Remember those multiracial protests for Black lives prompted by the murder of George Floyd roughly two years ago? I covered many of them. Throngs of people, many with Black Lives Matter signs, marching down streets like Thatcher and Lake and Washington and Madison in Oak Park, River Forest and Forest Park. Whatever happened to what many of us thought at the time was this country’s great racial reckoning?
Last month, Hakeem Jefferson, a political science professor at Stanford University, told NPR that he believes many white people have, indeed, had a racial reckoning, meaning they’ve been made aware of the political nature of their racial identity. But this is where the reckoning stops being productive, he said.
“A lot of that has been feeling bad about being white, engaging in some ‘anti-racist,’ quote-unquote, behaviors and the like. But [the evidence suggests that] a lot of this reckoning is starting at the bookshelf and ending on the couch. If that’s what you know about the state of the reckoning, you don’t expect the reckoning to persist.”
If it did nothing else, Floyd’s murder prompted a wave of empty corporate sloganeering, more Netflix content, book deals, Super Bowl Halftime shows and a wave of six figure DEI hires. But while there may be measurable (albeit marginal) progress in the racial, gender and cultural diversity among the elite and within our entertainment complex, it’s not clear that this will ameliorate another, much more overlooked, diversity, equity and inclusion problem.
There is a dangerous lack of ideological and intellectual diversity in many of the country’s most powerful spaces, particularly in the spaces that dictate our political economy and, increasingly, our very survival.
The Fed is a case in point.
Last month, President Joe Biden announced the three people he’d selected to sit on the Federal Reserve’s powerful Federal Open Market Committee (FMOC). If they’re approved by Congress, this would “mark the first time women outnumber men” on the committee, according to the Financial Times.
This is progress, given the central bank’s history.
“A decade ago, the Federal Reserve, the European Central Bank and the Bank of England were all headed by men who had — at one time or another — studied or taught monetary economics at the Massachusetts Institute of Technology,” the Financial Times reports.
One of Biden’s picks, Philip Jefferson, is a Black man who researches poverty and is a professor at Davidson College. Lisa Cook, an economics professor at Michigan State, is also Black. Her research is on wealth, gender and race inequality. Sarah Bloom Raskin is a lawyer by training.
As impressive as the racial and gender diversity is the diversity of academic backgrounds and the fact that, if approved, there will be people on the FOMC who seem to genuinely care about wealth inequality and have the intellectual tools to think about it not just as economic theory, but as a reality that is happening to real people.
But Biden’s picks should also be met with cautious optimism, given the Fed’s history of ideological and intellectual conformity. As Adam Posen, president of the Peterson Institute, told the Financial Times, these three picks, regardless of their ideological persuasion, will “feel enormous institutional pressure” to conform to the institutional status quo in order to “better reflect the institution they now represent.”
That’s worrisome. The members of the 12-person FOMC, which is responsible for setting interest rates and controlling the money supply, almost always vote in unison with the all-powerful Fed chairperson.
In 2010, Thomas Hoenig, a voting member of the FOMC and president of the Federal Reserve Bank of Kansas City, began to grow more and more worried about his own conformity to the status quo.
Christopher Leonard’s new book, The Lords of Easy Money: How the Federal Reserve Broke the American Economy, takes readers into Hoenig’s dissenting opinions about the FOMC’s decision to keep creating money that wasn’t being put to its best and highest use.
From 2008 to 2010, the Fed printed $1.2 trillion, a measure designed to fight the global financial crisis created by Wall Street banks. That’s 100 years’ worth of money, Leonard writes.
“There was one very important characteristic of all this new money,” he adds. “The Fed can create currency in just one way: It makes new dollars and deposits them in the vaults of big banks. Only about twenty-four special banks and financial institutions have the privilege of getting these pristine dollars, making those banks the seedbed of the money supply.”
Those banks, by the way, were the very ones whose reckless and risky lending practices — encouraged by the Fed’s low interest rates — created the crisis in the first place. Now the Fed and banks, again the perpetrators of the crisis, were setting the terms and conditions for how everyone else in the economy would access all of this new money.
As someone with experience at a regional Fed bank, Hoenig was able to see how all of this worked out, not from the Fed’s main headquarters in the Eccles Building in Washington D.C., but from Kansas City.
Hoenig “had seen firsthand how an FOMC decision made in a day, in a single vote, took months or even years to express itself fully in the world as the effects filtered out through the banking system and economy,” Leonard writes.
But this bit of wisdom, Hoenig realized, was repeatedly ignored by his colleagues in the central banking world — a world dominated by what economist and former Fed insider Danielle DiMartino Booth, in her book, Fed Up: An Insider’s Take on Why The Federal Reserve is Bad For America, describes as an “inbred society of PhD academics who are infected to their core with groupthink,” or “groupstink,” as she calls it.
Leonard gives the basic outline of this groupthink behavior.
“When there was short-term trouble, like a drop in the market or a jump in unemployment, the Fed intervened,” he writes. “It printed more money and cut interest rates. It addressed short-term problems and left the long-term problems to grow.”
The Fed, Leonard adds, continuously stokes asset bubbles and then finds “itself on the hook to bail out the very lenders who profited most off a bubble as it rose.”
In 2010, when Fed Chairman Ben Bernanke proposed his idea for “quantitative easing,” in which the central bank would buy government bonds and other assets as a way to expand the money supply even more, Hoenig had had enough. He knew where this was going.
“Hoenig was fighting against quantitative easing because he knew that it would create historically huge amounts of money, and this money would be delivered first to big banks on Wall Street,” Leonard writes.
“He believed that this money would widen the gap between the very rich and everybody else. It would benefit a very small group of people who owned assets, and it would punish the very large group of people who live on paychecks and tried to save money. Just as important, this tidal wave of money would encourage every entity on Wall Street to adopt riskier and riskier behavior in a world of cheap debt and heavy lending, potentially creating exactly the kind of ruinous financial bubble that had caused the Global Financial Crisis in the first place.”
As iconoclast economists like Yanis Varoufakis, Greek’s former finance minister, warns, that ruinous financial bubble is currently with us; but unlike in 2008, the bubble has spread across the entire economy and is poised to pop.
With inflation rising, the FOMC is considering increasing interest rates this year. It’s a necessary course corrective in a bubble economy, but one that may cause another recession and, perhaps, one that will be immune to the Fed’s short-term financial cocktail.
There is no more kicking the can down the road, but creative solutions do exist. In her book Engine of Inequality: The Fed and the Future of Wealth in America, Karen Petrou argues for several of them, including the implementation of mechanisms designed to free up the excess profit that’s currently concentrated in the hands of the few due to the Fed’s reckless policies of the last 20 years.
For instance, the Fed can encourage the chartering of public financial institutions, what Petrou calls Equality Banks, designed exclusively to bypass bloated Wall Street banks, so that affordable, well-regulated loans can be put to use on Main Street.
“In the sixties, a social philosopher said, ‘In the same way as men [sic] cannot for long tolerate a sense of spiritual meaninglessness in their individual lives, so they cannot for long accept a society in which power, privilege, and prosperity are not distributed according to some morally meaningful criteria,” Petrou writes.
Hopefully, these new FOMC members (if they’re appointed) will leverage their diverse racial, cultural and ideological backgrounds to realize this and do things differently. If they don’t and simply end up voting for the status quo, all of that diversity would have been for naught.
Another reckoning is here. We’ll see what comes of it.