Facebook Fortune Behind Push for Fed to Sharpen Focus on Jobs
(Bloomberg) -- When Kendra Brooks left her low-income neighborhood in north Philadelphia last month and flew to the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, she did so on the dime of a Facebook Inc. co-founder.
Brooks made the 2,100-mile trek to argue for big changes at the U.S. central bank. She was speaking as a member of Fed Up, a collection of community groups organized by the progressive, New York-based Center for Popular Democracy. About $1.35 million of the coalition’s $1.7 million 2016 budget comes from Open Philanthropy Project, one of the organizations through which billionaire Dustin Moskovitz and his wife Cari Tuna distribute their Facebook fortune.
The money behind the movement is aimed at influencing the Fed, which is tasked with promoting both maximum employment and stable inflation. Open Philanthropy Project hopes Fed Up will push policy makers to make the jobs side of that mandate their priority -- especially when the next downturn strikes, said Alexander Berger, its program officer for U.S. policy. The effort is well-timed, as Fed officials themselves debate whether rates should rise to head off inflation or stay low to pull more Americans back into the labor market.
“Fed Up is never going to be in a position to dictate the next monetary policy move -- and they shouldn’t be -- but they could provide the visible public support central bankers need to respond more effectively to the next recession,” Berger said.
Former Fed Chairman Ben Bernanke’s memoir showed how constrained he was during the financial crisis. He “got a lot of push-back from folks who were worried about inflation risks, but very little support from the progressive side,” Berger said.
As Fed Up sets out to reform the Fed’s century-old structure and institutional mindset, the group’s funding has raised eyebrows. St. Louis Fed President James Bullard said it’s backed by Moskovitz’s “Facebook money,” and that “it’s kind of a funny thing for them to fund because they want low interest rates in an era where we are awash in low interest rates.”
The Fed has only lifted rates once since the Great Recession.
Bullard was right that Moskovitz’s money has driven Fed Up from the start. His fortune amounts to about $12.4 billion, and he and Tuna give money to recipients identified by the Open Philanthropy Project. The project is a joint initiative between Good Ventures, their philanthropy, and Give Well, a nonprofit that does research for potential donors.
Moskovitz, who left Facebook in 2008 and has also committed $20 million to help Democrats including presidential candidate Hillary Clinton in the 2016 elections, is working on a start-up and is listed only as Good Ventures’s co-founder. Tuna is president at Good Ventures and at the Open Philanthropy Project, where she helps to oversee the work and set strategy, according to the organizations’ web pages.
In 2014, the Open Philanthropy Project concluded that Fed policy and its effect on employment was an important area where few philanthropists were giving, and decided to make it a priority.
Ady Barkan, an organizer at the Center for Popular Democracy, was simultaneously looking into Fed-related advocacy and heard that the philanthropy was interested. He reached out, and with a $100,000 initial grant from Good Ventures, Fed Up was born. That funding has climbed substantially since -- to $750,000 in 2015 and $1.35 million this year. This year’s grant officially came through the Open Philanthropy Project.
In many ways, Fed Up’s timing couldn’t have been better. Populism is reshaping the U.S. political landscape -- reflected in Donald Trump’s victory in securing the Republican Party’s nomination for president and Bernie Sanders’ spirited but ultimately unsuccessful campaign.
Against that backdrop, Fed Up has become more influential than even its funders foresaw.
The group took 120 members to Jackson Hole in August, including Brooks, and had an unprecedented meeting with 11 top Fed officials -- including Fed Vice Chairman Stanley Fischer and New York Fed chief William Dudley -- in a publicly webcast event. There, organizers and members clad in green shirts that read “We Need a People’s Fed” laid out their concerns about Fed diversity and priorities.
“White, wealthy people primarily interact with other white, wealthy people,” Brooks from Philadelphia, who is black, said at the event. “We believe after 100 years it’s time to update and reform the Federal Reserve’s governance structure.”
Fed Up argues that if a more racially and professionally varied group of people set monetary policy, they’d be more attuned to minority job-related concerns. To that end, they’re trying to get minorities, labor leaders and academics on regional Fed boards instead of white males from commercial banks and corporations. Part of the reasoning is that diverse boards might pick diverse regional Fed presidents, who vote on monetary policy.
Critics say that Fed Up’s effort to get bankers and their appointees off of regional Fed boards could encroach on the Fed’s ability to set monetary policy without outside influence.
“By intervening in the selection of personnel, they are attempting to dictate policy,” said Ralph Benko, senior adviser on economics at American Principles Project in Washington.
Fed Up is clearly pushing to keep rates low for longer, which they say will cause the job market to tighten further, pulling minorities who sit on the sidelines into the labor market.
Policy makers have pushed back against that argument. John Williams, president of the San Francisco Fed, told reporters in Reno, Nevada, on Sept. 6. that running the economy too hot could culminate in a recession. “One thing we do know is minorities are harmed a lot in recessions. Their unemployment rates skyrocket.”
While the push for regional Fed reform is still in its early days, Fed Up’s call for diversity has been echoed by Clinton, and continues to resonate on Capitol Hill.
Kansas City Fed chief Esther George and Richmond’s Jeffrey Lacker appeared Sept. 7 before a House Financial Services’ subcommittee hearing to explain the structure of the regional Fed system and discuss its track record on diversity. Lacker said it “shows a combination of substantial progress and areas where more can be done.”
So how does an organization go from a grant proposal to a 120-member force at Jackson Hole -- and become a leading voice on a hot-button issue -- in the span of two and a half years?
Fed Up campaign director Barkan reached out to groups he already worked with through the Center for Popular Democracy to find community members from Philadelphia to Minneapolis who might be interested, and he’s been using a presentation called “Why Should I Care About the Federal Reserve?” to explain monetary policy. Part of the pitch is an us-versus-them rallying cry emphasizing the influence of corporate and financial interests over the U.S. central bank.
“The REAL reason people try to scare people about inflation is because lower interest rates means higher wages,” the presentation reads. “Better wages for us comes out of their corporate profits. That’s part of the reason why, when we demand jobs, they cry inflation.”