Raskin: Missing the Point | National Review

Manchin and the GOP Should Do More Than Just Reject Bad Nominees to the Fed | National Review

Sarah Bloom Raskin is seen during a Senate Banking, Housing and Urban Affairs Committee confirmation hearing on Capitol Hill in Washington, D.C., February 3, 2022.
(Ken Cedeno/Reuters)

The welcome decision by Sarah Bloom Raskin to withdraw her candidacy for the Federal Reserve Board has been poorly received where you would expect it to be poorly received.

And so, writing in the New Yorker, Jane Mayer blames “dark money,” fossil-fuel companies and so on. So far so predictable.

Mayer also argues that Raskin was well-qualified to do the job:

Bloom Raskin, who is a law professor at Duke University, is not a new or untested figure on the national economic stage. She was unanimously confirmed by the Senate to top economic positions twice before, serving a term as a member of the Board of Governors of the Federal Reserve, from 2010 to 2014, and as Deputy Secretary of the Treasury during the Obama Administration. Her previous nomination to the Fed’s Board of Governors had wide support from the banking industry.

All true.

Mayer continues:

But, in her letter to Biden, [Raskin] noted that the difference this time was that “my frank public discussion of climate change and the economic costs associated with it” had become a point of contention with the Republicans on the Banking Committee: “It was—and is—my considered view that the perils of climate change must be added to the list of serious risks that the Federal Reserve considers as it works to ensure the stability and resiliency of our economy and financial system.”

That’s true too, although I couldn’t help smiling at Raskin’s use of “frank,” a word that in this context comes with a strong “courageous me” subtext, as if arguing in favor of an agenda favored (for various reasons) by much of the governing establishment took the slightest bit of bravery.

That the policy response to climate change is, at its core, a profoundly political question seems to be something that Raskin is unwilling to acknowledge, something that should have ruled out her nomination, despite her qualifications.

It is, incidentally, quite possible to believe that climate change is for real without thinking that it presents any sort of systemic risk to the financial system.

Economist John Cochrane, writing in City Journal:

Let us state a plain and obvious fact: climate change is an important challenge. But climate change poses no measurable risk to the financial system. This emperor has no clothes.

Climate means the overall pattern of weather—its averages and its range of ups and downs. Risk means unforeseen events. We know exactly where the climate is going over the horizon that financial regulation can contemplate. Weather is risky, but the range of weather over the next decade or so is well understood. More importantly, even the biggest floods, hurricanes, and heat waves have essentially no impact on our financial system.

Moreover, the financial system is only at risk when banks as a whole lose so much, and so suddenly, that they blow through their loss reserves and capital, leading to a run on their short-term debt. That a “climate crisis” could cause a sudden, unexpected, and enormous economic effect endangering the financial system in the next decade is a fantasy unsupported by scientific evidence.

Sure, we don’t know what will happen in 100 years, but banks did not fail in 2008 because they bet on radios, not TV, in the 1920s. Banks failed over mortgage investments made in 2006. Trouble in 2100 will come from investments made in 2095. Financial regulation cannot pretend to look past five years or so.

What Raskin wanted was to use an illusory “systemic risk” as a device to enable the Fed to push through her preferred policy agenda, an unhealthy precedent, to say the least. And as vice chairwoman for supervision, a position frequently referred to as being banking’s top cop, she would have been in a strong position to get her way, and her way would have been a profoundly politicized way.

Here is Raskin, being “frank” back in September:

Regulators . . . need to ask themselves how their existing instruments can be used to incentivize a rapid, orderly, and just transition away from high-emission and biodiversity-destroying investments.

No, they don’t. Voters need to decide if they want a “rapid, orderly, and just transition” and, if they do, it is their elected representatives who should (at least in broad terms) decide on how this should be accomplished. Note too Raskin’s telling use of the word “just,” a subjective notion (there’s no #science there) if ever there was one, and one better (however imperfectly) defined through the operation of open democratic argument than by a bureaucrat sitting at his or her desk.

The letter in which Raskin withdrew her candidacy included this passage:

[Mine] is not a novel or radical position. The Department of Defense has been systematically analyzing the energy security risks of climate change for years, developing mitigation strategies to confront them. Banks and insurance companies incorporate financial aspects of extreme weather events into their plans. Farmers, ranchers and businesses across the country already are struggling to adapt to extreme floods, hurricanes, rising sea levels and wildfires. Central banks around the world have already begun acting on these issues.

Well, the Department of Defense does what it does, but it is not a regulator, regulating others. And for Raskin to tell us that banks and insurance companies are already incorporating “extreme weather events into their plans” tells us little other than that they recognize a risk, not how great that risk might be.

On that topic, John Cochrane, writing for Capital Matters in November, had this to add:

It is simply not true that the economic damage of extreme weather events is either large or substantially increasing. Weather-related damages were 0.18 percent of global GDP in 2020. That’s tiny, and it’s decreasing, down from 0.26 percent in 1990. The part of it that could be described as unexpected, threatening financial reserves, is tinier still. GDP fell 10 percent during the COVID recession. Unexpected climate risks would have to be 50 times larger in the next few years to approach that level of damage. Even the most extreme weather events are local, a blip on the national economy and the assets of diversified banks.

Raskin’s withdrawal was the right result, and one that was good for democracy, but there will be another nomination to come. . . .

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About the Author

Tony Beasley
Tony Beasley writes for the Local News, US and the World Section of ANH.