FINANCING A GREEN ECONOMY

Jay R. Mandle

As global warming increasingly devastates the planet, even traditionally conservative institutions such central banks have begun to pay attention.  As Isabelle Mateos y Lago, a top official in the investment firm Black Rock, puts it, “In the space of just a few years, the idea that central banks should incorporate climate considerations into their policies has gone from sounding radical to seeming like plain common sense.” She adds, “Central banks after long standing on the sidelines, have recently begun to play a starring role.” Even so, as Mateos y Lago concedes, “central bankers’ conversion to the climate cause is still in its youth,” and therefore “…the overriding risk is that central banks will do too little to address climate change rather than too much.”

Increasing institutional concern about climate change has positioned the United States as an outlier when compared to other developed countries. In a January 2023 speech, Jerome H. Powell, the Chair of the United States Federal Reserve (the United States central bank), declared that “it would be inappropriate for us [the Fed] to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals.” He went on “we are not and will not be, a climate policy-maker.”

The Fed’s unwillingness to explicitly address global warming presages an environmental disaster. Without a positive Fed policy with respect to climate change, the building of a global green economy will be all but impossible. The need for central bank involvement exists because it will be fantastically expensive to avoid the worst ravages of climate change. According to estimates prepared by the McKinsey consulting firm, the need to reorganize production so that by 2050 carbon dioxide emissions are at net zero will cost $275 trillion. Anything near that level of spending will require that governments and firms borrow huge sums of money. Their ability to do so will require that the Fed, the most powerful central bank in the world, as well as its counterparts in other countries ensure that ample funds are available for investments not only in green technologies but also in facilitating the transition to the production of environmentally-friendly consumer goods.

To justify the Fed’s inaction on climate, Powell cites the constraints he believes are implied by the Fed’s official mandate.  His argument is that the Fed’s mandate to achieve “maximum employment and price stability “ restricts its ability to engage in policies to affect the climate. He interprets the mandate to require that the Fed “not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”

This narrow interpretation of the Fed’s mandate, however, is not appropriate in the case of global warming because both prices and employment are affected by climate change. Prices will rise and unemployment will increase as storms, fires, floods and drought become more frequent. It is not a stretch therefore to argue that, contrary to Powell’s argument, the Fed’s mandate should be understood as requiring  it to help to prevent or at least to minimize the scourge of climate change.

Rather than motivated by his desire to defend against mission creep, Powell’s stance is better understood as an effort at political appeasement. He is widely believed to be concerned about the current Republican backlash against what the New York Times has called “the Fed’s openness and greater willingness to talk about issues like climate, racism and inequality.” An example in this regard is the success of Congressional Republicans in blocking the appointment of Sarah Bloom Raskin to the Fed. Her disqualifying sin was that Ms. Raskin gave speeches in favor of an aggressive role for the central bank in the fight against climate change.

What Powell does not seem to recognize is that the Republican Party, starting in the 1990s, has become a destructive anti-government machine. Its leaders are intent on eviscerating the government’s ability to protect the public from everything from climate change and attacks on reproductive rights to economic insecurity and corporate greed. The political Right will not be appeased. Blocking Raskin’s appointment was only one battle in a much larger political war.

Nevertheless it remains the case that a reversal of the Fed’s refusal to act on climate change is needed. Failing to provide privileged financing for efforts at climate mitigation and adaptation means that the transition to decarbonization will be at best delayed, if not thwarted altogether. Because of the Fed’s financial power, it  is not possible for it to be neutral with regard to climate change. Either it plays a positive role by acting to provide funding  to reverse global warming or, by  its inaction, it continues to be an accomplice in the coming climate catastrophe.

Now is not the time to try to win the good will of climate deniers. The urgently needed change in Fed policy on climate will occur only if, as an institution, it is pressed to act by a broader coalition of people and organizations than exists today. If such a coalition fails to emerge or if it is unable to produce a committed intervention by the Fed, an increase in the death and damage caused by intensified climate change is a certainty.
ABOUT THE AUTHOR                                                                                     
Jay Mandle is the Emerita W. Bradford Wiley Professor of Economics, Emeritus,at Colgate University. His many books include Change Elections to Change America: Democracy Matters Students In Action, and Creating Political Equality: Elections As a Public Good,. Mandle’s regular monthly editorials, Money On My Mind, appear on the Democracy Matters website, and explore the role of private money in politics and other critical social issues.
The views expressed in Money On My Mind are those of the author, (not necessarily those of Democracy Matters, and are meant to stimulate discussion.

ABOUT THE AUTHOR                                                                                     
Jay Mandle is the Emerita W. Bradford Wiley Professor of Economics, Emeritus,at Colgate University. His many books include Change Elections to Change America: Democracy Matters Students In Action, and Creating Political Equality: Elections As a Public Good,. Mandle’s regular monthly editorials, Money On My Mind, appear on the Democracy Matters website, and explore the role of private money in politics and other critical social issues.
The views expressed in Money On My Mind are those of the author, (not necessarily those of Democracy Matters, and are meant to stimulate discussion.