First Black Woman Picked for Fed Draws GOP Fire Over Research

(Bloomberg Businessweek) -- With a Ph.D. in economics and experience working at the U.S. Treasury Department and the White House's Council of Economic Advisers, Lisa Cook through one lens looks like a standard nominee to the Federal Reserve Board.

But Cook is not a typical nominee. One of her key pieces of research was on an unusual topic—the role of violence in holding back Black contributions to American innovation—and her career is steeped in first-hand experience in confronting financial and economic breakdowns in emerging markets. Advising the central bank of Rwanda after the East African nation's devastating 1994 civil war, Cook realized that one source of the crisis was the scarcity of land and the failure of combatants to imagine that it could be made more productive.

It's the kind of insight that's marked Cook's career and attracted Democrats to her nomination to become the first Black woman on the Fed board in its 108-year history. But without an extensive research record on monetary theory, she is already facing questions from the economic establishment and some members of Congress who fear the Fed will wait too long to lean against inflation that threatens to undermine the recovery and shape calculations about who will control Congress and the White House.

Cook will appear on Thursday before the Senate Banking Committee alongside President Joe Biden's other two nominees for open slots on the seven-person board: Sarah Bloom Raskin, an ex-board member picked for vice chair for supervision, and Philip Jefferson, a Ph.D. economist who has previous experience with monetary policy as former board staff member.

If confirmed, Cook will likely be an important voice in a debate over the appropriate pace for the Fed to raise interest rates in an environment in which Black workers have yet to reach a full recovery. Her research on how violence against Black Americans from 1870 to 1940 coincided with a decline in patent filings from that community—and a loss to U.S. growth—has been read by Nobel laureates Milton Friedman, Kenneth Arrow and Paul Romer and changed assumptions about the building blocks needed for economic expansion. It's also prompted criticisms from Republicans who say her work focuses too much on “racial policies,” an assertion that many of her peers dismiss as ridiculous.

A Michigan State University professor of economics and international relations, Cook earned her Ph.D. from the University of California at Berkeley and holds two bachelor's degrees: one from Oxford University and another from Spelman College, a historically Black women's college in Atlanta. The Georgia native has a wide-ranging intellect that's taken her through coursework in philosophy to positions in mainstream economics, including a slot on the executive board of the 137-year-old American Economic Association.

She cites direct experience with the distortive effects of high inflation, having toted bags of depreciated naira banknotes, when she served as an adviser in Nigeria, and witnessed financial chaos in Russia in the wake of the collapse of communism, when she was doing research for her dissertation.

As for the U.S., Cook connects the cause of supply disruptions to the pandemic and is focused on how much their resolution could ease price pressures versus how much might be a more persistent shift in demand and pricing.

But Cook hasn't weighed in publicly at length on the Fed's current inflation challenge, which Chair Jerome Powell and his colleagues failed to anticipate. The biggest jump in consumer prices in four decades has become an important test of the policy framework that Powell introduced in 2020. The new strategy redefined the 2% inflation target as an average over time and asserted that Fed officials would no longer prejudge the level of maximum employment, which they now call a “broad-based and inclusive” goal. The changes were intended in part to address criticism that the central bank had tightened too soon for Blacks and other less-advantaged groups of workers to fully benefit from an economic expansion.

Critics contend the strategy has a built-in inflation bias, veers toward social policy, and enshrines economic-inclusion goals that the Fed can't have much influence over. That's formed part of the backdrop to vocal criticism of Cook's credentials to participate in setting the central bank's policy at this tricky juncture.

John Cochrane, an economist at Stanford's Hoover Institution, called the Fed's revamped framework “a dramatic repudiation of the macroeconomics consensus since the early 1970s” in a National Review article published in March. In a Jan. 18 blog post, he also said, “Lisa Cook is superbly qualified, by written word, experience, and connections—if the job is to bring the administration and progressive supporters' racial policies to the Fed.”

Senator Kevin Cramer, a North Dakota Republican, called Cook “fundamentally not qualified” in an interview that aired on Fox Business. Writing in the Washington Post, conservative columnist George Will said putting her on the Fed Board would be a “travesty.” Cramer and other GOP members of the Senate Banking panel have been carefully scrutinizing her publication record ahead of Thursday's confirmation hearing.

Defenders say that Cook can contribute a fresh perspective to a leadership group that's historically tilted toward monetary economists, and they highlight her contributions to economic-growth theory.

“Lisa is being held to a different standard. She doesn't look like a central banker, she doesn't talk like one,” says Claudia Sahm, director of macroeconomic research at the Jain Family Institute and a former Fed Board economist. “Maximum employment is now about getting the last person across the finish line that you can in a sustainable way. And in the U.S. economy, the last person, though not always, is usually going to be Black or Brown. The new Fed needs new people.”

Cook's research has examined structural problems to growth—work that could be useful in analyzing whether the pandemic may leave a lasting imprint on the U.S. economy. Powell, who has a law degree and worked in finance, has acknowledged that the Fed got its inflation call wrong and needs to be “humble” about its understanding of the pandemic economy.

“Lisa Cook is not going to come to the Fed with rigid views about how the economy works,” says Andrew Levin, a Dartmouth College economist and former adviser to Janet Yellen, the former Fed chair and current Treasury secretary. “Throughout her career, Cook has been active in identifying the limitations of standard macroeconomic models.''

Paul Romer, who had Cook as a student at UC Berkeley, says she is mischaracterized “as somebody who is focused on race.” Instead, her research shows that “when you have people who live in conditions where there is a risk of violence, they are much less likely to be optimistic and forward looking and gamble on new ideas.”

Cook's insight helped economists understand why China, with its state-dominated political-economic system, was more successful at innovation than they expected, according to Romer—the country's low levels of person-to-person violence was a key dynamic.

Adam Posen, the president of the Peterson Institute for International Economics in Washington who served on the Bank of England's Monetary Policy Committee, highlights the value of people with different backgrounds on a central bank's board, noting that it took somebody like Cook to challenge the notion that property rights alone provided sufficient protection to foster innovation.

“You want to have a diversified portfolio of people so you have different perspectives and aren't caught short as the world lurches,” he says.

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