As old-fashioned as it sounds, we’re thumbing through Joe Biden’s economic plan on the theory that someone somewhere might want to know what’s in it. And what should we find, hiding like a presidential candidate in a Delaware basement, but a promise to politicize the Federal Reserve in a whole new way.
Mr. Biden wants to create a third mandate for the Fed. Recall that the current two are price stability and full employment. But, as the policy blueprint Team Biden cooked up with Bernie Sanders’s economic advisers argues, “the Black unemployment rate is persistently higher than the national average, which is why Democrats support making racial equity part of the mandate of the Federal Reserve.” The Fed chairman would be required to collect data and report on “the extent of racial employment and wage gaps” and what the Fed is doing about them.
The Journal notes:
Black employment tends to lag behind other ethnic groups, for complex reasons. This means the economy generally needs to run hotter for longer before lower-skilled black workers start to benefit from more employment and higher pay. That’s an argument for sound economic policies. But this proposal would bake in a bias in favor of ultraloose monetary policy, with racial justice furnishing a formal excuse to overlook inflation risks.
The reason black unemployment lags is because of high minimum wage laws, which no doubt would be boosted by a Biden administration. The only way the Fed could counter that is by creating higher price inflation. That is, there would be a new kind of inflation, blackflation, price inflation created by the Fed at higher rates to raise nominal low-skilled wage rates above the minimum wage rate.
How nutty can you get?
Well, as it turns out, even nuttier.
The Fed could make sure money is pumped into businesses that hire blacks, regardless of skills.
The Journal again:
The Biden monetary mandate also would open the door to regulatory mischief, which is the real prize for the progressive left. Under a diversity mandate, the Fed could require the banks it regulates to collect detailed data about the racial make-up of employees, and their pay, at companies applying for loans.
That data could then form a basis for enforcement action against banks that didn’t do enough to reduce racial pay gaps via their lending decisions, whatever “enough” means in the wilds of social-justice Twitter or a Treasury run by Elizabeth Warren. This would be a back-door way to impose through regulatory pressure various wage and diversity rules that otherwise couldn’t pass Congress or survive the Supreme Court. Such a data trove would provide bottomless fodder for grandstanding politicians on Capitol Hill…
Under a race mandate, the Fed will have no choice but to obey whatever dictates Congress and a Biden Administration send its way in 2021.
There is a serious group of radical central planners surrounding Biden. A Fed Black Lives Matter monetary policy would be bad enough but it wouldn’t stop there.