Friday, October 21, 2011

Making The US Into The Land Of Milk And Honey Again: Dallas Fed Chairman Fisher

From "Buy a Ticket! (With Reference to the Strauss Brothers, Ambassador Mike Moore, Kenneth Arrow, Financial Sharpies, Martin Luther King Jr. and Gov. Dewey)" Remarks before the Dallas Friday Group, Dallas, Texas, October 21, 2011, Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas:
Unemployment Is THE Issue

To create employment, we must have economic growth.

The simplest of econometric equations posits that the key components of economic growth are: domestic consumption, plus foreign demand for U.S.-produced exports, plus investment by businesses, plus spending by government.

I think it is pretty clear to everyone who lives on the planet that in order to expand our economy and put our people back to work, we must rely on our ability to curry to domestic and foreign consumption and invest here at home to produce the goods and services to sell into the marketplace here and abroad. You’d have to be from Mars to believe that our financially strapped federal and state governments will be the source of much direct spending stimulus to the economy going forward.
No Small Chore

This is no small chore. The parties involved must stop the hemorrhaging without inducing cardiac arrest; they must solve the long-run debt and deficit problem without, in the short run, pushing the economy back into recession, creating still more unemployment. And they not only must confront their addiction to debt and spending beyond their means, but also reorganize the tax system, redirect the money they spend and rewrite the regulations they create so as to be competitive in a world that wants to beat us at our own game.
We won the Cold War. Ho Chi Minh and Mao Zedong and all the brutal dictators who ruled the Soviet Union are long gone. In the blink of history’s eye, we have gone from mutually assured destruction on the battlefield to mutually reinforcing competition in the marketplace. This is what we spent an entire generation of American blood and treasure to achieve, and it is a far better thing.

The consequence, however, is that we are now being challenged as the place to invest job-creating capital by the Vietnamese, the Chinese, the Indians and countless others who have decided to engage full bore in the commercial interplay of a global economy. Our business operators are obligated by their shareholders and their creditors to earn a return on investment and maximize profit; we live in a globalized, interconnected world, and money is free to go to wherever it earns the best return. The point is that our fiscal and regulatory authorities do not operate in a vacuum. It will not be enough to reach a real deal on the debt ceiling or on reining in deficits. In the post-Cold War, post-Bamboo Curtain world, there are many governments and great swathes of people outside the United States that want to attract investment and improve their lot.

In crafting a solution to the nation’s fiscal crisis, our political leaders must take this new reality into account and develop an entirely new structure of incentives for private businesses and investors to put their money to work creating jobs, here at home rather than abroad.

Only fiscal authorities have the power to affect this outcome.
Economic Forecast―Caveat Emptor

You may need economists’ forecasts for planning purposes, but you should always take them with a grain of salt, even when the time horizon is a short one. I direct you to an article in the Feb. 14 edition of the Wall Street Journal as evidence. The Journal had polled 51 leading economists, and they forecast that gross domestic product would expand 3.6 percent in that very same first quarter, ending in less than a month’s time. Growth came in at 1.9 percent.
I personally don’t care which party is in the White House or controls Congress. All I know is that the “honorable” members of Congress, Republicans and Democrats alike, have conspired over time, however unwittingly, to drive fiscal policy into the ditch. They purchased their elections and reelections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children. Instead of passing the torch on to the successor generation of Americans, the Congress is simply passing them the bill. This is the opposite of honorable, and it must stop.

Back to the Land of Milk and Honey

Now, lest you think I am just another central bank sourpuss, I should tell you that I am actually encouraged that the public―from the Tea Party to the unemployed and disaffected who have taken to the streets―is forcing the politicians to focus on the dire need to get their act together. Indeed, I refuse to yield to pessimism, even as it becomes fashionable to do so. I am the child of immigrants. My parents came to this country because there was no limit to upward mobility; they came to the United States because it was the land of milk and honey. It still is. We just have to re-create a fiscal and regulatory environment that―in conjunction with the Fed conducting prudent monetary policy―will liberate the forces of entrepreneurial risk taking that have always been America’s hallmark. Only then will we get back to generating the jobs and the prosperity for all of our people, not just for financial sharpies. Only then will we restore faith in the prospect of upward mobility for all, not just the few. [Emphasis Added, Footnotes Omitted].
Read Fisher's complete remarks.

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