Regional President Speech

Speeches by Bob McTeer Seeking Common Ground Through E-Mail (and Finding Our Hardheaded Hearts) Remarks before the New Roads & E-Roads Conference Dallas, Texas Aug. 23, 2001 Nancy first asked me to speak at this conference in March. I didn’t agree right away. I hesitated. As a former economist—and I emphasize "former"—I sometimes find it awkward speaking at community affairs conferences. Economists are trained to focus on markets and market-based solutions to public policy problems. Most of us believe that individual liberty and free markets are the best income and wealth generators ever discovered, as well as the most effective program for helping the poor. We are suspicious of nonmarket solutions, although we can be convinced. Our supporting scripture is Adam Smith’s discussion of the invisible hand in The Wealth of Nations, published in that fateful year, 1776. The invisible hand of the market transforms the pursuit of our own self-interest into a favorable general outcome. In a market economy, we help others by helping ourselves, and we help ourselves by helping others. Incentives are aligned and benign. We can get rich by selling a lot of what people want. Free enterprise is not a zero-sum game. We don’t have to have losers to have winners, although we will always have our share of "lovable losers, no-account boozers and honky-tonk heroes," to borrow some colorful words from Billy Joe Shaver. Nancy and her colleagues in community affairs don’t necessarily disagree with that, but that’s not their focus. Their job is to help the exceptions, those the market has left behind, those ill-equipped to thrive in the market and those having difficulty getting a foothold on the ladder of success. The economy creates prosperity wholesale. Nancy and her folks do it retail. The dichotomy was illustrated recently when one of our economists wrote an article pointing out that much of the CRA-type lending in recent years was by financial institutions not subject to the Community Reinvestment Act. Hence, the CRA probably doesn’t deserve all the credit. He mentioned new technology and changes in the structure of financial markets as important contributors. The sharp negative reaction to that article led me to conclude that some people are more devoted to the CRA than to community development. For some, the means have become more important than the goal. But as Dennis Miller says: "That’s just my opinion; I could be wrong." But think about it. The minimum wage is another example. Responding to a question during recent congressional testimony, Chairman Greenspan said he did not favor raising the minimum wage because it would likely increase unemployment among those it was supposed to help. The non sequitur response to that was that one can’t live comfortably on the current minimum wage. Of course not. A family can’t live well on the current minimum wage, but most economists fail to see how no job is better than a low-paying job. If we really believe we can legislate higher wages without adverse consequences, why raise it only a dollar or two? Why not make it $50 an hour? Or $100? Once again, I’m afraid the means has become more important to some than the goal. A higher minimum wage has become more important to some than the welfare of poor people. Now you see why I’m hesitant to speak at Nancy’s conferences. I’ve probably offended many of you already. I’m sorry. That’s why I’m always looking for common ground between our hardheaded economists and our softhearted community affairs people. Our new and improved economy of the late 1990s provided that common ground. My new paradigm frog came to the rescue. In the second half of the 1990s, technology finally boosted productivity growth well beyond the anemic rates of the previous two decades. Output and employment growth accelerated, wages rose faster and unemployment declined to 30-year lows. And for most of the period, decelerating inflation turned more of the nominal gains into real gains. As a former economist, let me just say it: The rising tide lifted all boats—or most of them anyway. Along with the general decline in unemployment, minority unemployment fell to the lowest levels on record. Strong and tight labor markets facilitated welfare reform. Health improved and crime declined in a strong economy. Many people may have been left behind, but not as many as usual. That’s one of the tragedies of the current economic slowdown. Total employment has declined for about five months now, and the overall unemployment rate has risen from 4 to 4.5 percent. It will rise more. The dramatic gains made in recent years by those on the fringes of the labor force are threatened. So far the damage has apparently not fallen disproportionately on them, but it will if we don’t get the economy jump-started soon. In case you’ve forgotten, what I’m doing is explaining why I hesitated to accept Nancy’s invitation to speak. Since she chose a technology theme for the conference, I thought I’d share with you how I tried to use technology in making my decision. Technology in this case means e-mail. On March 23 I e-mailed several of my colleagues on each side of the great divide. Here, in part, is what I wrote: Subject: An interesting proposition. Nancy Vickrey asked me if I would be interested in speaking to her community affairs conference in August. I would like all of you, and perhaps others, to help me think about it. First, let’s exchange some e-mails and then possibly get together and discuss it in a few days. The dilemma, of course, and perhaps the opportunity, has to do with the head of the "free enterprise Fed" addressing a "do-gooder" topic—to put it starkly. [Skipping a paragraph, I continue as follows:] Consider the following possible titles: "Doing well by doing good or doing good by doing well: Trying to find common ground." "Where right meets left and where left meets right: Trying to find common ground." "Hard heads, soft hearts." (I know that’s Alan Blinder’s book title.) "Hardheaded liberals and bleeding heart conservatives." [I’m still quoting now...] The essential idea would be to find common ground between believers in the market and market skeptics who want to do good deeds for the poor, but go beyond the obvious points about rapid growth being the best welfare program. Another way to think about it is that, when I first came to Texas, Walt Rostow kept telling me to run the economy hot. I thought that naive at the time, but not quite so naive lately.... Send me some e-mails and copy the others. Be nice, now. [signed] Bob Since I wrote this, Billy Joe Shaver’s latest CD has come out, with a song titled "Hard Headed Heart." That would have been a title option if I were writing the e-mail today. My experiment with an e-mail discussion and debate was successful, I think, despite the fact that I never could decide whether to accept Nancy’s invitation. Several messages were exchanged, and we got together over lunch. No food was thrown. One interesting result was that with the soft hearts and hardheads talking to each other directly rather than amongst themselves separately, the rhetoric softened and some convergence was achieved. I’ve noticed in the past that when the hardheads debate among themselves their rhetoric is driven to extremes. Sometimes I think testosterone comes into play. But when the hardheads talked directly to the intelligent soft hearts, their professional standing is not at stake and they soften their positions—or at least their rhetoric. The soft hearts conceded some points as well. Their love may have toughened a bit. Maybe it’s simply a Texas cowboy tradition to take care of the herd as well as the strays, or mavericks. The economists at the Dallas Fed focus on the herd—looking back often to be sure it’s still there and always trying to stay upstream and upwind, mind you. But we also have a soft spot for the mavericks. We now collaborate more on the best way to help them. The great divide is not as great anymore. I’m going to let the red dog off the leash now and share some excerpts from our e-mail debate. Keep in mind that this was an informal, internal discussion, hastily written, unedited and never intended for outside eyes. I can’t be complete in the interest of time, but I will be accurate, and true, so cut me some slack. As Elvis says, "Don’t be cruel to a heart that’s true." An initial response to my invitation came from a soft heart I’ll call S, who says, in part: Bob ... I feel sure I know how you would approach the "doing good by doing well." But what would you say about "doing well by doing good?" Can you do well by doing good? If only the "do-gooders" and the "do-wellers" could come up with a truce. This is a favorite tactic of S. She often tries to dodge the question with a question of her own. She got with the program later on, however. J, an economist, initially responded to my request as follows: Bob, In his book on moral sentiments, Adam Smith argued that citizens will give to others if free to do so and will be ennobled in so doing, which produces positive societal externalities by encouraging them to give even more. Bleeding-heart liberals think individuals won’t give voluntarily, so they construct elaborate social programs to which everyone must contribute, which wreaks havoc on the voluntary giving that helps produce a virtuous citizenry. Hardheaded conservatives see nothing ennobling about helping the less fortunate so they spend money on their own self-gratification, which has a similar effect. But there’s a vast middle ground in this debate, with plenty of room for "bleeding-heart conservatives" and "hardheaded liberals" who understand the importance of charity but don’t think government programs are the best way to provide it. Is this the sort of approach you are looking for? J J later added another page of analysis that was helpful. N, not an economist, and a good friend of Nancy’s, had the following to say, in part: I think there is more to giving people access to markets than just laissez-faire public policy. It's also access to resources that help people function in a free market society. And there is more to it than the wealthy just accommodating or "giving" to the working poor or those who haven’t yet made it into the economic mainstream. I think it is about making private and public investments in people and communities. We all benefit—rich and poor— when society makes the investment so that as many people as possible have the skills, resources and opportunities to earn a livable wage and increase wealth. If we have more skilled workers, more jobs are filled. If workers have a sense of well-being that their job will be there tomorrow and that they can invest in the future, they buy more. … Which creates more jobs. … Which expands the market, etc. (This may be naive, but it’s better than paying the price of low expectations, alienation, etc.) This seems to make sense to Blinder, who writes about efficiency vs. equity in his book Hard Heads, Soft Hearts— Conservatives must come to accept the principle of equity and realize that intelligently designed policies that promote equality need not interfere unduly with efficiency. Liberals must gain greater respect for the principle of efficiency and learn that conservative means can be harnessed to liberal ends. Thoughts for conservatives: Equitable growth matters. Public and private investment in human capital, research and development (public investment in technology gave us things like the Internet, etc.), infrastructure, etc., can positively contribute to the economy by bringing more people into the labor force, better utilizing the labor force and spurring more technology innovation. [N then refers me to a book by Barry Bluestone and Bennett Harrison, Growing Prosperity: Striving for Growth with Equity in the 21st Century, and reviews its content for me.] Thoughts for liberals: Fast growth matters.... Without it, all other efforts are at the margins. Thoughts on "Doing Well by Doing Good": Technology-driven businesses are not as tied to place as businesses used to be. I suspect that a commodious community environment is important to these firms, and if there are large income gaps, inadequate workforce, poor schools, these companies will move. Cities, states and even the country may need to do good to do well. Example of investment in doing well by doing good: Toby Cook [of our Community Affairs division] looked at New Mexico’s state-sponsored Technology Ventures Corp. and is writing an article: [N summarizes the main points of that article, which has been published in our Community Affairs publication Perspectives, in your packet.] Now, let’s hear from an economist we’ll call B. B says: I suspect that those on the left and right both want similar things: prosperity for the majority of Americans. The empirical question then becomes "What is the best way to achieve that?" On this point, there is no longer any doubt—the great debates of the past between Marxists and non-Marxists, socialists and non-socialists, communists and their opponents are now settled, at least everywhere except on college campuses and in faculty lounges! The market allows us to do good by allowing us to do well. Without wealth being created, all utopian or "do-good" schemes are utterly worthless; even in the presence of wealth, most of them are either unnecessary and/or redistributionist and hence, in the long run, destructive of wealth generally. But that does not mean that the free market is a flawless machine. In his early days working on his first reporting job, the famous Old Right author Garet Garrett was called into his editor's office and told to take a train to West Virginia (from New York) to interview miners who had been laid off from coal mines several months before. Garrett, who had just finished reading Wicksteed's Commonsense of Political Economy, proceeded to enlighten his editor on the workings of the neoclassical labor market. When he finished, the editor smiled and looked at him as if he were a child, saying: "That's all fine, son—now, I want you to take that train to West Virginia and interview those unemployed workers who are, of course, no longer there." The right, no less than the left, can be guilty of confusing theory and reality, or of what Hayek calls the "constructivist fallacy." Garrett never changed his mind about freedom, its byproduct—free markets—nor about government welfare programs generally. But from that moment on, he realized that he needed a more solid grounding than economic theory alone could provide. People are not as prescient and flawlessly entrepreneurial as free marketers claim, but neither are they as helpless and hopelessly trampled upon as the do-gooders claim, so long as they have the freedom to fend for themselves and enter markets. The left also misses the point when it comes to wealth. They see Bill Gates' mansion and scream their envious displeasure at differing income levels. But Gates, and his predecessors Carnegie, Ford, Rockefeller et al., did more good, are doing more good and will do more good in the future than all of the do-good schemes we can think of combined. And while we see Gates and Hicks and Cuban...we don't see the billions and billions of dollars generously given every year by smaller entrepreneurs and businesses all over the world to charities and human improvement schemes. When small private colleges out in the middle of nowhere can raise tens of millions to build buildings and give away scholarships, you know you live in a very generous society indeed. But before that wealth can be given, it has to be created and managed carefully. Whatever we do to "help" people ought, at the least, actually be effective at helping them; otherwise, we sacrifice their welfare and others' hard-earned money just to make ourselves "feel good" about how moral and enlightened we are. Such behavior is not particularly lofty, nor even really morally satisfying, although it does often win political elections and Academy Awards. Both Keynes and neoclassical theory are right, of course: in the long run the theory works, and in the long run "we are all dead" and can't benefit from that fact! At least, it often seems that way to ordinary people like those miners. In a perfect world, sufficient facts would trump ideology—and if you can get the left and right to agree that they should, you will have truly done something quite amazing... (My own title preference is: "Can We All Just Get Along?" All the others have been used a bunch of times.) S responded to B: I agree with B. The essence of what we are talking about is "Can We All Just Get Along?" The answer may be in B's response. First, I have to admit my great limitations in being able to reply to B. I have read Hazlitt's Economics in One Lesson. Does that count? Probably not. In that book, I remember Hazlitt talking about the "Forgotten Man" being exploited by bleeding-heart politicians. These politicians are able to experience their generosity vicariously by forcing the "Forgotten Man" to pay for their attempts at good. Hazlitt's example goes like this: Person A observes that Person X is suffering. Thus, A engages B to get a law passed to help X. The problem is that the law in all cases involves Person C doing something to help X. Hazlitt portrays C as the victim of the philanthropist, the do-gooder, the politician. After reading Hazlitt's description of Person C, the "Forgotten Man," I wondered if C was completely void of free will as Hazlitt had portrayed. C may be concerned about X and just doesn't have a clue as to what to do. He weighs the arguments and in some cases may simply make the wrong choice according to us. But is he a victim? This brings me to Economist Person D (Hazlitt doesn't mention this person). Why does Economist Person D have such a difficult time getting through to Forgotten Exploited Person C? How can A and B continually be so successful? Thus, can we all just get along? For every think tank that says Head Start is a miserable failure, there is a think tank (and probably a few Head Start teachers) that says it is the paradigm of success. We wonder why C is floundering around. It is also still puzzling that some of our brightest and best educated are wasting their time in faculty lounges and universities (the ones with good football teams excluded). Are these people all pseudo-intellectuals who have never taken Economics 101? So with Nancy’s invitation to speak, I see Bob McTeer as Economist Person D. The mission is to save C. N chimed in with: Maybe C is simply practicing enlightened self-interest. B responded: Perhaps, or maybe it’s as Mencken said: "Whoever taxes Peter to give money to Paul can usually count on Paul’s support." Or as Calhoun theorized, there are really only two classes of people: net tax producers and net tax consumers. Each person thinks he knows into which category he falls...but do people really know? There’s nothing wrong with "equity" so long as it is not used as a stealth synonym for "equality of result." If it is, then I think John Adams put it best: "I love liberty but loathe equality." This will give you the flavor of our e-mail experiment in trying to find common ground. I think Billy Joe’s hardheaded heart is about where we come out. We need to promote prosperity both wholesale and retail. We need to move the herd along and pick up the strays as well. I believe the Dallas Fed is well staffed for both jobs. There was much more e-mail that we don’t have time for. Let me just close with a brief exchange I had with S. S’s message to me: Bob: I feel as though this discussion probably needs to leave economics and join philosophy, where we ponder the essence of good. I get very confused. I understand the whole issue of the need for prosperity. It is just that when economists talk, there always seems to be something missing. What is it? My one-word answer to S: "Soul." As Elvis would say if he were here, and who’s to say he isn’t, "Thank you. Thank you very much."

Robert D. McTeer Jr. (2001, August 22). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20010823_robert_d_mcteer_jr

@misc{wtfs_regional_speeche_20010823_robert_d_mcteer_jr,
  author = {Robert D. McTeer Jr.},
  title = {Regional President Speech},
  year = {2001},
  month = {Aug},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20010823_robert_d_mcteer_jr},
  note = {Retrieved via When the Fed Speaks corpus}
}