Center for Popular Democracy — Fed Up Campaign (2016)

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August 2015 Fed Up Convening in Jackson Hole, WY (photo courtesy of CPD)

 

CPD staff reviewed this page prior to publication.

The Center for Popular Democracy (CPD) is running a campaign (“Fed Up”) that aims to encourage more accommodative monetary policies and greater transparency and public engagement in the governance of the Federal Reserve, and specifically in the selection of regional Federal Reserve Bank presidents and leaders. The Open Philanthropy Project has decided to renew our support for Fed Up with an additional $1 million in funding, plus up to $1 million to match whatever Fed Up raises from other funders this year. This is the third grant we’ve recommended to support CPD’s work on this campaign (see links in the sidebar for more information about our previous grants).

Our default expectation for this grant, as in previous years, is that it is relatively unlikely to have an impact on the Fed’s monetary policy, but that if it does, the benefits would likely be very large. We believe the call for greater transparency and public engagement in the selection of regional Federal Reserve bank leadership is more unambiguously positive and also more likely to succeed, though we do not have much sense of the humanitarian impact of such a change.

The campaign had a strong 2015 in our view (more details below), which increases our estimate of how likely it is that it will have the effects it is aiming for. As ever, we acknowledge that this is an unusually complex policy area, and we could be mistaken in our views.

Update: In October 2016, we supplemented our 501(c)(3) support with a $31,500 grant recommendation to the Center for Popular Democracy Action Fund, a 501(c)(4) affiliated with CPD.

April 2017 update: In total, we ended up recommending $429,000 in matching funding. The “grant amount” above has been updated to reflect this.

1. Background

CPD is a progressive national advocacy group that works with local community groups across the country to promote its agenda.1

Fed Up is a campaign run by CPD in association with 24 other progressive national advocacy organizations, unions, think tanks, and regional community-based organizations.2 The campaign targets the Federal Reserve, and its stated goals are both substantive (to “create a strong and fair economy”) and procedural (to “create a more transparent and democratic Federal Reserve”).3

More information about CPD and Fed Up is available here and more about our work on macroeconomic policy can be found here.

2. Previous grant

In 2015, we made a grant of $750,000 to the Center for Popular Democracy to support the Fed Up campaign. Fed Up’s total budget for 2015 was approximately $1.1 million.

Overall, the progress made by Fed Up in the past year exceeded our expectations. The campaign attracted substantial media attention and obtained access to some influential policymakers. It is too soon to tell if the campaign will impact monetary policy, but we now believe some basic risks (such as being unable to attract the attention of the Fed at all) have been much reduced. Fed Up Director Ady Barkan’s leadership contributes to our confidence in the campaign.

We do not know if the campaign has had a humanitarian impact, and believe it is likely that we will not have much information on this point until the next recession.

2.1 Fed Up 2015 activities

In 2015, Fed Up4:

  • Developed partnerships in all 12 cities with Federal Reserve Banks.
  • Met with the majority of the 17 members of the Federal Open Market Committee (FOMC).
  • Carried out “day of action” protests at seven of the regional Federal Reserve Banks, associated with the release of its report “Wall Street, Main Street, and Martin Luther King Jr. Boulevard.”5
  • Released reports entitled:
  • Suggested questions that were asked during Federal Reserve Chair Janet Yellens’ congressional Humphrey-Hawkins testimony about African-American unemployment.
  • Brought approximately 100 people to teach-in and protest at the 2015 Jackson Hole Economic Policy Symposium. This included several prominent economists (such as Nobel laureate Joseph Stiglitz, Josh Bivens, Dean Baker, and Brad Delong).
  • Protested outside the September FOMC meeting (and was mentioned in a reporter’s question to Chair Janet Yellen during the press conference following the meeting).
  • Prompted open letters, protests, and meetings on the lack of transparency and accountability in the regional Fed president selection process (for example, Fed Up representatives pointed out that the new Dallas Fed president had been on the board of the search firm that was hired to select him). This led to the Minneapolis Fed posting a job description for the president role for the first time, a promise of more transparency from the San Francisco Fed 8 and a show of interest from the Dallas Fed.9
  • Conducted and released a poll on the public’s monetary policy stance.10
  • Prompted former Labor Secretary Robert Reich to make a video about monetary policy.11 The video was released in conjunction with a petition that garnered over 100,000 signatures and was delivered at Jackson Hole.
  • Obtained substantial press coverage for these and other activities (below).

2.2 Media coverage

Fed Up was covered relatively extensively in the media over the past year. A collection of examples of Fed Up press coverage from 2015 and 2016 can be found in Fed Up 2015-2016 Press Clippings. Below are some examples of coverage (positive and negative) that the campaign received:

Overall, we are impressed with the press coverage Fed Up has received. The campaign was featured in much of the news about the Jackson Hole Symposium. Since then, Fed Up has continued to be featured in other stories about the Fed, which we believe is a sign of the campaign’s ability to attract ongoing media attention.

2.3 Access to and impact on policymakers

Fed Up was able to interact with influential policymakers more than we expected.

  • In January 2015, (following Fed Up’s November 2014 meeting with Yellen), the Fed announced that it was starting a “Community Advisory Council” that would meet with the Fed twice a year, parallel to its pre-existing Federal Advisory Council, which is made up of bank representatives.19 We do not have direct evidence that Fed Up prompted the formation of this panel, but based on the timing and the language used—and the lack of other actors pushing for the Fed to hear from other voices—we find it very likely that Fed Up was responsible.
  • Fed Up representatives met with 10 of the 12 regional Fed presidents. Following a particularly productive meeting with the president of the San Francisco Fed, Reuters published a story headlined “Fed’s Williams vows more transparency after meeting with Fed Up.” 20 Press coverage regarding a November 2015 meeting with the new head of the Dallas Fed also suggested a useful exchange.21

While we’ve been positively surprised by the campaign’s access to date, we doubt that it has yet been able to build enduring relationships or cause meaningful shifts in policymakers’ views.

2.3.1 Jackson Hole Symposium

Our impression is that Fed Up was successful in achieving its goals at the 2015 Jackson Hole Economic Policy Symposium. The campaign received substantial press coverage, as discussed above, and Fed Up representatives were able to interact with some influential policymakers. We believe the campaign’s presence was felt by policymakers and helped demonstrate that the public is interested in actions taken by the Fed.

When Yellen was asked about the protesters at the press conference after the September FOMC meeting, her response was ambiguous, as we would expect.22

The White House’s chief economic advisor, Jason Furman, spoke at the Fed Up event for approximately 45 minutes, discussing pro-growth monetary policy and concerns about Federal Reserve governance, and inviting Fed Up representatives to visit with him in Washington, DC.

2.3.2 Regional Fed selection process

We believe that Fed Up did not greatly influence the outcomes of the Dallas, Philadelphia, and Minneapolis Fed president selection processes that took place in 2015. Our impression is that the campaign had not yet built up sufficient power and influence to substantially affect the process.

2.4 Fed Up 2015 Budget

Fed Up’s budget for 2015 was approximately $1.1 million, of which our previous grant contributed $750,000.
CPD told us that in 2015, Fed Up spent:

  • $485,000 on subgrants
  • ~$290,000 on internal staff
  • ~150,000 on convenings (including Jackson Hole)
  • ~$25,000 on communications
  • $150,000 on overhead

3. Grant renewal

The campaign continues to advance the same broad substantive23 and procedural24 goals as it has over the past year, including calling for looser monetary policy and more transparency from the Fed and the Regional Banks.

The main changes with respect to these goals this year are that:

  • Fed Up won’t have the Dallas, Minneapolis, and Philadelphia opportunities to organize around on the procedural side.
  • The Fed has raised interest rates for the first time since the Great Recession, and may continue to slowly raise rates rather than holding them steady. Fed Up told us that it expects it to be somewhat tactically easier to campaign for the Fed to change what it is doing (i.e. not to continue raising rates) rather than to campaign for the Fed to continue with what it was doing (which was Fed Up’s main message until the recent rate raise), though we don’t have a sense of how this affects the overall likelihood of campaign impact.
  • 2016 is a presidential election year, which is likely to affect the political media environment.
  • The campaign now has more community-based partnerships, and stronger relationships with regional and national members of its coalition.

3.1 Budget and proposed activities

The initial 2016 budget given to us by Fed Up was for $4 million, but we also requested budgets for $2 million and $3 million. Each of these budgets would be a substantial increase from 2015.25

We expect Fed Up would spend a $3 million budget approximately as follows:

  • $1.5 million regranted to local partners
  • $650,000 for national staff
  • $250,000 to national partners
  • $600,000 for other costs, including events, polling, lobbying, and overhead.

The campaign’s current funders include several large progressive funders, and CPD also receives some general support from a number of others. After discussion with CPD, we don’t believe the support from these funders is likely to dramatically increase in the near future.

3.2 Case for this grant

We see the case for this grant as fairly similar to the rationale we laid out for making the previous grant. This time around, we’d summarize the case as follows:

  • Perspectives on the FOMC about how to weigh tradeoffs between unemployment and inflation in monetary policymaking seem to range between placing equal weight on a percentage point of each and placing vastly more weight on inflation. In contrast, we see the negative humanitarian impact of a point of unemployment as significantly greater than the humanitarian impact of a point of inflation,26 and accordingly worry that the Fed has been persistently too tight in recent years. (Of course, we agree that the Fed cannot arbitrarily or indefinitely lower unemployment, but we think policy would be better in humanitarian terms if the Fed placed higher weight on a point of unemployment than a point of inflation.)
  • We believe the Fed is adept at slowing and moderating inflationary growth, but has had less success speeding growth following economic weakness. Because it seems to be the less reversible path, we see asymmetric risks from tightening too soon.27 (In our experience, those in favor of tightening sooner typically reply that waiting to tighten now means that larger moves could be required later, potentially triggering a recession. We take the point but think it should be possible to tighten later without causing a recession.)
  • It seems to us that the Fed is currently held responsible for inflation to a greater extent than it is held responsible for persistent output gaps. This creates excess pressure on the Fed to prioritize minimizing the risk of inflation relative to a more balanced commitment to both sides of its dual mandate.
  • During the Great Recession and the following recovery, our impression is that a common public narrative was that the Fed was doing as much as it could feasibly do to support the economy by keeping interest rates at zero. However, there are a suite of options the Fed could have taken to do more, some of which it employed to some extent, such as using negative interest rates (as some European nations have experimented with in recent years), quantitative easing, the Evans Rule, nominal gross domestic product (NGDP) level targets, and a higher inflation target. It is possible that the Fed ended up at the edge of public knowledge and support by chance, but it seems likely to us that the Fed was bound to some extent by public perceptions of what was permissible, and with a wider window of public acceptance, it may have done more to support the economy. Given the depth of the recession, the slow recovery, and the still-below-target inflation rates, it seems likely to us that more radical policies would have been extremely valuable, and we do not see the Fed as having fully adopted this lesson. Indeed, in former Fed Chair Ben Bernanke’s memoir, he reports that the Fed considered and rejected the possibility of adopting a nominal GDP target, in part because of concerns about being able to credibly commit to such a target when it would be vulnerable to Congressional override.28
  • We expect that the next recession is likely to occur before interest rates return to “normal” levels and that accordingly “unconventional” forms of monetary stimulus are likely to be necessary. We think the Fed is more likely to be able to implement such stimulus if there are stronger public advocates for the importance of expansionary monetary policy. As things stand now, we expect that during the next recession, the FOMC would mostly hear from critics claiming it was being too aggressive in responding, and we see reversing that balance as potentially highly beneficial
  • We believe increasing transparency and accountability in the regional Federal Reserve Banks is likely to be attainable, and more likely than not to lead to better outcomes. While we don’t see large direct utilitarian consequences for this consideration, there seems to be a strong procedural presumption in favor of a more credible, transparent selection process for regional Federal Reserve Bank board members and presidents.

3.3 Risks of the grant

We consider this an unusually risky grant. Experts disagree about this subject, and it is possible that this grant could backfire by provoking opponents of more accommodative policies to become better-organized. Overall, the risks described last year29 continue to apply, though the risk of straightforward programmatic ineffectiveness seems to have been significantly reduced by the successes of 2015. We find it plausible that in the future, Fed Up may continue to press the Fed to keep interest rates low at a point where we believe the ideal rate is higher than what Fed Up would advocate for. We feel this risk is acceptable.

4. Plans for learning and follow-up

4.1 Key questions for follow-up

  • Can Fed Up build enduring relationships with policymakers?
  • Does Fed Up continue to receive media attention?
  • Does Fed Up appear to have an effect on the Fed’s decision-making about potential further interest rate increases?
  • In the event of a recession, is there evidence that Fed Up had an effect on the Fed’s response?

4.2 Follow-up expectations

We expect to have a conversation with campaign staff roughly every 3 months for the duration of the grant, with public notes if the conversation warrants it.

When the next recession occurs, we plan to attempt a more holistic and detailed evaluation of the grant’s performance. We may check the transcripts of 2016 FOMC meetings after they are released in 2022 to see whether any of the FOMC members discuss meetings with workers that inform their perspectives on policy.

5. Our process

We monitored the campaign throughout 2015 and had conversations with Ady Barkan of CPD about the campaign’s plans and progress. We followed the media surrounding Fed Up and its interactions with policymakers. Karl Smith, who worked with us in 2015 as a consultant, attended the Jackson Hole Symposium and reviewed some of the campaign’s 2015 activities with us.

6. Sources

DOCUMENT SOURCE
Appelbaum 2015a Source
Appelbaum 2015b Source
Bernstein 2015 Source
CPD 2015: Mind the Gap Source (archive)
CPD 2015: Poll on Monetary Policy Source (archive)
CPD 2015: Wall Street, Main Street, and Martin Luther King Jr. Boulevard Source (archive)
CPD 2015: Whose Recovery? Source (archive)
CPD Federal Reserve Campaign Paper Source
Fed Up 2015-2016 Press Clippings Source
Fed Up One Pager Source
Fed Up Website Source (archive)
Federal Reserve Press Release, April 13, 2015 Source (archive)
Federal Reserve Transcript of Chair Yellen’s Press Conference, September 17, 2015 Source (archive)
Ip 2014 Source (archive)
Jean 2015 Source (archive)
Prior 2015 Source (archive)
Robert Reich “What’s the Fed?” Video Source (archive)
Saphir 2015 Source (archive)
Spross 2015 Source (archive)
Warmbrodt 2015 Source (archive)
Washington Post 2015 Source
Yglesias 2015 Source (archive)
Expand Footnotes Collapse Footnotes

1.

“The Center for Popular Democracy is a high-impact national organization that promotes equity, opportunity, and a dynamic democracy in partnership with innovative base-building organizations, organizing networks and alliances, and progressive unions across the country. CPD builds the strength and capacity of democratic organizations to envision and advance a pro-worker, pro-immigrant, racial and economic justice agenda.
Collectively, our staff of more than 40 [edit: as of March 2016, CPD’s staff is 62 people] brings decades of experience to bear, merging technical and legal expertise with deep organizing experience to support our partners in winning, sustaining, expanding and replicating victories across the country. CPD not only helps partners win organizing campaigns and further innovative policy agendas, but we also support them to build strong organizational infrastructure and political muscle.
The Center for Popular Democracy will be joined in this campaign by core partners interested in Federal Reserve bank cities across the country, each of which have broad memberships bases, deep political relationships, and alliances with labor and community groups across their cities.”

CPD Federal Reserve Campaign Paper

2.

“Our Coalition:

  • Center for Popular Democracy
  • Action for the Common Good
  • Action United (PA)
  • Action NC
  • Action Now (IL)
  • AFL-CIO
  • Alliance of Californians for Community Empowerment
  • Campaign for America’s Future
  • Center for Community Change
  • Communities Creating Opportunity (MO)
  • Community Labor United (MA)
  • Demos
  • Economic Policy Institute
  • Kansas People’s Action
  • Make the Road New York
  • Missourians Organizing for Reform and Empowerment
  • Neighborhoods Organizing for Change (MN)
  • National Employment Law Project
  • New Economy Project
  • New York Communities for Change
  • Pennsylvania Working Families
  • Rise Up Georgia
  • Workers Defense Project
  • Texas Organizing Project
  • Working Families Organization”

Fed Up Website

3.“Create a Strong & Fair Economy

  • Good Jobs for All: The Federal Reserve should commit to building a full employment economy. It should keep interest rates low so that wages can rise significantly and everybody can find a good job.
  • Investment in the Real Economy: The Fed should use its existing legal authority to provide low- and zero-interest loans so that cities and states can invest in public works projects like renewable energy generation, public transit, and affordable housing that will create good new jobs.
  • Research for the Public Good: The Fed should study the harmful effects of inequality and examine how policies like raising the minimum wage and guaranteeing a fair workweek can strengthen the economy and expand the middle class.

Create a More Transparent & Democratic Federal Reserve

  • Ensure That Working Families’ Voices Are Heard: Fed officials should regularly meet with working families and community leaders, not just business executives, in order to get a more accurate picture of how the economy is working.
  • Fed Officials Should Actually Represent the Public: In regional banks around the country, Fed leaders come overwhelmingly from financial institutions and major corporations. The Fed should appoint genuine representatives of the public interest to these governance positions.
  • Create a Legitimate Process for Selecting Fed Presidents: In late 2015 and early 2016, the regional Fed banks will select their next presidents, who will serve five year terms. Currently, the process for selecting those presidents is completely opaque and involves no public input. That needs to change, so that the public has a real role in the selection process.”

Fed Up One Pager

4.This information is based on conversations with CPD staff.

5.Archived copy of link: CPD 2015: Wall Street, Main Street, and Martin Luther King Jr. Boulevard

6.Archived copy of link: CPD 2015: Mind the Gap

7.Archived copy of link: CPD 2015: Whose Recovery?

8.See Saphir 2015

9.“’We urged Robert to vote in support of keeping short-term interest rates at essentially zero,’ said Josh Bivens, research and policy director for the Economic Policy Institute. ‘The concern is that the economy hasn’t returned to a full recovery, there’s plenty of slack to be taken up and the risk of tightening too soon is much higher than letting rates stay low. That burden falls disproportionately on low-wage workers and people of color.’
Kaplan didn’t commit to that but he ‘seemed to take the argument and the concerns seriously,’ Bivens said. He invited Bivens to send him more of his research on the matter.
However, Kaplan pledged to:

  • Tour local neighborhoods in the next few months to hear what the issues are for working families in Texas.
  • Look into holding a community forum with her group and other coalition members.
  • Research how the three community representatives on the Dallas Fed board of directors are appointed and how coalition members can become part of that process.

Kaplan is willing to discuss the community forum idea further and the bank will provide information on community board members, who are appointed by the Federal Reserve System Board of Governors, Hoard said.
No date has been set yet for the community tour or where exactly it will be. The coalition will determine which neighborhoods in Dallas County, Brown said.”

Jean 2015

10.CPD 2015: Poll on Monetary Policy

11.Robert Reich “What’s the Fed?” Video

12.Archived copy of link: Appelbaum 2015a

13.Archived copy of link: Appelbaum 2015b

14.Archived copy of link: Prior 2015

15.Archived copy of link: Warmbrodt 2015

16.Archived copy of link: Washington Post 2015

17.Archived copy of link: Spross 2015

18.Archived copy of link: Bernstein 2015

19.

“The Federal Reserve Board on Monday announced that it is accepting Statements of Interest from individuals who wish to be considered for membership on the Community Advisory Council (CAC). The formation of the CAC was announced in January. The council will advise the Board on issues affecting consumers and communities and will complement two of the Board’s other advisory councils–the Federal Advisory Council and the Community Depository Institutions Advisory Council–whose members represent depository institutions.”

Federal Reserve Press Release, April 13, 2015

20.Archived copy of link: Saphir 2015

21.“ ‘We urged Robert to vote in support of keeping short-term interest rates at essentially zero,’ said Josh Bivens, research and policy director for the Economic Policy Institute. ‘The concern is that the economy hasn’t returned to a full recovery, there’s plenty of slack to be taken up and the risk of tightening too soon is much higher than letting rates stay low. That burden falls disproportionately on low-wage workers and people of color.’
Kaplan didn’t commit to that but he ‘seemed to take the argument and the concerns seriously,’ Bivens said. He invited Bivens to send him more of his research on the matter.
However, Kaplan pledged to:

  • Tour local neighborhoods in the next few months to hear what the issues are for working families in Texas.
  • Look into holding a community forum with her group and other coalition members.
  • Research how the three community representatives on the Dallas Fed board of directors are appointed and how coalition members can become part of that process.

Kaplan is willing to discuss the community forum idea further and the bank will provide information on community board members, who are appointed by the Federal Reserve System Board of Governors, Hoard said.
No date has been set yet for the community tour or where exactly it will be. The coalition will determine which neighborhoods in Dallas County, Brown said.”

Jean 2015

22.“[Reporter:] There were a group of protesters out here before your meeting. There was a similar group at Jackson Hole. They and others have warned the Fed not to raise the rate because—out of concern that the labor market is not fully healed, wages haven’t risen fast enough. What impact, if any, has that had on you and your colleagues in your decision today?

CHAIR YELLEN. So, we have been receiving advice from a large number of economists and interested groups, and that’s of course appropriate, and we value hearing the opinions of many—you know, many different groups and individuals with different perspectives. But, look, at the end of the day, it’s the Committee’s job to come together to analyze the data that we have on the economy, to decide how it affects the outlook, and to try to deliberate and arrive at a Committee judgment about the appropriate path of policy, and that’s what we did today. As I said, although we are close to many participant’s [estimates] and the median estimate of the longer-run normal rate of unemployment, at least my own judgment—and this has been true for a long time—is that there are additional margins of slack, particularly relating to very high levels of part-time involuntary employment and labor force participation, that suggest that, at least to some extent, the standard unemployment rate understates the degree of slack in the labor market. But we are getting closer. The labor market has improved. And, as I’ve said in the past, we don’t want to wait until we’ve fully met both of our objectives to begin the process of tightening policy given the lags in the operation of monetary policy.”

Federal Reserve Transcript of Chair Yellen’s Press Conference, September 17, 2015

23.

  • “Good Jobs for All: The Federal Reserve should commit to building a full employment economy. It should keep interest rates low so that wages can rise significantly and everybody can find a good job.
  • Investment in the Real Economy: The Fed should use its existing legal authority to provide low- and zero-interest loans so that cities and states can invest in public works projects like renewable energy generation, public transit, and affordable housing that will create good new jobs.
  • Research for the Public Good: The Fed should study the harmful effects of inequality and examine how policies like raising the minimum wage and guaranteeing a fair workweek can strengthen the economy and expand the middle class.”

Fed Up One Pager

24.

  • “Ensure That Working Families’ Voices Are Heard: Fed officials should regularly meet with working families and community leaders, not just business executives, in order to get a more accurate picture of how the economy is working.
  • Fed Officials Should Actually Represent the Public: In regional banks around the country, Fed leaders come overwhelmingly from financial institutions and major corporations. The Fed should appoint genuine representatives of the public interest to these governance positions.
  • Create a Legitimate Process for Selecting Fed Presidents: In late 2015 and early 2016, the regional Fed banks will select their next presidents, who will serve five year terms. Currently, the process for selecting those presidents is completely opaque and involves no public input. That needs to change, so that the public has a real role in the selection process.”

Fed Up One Pager

25.

From our page on our previous grant: “We think this campaign would be unlikely to occur at anything resembling the planned scale without our support. CPD has limited unrestricted funding, and is not aware of any other sources of funding that would consider funding the majority of the campaign.

The initial budget we saw projected expenses of around $1.5 million, and we decided to contribute roughly half that amount. We tried to settle on an amount that would still require CPD to seek funding from other sources but would be sufficient to enable some level of campaigning to take place even if they failed to do so. We take the fact that the budget was revised downward after our commitment to support the notion that CPD wouldn’t be able to find the amount of funding that we’ve contributed from other sources, and that accordingly our contribution is largely non-fungible.”

26.

See citations at our previous writeup on this topic.

27.
“Of course, the Fed might wait too long to tighten and inflation could eventually rise above the 2% target. But, leaving aside how costly such a deviation would be, the Fed has demonstrated it knows how to get inflation back down, even if the process can be costly. By contrast, recent history shows how few effective tools central banks have for reversing inflation that falls too far, or turns to deflation. Either outcome raises the prospect of real interest rates that are too high and unemployment above its natural rate for years to come. Given this asymmetry, overshooting inflation is clearly a lesser evil than undershooting inflation. This, more than anything else, is why the panic over inflation is misplaced.”

Ip 2014

28.

“We already knew that Bernanke and his colleagues considered the idea and rejected it. But the book adds some interesting context — some from its account of the meeting, some from Bernanke’s reflections on an old paper he wrote about Japan — for understanding that rejection. Bernanke, it seems, thought this proposed means of boosting the economy was unworkable. Not for any of the kinds of technical reasons that someone like Woodford would care about, but for essentially political reasons.
Bernanke didn’t doubt that the Fed could, in theory, do more to address the then-acute problem of mass unemployment. The problem, in his view, was that the public — and, more importantly, Congress — would be angered by further action in a way that would be a problem for the Fed as an institution and would undermine the efficacy of the initiative anyway. Reading between the lines, Bernanke seems to believe that a better monetary policy regime is possible, but only with support from elected officials.”

Yglesias 2015

29.From our 2015 writeup:

“We think this grant could fail in two broad ways:

  1. It could fail to achieve any policy impact.
  2. It could unintentionally cause harm by subjecting the Fed to more populist pressure, by causing a more powerful counter-mobilization, or by succeeding in pushing policy in the desired direction but turning out to be wrong about what direction would be desirable.

As discussed above, we think the first and more prosaic failure mode is more likely than not to occur: the campaign is unlikely to have a policy impact because the Fed is a relatively insulated, technocratic body. However, we could nonetheless still be overoptimistic in believing the campaign has a non-negligible chance of having an impact, especially since we do not have a fully detailed understanding of the mechanisms through which the campaign aims to do so.
We also see this grant as carrying a limited but non-negligible risk of causing harm:

  • A left-leaning campaign around monetary policy issues could conceivably risk destabilizing a technocratic consensus in support of the Fed. However, we doubt the existence of such a consensus: the Wall Street Journal and the New York Times editorialize in opposite directions on Fed decisions, the Cato Institute recently launched a new center on monetary policy aiming to “challenge [the Fed’s] credibility,” and members of Congress regularly call for audits of the Fed’s decision-making. Most economists strongly support the premise of central bank independence and oppose Congressional efforts to impose tighter restrictions on that independence, but we see this campaign as falling substantially closer to newspaper editorializing than to Congressional action to limit the Fed’s authority.
  • Separate from general concerns about destabilizing a hypothetical technocratic consensus around the Fed, stronger mobilization by those who would prefer looser monetary policy could prompt a more powerful counter-mobilization by those who would prefer tighter monetary policy. To some extent this has already occurred, as described above, with a Wall Street Journal editorial and press conference by a conservative group in response to the campaign’s meeting with Yellen in November. However, to our knowledge, those responses received much less press attention than the initial campaign actions, and we would generally expect that pattern to continue. We do regard this as a substantial risk to the project.
  • Perhaps most importantly, we could be wrong about the appropriate stance of monetary policy, in a number of ways:
    • Inflation could be more likely to take off, or have worse humanitarian impacts, than we’ve been able to detect.
    • Keeping interest rates low could promote financial instability or accelerate the onset of the next recession, either through increased instability or by causing a later, more extreme tightening. Former Federal Reserve Governor Jeremy Stein has been a prominent advocate for the view that monetary policy should take financial stability concerns into account and, likely, tighten faster than inflation and output would suggest, but our impression is that most of the other people who have considered the issue have concluded that current monetary policy is not particularly risky and that it is more appropriate to ensure financial stability using “macroprudential” tools. Dallas Fed President Richard Fisher has emphasized the risk of recession due to needing to tighten more extremely at a later date. We think neither of these risks are dispositive.
    • Monetary policy could be structurally less powerful in influencing unemployment and other humanitarian outcomes than we’ve assumed it is.

There is fairly widespread disagreement about these issues amongst economists, so it is not difficult to believe we could be mistaken. However, we see broader discussion and debate around these issues as genuinely useful, and likely to produce better monetary policy, even if we are mistaken. We expect that the campaign is more likely to succeed if it is directionally correct, so even in the context of uncertainty about whether we have correctly weighed these risks, increasing advocacy on one side is more likely to be beneficial than harmful.
Additionally, while we’ve tended to regard the campaign’s goals around accountability and transparency in the process of selecting regional Fed presidents as an unmitigated good, they could be a problem if people with opposing views about monetary policy were more likely to effectively exploit the new openness (which might be the case), or for unanticipated reasons.”