When you think about who is going to be hit the hardest by pollution, whether it’s conventional air water and soil pollution or climate change, it is very often low-income communities and communities of color. The undercutting of these kinds of protections is going to have a disproportionate impact on these very same communities.
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Federal Reserve
and bank credit. In the 1970s, the Federal Reserve’s mission was amended to maintain macroeconomic stability following the abandonment of the gold standard.’ This included making the Federal Reserve responsible for maintaining full employment, stable prices, and long-term interest rates.
Supporters of this more expansive mandate claim that monetary policy
is needed to help the economy avoid or escape recessions. Hence, even if there is a built-in bias toward inflation, that bias is worth it to avoid the pain of economic stagnation. This accommodationist view is wrong. In fact, that same easy money causes the clustering of failures that can lead to a recession. In other words, the dual mandate may inadvertently contribute to recessions rather than fixing them.
A far less harmful alternative is to focus the Federal Reserve on protecting the dollar and restraining inflation. This can mitigate economic turmoil, perhaps in conjunction with government spending. Fiscal policy can be more effective if it is timely, targeted, and temporary.® An example from the COVID-19 pandemic is the Paycheck Protection Program, which sustained businesses far more effectively than near-zero interest rates, which mainly aided asset markets and housing prices. It is also worth noting that the problem of the dual mandate may worsen with new pressure on the Federal Reserve to include environmental or redistributionist “equity” goals in its policymaking, which will likely enable additional federal spending.’
Limit the Federal Reserve’s lender-of-last-resort function. To protect banks that over lend during easy money episodes, the Federal Reserve
was assigned a “lender of last resort” CLOLR) function. This amounts
to a standing bailout offer and encourages banks and nonbank financial institutions to engage in reckless lending or even speculation that both exacerbates the boom-and-bust cycle and can lead to financial crises such as those of 1992?° and 2008" with ensuing bailouts.
This function should be limited so that banks and other financial institutions behave more prudently, returning to their traditional role as conservative lenders rather than taking risks that are too large and lead to still another taxpayer bailout. Such a reform should be given plenty of lead time so that banks can self-correct lending practices without disrupting a financial system that has grown accustomed to such activities.
Wind down the Federal Reserve’s balance sheet. Until the 2008 crisis, the Federal Reserve never held more than $1 trillion in assets, bought largely