By Karen Petrou
- The lack of racial equity in U.S. monetary and regulatory policy is only part of the problem. Inclusive policy must reach all groups – including persons with disabilities – now overlooked by the Fed and thus left behind by the U.S. economy.
- The Fed’s monetary policy mandate in current law is already inclusive, but unmet and unenforced. Fixing that by legislation may focus the Fed’s attention with better data, but data aren’t enough.
- Inclusive financial policy effectively reaches all under-served groups via equality-focused financial regulation and ground-up – not trickle-down monetary policy. The Fed is already a fiscal agent via its huge asset purchases, but this is the opposite of inclusive policy due to its direct and unequal wealth impact. Inclusive policy realigns monetary and regulatory accountability, but does not replace it with a still greater fiscal presence.
High-profile Democratic legislation has converted largely rhetorical Biden campaign statements to demand a new, binding Fed mandate for racial and ethnic equity across the full range of the U.S. central bank’s duties and functions. This legislation goes well beyond current law which, unrecognized by the Fed and many observers, already expressly mandates inclusive monetary policy. However, its monoline focus only on racial and ethnic inequality leaves many deeply underserved communities even farther behind, exacerbating inequality despite all its good intentions. 61 million disabled Americans are at even greater risk if seemingly-inclusive financial policy remains exclusive.
The Fed’s Equality Mandate
It shouldn’t take new law to force the Fed to reckon with American economic inequality, but it does. The Fed frequently cites its “dual mandate” as encompassing only maximum employment and price stability. But, as laid out more completely in a recent note, the Fed’s mandate in law encompasses “genuine full” employment that is to create “real income” along with price stability and moderate interest rates [15 U.S.C. § 3101]. Even before the pandemic, there was simply no way American employment was full, income was real, prices for the cost of living were stable, or interest rates were moderate for anyone but the wealthy.
The Fed’s regulatory mandate is not laid out anywhere near as clearly in law. Instead, it’s cobbled together from bits and pieces ordering the FRB to take on supervisory and regulatory duties for certain financial institutions and to ensure financial stability through other monetary and regulatory functions. None of these expressly addresses equality, instead focusing on the safety and soundness of individual institutions and the financial system writ large. As a result, extending the racial/ethnic equity mandate to these functions gives the Fed not just a new reason to care, but also new statutory authority to act.
The Disability Divide
New policy must be truly inclusive. The Fed’s monetary-policy mandate is meant to force the Fed to focus on the sharp divide between Black and white economic equality assessed in a recent blog post. However, Black Americans share their economic inequality with millions of Americans left still farther behind because they are almost overlooked in equality-focused proposals such as the new Fed legislation.
In a prior EconomicEquality blog post, we showed why the disabled are all too often omitted from discussions of economic justice. We said then and it’s still true that most abled persons view mobility, sight, hearing, cognitive, and other disabilities as impassable barriers to full employment. Like many blind people, I know the stereotype of disability all too well, watching it in action as I passed from handling fading vision in ways most observers never noticed to “coming out” first with a white cane and then with a large German Shepherd guide dog even harder to hide.
Fortunately, I established my career before perceptions of blindness could pose a barrier. Even with many disabled persons nominally employed in sheltered workshops, data on employment for persons with disabilities are deeply distressing. Updating the data in our 2018 post, we find that persons with disabilities earn only 66 cents for every dollar earned by persons without a disability. Unemployment and labor-force participation rates for persons with a disability also remained severely depressed even before COVID; BLS data show that working-age, noninstitutionalized civilians with a disability faced an 8% unemployment rate in 2019 with a participation rate of only 34% compared to 3.6% and 77% for the abled workforce. Unemployment and labor-participation rates for the disabled are thus pushing three times those for persons with abilities, however temporary these sometimes prove to be.
Inclusive Financial Policy
The rap on the legislative racial/ethnic mandate has been that a “new” mandate would force the Fed to allocate credit for stipulated groups and undertake fiscal policy. A limited equality mandate could have that effect by excluding demographic groups – not only the disabled, but also women, whites with low educational achievement, and millions of Americans facing long-term economic risk because saving for the future under current Fed policy means wasting what little money they have.
A limited equality mandate could also divert attention to small-scale efforts – tracking Black unemployment for example – that do nothing to break the Fed’s huge inequality engine: its giant portfolio of assets favoring financial-market investors and selected financial-market sectors. Our first EconomicEquality blog post focused on these structural inequality issues and many others since have done the same. Forgetting about fundamental inequality-increasing policies in favor of limited-focus mandates will only make matters worse.
An expansive inclusion mandate would, however, bolster the Fed’s current monetary-policy directive with an awareness of demography that eluded prior lawmakers. A regulatory equality focus would also make a constructive difference, forcing the Fed for example to recognize that costly capital charges for loans to lower-income households deny credit to those with ability to repay even as they create regulatory risk-taking incentives. New incentives for low-balance loans would also benefit lower-income households seeking a first home or a start-up loan for a small business.
Given COVID’s economic devastation, these monetary and regulatory incentives are not only prudent, equality-focused ones, but also recovery critical. This isn’t fiscal policy akin to loan guarantees or all the Fed’s own backstop windows, just better financial policy based on a fuller understanding of economic inclusion. Without it, all of COVID’s distributional damage will not only last, but also be made far worse.