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What happens next? You then get nervous democratic politicians—and not necessarily those who are known for their populism, but just nervous democratic politicians—suddenly deciding that we have to stop doing one or another part of our carbon-based economy. It has to stop, and it has to stop immediately. And then you get big shocks. Then you get sudden revaluations.

How the Fed Should Fight Climate Change - The Atlantic

That, I think, is the sort of scenario that the Bank of England people are working with. Who is in that group? Are those the oil majors such as Exxon, or does that encompass every construction firm? But Germany is far, far more exposed. A huge slice of their economy is basically all about internal combustion engines, and so that number includes all of those stocks, for sure.

Meyer: And just to get back to the financial-crisis point, if there were some kind of immediate crunch, and all those stocks tanked ….

The Financial Crisis and Federal Reserve Policy

Tooze: Yes. Meyer: In your view, what do you see as the goal of climate policy? Is it only to reduce carbon emissions? Do you see any benefits to the economic transition that we scientifically have to make, beyond mitigating climate change? This is not simply a zero-sum game; this is a structural transformation that has many very attractive properties. Then [you could] also link it to a revival of social democracy for the United States. Whether that will, in fact, ease the formation of majorities in Congress is another question.

Because, after all, it does somehow have to get through the Senate, you know. Meyer: Yes, well, welcome to the life of a climate-change reporter.

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Tooze : Exactly. Tooze : Realistic? I mean, depends what you mean by realism. The scale of the challenge requires a boldness of action for which there is no precedent. Tooze : Well, less large in absolute terms. Because even the U. It needs to be much bigger than the New Deal, which in fiscal-policy terms was really quite trivial.

I mean, America can be an obstacle and get in the way, but none of the really hard choices needs to be made by America, and all the really hard choices need to be made by people like China and India and Pakistan and Bangladesh and Indonesia. Is there a single historical analogy that we could think of—of a broad transition with no happy victory parades at the end?

I mean, we never have. And furthermore, it has turned out to be exponential—a hockey-stick-style process.


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It strikes me, perhaps, as an indication of the poverty of our democratic imagination right now that we go backwards so much. One of the striking things about the American left is its nostalgia.

The Financial Crisis

Or if not the New Deal, then the Progressive era. Or if not from the Progressive era, then the Homestead Strike. And that backwards move is—even among the smartest, smartest people on the American left—is a compulsion, almost. It seems to me, in some sense, a mirror image of the strange practice of originalist interpretation of the Constitution. The sheer fact of the continuity of the American political argument, back to the founding, sucks people into this line of thinking.

That like Reconstruction or the civil-rights movement, it needs to be something that people take on like a moral commitment, in the same way they take on genocide prevention as a moral commitment. I can see the attraction of that.

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But I would take a more functionalist line. Like, morals aside, mass incarceration, the destruction of the lives of millions of African American men—it is clearly a moral issue. The crisis that African American men suffer in the United States is extraordinarily acute and oppresses them every single day of their lives, from cradle to grave. Anyway, this is the point where I think this analogy becomes problematic. I do like your point that this is a forever problem—at least for all conceivable futures—like working through that problem of racism and the legacies of slavery is a forever problem in the United States.

The food problem that was such an oppressive issue globally in the s may resurge in an absolutely dramatic way. Read: A centuries-old idea could revolutionize climate policy. Meyer: Given all that, if Jerome Powell decided that he wanted to intervene on the side of climate action, what could he do?

What could the Fed do?

Tooze: What I think the Fed should announce is that it enthusiastically supports the idea of a bipartisan infrastructure push focused on the American electrical network, first and foremost, so that we can actually hook up the renewable-generating capacity—which is now eminently, you know, realistic in economic terms.

Setting a backstop to a a fiscal-side-led investment push is the obvious thing. Meyer: So basically it should say: If the government were to issue a bunch of new debt to fund green investment and no one was buying it, then the Fed would? Treasury is issuing unprecedented quantities of debt right here and right now. But the Fed would view [the issue of new debt tied to infrastructure] as in no way alarming. The Federal Reserve recently suggested that it was finished raising interest rates for now, and might even stop shrinking its post-financial-crisis balance sheet sooner than expected.

Even so, in delivering numerous upbeat assessments of the U. Only when reality struck in the past, when the ship smashed into the iceberg, was there a willingness to admit to analytical flaws, recognize errors of judgment, and craft a recalibration of policy. His audience laughed.

Two weeks later, in a conference call between meetings, the FOMC enacted an emergency federal-funds rate cut of 50 basis points half a percentage point. Treasury Secretary Robert Rubin, then chairman of Citigroup, for doing the right thing.

Powell proclaimed just a few months ago that the current U. At the time, major investment banks and several prominent hedge-fund managers were predicting additional rate hikes up to 3. In the U.

There seems little doubt that the world economy is sliding into a recession—or, minus unprecedented action by the authorities, a crisis that could be much worse, led by China, Europe, emerging markets, and other troubled economies. Individual-country data suggest as much, as does the decline in global trading and exports as evidenced by the Baltic Dry Index , a measure of global dry bulk shipping costs that has plummeted since the middle of The U.

Keep an eye on falling banks shares, too. Those in Europe, Japan, and China are sending clear signals of trouble, and U. A blow to the global real estate market, coupled with a severe recession, conceivably could cause irreparable damage to the global banking system. Central banks eventually responded to the last crisis by cutting interest rates to zero, or below, which boosted asset prices, fueled debt accumulation, and encouraged savings over the spending that spurs economic growth.

Even though rates have risen some in recent years, central bankers have too few tools left to deal with another global crisis. They eventually will reverse course and resume quantitative easing. Global sociopolitical unrest is rampant. The only effective measure to stave off a crisis is budgetary and fiscal expansion on a dramatic scale.

This will be achieved as central banks fund the monetization of ballooning government debts.