Biden’s Social Justice Fed

Democratic presidential candidate Joe Biden is looking to give the Federal Reserve a new mandate: Social Justice.

The Federal Reserve would be tasked with not only price stability and full employment, but racial equality, in a Biden administration. According to the Wall Street Journal:

Don’t underestimate how this third mandate would influence the Fed and U.S. economy. To start, a racial-equity mandate would give the Fed an excuse to rarely if ever raise interest rates under any circumstance.

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 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.

We know where this politicization of commercial lending will end up because it happened before in the housing market. A 1989 law mandating racial data collection for mortgage applicants set off a flurry of studies—a 1992 paper from the Boston Fed was a notable example—purporting to find rampant discrimination. Those results fizzled on closer inspection, but not before regulators used the data as a reason to block at least one bank merger and to loosen lending standards for many borrowers. Those lending changes contributed to the 2007-08 mortgage meltdown.

The last time a Democratic Administration proposed similar racial record-keeping for commercial lending, in 1994, the plan collapsed under the weight of its own impracticality. But no one should assume a Biden proposal would meet a similar fate for the simple reason that President Biden couldn’t afford to say no to his identity-politics left.

One of President Trump’s pre-virus successes was promoting growth via tax reform and deregulation to a degree that black workers enjoyed substantial benefits. Every other section of the Biden plan, and there are a lot of sections, promises to reverse those policy gains.

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. But voters should be aware of this proposed sleight of hand, and its dangers, before they make their own choice in November.