The Fed and climate change

A recent article of Sarah Bloom Raskin, who was recently appointed as the Fed’s chief banking regulator, made these claims:

“As its confirmation is seen as a referendum on central bank involvement in climate-related risks, there may be a lot of controversy surrounding it,” said Richard Berner, director of the department. of the Treasury during the Obama era. Financial Research Bureau. He currently co-directs the Volatility and Risk Institute at New York University.

But ultimately, Berner added, “Mrs. Raskin’s outspokenness on climate is entirely legitimate because it is an existential threat and because climate-related shocks threaten financial stability, as well as the safety and soundness of businesses and financial markets. .

Here are some of my opinions on climate change:

1. Global warming is real and it is mainly caused by man.
2. Global warming is a very big problem.
3. Governments should aggressively fight global warming with policies such as a revenue-neutral carbon tax.

Based on these views, you might expect me to support the Fed’s efforts to fight climate change. Not so. For starters, it is absurd to claim that climate change is an existential threat, at least to humans over a time horizon relevant to current policy decisions. (Some animal species could be extinct due to global warming.) Even experts who worry about global warming usually only predict modest reductions real GDP over the next 100 years. Of course, even a small percentage drop in global GDP is a bad thing, and there are other factors such as distributional effects and impact on the natural world that deserve some consideration. But that’s not even close to being an existential threat. It is disheartening to see the left, which has been so critical of anti-scientific views on vaccines among some on the right, have such disregard for studies of the impact of global warming.

Given that climate change will not have a major impact on our economy for many decades, if not centuries, it makes no sense to try to understand its impact on financial stability. Most of the instability in our financial system stems from two factors, moral hazard created by the government (FDIC, etc.) and unstable monetary policy (ie an unstable NGDP). All other factors, including climate change, are relatively unimportant for financial stability. Moreover, no one really knows how climate change would affect financial stability.

I suspect people who worry about climate change are using it as an excuse to inject the Fed into a policy area that should be the responsibility of Congress.

PS. While I am skeptical of Raskin’s view of the Fed’s role in climate change, this particular article addresses Richard Berner’s view as reported in the media.

SPP. In the past, I have advocated separate councils for monetary policy and banking. I still share this view, in fact now more than ever. All members of the Federal Reserve Board should be outstanding experts in monetary policy. Unfortunately, no American political party sees it that way.

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