The Fed Will Save The Planet

As Robert Murphy pointed out last week, yet another example of ‘mission creep’ at the Fed has recently surfaced. As readers are probably aware, the Fed is one of the bureaucracies that are constantly rewarded for failure. In fact, it is a general rule of thumb that the greater the failure, the greater the subsequent expansion of power that is granted to the bureaucracy concerned. Examples for this principle of statism abound  – see e.g. the vast expansion of the budget and power of the national security bureaucracy after it failed so abjectly to avert the 9/11 attack.

It is similar with the Fed, the regulatory powers of which have been expanded greatly right after it presided over the biggest financial crash since 1929-1930. However, for some people this doesn’t go far enough. The Fed should not only manipulate interest rates and the money supply and act as a kind of fox guarding the financial hen-house. As Bob pointed out last week, it is now argued that the Fed under Ms. Yellen’s leadership should add credit dirigisme designed to ‘save the planet’ to its menu:

 

“I have referred to Ben Bernanke as the “FDR of central banking.” What I mean is that Bernanke not only instituted horrible economic policies, but he used the financial crisis to fundamentally transform the way Americans (and Earthlings more generally) view the role of the Federal Reserve. A recent Huffington Post article on Janet Yellen illustrates my case beautifully. The bio describes the writer, Mike Sandler, as a “climate change professional” (among other things). That should warm us up for his recommendations for incoming Fed chair Janet Yellen:

“On January 6, Janet Yellen will likely be confirmed as the next Chair of the Federal Reserve System. Her to-do list will be full of things like the interest rate, the bank bailouts, the unemployment rate, and in general, running the economy. Climate change would be an unexpected addition to that list, but the Fed Chair is in an important and rarely recognized position to to take action on the climate crisis.”

Sandler lists several ways that Yellen can tackle the “climate crisis,” but I don’t want to overwhelm you. Let’s look at just one of his suggestions:

“She can make a carbon cap a part of the Fed’s operations by tracking and requiring carbon reductions in the footprint of loans originated by Fed member banks. This could take the form of a declining number of annual allowances to banks that provide loans to the energy and oil industry. By connecting economic activity to greenhouse gas emissions, the Federal Reserve could create levers to allow for additional economic growth in low-carbon activities, while reining in high-carbon industries.”

Does everyone see the significance of this statement? Sandler wants the Fed chief to oversee commercial bank loans in order to micromanage specific industries. We have moved well beyond the idea of a Fed that promotes economic growth while trying to minimize the volatility of price inflation. Now we have “climate change professionals” telling the Fed chief to crack down on banks that make loans to industries that the writer thinks are emitting too much carbon dioxide. Finally, just to make sure that we throw out marginal cost/benefit analysis and view the issue in emotional terms, here is how Sandler ends his HuffPo  piece: 

“Janet Yellen will have unique powers over economic policy, and she can use her new powers to save the planet. To do so, she will need to add one more item to her 2014 to-do list.”