Regional President Speech

ECONOMIC POLICIES FOR A PROSPEROUS 1990s ECONOMICS POLICIES FOR THE 1990s These notes were used by Jerry Jordan for speeches on the following dates: March 5, 1993 April 13, 1993 April 15, 1993 May 4, 1993 May 10, 1993 June 25, 1993 Economic Policies for a Prosperous 1990s Bicoastal economy—1980s vs now Sm indirect bit of evidence—Easter Sunday N.Y. Times --- Houskeeping Perspective 13-14 years ago internationally & domestically -falling apart -"dunkirk Memorandum" (retreat in the face of superior forces) International—197 9 Sandinistas, Angola, Iran, Afganistan Domestic inflation, Unemployment, interest rates, $ forex, Stock mkt NOW . -Cold war over -articles and conferences: "Policies for a One Super Power World" Germany; Japan; French election Cold War: 70 years, not 45 years (1917) Contest of Ideas: -democracy and capitalism vs -dictatorship and socialism Economic and Political victory, NOT Military Victory [debate: whether or not arms race of 80s necessary no debate about whether a strong domestic economy was necessary—it was; whether or not it was sufficient, we will never know] Leadership in the Post-cold war world— Setting the right example demonstration/imitation effect How we won: -inflation -marginal tax rates/govt, spending -deregulation -free trade; strong $ Recent Months -equity market -bond market -$ forex mkt New thinking: about what used to be called -"Countercyclical Stabilization Policies" -that is, "pump priming" —Rejection of the "Phillips curve" Fed: "Hawks vs Doves" —price stability Role of monetary policy actions after the Gulf War Convential Wisdom about fiscal policies <9 2 0 3s~¥ / CURRENT ISSUES NEED FOR STIMULUS 2 Views of reasons for slow recovery after Gulf War (1) poised for rebound - recession caused by "oil shock"; uncertainty related to war; however, - restrictive monetary policy (M2) (M. F., Samuelson, Congress) (2)50 mile "headwinds" Defense Commercial Construction Corporate Debt/LBOs Consumer Debt Banks (credit crunch) S & Ls Monetary policy stimulative - S - 1 interest rates - M l FISCAL POLICY Old view (Conventional Wisdom until about 1980.) - deficits expansionary (pos. deficit spending multiplier) - Increase spending ) stimulate - Cut taxes ) — • faster growth - Both ) New view - deficits depressing - raise real interest rates - fuel inflation fears (+ .*. inflation premium in nominal i) - government borrowing crowds out private investment Problem: - reducing the deficit means either cutting spending or raising taxes (or both); actions still viewed as depressing, reducing tax-base, worsening the deficit, thus, "low growth trap" Perspective on fiscal problem: 1969,1979,1989,1999 - Johnson/Nixon: - surtax, budget surplus 1969 (20% of GDP) - shift in social/political priorities for 1970s - cut defense; raise "Great Society” - Carter: - balance budget at 20% of GDP m i: - - defense = 5% (vs. 10% in Viet Nam) - entitlements: 10% (vs 5 1/2% in 1960s) - Reagan 2 Theories: ■ Milton Friedman; spending; tax away revenue - Art Laffer/Jack Kemp; "self-financing tax cut" 1980 Campaign: balance budget at 19% of GDP - while increasing defense 2% points (from 5-7) - would have required reducing entitlements to same share of GDP as 1960; i.e., reverse the "Great Society" welfare state - by 1989: Full Employment E = 21.7% Deficit = 2.5% R = 19.2% - Clinton: - raise tax revenue to reduce deficit - lower deficit means lower i - lower i means faster growth - non-defense spending continues to rise faster than GDP (incl. $38 billion "unspecified further cuts" in FY97) - Defense spending assumed to fall (w/o details) to level inadequate to meet payroll, military pensions, current facilities; - implies: - dramatic cuts in personnel/base closings - or, no expenditures on weapons, research and development, etc. INFLATION - currently low, but people expect it to rise - home mortgage refinancing - corp debt issuance - yield curve - consumer/business surveys - Blue Chip forecasts SKEPTICISM - Phillips curve (Sarbanes) - inflation good (Business Week, NY Times) - growth causes inflation - fiscal dominance (deficit) COSTS - high real i, Investment - high expected real tax on capital goods - resources used for inflation hedges - high real wages (ex-post) - high business and consumer debt servicing burdens CURES FED ADMINISTRATION CONGRESS 3/4/93 (JLJ)

Jerry L. Jordan (1993, March 4). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19930305_jerry_l_jordan

@misc{wtfs_regional_speeche_19930305_jerry_l_jordan,
  author = {Jerry L. Jordan},
  title = {Regional President Speech},
  year = {1993},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19930305_jerry_l_jordan},
  note = {Retrieved via When the Fed Speaks corpus}
}