Some thoughts: Jerome Powell
Some have suggested not reappointing the Fed Chairman. I think that's a terrible idea.
The current topic of conversation in economics Twitter is whether or not Joe Biden will reappoint Federal Reserve Chair Jerome Powell, and whether he should.
The case Powell’s opponents make is not unsympathetic: they argue Powell hasn’t done enough on climate change, hasn’t taken financial regulation seriously, and might be contributing to inequality with his loose monetary policies. Jerome Powell is a registered member of the Republican party, and was appointed to the job by Donald Trump. However, he is also what’s known as a dove (favoring employment goals over inflation fears) and was initially appointed to the Fed by Barack Obama (although as part of a compromise with the GOP). Some sources point to Biden having doubts about renominating him.
Now, about inequality, that’s basically false: the Fed has not boosted inequality with its low rates, full employment agenda. And as for climate change, it’s not really clear what he could do, or even how effective what was actually proposed would even be. Financial regulation is a sticky issue, but Powell does seem mostly content to just let whoever the President puts in charge of the topic run the agenda - meaning Biden could just turn the Fed’s finreg ship around by replacing laissez-faire Trump apointees with stricter people of his own.
And here’s the positive case for Powell. As Fed chair, he has moved the central bank’s focus away from inflation and towards maximum employment. This aim of full employment is both economically good, since it allows for a stronger labor market, higher wages, and higher investment, and also politically good for Biden specifically. And having the Fed chair be a Republican apointee of a Republican President would allow Biden to choose someone he agrees with without suffering a political backlash and bolster his bipartisan credentials at the same time.
Powell is also a very popular person in Washington, having spent his decade at the Fed building ties with key congressional figures and various private sector and labor leaders. Having a full employment agenda is already useful, but having a conservative banker with good relations to key stakeholders be its mouthpiece is an even more useful thing to have. If the White House wants someone who’s better on financial regulation, they could simply replace “bad” FOMC members (like Vice Chair for Supervision Randal Qarles, another Trump apointee) with “good” ones.
Plus, lastly, Powell could be a key ally for Biden in the fight against climate change. I have already mentioned how climate change isn’t a major concern for most Americans, and the fight against it has been driven by a seemingly bipartisan consensus. But also, as I (and Noah Smith) have said, climate policies will only get enacted when they represent a positive-sum game, not a zero sum (or even negative sum) one. Put another way, nobody will want to do anything about it if it’s all costs and little (immediate) benefits, and political support will dry up once there’s a backlash to the costs. That’s the logic behind focusing on the positive externalities of technology and not the negative externalities of climate change like economists want you to. This is the logic behind including a federal jobs guarantee in the Green New Deal: the climate policies will get the climate benefits, and the welfare will win over the political support.
Well, I think a federal jobs guarantee is a bad, ineffective policy, and the Green New Deal isn’t great at actually doing the things you need to prevent catastrophic global warming. But I think the read that the problem is fundamentally political is both correct and one the White House shares. Getting a stronger economy and ensuring that liberal governments that want to tackle climate change and not deranged pro-coal death cults run the show for the foreseeable future are part and parcel with climate action, not some weird sideshow. And so it’s baffling that Biden’s biggest tool for ensuring full employment in the smoothest possible way, a friendly Federal Reserve, is the subject of attacks by well-intentioned but short-sighted progressives.
I think someone better informed about these things than me should write a longform piece about “Jerome Powell’s Theory of Central Banks” but, as far as I see it, the difference between Powell and someone from an elite academic background (say, Janet Yellen) is that Powell is actually willing to challenge consensus ideas that are plain bad, since he has a background as a banker, not an academic macroeconomist. As a result, Powell doesn’t seem particularly inclined to believe that the Fed’s main challenge at any foreseeable point in the future is to contain inflation, but rather to secure a labor market that is as tight as possible (which he’s right about).
Now, I think economists know more about the economy than non-economists, but I also believe that a certain type of economist (particularly elite academic macroeconomists) have a kind of tunnel vision that keeps them from entertaining new ideas about the economy, such as “the Federal Reserve should care more about unemployment than about a completely arbitrary inflation target some dude from New Zealand made up. So having a completely new outlook on what the Federal Reserve’s priorities should be is very good.
In the end, the pros clearly outweigh the cons. Biden could just appoint other people (including to the two FOMC seats currently vacant and Randal Qarles’s seat, which expires in October) that share whichever priorities he wants them to. But having a Fed chair who is a critical cog in the full employment machine, one who is acceptable to people frequently opposed to such an agenda, and one who is actually capable of removing most of the political optics from it is a solid plus. Additionally, full employment and a strong economy are integral parts of climate action (or climate justice, whichever way you want to call it) and that compounds with the previous point.