The Fed and climate change
A recent article on Sarah Bloom Raskin, who was recently nominated to be the Fed’s lead bank regulator, made these claims:
“To the extent that her confirmation is viewed as a referendum on getting central banks involved in climate-related risks, it’s possible there’s going to be a lot of controversy surrounding that,” said Richard Berner, an Obama-era director of the Treasury Department’s Office of Financial Research. He currently co-directs New York University’s Volatility and Risk Institute.
But ultimately, Berner added, “Ms. Raskin’s outspokenness on climate is completely legitimate because it is an existential threat, and because climate-related shocks do pose threats to financial stability, and to the safety and soundness of financial firms and markets.”
Here are some of my views on climate change:
1. Global warming is real and it is mostly man-made.
2. Global warming is a very big problem.
3. Governments should aggressively address global warming with policies such as a revenue neutral carbon tax.
Based on these views, you might expect me to support Fed efforts to address climate change. Not so. To begin with, it’s absurd to claim that climate change is an existential threat, at least for humans over a time horizon relevant for current policy decisions. (Some animal species might become extinct due to global warming.) Even experts that worry about global warming typically predict only modest reductions in real GDP over the next 100 years. Of course, even a small percentage decline 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 it isn’t even close to being an existential threat. It is discouraging to see the left, which has been so critical of anti-scientific vaccine opinions among some on the right, have such disregard for studies of the impact of global warming.
Because climate change will not have a major impact on our economy for many decades, if not centuries, it makes no sense to try to figure out its impact on financial stability. Most of the instability in our financial system comes from two factors, government-created moral hazard (FDIC etc.), and unstable monetary policy (i.e. unstable NGDP.) All other factors, including climate change, are relatively unimportant for financial stability. Furthermore, no one really knows how climate change would affect financial stability.
I suspect that 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’m skeptical of Raskin’s views on the Fed’s role in climate change, this particular post addresses the views of Richard Berner, as reported in the media.
PPS. In the past, I’ve advocated separate boards for monetary policy and banking. I still hold that view, indeed now more than ever. All Federal Reserve Board members should be outstanding experts on monetary policy. Unfortunately, neither political party in America looks at things that way.