Fed's Kashkari Gets an Earful After Delving Into New Territory

(Bloomberg) -- Neel Kashkari dove into unusual territory for a Federal Reserve official when he discussed his thoughts on school reform, and it didn't go down well with a room full of education experts.

Kashkari, president of the Minneapolis Fed, said in a speech in Washington on Thursday that he was “committed to fixing a system that is failing,” while laying out a set of broad reform ideas. Those included proposals such as shutting down failing schools and replacing management and staff who don't improve.

That led to a sometimes tense question-and-answer session in which some audience members upbraided Kashkari for what they saw as his sloppy use of data. His critics accused him of ignoring multiple factors outside schools that hold back many students, especially in low-income and minority school districts.

“I would think a Federal Reserve economist would be wary of these kinds of averages,” Elaine Weiss, national coordinator at Broader Bolder Approach to Education, an education policy group based in Washington, told Kashkari, referring to national statistics he cited in his talk.

The exchange may have illustrated why most Fed officials typically avoid issues outside their wheelhouse of macroeconomics and monetary policy, especially those that are highly politicized. It also showed how Kashkari, 43, is proving somewhat different than many of his colleagues.

Not Afraid

Before taking over the Minneapolis Fed in January 2016, Kashkari ran the government bailout program for financial institutions known as TARP and campaigned unsuccessfully for the governorship of California.

Kashkari isn't afraid to express public policy opinions “in a way we wouldn't consider normal for Fed officials,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York. “And he certainly seems to be not averse to making headlines or being in the spotlight.”

Kashkari's reform proposals included increasing school choice for families, introducing “dispassionate” assessment of school performance and asking independent researchers for help in identifying what does and doesn't work in improving schools.

Speaking at a forum on community-development research, Kashkari said the U.S. must address “terrible education gaps” and provide more opportunities to low-income Americans. He made several references to “miraculous schools” that are so good they “increase academic achievement among the poor.”

Eliciting Applause

Weiss shot back that some states such as Massachusetts are achieving excellent results through a combination of policies including investment in education as well as ensuring availability of health insurance for students.

“Not only are we capable of having superb schools -- and we have them -- we can have them at a whole state level and it doesn't require a miracle,” she said, eliciting applause from the audience and even a high-five from another audience member as she returned to her seat.

Kashkari didn't back away from his remarks. Asked about the criticism during a discussion with reporters, he said the exchange with the audience “demonstrates why for 30 years we've made very little progress in closing racial disparities.”

“Unless we as a country believe and embrace that this is a crisis that warrants a crisis response, we're going to have lots of continued good intentions and little changes in outcomes,” he said.

In an interview after the event, Weiss said she felt Kashkari “doesn't seem to know what he's talking about, which for the Fed was surprising.”

“I'm all for someone shaking things up,” she said. “This felt honestly like a disruption-for-the-sake-of-disruption talk.”

To contact the reporter on this story: Christopher Condon in Washington at ccondon4@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Randall Woods, Michael B. Marois