US may count toward increased capital requirements. Who knows?
I'm convinced that AOC is leading the charge on this and that she is just trying to move the needle on the Fed's perceived responsibility for climate investment. It's no accident this occurred just after the Jackson Hole conference, the time when the most attention is paid to the duties of the Fed chair. If you pay close attention to her various opinions, she is obviously most vocal about climate change but she is particularly interested in federal monetary policy, which makes sense considering her background in economics and international relations.
She undoubtedly believes that Powell is going to be reappointed, and I think she isn't as opposed to him as the Squad's statement makes it out to be. She knows that he is surprisingly the most engaged, progressive Fed chair in a long time, so she must think that by doing this she and the Squad will be able to put extra pressure on Powell to more actively engage with this issue.
Of course, this is all conjecture, but that's the strategy I see that makes the most sense.
But do you *really* think they're couching their actual critique in nonsense as a way to avoid the "regime change" pitfall? Not only would that be an uncharacteristically public-spirited move for a politician, but also if they're MMT:ers they presumably already don't believe the "regime change" pitfall to even be a real problem.
First of all, I generally like powell. But I do see a role of the Fed in green new deal, etc. I think this is less of an issue of industrial development, and more of an issue of city planning. Creating local planning that is cost sustainable for cities and municipalities, whereas suburbs are typically not cost effective.
The fed can potentially save municipalities millions in their planning and development, just based on a reduced cost of interest. If the fed evaluates municipalities which are moving to a more financially and ecologically sustainable model, it should buy those bonds like crazy...
I'm tired of people making this political warfare, who aren't offering new ideas.
I'm glad you wrote about this because I thought it was strange that they don't like Powell. They didn't really say any specifics. It may be just pure politics, ie they want a dem socialist in the job because...that is what they are. I think it is the general hate America thing you were talking about in that post on the intersection in Penn.
It could also be a cover for the bog standard, the republicans never put a democrat in important places so why should democrats. Which has the benefit of being true.
Tyler Cowen just recommended Scott Sumner's new book on market monetarism. Can we get a future post about your take on that philosophy?
Think you miss an important part of the policy demands here: forcing climate risk considerations into financial stability tests enables climate policy by government.
John Cochrane has had a couple of posts on how ridiculous it is for climate change considerations to be part of financial stability concerns. And on physical risk, he's probably right, on any time horizon that current policymakers should be concerned with. But he's very wrong on transition risk.
Transition risk is policy that makes formerly profitable businesses bust. The Fed forcing banks to conduct climate stress tests will mean that businesses exposed to transition risk will not get loans. So monetary policy authorities implement some climate policy in this way. And it also means the banks don't go bust when transition risk is realised. Which makes climate policy by the government easier to implement (as they won't be killing the financial sector when they do so).
So I understand entirely the Squad's insistence that climate change be part of the Fed's remit.
I'm kind of confused by this piece. The Squad is _obviously_ not interested in criticizing Powell about _monetary policy_, they're interested in criticizing him on issues of prudential regulation, which are a related area but not the same thing.
The American Prospect has had a drumbeat of stories criticizing Powell on regulation issues. Not specifically the "climate is a risk factor" angle (which various people have been discussing for like twenty years), but just generally. I think it absolutely is fair to say that if your bank is extending a bunch of credit to coal-burning power companies, that you are risking massive losses, because the coal industry is dying just from being undercut by newly-cheap solar and wind, and the same thing is eventually going to happen to basically all fossil power generators. If the Fed is not requiring banks to assess those risks, then the Fed is failing in its mission to keep the financial system stable.
can’t wait for the quintuple mandate!
the US is headed the way of most other countries, where a few big banks are heavily politicized and the industry is non competitive. helping middle tier banks is a good attempt to keep it dynamic.
Older, male, white, wealthy, former private equity executive. I think that captures most of the resistance.
I don't think this has anything to do with interest rates or unemployment, but more to do with the direction of where the easy money is targeted. Instead of pumping money into large banks and buying corporate debt, why can't the Fed finance the transition of our economy from one built on fossil fuels to alternative energy infrastructures, buying student loan debt, etc.
I believe there is a huge emphasis on breaking up the big banks and moving toward a public banking system. In addition, stop providing easy money to banks that have large portfolios of fossil-fuel loans.
If capitalism is stalling the transition desperately needed to move this country from the status quo to a faster rate of change, why not seek a forward-thinking Fed Chairman.
Our educational system is on the brink of getting flattened by knowledge services and decentralized money is moving global transactions as people shift from traditional banking. We now have the beginning of a metaverse that is supporting completely decentralized companies which will redefine work completely. It will redefine capital and the corporation.
Meanwhile, at the Fed, we have this 90's status quo mindset where "big banks must be fed easy money to support the stock market" minus the $1 quadrillion derivatives market.
I think the Squad is seeking a leader with a sense of urgency and a spark of innovation.
Sometimes it is hard to mobilize support for very specific minor improvements, so using some infamous buzzwords is a good way to say "you choose the concessions to make us happy, our staffing budgets aren't really high enough for us to know what we want". Maybe Biden offers more dovish appointments, maybe Powell says bonds of semiconductor firms building plants in the US may count toward increased capital requirements. Who knows?
I'm convinced that AOC is leading the charge on this and that she is just trying to move the needle on the Fed's perceived responsibility for climate investment. It's no accident this occurred just after the Jackson Hole conference, the time when the most attention is paid to the duties of the Fed chair. If you pay close attention to her various opinions, she is obviously most vocal about climate change but she is particularly interested in federal monetary policy, which makes sense considering her background in economics and international relations.
She undoubtedly believes that Powell is going to be reappointed, and I think she isn't as opposed to him as the Squad's statement makes it out to be. She knows that he is surprisingly the most engaged, progressive Fed chair in a long time, so she must think that by doing this she and the Squad will be able to put extra pressure on Powell to more actively engage with this issue.
Of course, this is all conjecture, but that's the strategy I see that makes the most sense.
Great write-up, Noah!
Should have a comedian instead
But do you *really* think they're couching their actual critique in nonsense as a way to avoid the "regime change" pitfall? Not only would that be an uncharacteristically public-spirited move for a politician, but also if they're MMT:ers they presumably already don't believe the "regime change" pitfall to even be a real problem.
First of all, I generally like powell. But I do see a role of the Fed in green new deal, etc. I think this is less of an issue of industrial development, and more of an issue of city planning. Creating local planning that is cost sustainable for cities and municipalities, whereas suburbs are typically not cost effective.
The fed can potentially save municipalities millions in their planning and development, just based on a reduced cost of interest. If the fed evaluates municipalities which are moving to a more financially and ecologically sustainable model, it should buy those bonds like crazy...
I'm tired of people making this political warfare, who aren't offering new ideas.
Have you seen Brad's recent comment?
https://braddelong.substack.com/p/project-syndicate-draft-lael-brainard
I'm glad you wrote about this because I thought it was strange that they don't like Powell. They didn't really say any specifics. It may be just pure politics, ie they want a dem socialist in the job because...that is what they are. I think it is the general hate America thing you were talking about in that post on the intersection in Penn.
It could also be a cover for the bog standard, the republicans never put a democrat in important places so why should democrats. Which has the benefit of being true.