There are, of course, some people who do not know this. A 2014 survey by the Pew Research found that 73 percent of Americans had a basic understanding of the Fed’s purpose—meaning just over a quarter of the population is the dark about our central bank. And apparently, a few of those dwellers in darkness were recently commissioned to write an op-ed for Teen Vogue with the title “What Is the Federal Reserve and Why Does It Matter?” It manages to answer neither question correctly. In fact, the phrase “monetary policy” does not appear in the article at all.
There’s no reference to the money supply or interest rates.
There’s only a passing reference to bank supervision. Nothing at all about containing systemic risk. Or fostering an efficient and safe payment system. Or providing financial services to the U.S. government, financial institutions, or foreign official bodies. “Today the Federal Reserve’s job is to maintain a strong national economy for the public interest,” the Teen Vogue op-ed declares. That’s just something the authors made up. It actually sounds closer to the job of the U.S. Treasury. But, in truth, it is a task that is divided up between various branches, agencies, and bureaus of the U.S. government. Teen Vogue imagines the Fed as a kind of generalized engine for Making the World Better. Don’t believe that anyone would think that’s what a central bank would do? Here’s how the op-ed begins: Imagine if your city could buy up vacant houses and rent them to community members at a reasonable price. What if your city could afford to retrofit local infrastructure to protect communities from future flooding? And imagine if our collective physical safety and economic wellness was safeguarded because the government chose to prioritize us over Wall Street. This is not an impossible dream — and we’re not actually that far from its reality. In the next few weeks, President Biden will make a decision that could shape his legacy as a champion for racial justice: choosing the next chair of the Federal Reserve. Got that? Instead of managing interest rates and the soundness of the financial system, Teen Vogue wants the Fed to be a champion for racial justice, a guardian of our physical wellness, and a facilitator of local infrastructure projects. It also imagines a Fed that fights climate change. We’ve got lots of parts of our government that are better suited to the task of being a champion of justice, racial and otherwise. And quite a few that are equipped to address climate change.
The Federal Reserve, however, is particularly unsuited to these tasks. For one thing, the Fed is first and foremost a central bank. It was launched over a century ago in large part to quell bank panics. Throughout its history, its top officials have been for the most part either bankers or, more recently, economists. As economists became convinced of the power of monetary policy to influence broad economic events, its duties expanded and were eventually incorporated into law as what we now call the “dual mandate” of price stability and maximum employment. Those two mandates have traditionally been understood to be somewhat in tension—and the Fed’s job has been to balance them. Get unemployment low but not so low that it causes too much inflation. Get inflation low but not so low that it causes undesirable inflation. More recently, the Fed has decided that its aim should be inflation of around two percent and unemployment at some unspecified level that we’ve recently come to believe is lower than we previously thought. This is hard to do, and often the Fed has missed its targets or bungled the execution. Many economists believe the story of the Great Depression is largely one of bungled monetary policy. We had a massive explosion of inflation in the 1970s and early 1980s. Too often when the Fed has tried to keep the economy from overheating, the Fed has wound up triggering a recession. Now we’ve got more inflation than the Fed anticipated and less growth than the Fed predicted. Throwing racial justice and climate change into the mix is a recipe for disaster.
The Teen Voguers are very upset that the Fed mostly works through the banking system—even though that’s what it is supposed to do. This is like complaining that the Coast Guard works the coasts or the Transportation Department is focused on transportation. Not everything is about justice. A lot of blame is heaped on the villain du jour: whiteness.
The Fed was the brainchild of six white men who met on a private island owned by banker J.P. Morgan. More than 100 years later, not much seems to have changed with its leadership: The current Fed board is entirely white, majority Republican, and has a deep history in the private sector. It’s little wonder, then, that the Federal Reserve has repeatedly used its massive toolbox to favor corporate America and Wall Street, instead of for struggling workers, climate justice, or municipalities. White people! Always serving the interest of corporate America and Wall Street. Just look at Karl Marx, Andrew Jackson, William Jennings Bryan, Franklin Delano Roosevelt, Pat Buchanan, Bernie Sanders, and Elizabeth Warren! The main point of the article is to urge President Joe Biden not to nominate Fed chair Jerome Powell to a second term. He’s too white! He’s too corporate! The irony of this is that Powell has been extremely dovish on inflation since the pandemic struck, reworking the Fed’s inflation targeting framework in a way that is considered extremely worker friendly. He’s explicitly made racial and gender equity in employment a goal of the central bank by saying that maximum employment must be seen in the context of reducing racial disparity in employment and arguing that a tight labor market will make wages more equal between races and between men and women. In fact, Powell’s Fed has come under fire from Republicans for being too interested in “woke” economic subjects. But because the Fed mainly acts through the banking and credit system, he’s treated like he’s some kind of reactionary monster by Teen Vogue.
They want to turn the central bank into the Hall of Justice. Another irony: the Teen Voguers are effectively arguing for a tighter monetary policy that would have resulted in higher unemployment during the pandemic, greater inequality, and probably worse consequences for the environment. Note that this is quite a different complaint than that of Elizabeth Warren, who recently said she opposes Powell’s renomination because she thinks he is too easy on the biggest banks when it comes to regulation. Warren’s is at least a sensible critique focused on what the Fed actually does, not a magic carpet ride through a fantasy Fed that just fixes everything with a wave of its wand. Fortunately, Teen Vogue‘s take on the Fed is being roundly criticized by center-left journalists who know a thing or two about the Fed.
The Teen Vogue story is not just wrong. It's actively harmful insofar as it repeats the myth that easier monetary policy is somehow better for corporations and the rich than it is for workers. — James Surowiecki (@JamesSurowiecki) September 29, 2021 “If President Biden really wants to “’build back better,’ he’ll take this opportunity to shape the Fed into a force for justice for Americans who have been excluded for too long — a Federal Reserve that works for all of us,” the Teen Vogue op-ed concludes. Yes, if Biden wants to turn the Fed into “a force for justice,” then he probably should nominate someone else. But the rest of us should hope the president wants to let the Fed be the Fed and not the Justice League.
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