When we set out to find a visionary and thinker in the financial sector to add to our collection of interviews, Kristin Forbes’ name was suggested to us by other economists, as well as from other women her age in finance, the arts and by those equally formally educated, who have opted to stay at home and raise kids. It was one of the first times that such a varied range of people suggested someone to us.
We began to research her. We were intrigued that the Bank of England had selected this American economist to join their Monetary Policy Committee as one of two external members. And we were curious about hearing from someone who was in the White House during President Bush’s years, a controversial President, and who watched the collapse of the financial markets that has brought forth finger pointing and reform. But what interested us most was that this MIT Professor was one of the earliest thinkers to focus on financial contagions. I sat down with Kristin to discuss contagions, the current thinking on energy, inflation and economic growth.
It is a basic tenet of economics that regulations almost always have unintended consequences. While Adam Smith may have been one of the first to understand this, he could not have possibly foreseen the morass of expensive and unwanted consequences that could come from conflicting emission and fuel standards enacted by the state of California and federal programs, such as for greenhouse gases and Corporate Average Fuel Economy.
Both the state and federal regulations have worthy goals: to decrease greenhouse-gas emissions and lower petroleum consumption. Yet taken together, the federal standards effectively cancel out the California standard. Instead of promoting fuel reduction as intended, the California standard allows for the production of less-efficient vehicles, while facilitating a massive transfer of cash via credit trading. It also forms a de facto industrial policy that sends us down a path toward electric vehicles that may or may not be the best technological or environmental choice for the future.