The fight over Jerome Powell.
The fight over Jerome Powell.
Some progressives want him gone.
I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum — then “my take.”
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Today’s read: 11 minutes.
The fight over Jerome Powell. Plus, a question about the left and right’s biggest blindspots.
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Quick hits.
The Taliban announced a new interim government in Afghanistan on Tuesday, including hardliner Mohammad Hassan Akhund as the head of the government. (The details)
President Biden is planning to outline a new six-pronged plan to contain the Delta variant of Covid-19. (The plan)
First Lady Jill Biden returned to the classroom to teach her English class at Northern Virginia Community College, becoming the first first lady to work a full-time job while in the White House. (The job)
Former President Donald Trump will back Harriet Hageman as she prepares to mount a primary challenge to Trump critic and Republican Rep. Liz Cheney in Wyoming. (The report)
The Biden administration released a plan to produce almost half of all U.S. electricity from solar energy by 2050. (The goal)
What D.C. is talking about.
Jerome Powell. Powell is the chairman of the federal reserve, a post he was nominated to by former President Donald Trump. The Federal Reserve is the United States’ central bank; it develops monetary policy in an effort to stabilize our markets and maximize things like employment. Part of Powell’s responsibility is overseeing the Federal Open Market Committee (FOMC), a group of seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents that sets short-term economic policy (think: things like interest rates on loans for buying a home).
In other words, it’s an extremely important and powerful position. I know it sounds boring, but consider this: many in D.C. have long called the fed chair “the second most powerful person in the world.” Federal reserve chairs serve four-year terms but can be nominated to serve multiple terms. Powell’s first term will come to an end in 2022, and there is now a concerted political effort to pressure Biden into picking someone else.
More specifically, Reps. Alexandria Ocasio-Cortez (D-NY), Rashida Tlaib (D-MI) and Ayanna Pressley (D-MA) are calling on President Biden to replace Powell with someone who is more focused on addressing climate change and racial and economic justice. “Under his leadership, the Federal Reserve has taken very little action to mitigate the risk climate change poses to our financial system,” the lawmakers said in a statement at the end of last month. “At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk.”
Other representatives, including Chuy García (D-IL) and Mondaire Jones (D-NY), also signed the statement, and Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) have both criticized Powell for deregulatory efforts related to the banks that the federal reserve oversees.
Below, we’ll take a look at some commentary about Powell from the left and right, then my take.
What the right is saying.
The right has mixed feelings about Jerome Powell, but does not believe the progressive criticisms are cause for replacement.
The Wall Street Journal criticized a recent speech Powell gave, saying he sounded more like a politician than a fed chairman.
“Mr. Powell justified the Fed’s continued and historic policy ease on grounds that while the outlook for the job market is excellent, the labor market recovery has been uneven,” the board wrote. “But then it always is after a recession. Mr. Powell’s case is that the 5.4% unemployment rate ‘understates the amount of labor market slack.’ He could be right, though one reason for any slack is that the government welfare and jobless benefits that Mr. Powell cheered on earlier this year are paying people more not to work than if they take a job. No mention of that in his remarks.
“The chairman also had a rosy view of inflation even as it soars above the Fed’s 2% target and has been stickier than the central bank’s legion of economists predicted,” it added. “Mr. Powell couldn’t, and didn’t, deny that fact… Mr. Powell offered the usual concern about the struggles of ‘lower-wage workers,’ but we wish he or someone at the Fed would acknowledge the central bank’s contribution to income inequality. The Fed's quantitative-easing bond purchases are intended to lift asset prices, which helps the relatively well off who own assets, while renewed inflation robs low- and middle-income workers of real wage gains. The resulting increase in inequality then becomes another political excuse for higher taxes and more income redistribution.”
In Project Syndicate, John Cochrane argued that it was “absurd” to say climate risk posed a danger to the financial system.
“Financial regulation is being used to smuggle in climate policies that otherwise would be rejected as unpopular or ineffective,” he wrote. “Such an event lies outside any climate science. Hurricanes, heat waves, droughts, and fires have never come close to causing systemic financial crises, and there is no scientifically validated possibility that their frequency and severity will change so drastically to alter this fact in the next ten years. Our modern, diversified, industrialized, service-oriented economy is not that affected by weather – even by headline-making events. Businesses and people are still moving from the cold Rust Belt to hot and hurricane-prone Texas and Florida.
“If regulators are worried even-handedly about out-of-the-box risks that endanger the financial system, the list should include wars, pandemics, cyberattacks, sovereign-debt crises, political meltdowns, and even asteroid strikes,” he wrote. “All but the latter are more likely than climate risk. And if we are worried about flood and fire costs, perhaps we should stop subsidizing building and rebuilding in flood and fire-prone areas… To be sure, it is not impossible that some terrible climate-related event in the next ten years can provoke a systemic run, though nothing in current science or economics describes such an event. But if that is the fear, the only logical way to protect the financial system is by dramatically raising the amount of equity capital, which protects the financial system against any kind of risk.”
In Bloomberg, Ramesh Ponnuru argued that replacing Powell for someone more progressive would be an “unforced error.”
“That’s not to say that Powell’s tenure has been perfect,” Ponnuru said. “He raised interest rates too far too fast in his first years as chairman, part of a cycle in which the Fed overestimated the neutral interest rate and underestimated how high employment could go without causing inflation. (Former President Donald Trump, who had appointed Powell chairman, started calling him an enemy of America as a result.)
“Powell’s performance looks very strong, however, when set against that of other central bankers,” he wrote. “Under his three predecessors, the Fed first helped spawn a credit boom with easy monetary policy, then helped usher in the financial crash and a deep recession with tight monetary policy, and finally made decisions that weakened the recovery. Conversely, in 2020, when dealing with a crisis that was not of the Fed’s making — the pandemic and the economic shutdown — Powell provided the support the economy needed… The optimistic case is that the trends will look better toward the end of the year as supply chains strengthen and the lockdown is further behind us. The pessimistic case is that the current turmoil is unsettling expectations of future inflation in a way that will become self-fulfilling. If Biden nominates a replacement for Powell this summer, he'll be adding uncertainty about monetary policy at the moment when it's already likely to be at a peak of controversy and danger.”
What the left is saying.
The left largely continues to support a second term for Powell, though some progressives are calling for a more climate-focused fed chair.
In The Washington Post, Catherine Rampell said firing Jerome Powell would sabotage Biden’s own agenda.
“Powell was originally nominated to a Fed Board seat by President Barack Obama in 2011, and elevated to chair by President Donald Trump in 2018. Since then he’s done an extraordinary job,” she wrote. “Among the highlights: He safeguarded the Fed’s political independence when Trump tried to bully him into pursuing partisan policies. He took aggressive, early action to shepherd the economy through a pandemic. Perhaps most significantly, he reoriented the Fed’s mission toward creating more job opportunities for the most vulnerable Americans. This last issue is one championed primarily by progressive activists, including some of the same people now fighting Powell’s reappointment."
“Last year, the bank announced a new framework that allows for moderately higher inflation and redefines maximum employment as a ‘broad-based and inclusive goal.’ Powell and other Fed colleagues have advocated paying more attention to unemployment rates for Black people, workers with less education and other populations often left behind even in supposedly ‘good’ economies,” Rampell said. “The shift is all the more striking because Powell is a Republican. Republicans have typically been more ‘hawkish’ on inflation and have cared less about the prospects of lower-wage workers. Yet somehow, thanks to Powell’s formidable interpersonal skills, he’s managed to maintain Republican support.”
In The American Prospect, David Dayen said “the planet depends on the next federal reserve chair.”
“It’s not like the Fed has nothing to do on this score,” Dayen argued. “U.S. banks have provided far more fossil fuel finance than any other nation’s, over $1.2 trillion from 2016 to 2020. These investments have increased even as the science of climate change became more undeniable… Powell’s defenders make it seem like climate hawks want the Fed to go on a spree of direct green lending, favoring certain businesses over others in ways that would not fit with its legal mandate. The truth is that there are many other options available to the central bank, not just to encourage a transition to renewable energy, but more importantly, to manage that transition so financial institutions don’t get stuck with useless assets, threatening their overall balance sheets.
“For one, the Fed can incorporate climate risk into stress tests of large financial institutions, as France and Japan have already done,” he wrote. “The Fed can also ‘risk-weight’ carbon-sensitive assets, establishing higher capital requirements for holdings in coal plants, for example. Financial supervision can make climate preparedness a major component, and force that information to be made public. The Fed can also use monetary tools to target climate, including with its asset purchases. Many have criticized the central bank for its pandemic-era lending and bond-buying operations, which disproportionately helped to bail out the oil sector. The Fed even changed the terms of one key lending program to benefit the industry. This did not appear to honor any principle of sectoral neutrality; if anything, it weighted more toward oil and gas.”
In his newsletter, Bloomberg’s Noah Smith asked why The Squad is attacking Jerome Powell.
“The Squad’s first beef with the Fed Chair is that he’s not trying to eliminate climate risk,” Smith wrote. “But the fact is that the Fed simply has very little to do with regards to climate change. The Fed’s primary function is to balance inflation and unemployment, by setting interest rates and doing other financial market manipulation like quantitative easing and such. Essentially, if the Fed thinks too many people are out of a job and we need to speed up growth so that they get jobs, they pump money into the economy, and if they think prices are rising too fast they take money out of the economy. Yes, it’s more complicated than that, but not much more complicated.
“So how does this interact with the climate?” Smith asked. “Well, if you’re a degrowther, then you think faster growth is bad for climate change, and you might generally want hard-money policies to slow things down (even at the inevitable cost of jobs). But if you’re a green-growther, maybe you might think that a hotter-running economy would stimulate investment in things like solar electricity. So you might want easy-money policies to speed growth. But then you’d also have to think that the private sector will do the right thing with those dollars — that they’ll invest in solar and wind and energy storage rather than new natural gas plants and gas-consuming factories. Since AOC’s Green New Deal is based on the idea of government taking over the reins of climate-related investment from the private sector, it’s a safe bet that the Squad does not think that simply handing cheap money to businesses will direct investment in the right direction.”
My take.
If you’re in Biden’s shoes, the decision to keep Powell seems like a no-brainer.
Not only is he a Trump-appointed Republican fed chair who has managed to garner support from people across the political spectrum, he’s also managed to execute and support a fiscal policy that fits the mold of the Biden presidency with very little hiccup. And he’s done it at a time when the federal reserve wields more power than it ever has in American history.
But it’s not just that. As Rampell wrote, Powell is arguably the most worker-friendly fed chair we’ve ever seen. Given the populist trends in the U.S. from the Bernie Sanders left and Donald Trump right, paired with the economic hardship of the pandemic, it isn’t hard to see why — from a political perspective — a fed chair like Powell is a major win for Biden.
Some of the writers above (on the left and right) have scoffed a little too blithely at the notion that the fed chair can impact climate policy. There are knobs the federal reserve can turn — like weighing climate change when it creates stress tests for banks, or holding more capital from fossil-fuel companies when banks lend to them, given that the price of something like an oil field could collapse rapidly with green initiatives.
But I do think the crux of their argument — “this isn’t his job” — is mostly true. And it seems patently obvious to me that removing Powell at a time when the economy is already on uneven ground and Biden is slowly moving toward accomplishing some of his largest political goals would be idiotic for the president. Silly enough that, honestly, I’m surprised to see these representatives pressuring Biden to do it, and wondering if there aren’t unseen motives at play. Is this just a simple media play from The Squad? Is it actually a ploy to help Biden keep Powell and appear as a centrist at the same time? These are good questions other people have also asked.
The truth is Powell represents what amounts to a royal flush for Biden. Not only is he a Republican appointed by Biden’s predecessor (which plays into the bipartisan image Biden likes to cultivate), but he’s well-liked across the political spectrum. He has abandoned the idea that the fed needs to be hyper-concerned about inflation, instead aiming its resources at maximum employment. He’s even used his Republican credentials to support massive spending like the American Rescue Plan and tamp down fears about the deficit.
I’ve been scratching at it, but now I’ll just pass the mic to Robinson Meyer, who made the simplest argument for why Biden (and Democrats) should want to keep Powell, in The Atlantic: “Biden wants to do a lot of hard things to combat climate change, including passing an infrastructure bill, regulating car and truck pollution, revitalizing American industry, and attaining full employment. Powell is a Republican who wants to reach full employment. By keeping him, the president can spend more political capital on his other goals. That’s really it.”
Your questions, answered.
Q: What are issues that you feel are the biggest blindspots to the right and the left? An issue that the right or the left just always overlooks or doesn't have a handle on as a party. Obviously bias plays a role in our perceptions of whether a side understands an issue or not but I wonder from a more objective viewpoint what are the most overlooked issues on each side.
— Joseph, Montgomery County, PA
Tangle: This is a fantastic question.
On the left, I’d say the number one blindspot issue is immigration. That may sound silly given that immigration is such a huge topic in America, and there are several major immigration issues the left cares deeply about (like DACA and the so-called dreamers). But if you ask most liberals what the top issues for Republicans are, I suspect they’d say something like: the economy, guns and abortion. In my experience, though, immigration is the thing that probably animates Republicans the most. Trump brought this reality front and center in 2016, but part of why the left was so blindsided by his victory is because they underestimated the power of his rhetoric on immigration.
I think in some ways that blindspot is slowly returning now. Look no further than the disparity in coverage on the left and right around the situation on the border, and you can see what a big issue it is to half the country and how little attention it gets from the other half.
On the right, it is health care. This also became most clear during the Trump presidency, when he tried to repeal and replace Obamacare without having any replacement plan and the late Sen. John McCain (R-AZ) sunk the effort with his thumbs down vote. Again: sounds kind of silly, health care is a huge issue, etc. But think about it this way: Trump had four years in office and never actually developed a health care plan. Over and over he promised a new, cheaper and better health care proposal from Republicans, but it never came. It’s astonishing to me that the Republican party still doesn’t have a clear, cogent healthcare alternative to Obamacare or to expanding Medicare for All, especially given that it’s probably the number one issue Americans care about.
To put it another way, try to answer this question: what is the Republican position on health care? I am a politics reporter and I’m not sure. Is it free markets? Is it what we have now? Is it to privatize everything? Is it expanding Medicaid as some red states have done? Is it to fix Obamacare or abolish it? Is it the AHCA they introduced in 2019 after the same plan cost them in 2018? What’s the message? The fact that this answer isn’t clear is a sign the party either hasn’t coalesced around anything or doesn’t have many great legislative proposals to address it. It kills them politically, and it’s something Democrats have feasted on for a decade.
A story that matters.
Decades after 9/11, police in New York City are using counterterrorism tools and tactics to fight routine street crime. New York’s powerful facial recognition software is drawing increased scrutiny as the 20th anniversary of 9/11 approaches. “New Yorkers simply going about their daily lives routinely encounter post-9/11 digital surveillance tools like facial recognition software, license plate readers or mobile X-ray vans that can see through car doors,” The New York Times reports. “The department’s Intelligence Division, redesigned in 2002 to confront Al Qaeda operatives, now uses anti-terror tactics to fight gang violence and street crime.” It’s not just New York City, either: enhanced surveillance among American police nationally is being put under a microscope. The New York Times has the story.
Numbers.
Less than 2%. The percentage of fully-vaccinated adults in most low-income countries.
~50%. The percentage of fully-vaccinated adults in most high-income countries.
46%. The percentage of Americans who say 9/11 changed the U.S. for the worse.
33%. The percentage of Americans who say 9/11 changed the U.S. for the better.
49%. The percentage of Americans who say we are safer from terrorism now than we were before 9/11.
36%. The percentage of Americans who say the war in Afghanistan was worth fighting.
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Have a nice day.
Hurricane Ida tore through New Orleans last week, leaving more than a million people without power. But one group of veterans is living in an apartment complex that has had the lights on, thanks to its solar power roof panels and battery storage capabilities. St. Peter Residential was built one month before the pandemic began. It’s the first net-zero emissions apartment building in the state, and more than half the affordable apartment units in the building are reserved for low-income veterans. Good News Network has the story.
Well. I read this edition slowly as befits my ignorance about economics, and I still don’t understand quantitative easing, but this seems like a no brainer to me too, Isaac. Janet Yellen supports Powell. He seems moderate and cares about full employment as do I. Plenty is broken. Perhaps we should avoid fixing what isn’t. Thanks for also bringing up the issue of immigration—I need to pay more attention to it. Progressives would do well to understand why a number of border counties in Texas went for Trump in 2020.
Powell: This story got way too much coverage. Of course The Tribe wants to oust him. Follow the money. They want his replacement to send trillions their way, and to their backers. Nothing has been used more often lately as an excuse for a progressive bag job or power grab than climate change. Except, maybe, covid.