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The Federal Reserve: Climate Change edition


Vox's Dylan Matthews joins Matt and Jerusalem to talk about whether the Federal Reserve can use monetary policy to fight climate change and how the ideal Fed Chair may not exist. Plus, a new study about the effectiveness of masking against Covid-19 reignites the debate on public health messaging around the pandemic. Also, Matt wants experts to stay in their lanes. 


“Will Biden Make a Historic Mistake at the Fed?” by J. Bradford Delong (Project Syndicate; Sep 1, 2021)

“Strengthening the Financial System to Meet the Challenge of Climate Change” by Lael Brainard (Board of Governors of the Federal Reserve System; Dec 18, 2020)

“The Planet Depends on the Next Federal Reserve Chair” by David Dayen (The American Prospect; Aug 27, 2021)

“The Planet Needs Jerome Powell” by Robinson Meyer (The Atlantic; Sep 1, 2021)

“On Maximizing Employment, a Case for Caution” by Raphael Bostic (Policy Hub: Macroblog; Oct 26, 2018)

White paper: “The Impact of Community Masking on COVID-19: A Cluster-Randomized Trial in Bangladesh” by Mushfiq Mobarak et al. (Innovations for Poverty Action; Sep 1, 2021)


Matt Yglesias (@mattyglesias), Slowboring.com

Jerusalem Demsas (@JerusalemDemsas), Policy Reporter, Vox

Dylan Matthews (@dylanmatt), Senior Correspondent


Ness Smith-Savedoff, Producer & Engineer

Erikk Geannikis, Producer, Talk Podcasts

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This episode is brought to you by babble want to learn a new language tribal there. Ten minute, interactive lessons, teach you how to have every day practical conversations that you'll actually use, plus babble. Lessons are available on the web and as an app. So you can learn at your own pace now for it, many times. Spotify listeners can get up to sixty five percent off their subscription by visiting babble, dot com, Slash, Spotify hello, welcome to another sort of meat on the box. Media Potass network- I met we place. He is here with Jerusalem term, says in Dylan, Matthews we're gonna, do a good episode, we're gonna talk about mass went on, but Bangladesh would interpret the Federal Reserve But first I have a sort of some sad news to announce at the beginning, which is that
I am going to be leaving the weeds after two more weeks of shows its gonna be great. We're gonna be in great hands which were solemn and Herman, but doing an amazing job as hosts it. Some sorry, I feel sad. The weeds is very close to me, but you know I think it is. It is probably the right time for everybody to move on with things Box has some great ideas for the show and for a sort of fine all weeds episode. One week from Friday, as recline and Sarah Cliff two excellent New York Times Report, Those who are people may remember, as the original co host, the weeds with me are going to becoming back we're gonna be having a round table. We are going to really
the weeds it out we're gonna talk about. I think healthcare pricing reform proposals from the by demonstration, but personally I spend a lot of time ranting and raving about monetary policy as it we're gonna talk today about drawn power. He is the chair of the Federal Reserve, Donald Trump appointed him to that job. Previously he had been put on the Federal Reserve Board of governors by Brok Obama, but he's a Republican. with a sort of Obama was making a kind of a package of FED nominees, and this was someone who the Obama Administration economic team considered to be a reasonable Republican who they could serve put there as I am a sop to Senate Republicans, then Trump. Wanted to put sort of. I guess he put his like his own man in at the FED. It's not like he and power like body is, but power is a republican
an Steve, renew Chin. It seems likes, feared tromp toward power all over some other people who were fed outsiders. Tromp knew better, and I will when this happened. You know when I talk to act, Obama, people and they all said you know we don't. I don't know why. We don't think you should fire JANET Yellin, but like powers, fine, we'll do a fine job. I think he has done a pretty good job and at least the topics that I mostly care about, but there's a big push from the left to dump him and that has involved. I don't know like a bunch of different
Complaints but down, what's what's your understanding of what's going on here short? So, as you say there, a bunch of different lines of criticism of jape, howl and arguments for replacement FED chair, I think that the two most significant ones- I shall see three most significant once the first and most basic is that he's a Republican and Democrats have a right to appoint their own person and to run the fad. So bragged along is an economist Berkeley. You know a lot about that knows why these players has been arguing for replacing pow, basically on or social circle. Grounds of. Yes, he's been very pro full employment right now, but you are a publican. Yes, republican friends, there is no guarantee that he'll be contained. Those positions, if he's under pressure from fellow republicans throughout the rest of buttons term,
I'm so sceptical that, for various reasons that we will go into the other two are financial regulation and climate change. So the feds has a number of jobs, but the you big ones, are monetary policy making sure we have full employment and that inflation is under control and banking regulation that major banks have accounts of the Federal Reserve. The FED has lots of regulatory power along with other agencies, and how oh wow, very, very progressive unemployment. I think it is less of a diary. True believer on increasing capital ratios for banks, doing the kinds of reforms that less Warren and ends where the financial aid very serve community and the Democratic Party wants and on clay
change. This is not traditionally been something that's considered, part of the feds purview, but I think, there's a there's, a movement to consider every part of the federal government, as involved in a great effort to fight climate change, which shortly make sense, given the scale of the challenge, and there are some
persons to civic things that I think activists in the space want like rating sir bonds from fossil fuel projects as riskier and requiring banks that invest in things like that to hold more safe capital as of of insurance against them as a way of serve indirectly, deterring them for investing more in fossil fuel projects, and lots of other boys are more symbolic things like J Politics, a while to join this international group, but central banks that were committing to do certain things on climate change. Anything people I've I've talked you rat on that would say that on its own, doesn't do a whole lot, but it's just serve a sign of commitment and him being later than the European Central Bank or the Bank of England or the Bank of Canada
looks bad to them. So that's my attempt to to serve charitably relate these critics J power. I think you have a less charitable take on any of you know I mean I I have in some ways I give frankly more credence to delongs point that you might just want a Democrat and the others. I thought they'd like Donald Trump stated reasoning for firing, Channing Ellen, which was that she was a democratic. Just like make perfect sense to me and like I think he handled it really well, honestly, like tromp always often handle things poorly, but he he didn't trash yellin He didn't come up with some whole elaborate set of like fake reasons. He didn't blame her for anything. I think he he praised her, in fact as having done a good job, but he said he wanted his own person and their anti did.
and in a weird way, if that had been the whole thing right. By give. If this was the whole push from day, one was just like you should put in a Democrat, not because republicans are necessarily bad but because people were impacted by subtle psychological biases. You want somebody who is friends with lots of Democratic Party Hill staffers democratic Ex democrat lobbyists. By Ministration appointees, just somebody who, like at the margins biases, will be to say this is good I would really sorted by into like. I just feel like it was a huge problem with Ben Bernanke he's ten year at the FED, that meant that he was like sabotaging the economy because he's republican but like he was a Republican. So he thought that the Obama administrations policies were missed. I'd. Anne was inclined to give a lot of you know these decisions under uncertainty right, so your ink
to give a lot of credence to the idea that this president, to u dont support whose policies you disagree with, is like actually the source of problems and that you are being asked to like bail out this bad regime versus you are trying to help. You know beat Ba Ba helping partner in something that's good that'll to me. I mean I think you can argue whether that applies to the current situation and- and I have some doubts, but it it's what I thought last winter I would say I find the climate argument very pause right. They give. You literally believe that we should be pulling every climate lever available. Then you should appoint a FED chair who were deliberately plunged the economy into a depression, because that would greatly reduce short term co2 emissions now, like the kind of people are saying right. Just
you're, not saying we should bomb coal power plants in India and other things like that, but that just goes to show that, like climate advocates are but they're, not in fact crazy people they I think that the climate emergency should trump all other considerations in all other areas there like actually like Super reasonable and their policy proposal is The United States of America should increase subsidies for clean energy production and tighten regulation of the fossil fuel industry, which is great and like that's not what the FUCK tat, is so defensive. Try to do good monetary policy. I think, and its we're that this, like out of left field concept that, like somehow it's like its J Powers- fault that, like the United States Congress, is not enthusiastic about increasing clean energy subsidies like that. Doesn't that doesn't make sense to me on its face so a few things here, I think first
led to control a little bit of cold water and the idea that trumps appointment of power was was fully fully great. He did. I remember there are some reporting around. You know that you like the look of power. The man just like, looks central banker like that, like the best heuristic it worked out here, but clearly not the best policy he also reported. We thought that it five nothing genuine was like too short to command the world's economy, so there's eminently Samson sexism and stuff in a play there, but yeah in general, the politics of it made sense, and then you know coming into this when I was looking into the climate case against Powell at people have started making. I was extremely sceptical, and now I am actually much less sceptical that it is like reasonable arguments that people are making
The end of the day, it not probably sufficient to say that this is enough to replace power when there are other agencies that can do a lot of what they're asking for, but just a kind of steel man a little bit of what they're. Looking for. I think some of the progressives are talking about things like wanting increased climate disclosures from companies. Now the acc could just do this. What I think is necessary so that the FED needs to do it, but that's like a reasonable thing to say that we should know which companies are extremely at risk of You know creating financial collapse like it is one of the tenants of what the FED needs to be doing to ensure that the financial system is is safe and doing those kinds of stress tests. There also asking that in Should the normal macroeconomic stress tests at the FED is doing at they also incorporate climate risk tests. That seems also reasonable to me, especially when there's a bunch of recent research coming out. That shows that you know a lot of climate risk may not be accurately being priced into the economy. There is something that came out, I think, in April of this year that showed that in flow
zones real estate properties were being overvalued by the tuna like forty billion dollars and there's a greeted. The comes out like this all the time for years is not like new people, know about this like little brain or has talked about this and speeches that that's another form of etiquette chair you know, so I think it's like it's important to recognise that this is like not just all kind of coming out of left field, and I think this also there's a big thing to happen during the pandemic. That, I think, is also important show following the months where Kovac gonna hit you ass. We saw a lot of you know, potentially recessionary effect start hitting on the feds start, doing a lot of easy monetary policy trying to boost demand and part of that is buying up. Of assets on the financial market and secondary financial markets in order to lower interest rates. Do you know, com financial fears to make sure that you know investment and business continue going in that workers and get laid off indiscriminately on mass part of that what end up happening and that at the time were actually seen critiques from progressing
is saying that we should not be buying up debt from fossil fuel companies and that you know the FED should not be doing that for Both reasons of you don't want to be encouraging this kind of behaviour, and also for reasons of these are actually potentially very risky assets to be having and you dont want be left holding the bad if they do and of collapsing, and this is actually a reasonably good point because a like it is the case that you If oil and gas companies dont do well the positive externalities of saving those companies is not high, like oil and gas is an industry that is extremely volatile. like you, have a situation where, like they gotta pick up a time, and it's like that's kind of industry days, its lights, really high, pay and also secondarily, of course, all the negative effects of climate change in general. I think that the political case against this is what actually makes hard on the policy merited thing. It's actually very reasonable to say all these things should be changed, but on the politics, if you have a fair share that starts
sk remedy against specific types of companies that can really put the FED in danger is able to do and act nimbly in financial recessions and in kind of crises, because Congress leaves it alone, and like knows, if it's not supposed to touch what it does, I do think that, if it starts a sort of cultural war over climate change. You can have a really dangerous situation, Republicans to get power than you. Have you no changes to the feds mandate in Libyan, but this I feel like back. You know during the primary swayed there was this kind of discourse about you know what what were the stakes in this waste? Bernie Sanders and Joe Biden then, and other people, and you know one viewpoint. The correct viewpoint was that the mean things that mattered, at least on domestic issues, were just the eligibility of candidates that, if you don't win, you can anything and if you do well you're more likely to get congressional majority symbol that you do things and I mean
there's an institutionalized, progressive movement that was just not going to accept the answer that this factional battle did not really I'm. So they put a lot of time. A lot of smart people and some good attorney is, and things like that. You really like ran through the text of like everything, and they came up with a lot of kind of outlandish sounding ideas for four things you could do like. Department of Education could just stop collecting all student loans- things like that and with the FED. I think it's true that there's a fair amount of sort of latent, authority lurking around that you could at least try to use, and you know the question is is like: should you do that red, like does we make sense. For starters, I wouldn't holed up in court rang because one,
thing is: what can a smart lawyer come up with that? You know they would feel comfortable taking to court that they would not feel that their friend as the other fancy lawyers will like mark and scorned framing developed. This argument, but another argument just like ok, what are you gonna do? Unlike the real world where you have a mother who were Publican traditionary. And what would the point be right in taking the financial regulatory actions? That will be characterized, as you know, capricious and violations of various statutes that you then have to defend to a hostile judiciary. They get alot of business. Men coming on tv talk about how you doing socialism and destroying the economy the get all the Republicans in Congress Tongue, but how we need to audit the FED and that ultimately, like Joe Mansion as the pivot point senator,
like he still there right leg, you you could you can't like wave away the american political system, and it seems like we more likely to me that you're gonna talk Joe Mansion into increasing the amount of money for solar panels, then into like standing back to back with Joe Biden and hypothetical Green, FED chair as they move till I cut off all lending to fossil fuel projects, and it doesn't it doesn't make sense in the real world as opposed to just as like a take about how well, if you did everything to the max, you could do a lot, because you know like you couldn't you couldn't write like
the system has limits. I think businesses some slippage about what climate thing you're trying to do that? There's? U concern divides the proposal's between ones that try to protects banks from the climate and ones that try to protect the climate from the banks and those are are quite different and have very different, sir ramifications for the climate. So some of this stuff about serve stress, testing fur for investing in fossil fuel assets trying to serve recognised climate as a systemic risk. You can make an argument that very indirectly like. Maybe if you do that, then Citibank will decide that it. to put a price on carbon internally to offset its risk risk bathing. Basically, what you're talking about is is trying to make banks adapt more to observe a world of rapidly changing climate, to diversify their assets and in ways that,
tact them, and it's not at all obvious to me that are trying to protect the banks themselves from collapse is going to have large effects on the actual climate. It seems more plausible to me that the banks would just serve restructure and ways to make them more resilient without actually changing what kind of activities are invested in the economy and, on the opposite, end of that observe trying to protect the climate from the banks and trained as are raised. The cost of it esteem in specifically fossil fuel stuff. It sort of funny to me that this conversations happening at the same time that the three point- five trillion dollar reconciliation billows being hammered out in Congress, which is set to include serve a carrot as opposed to stick
and of a carbon tax where they pay utility use fur meeting certain targets on renewable energy, big subsidies for research and development, an unclean energy, some fees on imports that are heavy users of fossil fuels ends or fines for utilities. It don't need certain standards. All that seems very straightforwardly like it will significantly reduce emissions, and I think part of why people are Arthur pivoting their vision from that to the FED. Is they don't really believe that Joe Mansion is gonna, go for a lot of that stuff and and its in fact, really really hard to pass ambitious legislation through Congress, and it feels easier to like having independent, executive agents doing these things where's, that wave of one, but that does not do things with a wave of on its support. Only some of the board is appointed by the president. A lot is appointed by serve local bankers in Kansas City, who do not
here. The sunrise movements views on these things and unworkable lately. I think there are like both practical and like more idealistic questions of democratic legitimacy that, like Congress, has passed a law saying that the fat has to maximize employment and stabilize prices. They have not has any laws time. The feds do anything whatsoever on climate, and it feels like the appropriate way to tackle climate change is for like Congress to Ass was tackling climate change. What's it actually just big, you met that. Let's take a break, and then I want to talk about who is actually in the mix here. If you like. Basically anyone listening to this right now, I'm willing to bet that you are you're dealing with stress, maybe there's it of it like an overwhelming amount, or maybe it's more like a low but steady, drumbeat background stress. Remember how you are experiencing stress. It's likely effect.
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I think so too relevant to do. I want I want to get to this cause. I'm gonna talk to my council later in the week, and he knows a lot about regulation, but is is not supposed to speculate on individual personalities and get a one. One thing that I do think is relevant here is that if you want, did, I guess, there's a dislike to ways to talk about like the central bank, taking a more aggressive role in climate change. One is, if you assume the political consensus right, Like you know, sixty seven senators like definitely think that the central bank should tackle climate more aggressively and everyone just reason. Maybe there's a law or you know. Maybe it is not because Congress gets lazy, but they like put the personnel and who want to do it, but then there's like the actual world right in which its a fifty fifty Senate, which we know that a bunch of democratic senators are, you know a little changeovers too of the people
members represent big coal mining states and also you need to. I don't know you need to appoint somebody who seems qualified ride, like even Donald Trump. you just brought in another member of the FED bore right. It was like the thing like his tea was, I know Don like you can't go too crazy. Well I'd like to stop markets. Gonna crash, you know, like things you don't want to happen, are gonna happen you can't you can just like pluck somebody out of the ether, so it seems like the other candidates. You know who are in discussion here are roughly robust edge, whose housing economist, who is the president, the land to FED and Little Brainerd was a former undersecretary
Treasury who's been on the FED Board for awhile and as best it can tell like. Neither of them actually support this kind of expensive climate agenda, which is again part of why I just find it a little baffling as it criticism? In fact, I mean like a lot of people pushing. This are responsible for both Brainerd not being made Treasury secretary right well. Today, where I think is one thing that I also believe that Little Bernard was not talking about climate change, but I did fine speeches going back to like twenty nineteen and she did this big event at cap in twenty twenty, where she talked about strengthening the financial system to meet the challenge of climate change is not clear to me that she supports all the things they are talking about here. I dont think that she's going to say that, like or that she would say in this hypothetical world where she sped share that all the sudden, like there's gotta, be a time limit. Were banks can have to stop envy thing in all. You know fossil fuel industries, but like it,
clearly more top of mind to her that it is the other people. So I think that's important, but secondarily I think the fact that there is not this coalescing around an individual to replace Powell? makes me like more likely to believe that what progressives are doing is actually just pressuring the FED to care more about this internally, it took external pressure to get Powell and the board to join the Green FED alliance national lines where they called, I don't know, there's a bunch of central banks the world who are committed to like green vehicles, me through monetary policy and so Jack pressure to do that. It makes more sense to me. That's what they're doing here, because they haven't come out and said we want ex person to replace them and that there is someone who seems clearly viable, but we'll Bernard was talking. This was not. I mean this. Would some
That was a new argument to me as someone who is observing the fat, but this was something that she was talking about for a little bit of time and then, of course, on the secondary kind of issue of financial regulation should also someone who has been on probably the most prominent voice at the FED opposing the deregulatory aspects of what Powell has done. I think she was alone dissenting vote when there were some deregulation around capital requirements and things like that. So technically she doing more than anything is just a question of politics. I think you're, the politics are very clearly not in favour of replacing pal. Only think the other beyond Jerusalem's point about just reflect pressuring whoever's in charge of the FED which of these is an important part of what these activists are doing. There's another vacancy in the mix the Dodd Frank acts created a vice chair, first supervision to be sort of like the radio
stories are at the at the fad, biting with an understanding that the chair of the fat is gonna, mostly focus on employment and inflation, and that you need someone so focusing full time on on financial regulation, Randy Quarles, who is from some point D. His terms is up next year and I think one plausible outcome of this fight is that even how gets reappointed brain or gets the Knights chair or some unlike Sarah Bloom, Ruskin or seem to be weeds? Guess my consul gets the vice chair fur for supervision, someone who's, sir, if I really dyed in the wool progressive, who cares very deeply about financial regulation and make it more open to to serve targeted measures about fossil fuels and that, I think, would meaningfully change the policy regime
I don't give a sense cheap. How really care is very much about financial regulation which, if you're a financial regulation expert, I would totally understand that piss you off, but I've got a corollary to that, is that if you get a deputy in their who does care very deeply, Hugh will probably be amenable to whatever agenda there. Pushing yeah and power has, but in line with this time, vice chair for supervision, I think almost a hundred percent of the time. So it is clear that some level either that there is persuasion happening because a lot of these board meetings that there actually like talking to each other in coming to a consensus, are like any thought. Universal consensus like their taught like they're having a debate amongst peers I'm level and so like it's not like this person is someone who's super set in his ways. We know Powell is actually someone who is willing to be no really change his mind quite drastically around monetary policy and to make implement those changes at the FED. I think, most importantly when were talking about you know, Fulham Plymouth and it's pretty clear. In twenty fifteen we saw some two thousand and fifteen. We saw
all male Brainerd and under JANET Yellin all vote to raise rates on, because I thought that unemployment with at the point where they kept pushing, you would see inflation. That did. happen. We sign depletion, stay study and unemployment continue to decline up until covert sort of hit And I you don't hear reframe after seeing that sort of evidence and actually pushed forward a framework where now we are pushing for full employment and you know kind of being willing to say we're going to risk some transitory inflation, we're not going to freak out until we get more solid signals of overheating, and so this is clearly a person is willing to change his mind, potentially because he's not from the kind of the traditional background that fed chairs have been from, and so you know, I think I have a lot of optimism. The idea that, if there is a good case for you, no climate risk being a real financial risk, the economy that you know the person who is under him making that case would have a good chance of commencing em and same thing for
deregulation, I also what I do want to give due to the disagreement between Brenner power. On the supplementary leverage rule. I mean this is the sort of concrete thing that they have class They they vote in different directions. Here I should think this is a pretty important policy boring compared to like we gonna like put the bankers in handcuffs, and you know I have a debt jubilee that kind of thing other. Basically, this is how much of the investment activity of the big banks in America can be financed with debt versus needing to be enhanced, with equity banks like to all companies in general, like to finance investment activities with debt rather than equity, because you capture more of the upside and your downside is always limit
because you can walk away and this same, you know you buy a house right. Standard mortgage is eighty percent debt. If you live on the edge like Dylan, you get, you can hire leverage mortgage than that, and you know the problem is that you're, not large banks at such a like one person who might go bankrupt. If huge banks go bankrupt, it can wreck the whole economy, which is bad, but also the threat of wrecking the whole economy can lead to be allowed to avert it. But that can encourage banks to take on more and more dead than they shed at the banking industry takes the view that it is very, costly, to regulate this kind of activity, but they are never. I would say able to produce a real reason why that is true and I think This is a situation in which you know panels background in banking and general republican deregulatory leanings.
have led him to the wrong answer, whereas Brainerd as a kind of centre left Technocrat correctly, sees relatively strict global leverage rules as a way to insulate the economy from banking system problems. Without going and for this kind of like real smashing up of of the banks in the way that the left wing people one. I do think you could get that change, probably without necessarily attack the FED, but I see that is different. I mean tourism. We give you make a good point, the brain or gave this speech under summer eighteenth, but if you re in her speech on strengthening the financial system to meet the challenge of climate change, is so very interesting. each she's, invited to this cap conference and jump at, as does there and their personal stuff on the climate. People have a lot of need to spend at progressive nonprofits and the kind of guy.
Everyone to do I, you know here's a climate angle on our issue, but it's like insurance companies are thinking about climate risks and we should encourage them to do that and yeah I mean we should write, but if you put it the other way right, it's like people were at your door, demanding a green new deal and yours action was where we're going insurance company is to get I'll make sure they have accounted for climate risk and portfolio management like they would. Lastly, like aside the son, a real answer on on climate change, which I mean I do think. Leverage rules are a real answer on a bank regulation critical. though they are not the answer that the left likes and they were very upset at the possibility that Brainerd would become treasure secretary because they want, like Elizabeth Words, regulatory the ideas which, I am sorry to say, but she she lost the primary quite babble. Unlike that's the. He said why those ideas aren't gonna be
I don't know, I mean, as I agree with some of our ideas- and I disagree with some others but like you would have to convince people to do that staff putting in June, like some other establishment, liberal isn't gonna. Do it, like Joe Biden, is president read like we could hear exciting news stories about how his appoint he is at as he see and Treasury there like clashing with the FED about this stuff. But, like That is is happening right like I don't want to downplay the significance of financial regulation as a topic, but like this, not a transformative, thin red agenda, that's being held up by J Power, and so I think, if you think you're one is that you know, if you think about the perspective of people who are climate change, divests. This is something that they view as an essential risk. They correctly are very worried about the potential millions of people who could die or
I'm climate refugees are always different things. If this is like your world units is the issue. You work on the idea that you shouldn't care about specific agencies, because the impact is marginal, I think, is not that compelled. I just think that anything you can do you should be doing in that like if it saves. You know, x, number of lives in a future like that's really important to care about, and I think that's like actually quite a rational world view to have if you are, of course, they're they're a trade off. So we have discussed quite frequently here but that in itself, and so like you, we'll Brainerd speeches and yeah I mean like I said- I don't think that she's going to be saying that no banks have to stop investing in fossil fuel companies or anything like that. But I do think there is a question of there are all these unseen. in ways that regulators end up influencing policy that are not the big ways that we think about their jobs? Traditionally, whether it is just like a mean along the feds work is signalling. According to mainstream economics, it signalling to markets signalling to bear
its explaining what the smart people think and how you should behave in how you should think, and so their signals that they're sending are actually quite important both for monetary policy, and I think it's feasible, that it would be important for how banks choose to behave. We ve seen in recent years at reinsurance companies have become much more worried about their climate risk. I don't think this is in no small part to the fact that there's been a lot of discussion- conversation among smart people about this and to the fact that Brainerd is making speeches about, and talking about it, I think it is relevant and if you know, if this activism by me, no, I think I see and other climate folks who have talked about this leads to J Powell talking about it more. That seems like actually a wind to me and then suddenly, This financial regulation stuff. I think the reason why it's a bit confusing for me is like you know. I looked up. I can't figure out like where all financial regulation happens. United Satan is like seven. thousand different places that are regulating financial markets and is like one
and where the backstop Angus ends up being wonder, confusing things were, unlike some other stuff, could be doing at the treasuries of itself to be happening at yes, he season this stuff to be happening through Congress, and a lot of I think the urgency to engage with the fat is a defence has been a place where nimble policymaking can actually happen it's, like you don't exception, honestly, to the rule of a lot of american governmental bodies where people have new ideas. Those new ideas can get implemented and that you know that nimble knows is actually really helpful to the american public and so it's very attractive. Think like okay, this is an agency that can actually act and respond in ways that we think are really helpful. How do we make it more like us, rather but the difficulty of like red, doing a reshaping agencies like the FDA, which I think in many ways a failed over the last years, or look at and try to figure out how Congress can actually pasties bells, because it is quite rational to believe that you know so maybe have one or two more bites of the apple at big legislation. If that and then after that,
could possibly do not lose, the house loses set it or even a presidency at some point for quite a bit of time, and so, if you're someone is coming from the press, like MRS by one shot and I'm going to influence every single agency in place that I can that's quite rational to me. Immunity One reason the fat has been so nimble and- and I think a part of my scepticism here is- is that it's been so very ways are focused on its mission. So one thing it did very, very effectively is turn on the money spigot and set up a bunch of different lending facilities, both for traditional assets that it intends to buy like mortgage securities and and government debt, which advise costs there are guaranteed by the federal government and floors of corporate bonds, state local bonds. Part of I was able to do that. So effectively is that they just want to turn on the money spigot and prevent a depression and had like
no other priorities and the fact that they did that God alot of activists backlash, as you mentioned, because some of them, the money coming out of the money spigot went to fossil fuel companies- and I am sympathetic to the well Brainerd would be better than the J power. I owe you would have been a disaster if, in in the heat of of March April, twenty twenty the FED was like instead of just like sprain money everywhere, was like trying to carefully make sure that none of the money went to bad places like if you turn on like fire hose more water comes out than if you're, like specifically watering specific plants. And the key was to get as much water out
it's humanly possible at that moment and part of why they were able to do that is their focus was falling claimant. They thought it would be, and if you thought correctly, given that this is not a very heavily staff agency, that it would greatly slow down their operations and greatly slow down the recovery, if they words, are picking and choosing industries and that released something else that sir we ve been through dancing around in this conversation, which is there's this urban assumption, when I talk to activists, were sceptical Powell that they can get someone who is as good as pow on full employment and is also better on all these other things, and I am very sceptical, but that's true Brainerd is interesting in that she might be like the one person for whom Madison, that she's been an ally with power over the last three or four years, as he's been, are trying to push the FED to care more about employment too. Careless about inflation
by that is nowhere near the consensus, even in the Democratic Party Joe mentioned, has been attacking J Powell fur for carrying too much about employment for not care enough about inflation. Rational plastic, who is, is one of the finalists, has written a bunch of stuff saying we should not be trying to minimize unemployment, because if we do that, we run the risk of creating future financial crises or bubbles and that its or dangerous and short sighted to be taking. He doesn't call out J Powell, but it's it's sort of clear,
he means to be trying to minimize unemployment, and this is also just an area where it's hard to predict where people are going to do Journey Stein. Who is the Democrat paired with J power? When Obama pointed J power? I certainly thought he was gonna, be pushing for four very loose monetary policy during the great recession in the recovery to try to get unemployment down. He didn't he eating. In famous for arguing, we should have stricter monetary policy to prevent future financial crises, which is, is sort of crazy to me as we should we should prevent, thing about financial crises by having to happen now by Peter Diamond, she was another was a failed about monotony my assumed was going to be pushing for a faster recovery and then did a bunch of interviews after his nomination three saying no, no I'm really worried about inflation. I dont think I don't think there is much that the affected due to boost Jobs- and so I think part of my concern with the replacing Powell is its course theoretically,
simple that you get someone who's as good or better on that and then better off. These other things by things have a tendency to revert to the mean and the mean quality on on monetary policy is so much lower than shape. Howells all the on on monetary policy, what do you think you know Dylan you? You alluded to this right, but I am suspicious of fin rag diehards on monetary policy, because an issue you we will now have like actual consumer price inflation that you know is is higher than the long term target, and you know in strictly macroeconomic terms. I think you should be a consideration, but when, when Obama Whisper,
that inflation was consistently love right and the main argument against more aggressive monetary policy was the idea that it was a financial regulatory risk was wound up being an argument that was made by some of our bombers own appointees. It was made by people on the outside, Sheila Bear was Bush Administration Bank regulator who alot of left wing people decided they like, because she doesn't like big banks, is a huge critic of quantitative easing of like that, and you know some of this is a technical disagreement, but some of it is a is a fairly big picture. Ideological disagreement right if you are
Since somebody told me that you know look would not is interested in kind of you know. People's policy statements where we want to see is people who have been in there in the trenches with us fighting corporate power cheaper. What has not been in the trenches fighting for power. They'll Brainerd has not been in the trenches fighting corporate power, providing adequate monetary stimulus to generate full employment. I think has a lot of benefits to workers this has a lot of potentially in a second order. Sense makes it easier for people to fight corporate power, but like it's not a form of fighting corporate power, its non zero sum redistributive mechanism. It tends to make the stock market go up. You know you can say, while the rich get richer and all the poor get is like, while a job and living and
and you know Dignan lights, and you know I just like. I actually think that that's a real concern that I have that, if you get somebody who's like main orientation in life, is sticking to Wall Street that, like that, will actually lead them to some bad conclusions around the stuff. So I think the best case reshape our russian it's kind of prosperity of the full employment consensus here and that no one is just talked about, but I think with even more importantly, I think people don't realize is that there is a case sort of being made as us. Blocked all of this that it is. The FED is not doing enough on racial justice, and this idea that under the community, reinvestment actors think comes around like a ninety linking Seventys on which basically says that the fund should be doing things to drive investment into oh income in middle income areas, and it seems very plausible me, there's more could be done there to be doing. That ought to be forcing that and to be encouraging, invest
in places and one of the things that the climate case is somehow that you know, the feds should be investing in on climate resiliency projects as part of an environmental justice framework. But I think this doesn't really grapple with what full employment does and how it actually can benefit black Americans. I think in particular show for a lot of enimont here. policy history like there's just business like kind of like our well black unemployment is higher than why unemployment and that's just the way life is like, and I mean this is not a small number like the slick. Quite large, like at some points, is double that of regular unemployment number. So you have, at one point, I think in the eighties, like twenty percent of black people are unemployed and only ten percent was the average unemployment I'm right now. I think it still. Ten percent is the unemployment rate for for black Americans currently and that that's like what the unemployment rate was generally for people during the great recession, when we thought it was extremely surely bad, and so the is what matters is because if you dont have someone at the FED whose willing to push
unemployment beyond what we think traditionally has been on the lower bound before you get lots of inflation you're going to leave a lot of black Americans in this situation, where they're, persistently high unemployment rates- and this isn't just about like whether or not you get a job right like tight labor markets- are important for workers on a variety of fronts, including the fact that what a bunch of Monday shift such that workers are the ones that get to make demands of their employers. It mean to get to treat you wash ITALY. They can't liked him and that you just come in randomly on your days off because they can't afford for you to quit. You know it increases the power that you know. Women might have been workplaces. They, like I'm, not gonna, take sexual harassment because there's tons of other jobs for me to go, get and make sure that Black employees are not able to be treated with kind of racial discrimination that we see because employers can't discriminate. because I can't find any other workers and then it gives people the ability to get these skills and get these access to these jobs in a way that they wouldn't have in the past, and so I think it's really important thing. One thinks it's been really
weird, when seeing this case being made, this very low comparative work being done by progressives here in making this case against J P all around what it would mean to lose some one, even whose whose even a little bit less pro full employment and J Power and whose even a little bit less kind of remove from the general economic consensus that might pull them towards carrying more about inflation. And this isn't just the thing about. You know where the fact that he wasn't kind of yet a traditional background of an economist. I think it's also fact conceptually really rare for someone who's, like kind of an upper class elites to care more unemployment and they do about inflation- are mistaken. Unchecked will reading but like if you're, if you're, wealthier, inflating away dat you'd like upset about that, whereas people who hold debtor like great, I would love for you to inflate away dead. It's not that big of a deals with structural YO, biased around who's, going to care more about inflation and how that's going to arm people verses unemployment, which persistently harm people who are usually not involve. These pulse conversations who
are likely not ever engaging with the Federal Reserve or what its doing so I like there is a unique, Mr Powell. I think it is very unappreciated and that it needs to be grappled with more people going to make a real case against him. That is true. let's take a break list, your white paper. Let's, let's talk my massive Bangladesh are waiting, so our paper today is the impact of mass distribution and promotion. Unmask uptake uncovered ninety in Bangladesh. The bottom line of this, I think one outcome as like super shocking to anyone involved in consuming mainstream media. It is that wearing masks is good and it helps slow the spread of the Sars carve to virus juices, colonel virus cases? It also says, I guess, a little more surprising to some people that using surgical masks. A lot better than using cloth, masks outwits.
interesting about this- is that the research design is sort of like bigger and more rigorous and in some ways more controversial because they went and did, a pretty large scale trial units are a real world. Randomized evaluation in Bangladesh, rather than this kind of like lab staff or abstract modeling that we ve been relying on before, and I don't know I guess I'll people have a lot of feelings about, but research ethics here, yeah it's so I I am actually impressed at their ethical approach here. So one pointing to understand about this is that its cluster randomized. It has not individual randomized, so they did this in about six hundred villages and they paired similar villages so one village of a certain size and entered demographics does get the intervention one dozen
and so they are not a pity neighbours against each other, which is both important ethically but can have effects on the research in research. I cast transfers. For instance, a lot of envy can be generated if your neighbor gets. It gets caution you down and back in In fact, the results in railways. What's also interesting to me of it, is that it's not about providing masks per se because they do provide mass, but you can easily get masks in the control villages. You can get information about masking it's mostly about encouraging encouraging people in giving communities asked since mostly about servilely queues in so it's not like they were doing server. I study with vaccines where, like only some, some people get it, and you have these ethical questions about whether its acceptable to deny treatment we know is really effective too to a control group. No one is denying asks to control group
just one more encouragement of them in the treatment arm. Any is also important that, when the lead authors here, whose Ahmed Mystique Mabarak deserves a great economist at Yale, is Bangladeshi, he said that some of the people in the study were family members of his, I think there are a lot of them, are understandable ethical concerns. People have about these kinds of mercy, tease being conducted by residents of rich countries in poor countries. This is a steady, insubstantial part connected by residents of Bangladesh on residents of Bangladesh for the benefit of Bangladesh. I'm so, I feel very comfortable with the ethics of it, but it is tricky when you're doing something of this scale and when you're, using something like masks where we we have us or pre existing sense that these work really well. I think the most surprising thing about this to me is the different kinds of mask. So, unsurprisingly, the results are that encouraging people to two areas-
dramatically increases, though the sheriff people wear masks, triples physical distance. Seen increases covered, falls by about eleven point: two percent by the Nile Nasser Equal, so then, going out, with her class, announced that family members were into sewing, have sent me for it for the last few months, masks are better than nothing they find, but not dramatic
we better than nothing and what you really want a surgical masks, so they don't necessarily have to be served. Take form fitting, can ninety five masks, but during the flat, blue and white masks you get a hospital, really are much more effective at preventing covert, then than the clock masks that people reserve die wine last year. Yes, someone who spent a lot of time and effort finding color coordinated masks for my favorite outfits like this was extremely depressing, but that is not like a small finding that they did. There's like pretty large difference between cloth, mass and surgical mass, and I part of me is kind of like fostered at the public health messaging around masking. I mean one of the things they find in his paper. They know that the W H owes reasoning for not wanting to talk about masks very early on, that they were worried that it would increase people's risky behaviour,
like you wear masks, so you're, going to physically distance last d, actually find an increase in physical distancing amongst places where mass, I think it's like small enough. We could think its potentially like, not that big of an effect but like clearly not decreasing according to the study fiscal distancing, and so you know this has been a big complain about a lot of people like where public health, maternal game. Three steps ahead of what you will do, instead of just saying the thing that you should do like you should distance. it also where a mask and also like, let's think about which MR best, unlike obvious, that there is a massive supply bottleneck happening early in the pandemic, even getting like cloth mass that we're not being homemade were like difficult to do and, like I remember, Etsy was one of the most, and it was interesting like heroes of the pandemic is because we were able to sell a bunch of homemade masks very easily. There is depressing that it was like almost nil effect with cloth masks, but you know what I'm gonna do everything the other interesting part of this paper is.
Actually end up surveying. They pull a bunch of people at the World Health Organisation and the World Bank and the National Council of Applied economic research at Delhi about what they would expect. The study to say before they get to see the results of the study and I'm a business particular entertained his end. I wish tat. I had been able to do this for myself before I'd read the paper I dont know what out of thought, but they look at people were actually not very good at predicting. What the study would have said, only a very few policymakers correctly noted that the impact of a core intervention unmask wearing and physical distancing, and they systemically underestimate the overall impact of the intervention and impact of in person reinforcing unmasked wearing a lot of them. Thought that the text messages or to be more effective at getting people to where mass they thought that one of the tested, the intervention they did was like happy
put signs and further houses devoting a mask wearing household that didn't do anything and, like the policymakers thought that it would do a lot. We expected value when they like averaged out all these policymakers expectations of what the study would actually do. Was that mask wearing would increase twenty two percentage points and the actual number is it's quite a bit higher than that and Oh you know. I think it's a situation here where you know is. It is useful to think about how little good research we actually have in forming a lot of the formal decisions that policy makers have to make without data and when the amazing is about this research is honest: if not especially complicated in like conception, it's just like white costly and requires a lot of every detail, the methodical work that is extremely expensive and time and labour intensive, which is amazing. But, like underscores to me
that. We should be spending a lot more on these massive large scale studies and that we should be answering allow the questions that we all fight over on twitter, but when we could have the answer potentially, if we just put more money into it, but you had, the studies is very, very cool, so you know I think, to somewhat connect these conversations. The chaos in public the agency is talking about. These kinds of issues is one of the reasons why I am worried about ideas like mission creep at the fag right that, like a big thing that we ve seen going round and round in the matter Discourse is initially all the masks were surgical masks and there was a question about how many surgical man We're would then be around in here, and there were any five masks
you could buy surgical masters stores and public health officials. I think reasonably did not want a huge nationwide run on surgical masks. They wanted this procedure. Masks for healthcare workers, for people who were you know, had good reason to believe that they were can be exe. as to the sick and those people, they didn't happen to be experts in a pyramid factoring, so it didn't occur to them. I think that it was relatively easy to spin up production of cloth masks and like fair enough fright I mean you know they they ate or not. Experts in a pyramid factoring in He did not like generalist, pod cast hosts who know about how do you ask people about different kinds of things you know stuff like that, like their their public health people, but instead of saying we're worried about a shortage in procedure, masks and then letting society tried to come
the solution to that, they came up with this idea that they should kind of fibbed to people, and you know, get it off. Shot and then eventually they became convinced and encouraging. Everybody'd wear masks is a good idea. The phasing out of resistance to mask wearing from various people, answer than they didn't want to get into. To complicate the message by saying now that there aren't shortages, people should really be trying to get good masks, but people should be trying to get good masks. It's not. Obvious to me that complicating the message would make it less effective. I mean it. My that's allowed this crazy hypothesis, but like they didn't test that hypothesis by setting up an experiment across many villages in Bangladesh, they just kind of decided
like they didn't want to do that, but we ve seen that a large segment of the public unfortunately has turned out public health guidance, but most of the public has not to date public health guidance ride like we hear a lot about the people who won't get vaccines but who won't wear, masks or whatever, but a majority of the public is in fact listening pretty closely to what doktor found she and others tell them to do and if they were saying, don't just send your kid the school in clinical a mask, but Go on Amazon get the korean masks that have these little fitted loops, unlike the good, triple ply thing, Maggie but some parents would do that, but it would be very helpful and we could you with some of the stimulus money to purchase such masks. Our industrial policy could be geared around trying to produce them. It might just be a whole huge failure, but I feel like the
Only way to get two success is for technical agency is to actually articulate like what is within their sphere of technical competency and then try to let other people handle other things and that the efforts from the public health work old, to kind of bank shot the supply chain and textile manufacturing and education and some honest speculations about mass political psychology and how the media is going. poor things, it hasn't we'll get hasn't, worked out that well, it's made a lot of people upset. It's not clear that its had any of the intended benefits. It's very confusing. The pandemic keeps going on for a long time, which is something that I think the public health officials correctly have actually been tried saying for a while that, like this is pretty add, but part of that is that, like there's more time to adjust
to these kind of things and cut a worrying about legal. What's going to happen, next, we could see. Vs is like maybe not the primary concern. Like if we had been working on increasing supply of quality procedure masks starting twelve months ago, like that, we could have had this problem like now, but instead wit site Now we ve got delta, we ve got schools or back. Oh Ben there's, no black boxes, from China anymore now this paper Bangladesh and the sort of like well. What are you gonna? Do you now? We should hold people that the procedure masks. Isn't it precise analogy to the FED, but I mean I do think there like. There is something to be said for trying to create, like really good agency stub like strong in their empowered and trusted, and people have confidence in them, but also that they have humility in terms of what is their actual mandate. But what is the domain of expertise,
It is not a climate agency. The national institutes of infectious diseases is like not shirt. Manufacturing factory, like you know, people have to like the experts themselves have to stay in their lanes a little, but I think a things like a verdict, drastically Iglesias Point and us that's why I am yes, so the weeds will be back on Friday is. Can we back next Tuesday is? Can we back next Friday will continue even pass them, but it will not be continuing with me. So, thanks to add, Psmith summit of a thing still infer joining us today, thanks as always to responses we more sentimental thanks. Adequate lessons you should are tweet your heartbreak, but in our life on. I will find some new audio formats in which to visit with you all again in the future, and so until then, the we'll be back
Transcript generated on 2021-09-08.