Speaker 1: You're listening to Bloomberg Law with June Grasso from Bloomberg Radio.
Speaker 1: The Green New Deal is a program put forth by
Speaker 1: progressive Democrats calling for fighting the climate crisis an economic
Speaker 1: inequality simultaneously. In last week's debate, Democratic presidential nominee Joe
Speaker 1: Biden said he does not support the Green New Deal,
Speaker 1: putting forth his own plan. Joining me is the economist
Speaker 1: who put together the Green New Deal finance plan, Robert Hockett,
Speaker 1: a professor at Cornell Law School. His new book is
Speaker 1: called Financing the Green New Deal, A Plan of Action
Speaker 1: and Renewal. So, Bob, tell us why you decided to
Speaker 1: write the book. I've been sort of worried, as I
Speaker 1: think a lot of people have been worried for at
Speaker 1: least a decade now, that our financial system has sort
Speaker 1: of lost touch with its sort of original purposes, at
Speaker 1: least with some of them. Right, I mean, the primary
Speaker 1: purpose of financial system is to enable productive activity, right,
Speaker 1: And insofar as there's speculative activity in the form of
Speaker 1: adding on price movements and secondary markets or tertiary derivative
Speaker 1: markets or the like, that's basically in order to enable
Speaker 1: capital to be lower priced than the primary markets where
Speaker 1: productive investments to take place. And it seems that what's
Speaker 1: happened in recent techcades in our financial system is that
Speaker 1: the secondary in tertiary markets have become much more important,
Speaker 1: much larger in terms of transaction volume or turnover or
Speaker 1: turn than the primary market cap, which suggests that we're
Speaker 1: less focused on production and productive activity now and more
Speaker 1: focused on gambling, basically on speculating as where prices are
Speaker 1: going to go. And what's sort of interesting about that
Speaker 1: fact is if you compare that fact with what the
Speaker 1: founders of the Federal Reserve seem to have been in
Speaker 1: mind back in nineteen thirteen, it would suggest that our
Speaker 1: financial system is really kind of really way out of
Speaker 1: whack relative to what the FED was originally meant to
Speaker 1: be doing. Um. And so, in so far as we
Speaker 1: see the FED basically back stopping a system that's primarily
Speaker 1: about speculation, we see a FED that is also in
Speaker 1: some ways, you know, acting outside of its original sort
Speaker 1: of mandate, or at least in manners that are not
Speaker 1: altogether consistent with that original mandate. So what I've done
Speaker 1: is I've done a bit of back research on sort
Speaker 1: of what the founders had in mind what was being
Speaker 1: talked about and discussed when the fact was created, and
Speaker 1: it turns out to be quite fascinating. UM, and it
Speaker 1: kind of it gives us guidance is to how to
Speaker 1: bring the financial system back into sort of sink with
Speaker 1: what it's really originally meant to be, and how to
Speaker 1: bring the FED back into sink with what it was
Speaker 1: meant to be. And it also sort of explains certain
Speaker 1: things about the FED that are otherwise puzzling. So some
Speaker 1: people sort of think, well, what is the FED anyway?
Speaker 1: I mean, what is it with those? We seem to
Speaker 1: have these regional set banks and then there's this fetboard
Speaker 1: in DC, and what's the relation between them? You know?
Speaker 1: And people get so confused in some cases that somebody
Speaker 1: will refer to the Federal Reserve Bank, which you know
Speaker 1: isn't the thing. There is no the Federaliserve Bank. There's
Speaker 1: a Federal Reserve Board, and then there are regional federi
Speaker 1: reserve banks. Tell us then what the founders had in mind? Well,
Speaker 1: what the founders see you have had in mind in
Speaker 1: the first place, Um, with this sort of two tear struff,
Speaker 1: sure was precisely that the regional Federal Reserve banks would
Speaker 1: facilitate the free flowing of credit to productive purposes startup companies,
Speaker 1: small businesses, community banks, all the sorts of things you
Speaker 1: might expect a growing and newly productive or growingly productive
Speaker 1: economy that's divided into various regions of the whole continent
Speaker 1: to look like, right, And so a big and important
Speaker 1: activity that those banks did was to what was called
Speaker 1: discounts commercial paper of various kinds issued by again small, small,
Speaker 1: small firms, startups and the like. This is why to
Speaker 1: this day we still call the you know, the discounting
Speaker 1: operations that are carried out through section thirteen at the
Speaker 1: Federal Reserve Act discounting and while we refer to a
Speaker 1: discount window. But so that was the purpose of those
Speaker 1: regional dead banks, and then the Federal Reserve Board in DC,
Speaker 1: as supplemented twenty years later by a newly created f
Speaker 1: O m C in the thirties, was designed to kind
Speaker 1: of oversee credit aggregates nationwide to basically prevent there from
Speaker 1: being an excess of credit money in the economy, which
Speaker 1: can be inflationary, but also of course to counteract deflationary
Speaker 1: pressures when there's when there's contractions, which of course, is
Speaker 1: what QUI is about. And so what we seem to
Speaker 1: have right now, as we seem to have retained the
Speaker 1: sort of aggregative mission the feted board or what I
Speaker 1: call the credit modulatory mission. If that's pretty good about
Speaker 1: adjusting the money supply right and counteracting deflations and counteracting
Speaker 1: inflation for that matter. It's pretty good with that modulatory task,
Speaker 1: as I call it, but we've completely dropped the allocative task.
Speaker 1: We're just not doing allocation in the way that the
Speaker 1: regional fed banks were meant to do. So. Finally, the
Speaker 1: final point of the HID and the punchline here is
Speaker 1: that these new facilities that the FT has just opened
Speaker 1: up as a april to deal with the pandemic, notably
Speaker 1: the Municipal Liquidity Facility or m l APP, which is
Speaker 1: run out of the New York FED, and then the
Speaker 1: so called main Street Lending program that's run out of
Speaker 1: the Boston FED. I think, is this a wonderful opportunity,
Speaker 1: in effect to rediscover and reinstitute that original mission that
Speaker 1: the Federal Reserve regional banks had um But we would
Speaker 1: only be able to do that if we change a
Speaker 1: couple of things about the way we're running those programs
Speaker 1: right now. So right now, as you know, MLF is
Speaker 1: there to help out small towns, cities, and states across
Speaker 1: the Union that are having difficulty dealing with the pandemic fallout.
Speaker 1: It's odd then to be running it out of just
Speaker 1: the New York FED And I used to work there,
Speaker 1: and lots of my old friends and colleagues so I
Speaker 1: used to work with are still there. And I think
Speaker 1: they're the most brilliant and the most serious public servants
Speaker 1: in the country. I mean, they're amazing and wonderful people,
Speaker 1: but there's a fairly small number of them, and the
Speaker 1: thought that they should be given are sort of saddled
Speaker 1: with the responsibility of determining the real credit needs or
Speaker 1: otherwise of Peoria and Oahu and Billings, Montana from right
Speaker 1: here in low in Manhattan. Seems a bit much, right.
Speaker 1: It doesn't seem good for the program, it doesn't seem
Speaker 1: good for the cities or states, and it doesn't seem
Speaker 1: good for the bad personnel themselves or that the FRBN
Speaker 1: wine similar story when it comes to the Main Street
Speaker 1: Landing Program, which is a set of several facilities run
Speaker 1: out of the Boston Debt now Here too, right I mean, again,
Speaker 1: the Boston bed folk are wonderful. I worked with a
Speaker 1: good many of them in the past, and there's just
Speaker 1: this is not meant in any way to kind of
Speaker 1: question their capacities or abilities. But why would Boston be
Speaker 1: handling the financial needs of you know, uh Nick Nails
Speaker 1: in in Los Angeles or Harriet's attractor Repair in Farco, Dakota.
Speaker 1: You know, I mean, it doesn't make a lot of sense,
Speaker 1: um and what we have here. It seems to me
Speaker 1: he's a golden opportunity to sort of redistribute um the
Speaker 1: sort of regional FED banks original functions to the regional
Speaker 1: Fed banks, Right, so San Francisco FED would handle both
Speaker 1: main street lending and MLF funding out west in the northwest,
Speaker 1: and the Dallas FED would handle it in the southwest,
Speaker 1: and the Atlanta FED would handle it in the southeast
Speaker 1: and so on. And this, I think would bring the
Speaker 1: regional feds back into sync with their original missions. He
Speaker 1: would demise these programs which we now have but which
Speaker 1: are not operating very well, presidedly because they're all concentrated
Speaker 1: in a couple of bed banks in the northeast. And
Speaker 1: it would also basically give us an opportunity to sort
Speaker 1: of re re orient ourselves and our bed, our central
Speaker 1: things to the task of productive lending and productive investment
Speaker 1: rather than merely speculative investing in speculative lending, because what
Speaker 1: happens in New York, which the New York that looks over,
Speaker 1: is mainly that. And that's fine, that's what's supposed to
Speaker 1: happen in New York. But we don't want, you know,
Speaker 1: all of the credit of the country to be going
Speaker 1: towards speculative setting in New York when you have real
Speaker 1: credit needs out in South Dakota or out in Arizona
Speaker 1: or where have you. So so that's basically what I
Speaker 1: what I've been sort of putting out there. That's the
Speaker 1: I've been using a shorthand for as a slogan. I
Speaker 1: call it spread bed, but we could just well call
Speaker 1: it respread the FED, because that was sort of the
Speaker 1: original purpose in the first place. So let me ask
Speaker 1: you a basic question. You know, when you talk about
Speaker 1: the Constitution, you have the originalists or the textualists. So
Speaker 1: is this sort of an originalist kind of theory You're
Speaker 1: going to go back to what the FED was? Has
Speaker 1: the FED been evolving into what the country needed. So
Speaker 1: I think in a certain sense both right, My view
Speaker 1: is that the as far as the modulatory task goes right,
Speaker 1: in other words, as far as the oversight of national
Speaker 1: credit aggregates is concerned, the FED has evolved into what
Speaker 1: has been needed, and furthermore, that was actually foreseen by
Speaker 1: the framers themselves of the Federal Reserve Act. It's it's
Speaker 1: it's precisely why they didn't make the FED simply a
Speaker 1: bunch of regional banks, but they put a single board
Speaker 1: on top of the mall right. So if you think
Speaker 1: of the apex of the system, or say tier one
Speaker 1: of the systems, the Federal Reserve Board and DC, that
Speaker 1: is indeed meant to be looking over credit conditions nationwide
Speaker 1: and modulating our credit aggregates to prevent inflation on the
Speaker 1: one handed, deflation on the other. And you know, it
Speaker 1: didn't do that extremely well in the first years after
Speaker 1: its founding, and indeed kind of spectacular failed in the
Speaker 1: twenties and early thirties in doing that. But some additional
Speaker 1: reforms that we added on, and notably the Federal Open
Speaker 1: Market Committee in the early nineteen thirties during a new deal,
Speaker 1: have sort of optimized it. And made the FED board
Speaker 1: essentially more able to do even what the framers themselves
Speaker 1: wanted to do. And again I applauded out the wazoo.
Speaker 1: And when it comes to that kind of thing, right,
Speaker 1: I don't applaud Greenspan, but I think Bernanti and Yellen
Speaker 1: and j. Pale had been absolutely masterful in their use
Speaker 1: of that functionality. And the same goes for William mc
Speaker 1: chesney Martin who was the bet chair back in the
Speaker 1: sixties and fifties. Right. Um, so we've had in Nurner
Speaker 1: equals of course during the during the Great Depression was
Speaker 1: a terrific Beet chair. But but what we lost sight of,
Speaker 1: well we sort of let disappear, was what what I'm
Speaker 1: calling Tier two was meant to do, and that's the
Speaker 1: regional dead banks. Um. My researchers system actually put it
Speaker 1: really best. Recently. I just I laughed out loud. It
Speaker 1: was so good. We were talking together about the regional
Speaker 1: dedbanks and she said, don't they just write papers and stuff?
Speaker 1: And it burst out laughing. Yeah, that is exactly what
Speaker 1: they do. They write papers and stuff, unless it's the
Speaker 1: New York that which has more operational responsibilities. Um. But
Speaker 1: the thing is the thing to remember is they write
Speaker 1: papers and stuff for original purposes that they were created
Speaker 1: to discharge. And the fact is that not being used
Speaker 1: to discharge those purposes now. And if they were being
Speaker 1: used in that way, these research papers that they're pretty
Speaker 1: together would actually have a great deal of use, right um,
Speaker 1: and they would actually I think, make the system work better. Right.
Speaker 1: Another way to say this that it's sort of keyed
Speaker 1: to the way that you framed the question, is to
Speaker 1: say that the things that have changed since the Federal
Speaker 1: Reserve Acts passage are such that they have made it
Speaker 1: importance to kind of fine tune and optimize the Federal
Speaker 1: Reserve Board at the top of the system. And we
Speaker 1: have thankfully done that. But things that have changed over
Speaker 1: the last hundred years since nineteen thirteen also suggests ways
Speaker 1: that we can optimize two or two of the system,
Speaker 1: the regional Federal Reserve in A big part of that optimization,
Speaker 1: I think, is to recover that original vision, sort of speaker,
Speaker 1: that original mission that they were meant to have, which
Speaker 1: was to facilitate um actual productive investment in different regions
Speaker 1: of the country that have different economies. Tell us about
Speaker 1: how you got involved and what you've done towards the
Speaker 1: Green New Deal. Yeah. Sure. So the way that happened,
Speaker 1: it was kind of fun. UM. When Alexandria kacio Pertz
Speaker 1: won her election in November of about two years ago. UM,
Speaker 1: she had been working with a group called New Consensus
Speaker 1: that was sort of part of a movement, UH to
Speaker 1: sort of discover and help bring to national attention really
Speaker 1: great minds and energetic young political figures like Alex, like
Speaker 1: like the congresswoman. UM. And the head of this group
Speaker 1: was married it still is, and his spouse had been
Speaker 1: a student of mine in the recent past. UH. And
Speaker 1: so when it came time to draft the Green New
Speaker 1: Deal resolution and then to work on other aspects of
Speaker 1: the Green New Deal, she recommended me to her husband
Speaker 1: said that, you know, I guess she overestimated me or
Speaker 1: like the classes or whatever. But in any event, so
Speaker 1: they reached out and asked if I could help out,
Speaker 1: UM with the preparation of the resolution that was of
Speaker 1: course introduced UH in early February. UH. And then after
Speaker 1: that early February twenty nineteen, I should say, then it's
Speaker 1: sort of at the same time, asked me to write
Speaker 1: up a sort of a light paper explaining the Green
Speaker 1: New Deal and sort of to make it clear what
Speaker 1: the resolution was for and what it was about. So
Speaker 1: I wrote that up as well in December and January UM.
Speaker 1: And then starting in March of en they asked if
Speaker 1: I could put together the finance plan for the Green
Speaker 1: New Deal UM. So I just basically threw myself into
Speaker 1: that with pretty much all that I had UH and
Speaker 1: was able to draft up at least the skeleton of
Speaker 1: a full finance plan within a few weeks UH and
Speaker 1: and gave that to them and they liked it. UM.
Speaker 1: And then before long Paul griff McMillan, the publishing company who,
Speaker 1: to my joy, happened to be the publishers of all
Speaker 1: at the works of John Maynard Keynes UM, had apparently
Speaker 1: got wind of the fact that I had written up
Speaker 1: this finance plan and they asked me if I'd like
Speaker 1: to publish it as a monograph or a book. UH.
Speaker 1: And I said, oh my god, I'd be totally honored,
Speaker 1: you know. So UM, I sort of flushed it out
Speaker 1: a little bit more, added a little bit to it,
Speaker 1: build it out a bit more UM and turned it
Speaker 1: into a monograph and that was happily published. UM. A
Speaker 1: couple of months ago, I guess, um, just the very
Speaker 1: beginning of August it sort of came out officially, and
Speaker 1: that basically lays out a whole plan for how to
Speaker 1: finance a green new deal, and that in turn includes
Speaker 1: a great deal of sort of structural tweaking you might say,
Speaker 1: of our financial system and sort of changes no more
Speaker 1: and no less than has to be changed. Basically, what
Speaker 1: it is a sort of adds connecting lines, you might say,
Speaker 1: between various public and private financial institutions that we already have. Well,
Speaker 1: what's your take on the national investment bank proposals? I
Speaker 1: think one thing that we see going on right now
Speaker 1: in Congress especially but also more broadly, there's a heightened
Speaker 1: discussion under way of the problem or the need for
Speaker 1: national investment in a big way. And so there are
Speaker 1: a lot of sort of national investment bank proposals that
Speaker 1: are now being considered in Congress, probably about ten or
Speaker 1: twelve of them that I can count that are that
Speaker 1: have been offered by various members of Congress. The idea
Speaker 1: would be something kind of like the European investment banks,
Speaker 1: some kind of a national development that. Um, I think
Speaker 1: that if we got the FED right. It could be
Speaker 1: that development banking that we were meant to have or
Speaker 1: that we should have, but that would involve having the
Speaker 1: regional banks again reclaimed that old mission. Um So when
Speaker 1: I say sort of spread the FED in a way,
Speaker 1: I'm also addressing, uh, those people who are talking of
Speaker 1: out the need for national investment. Uh. The other thing
Speaker 1: kind of collateral to this, are sort of complementing this.
Speaker 1: It's in the book. Um is something I call for.
Speaker 1: So we call for called a National Reconstruction and Development Commission.
Speaker 1: It's a kind of f stock like body that would
Speaker 1: basically just combine all of the cabinet level executive agencies
Speaker 1: of our government into one council that would basically plan
Speaker 1: national development strategy on a regular basis, and they would
Speaker 1: regularly update national Development strategy in the same way that
Speaker 1: the Department of Defense every year updates national Defense strategy.
Speaker 1: Because I think we meant the terrible mistake that's actually
Speaker 1: connected to the mistake of losing the original vision of
Speaker 1: the regional banks, when we decided that development is something
Speaker 1: that's like a one off thing. You know, you're undeveloped
Speaker 1: and then you flip the switch and you're developed, And
Speaker 1: that's it. I think the development is forever. Development is continuous.
Speaker 1: Development is perpetual in the same way that technological development
Speaker 1: is perpetual, right. I mean, we don't just sort of
Speaker 1: have no technology and then have technology and that's it.
Speaker 1: Technology is continually evolved in And it seems that national development,
Speaker 1: which is sort of short for shorthand for national technological development,
Speaker 1: should be perpetual too, And so we need some way
Speaker 1: of I think publicly and comprehensively considering and planning national
Speaker 1: development strategy. And so what I call a f sock
Speaker 1: for continuous public investment or an f sock for continual
Speaker 1: national investment UM would be a good idea that would
Speaker 1: be a nice ancillary body to work in tandem with
Speaker 1: this newly spread FED as I'm calling it. We do that,
Speaker 1: I think we can really solve pretty much every major
Speaker 1: problem that we've had of a financial or economic nature
Speaker 1: over the last fifty years. And if we do that,
Speaker 1: I think we'll solve a lot of our social and
Speaker 1: political problems too, because they're all rooting in the economic ones.
Speaker 1: That's Robert Hawcket of Cornell Law School. And that's it
Speaker 1: for this edition of The Bloomberg Law Show. I'm June Grosso.
Speaker 1: You're listening to Bloomberg