Speech

What Is the Fed Doing in the Education Business? AcademyofEconomicsandFinance ExcelsiorHotel LittleRock,Arkansas February12,1999 You may be wondering about my title, yourquestions,whetherthey’reabouteconomic for you probably think of the Fed as education,theeconomyortheFed. being in the monetary policy business BeforeIgetfurtheralong,letmeemphasize and not the economic education busi- thattheviewsIexpressherearemyown.Within ness. I want to convince you that to do a good theFederalReserveSystem,therearenuancesof job in the monetary policy business, we have to viewonalmosteverysubject.Thus,myremarks also do a good job in the econ ed business. I was donotnecessarilyreflectofficialviewsofthe eagertoacceptthisspeakinginvitation,becauseit FederalReserveSystem. gives me a chance to discuss a topic I’ve thought a lot about. Economic education is far more important for monetary policy than most people WHY IS THE FED INVOLVED? realize. Letmeintroducemytopicthisway:Ateach Now,Iknowaboutyouthatmostofyouteach meetingoftheFederalOpenMarketCommittee college-leveleconomicsorfinance.Andyouknow (FOMC),whichsetsnationalmonetarypolicy,the aboutmethatI’vetaughteconomicsformostof endresultisadecisionontheintendedortarget myprofessionallife,startingin1963.Whatyou federalfundsrate.Thisinterestrate,asmostof don’tknowaboutme—ordon’tknowyet—isthat youknow,isoflittledirectimportance.Therate Ihavearealpassionabouteconomiceducation isforaone-dayloan—an“overnight”loanin fromapolicymaker’sperspective.AsfarasIam marketjargon—betweentwobanks.Itisamatter concerned,economiceducation,broadlycon- ofminorconcernwhatrateonebankcharges ceived,isabsolutelycentraltotheFed’smonetary another.Butchangesinthefedfundsratecan policyresponsibilities. anddoaffectthe30-yearmortgagerate,Treasury I’llstartbyexplainingwhyeconomiceduca- bondrates,thestockmarketandahostofother tionissoimportanttomeasaFedpolicymaker, thingswecarealotabout,suchastherateofinfla- whyIconsideritfarmorethanjustanicelittle tionofthegeneralpricelevelandtheunemploy- gestureofcommunityinvolvement.AfterImake mentrate.Howcananovernightinterestratehave thiscase,I’lloutlinesomeofthethingswedo, sucheffects?Ifyoudon’tknow—andalotof fromprogramsforelementaryandsecondary peopledon’t—andyou’recurious,youareacan- schoolteachersandstudentstoprogramsfor didatefortheFed’seconedefforts. universitiestopublicspeakinggenerallytopress Let’sdigabitfurtherintothislineofargument contactstocongressionaltestimony.Allofthese byconsideringthisproposition:IftheFOMC’s effortsaredesignedinvaryingproportionstoedu- decisiononthefedfundsratecanaffectthemar- catethepublicaboutwhatwedoandtofulfill ketstoday,thenanFOMCdecisionsixmonths ourresponsibilitytobeaccountableinademo- fromnowtochangetheratewillaffectthemarkets craticsociety.Idon’tintendtalkingtoolong, atthattime.Andweknowthatexpectationsabout however,becauseI’mlookingforwardtotaking marketpricesinthefuturewillaffectpeople’s 1 ECONOMICEDUCATION behaviortoday.QED:theeffectsofmonetary lesswellthantheymight,citizenswillmorefre- policydecisionstodayonwhatpeopledo,and quentlymakecostlymistakesthantheyshould, thereforeontheeconomyasawhole,willdepend andmonetarypolicywillbelesssatisfactorythan importantlyonpeople’sexpectationsaboutthe itcouldbe,bothbecauseofthesemistakesand futurecourseofmonetarypolicy. becausepoliticalpressuresmaypushpolicyoff Forexample,ifyouthinkthemortgagerate track. willbegoingdowninthefuture,youmaydelay Weshouldnotunderestimatethetaskathand. yourhouse-buyingplans.Clearly,bothmarket Inarecentpollasking“WhatistheFederal professionalsandcitizensthinkingaboutbuying Reserve?”somepeopleansweredthatitwasa housesneedtoknowalotmorethantheFed’s branchofthemilitary—liketheArmyReserve. latestdecisiononthefedfundsrate.Theyneedto Onerespondentrepliedthat“theFederalReserve knowabouttheFed’smonetarypolicystrategy— isabigtractoflandsetasidetoprotectexoticor thelikelycourseofFedactionthatwilldetermine unusualspecies.”I’membarrassedtosaythat thefedfundsrateinthefuture.IftheFed’sstrategy theseanswersremindmeofsomethingsI’ve ismisunderstood,eitherbecauseofalowlevel seenonfinalexamsinmyowncourses.Idon’t ofeconomicliteracyorbecausetheFedhasfailed thinkIneedtomultiplypollresultstoconvince toconveyitsstrategyclearly,thenthemarkets youthattheUnitedStateshasaseriouseconomic aregoingtomakemistakesandbesurprisedat literacyproblem.Youknowthatfromtalkingwith Fedactions. students,theirparents,friendsandrelatives,and Theeconomistviewsmarketmistakesas fromreadingnewspapersandmagazines.Taken leadingtounnecessaryeconomicinefficiencies. society-wide,economicilliteracyresultsinunin- Thephrase“economicinefficiencies”hasanice formedopinionsandharmsourcitizens’ability professionalringtoit,buttofirmsandindividuals toevaluateeconomicchoicesandmakewise whatitmeansisthatsomebodylostmoneyfrom decisions. abaddecision.Peoplesometimesgetangrywhen I’mgoingtotalkbrieflyaboutfouroverlapping theylosemoneyunnecessarily.Whensuchpeople elementsoftheFed’seffortsintheeconomic believethatFedmistakesaretherootoftheprob- educationarea:theFedandtheclassroom,the lem,theydowhattheyoughttodoinademoc- Fedonthestump,theFedandthepress,andFed racy—theycallmembersofCongresstocomplain reportingtotheCongress.ThenI’llcirclebackto andtodemandaction. mythemethattheFedmustbeintheeducation Ofcourse,theFedisnotinfallible,andit businessifmonetarypolicyistoworkwell. deservestobeheldaccountableforitsdecisions. Ifaccountabilityistobesuccessfulinyielding betterpolicy,however,thosewhooverseewhat THE FED AND THE CLASSROOM wedoneedtocriticizeusonthebasisofahigh degreeofknowledgeaboutmonetarypolicy.Edu- TheFedproducesalonglistofeducational cationalinstitutionsatalllevelsbearthemain resources,fromwebsitestoconferencestocom- responsibilityforeconomiceducation,butIcan petitionstopublications.Someofourpublications tellyoufromlongexperienceasaneconomics arespecificallydesignedascoursematerials; professorthatmostofmycolleagueswereinter- othersaremoregeneral,butmaybeusefulin estedinmattersotherthanmonetarypolicy.A someclassrooms.Ibroughtalongcopiesoftwo significantnumberoftheeconomistswithmone- publications.Oneofthemis“InPlainEnglish: tarypolicyexpertiseareemployedbytheFederal MakingSenseoftheFederalReserve.”Thetitleis ReserveSystem.WeattheFedhavealottooffer prettymuchself-explanatory—it’saplain-talking intheeconomicseducationbusiness,becausewe explanationofwhoweareandwhatwedo. havesomanyoftheseexperts.Ifweoptoutof Theotherpublication,theCatalogofPublic theeconedbusiness,thenmarketswillfunction InformationMaterials,hasbeenrecentlyupdated. 2 WhatIstheFedDoingintheEducationBusiness? Itisavailableinbothprintedformandonthe ThenthereistheFedChallenge—someofyou Internet.ItshomesiteisattheNewYorkFed, maybefamiliarwiththiscompetitionforhigh butyoucanlinktoitfromanyFedBank’sweb schoolstudents.IthinktheFedChallengeisthe site.Thecatalogisthegranddaddyofallgeneral mostexcitingandinnovativeideaforteaching informationsourcesontheFed,mostofwhich economicsI’veseenovermyentireteaching arefree.It’sintendedmainlyforeducators,and career,anditisoneoftheSt.LouisFed’s—and eventellsyoutheintendedaudienceforeachitem, theFederalReserveSystem’s—mostsuccessful fromelementarystudentsandteachersthrough recentprograms. collegestudentsandprofessors,plusthegeneral TheFedChallenge,inessence,isamock publicorbusinessprofessionals. FederalOpenMarketCommitteepresentation. AlloftheFederalReserveBankshaveeco- Eachstudentteaminthecompetitionpresentsa nomiceducationprograms.Andalthoughweoffer 15-minuteanalysisofthecurrenteconomy.As alotofthingsincommon,eachBankgoesatit witharealFOMCmeeting,eachteamendsits differently.There’salothappeningforeducators meetingwithamonetarypolicydecision.Follow- attheSt.LouisFed,andsincethat’swhereIwork, ingthepresentation,“show-no-mercy”judgesgrill that’swhatI’llfocuson. theteamwith10minutesofquestions.Atlast WhenIsaywe’vegotalotgoingonforedu- year’sfinalscompetitioninWashington,heldin cators,I’mnotexaggerating.Althoughweoften theBoardroomwhereIattendFOMCmeetings reachoutdirectlytostudents,ourprimaryfocus abouteverysixweeks,Iservedasajudgealong hasbeenonsecondaryandelementaryteachers. withGovernorAliceRivlin,vice-chairofthe Weputalotofeffortherebecauseeconomicsat BoardofGovernors,andGovernorEdward theuniversitylevelisbetterestablishedandless Gramlich.Thereweresixteamsinthefinals,one inneedofourassistance.Droppingrocksintothe fromeachofthesixFederalReserveDistricts secondaryeducationpond,ontheotherhand, sponsoringtheFedChallenge. spreadsripplesfarandwide—itisagoodwayto TheFedChallengedoesseveralthingsfor getthebestvalueforthemoneywespend.Reach highschoolstudentsand,Imightadd,their oneteacherwiththerightmessagesandmaterials, teachers.Thecompetitiveaspectisawonderful andovertimeyoureachhundredsofstudents, motivatingdevice.Itislikeatypicaldebatecom- andatanagewhensuccessreallymatters. petition,exceptthatpreparationtakesmostof Don’tgetmewrong;weworkwithcollege theschoolyear.Studentslearnhowtoresearcha educatorsalso,andwe’realwayslookingforways complextopic—monetarypolicy—andhowto toaddtothoseefforts.Asyouknow,theSt.Louis explainapositionwithclarity.Theyalsolearn FedhasabranchhereinLittleRockandalsoin howtohandleintensequestioning.Combining LouisvilleandMemphis.Eachyearweholdhalf- criticalthinkingskillswiththeneedforsuccinct dayseminarsinthesecitiesforeconomics,busi- presentationaspartofateamisalearningexpe- nessandfinanceprofessors.Fedeconomistsgive rienceofthefirstorder. presentationsontimelytopicsanddiscussthem StudentteamsgettothefinalsinWashington withthoseattending.It’savaluableexperience afterwinningthecompetitionintheirownFed forusaswellasfortheprofessors.Wealsoarrange district.TheFedChallengebeganin1995;the specialtoursoftheBankforgroupsofcollege NewYorkFedsawtheChallengeasagreatdevice studentsandtheirinstructors.Apresentationby tobringreal-worldeconomicsintotheclassroom. aneconomistisoftenapartofthoseprograms. Sincethattime,otherReserveBankshavebecome Imyselfgetintotheact.Aspartofmyefforts involvedwiththecompetition.Lastyear208 tospeakonmonetarypolicyandothertopics,I’ve teamstookontheFedChallenge,andI’mpretty beentoSaintLouisUniversityandhaveother surethatmoreteamsarepreparingthisyear.In collegeappearancesintheworks.Italwaysfeels theEighthDistrictthisyear,wehaveacompeti- goodtometocomebackhometoauniversity. tionrunninginboththeSt.LouisandMemphis 3 ECONOMICEDUCATION areas;thewinnersinthesetwoareaswillhavea travelaroundtheDistricttoallthemajorandnot- run-offcompetitioninSt.Louistodeterminethe so-majorcitiesandtowns,usuallymakingtwo teamthatwillrepresenttheDistrictinthefinals orthreestopsonanygivenroadtour.Ourformat inearlyMay. isalateafternoonmeetingwithlocalbankers, I’veaddedanappendixtothetextofthis followedbyareceptionanddinner.Inthemeeting, speech,whichwillbeavailableontheSt.Louis threeofuswillmakepresentationsonthestate Fed’swebsiteinafewdays,toprovidefurther ofthelocaleconomy,thenationaleconomicout- informationonoureffortsthatareofdirectvalue lookandaparticulartopicofcurrentinterest, toeducators. suchastheY2Kissue.Thecombinationofthree shortpresentationsandtheQ&Atakes60to90 minutesorso.Thenextmorningwe’llhavea THE FED ON THE STUMP breakfastmeetingwithlocalbusinessandcom- munityleaders.Typically,I’lltalkforabout20 EveryFedbankpresident,everyFedgovernor minutesandthenwe’llhaveaconversationabout andasignificantnumberofotherFedemployees, communityconcerns,questionsforme,andmy spendquiteabitoftimeontheroadgiving questionsforothers. speeches.Ivieweachofmyspeechesashalf Besidesspeecheslikethisone,andthe educationoftheaudienceandhalfeducationof DistrictDialogue,wehaveanumberofadvisory me.Italkfrequentlyaboutmonetarypolicyand groupsthatmeetinSt.Louis.Wehaveluncheons Feddecisionprocesses.Iworkhardonmy forindustrygroups,suchashomebuilders,health speechesbecauseIbelievethatpolicysuccess careprofessionalsandsoforth.Afeatureofmost dependsimportantlyonthemarketsandthe ofthesemeetingsisa“goaround”whereweask generalpublicunderstandingwhatwearedoing. eachpersonpresenttotalkforafewminutesabout Mysubheadinghereis“TheFedontheStump” thestateoftheeconomyasheorsheseesit. becauseIreallydothinkofthisaspectofmy Finally,I’vebeenmakingapointofvisiting responsibilityasthatofcampaigningforasound asmanyelectedofficialsfromstatesintheEighth monetarypolicy.Inademocracy,thevotersulti- DistrictasIcan.Theseincludemembersof matelycalltheshots—Iwanttheshotstobecalled Congress,mayors,stategovernorsandothers. fromasoundknowledgeofeconomicsandthe Matchingcalendarsmakesforaslowprocessin problemsanduncertaintiesofmakingmonetary settingupthesemeetings,butIthinktheeffortis policydecisions. veryworthwhileinestablishinggoodcommunica- IsaidthathalfofwhatIgetoutofaspeechis tionsandanunderstandingofwhattheFeddoes. educationofme.Iamconstantlysearchingfor informationonhowtheeconomyisdoing,from theperspectiveofthoseintheaudience.During THE FED AND THE PRESS theQ&Aperiod,duringlunchordinnerbefore orafteraspeech,duringpick-upconversations ThepresscoverstheFedinconsiderable inthehallway,Icontinuallyseekoutinformation detail.Indeed,Iwassomewhatsurprisedtofind onthestateoftheeconomyandhowpeoplefeel nationalpressrepresentativesshowingupat aboutit.Ialsotrytogatherinformationonmis- manyofmyspeeches.Localpressarealsooften perceptionsandmisunderstandingsabouteco- present. nomicsandthepolicyprocessthatneedtobe Wheneverrepresentativesofthepressattend, addressed.Theseconversationshelpmetogen- Itrytospendaconsiderableamountoftimetalk- eratespeechideasforthefuture. ingwiththeminsmallgroups,orindividually, Onethingwe’vebeendoingforsomeyears beforeorafteraspeech.Iamalsointerviewedin nowintheEighthDistrictisaneveningprogram myofficefromtimetotime.Iammorethanwill- withbankerswecall“DistrictDialogue.”We ingtospendtimewiththepressbecausewhat 4 WhatIstheFedDoingintheEducationBusiness? theyreportcanmakearealdifferencetothe ments.TheFederalReserveActisthebasiclaw public’sunderstandingoftheFed. controllingtheFed;Congresscanamendthatact Ibelievethattakingtimewiththepressisin atanytime.TheFederalReserveSystemhasa partaneducationaleffort.FactsandFedactions responsibilitytoreporttoCongressaboutwhat donotspeakforthemselves;theyneedtobe wearedoingandwhy,andtoberesponsiveto explainedandinterpreted.Ihavearesponsibility questionsfromCongress. toexplainandinterpretasbestIcan.Thatisan Ireadmostofthetestimonypresentedby educationalfunctionnotjustinthesenseofdis- Fedgovernors,andIbelievethattheFeddoesa closingmythinkingbutalsoinexplainingthe finejobwithitspresentations.Moreover,Ithink economicsbehindmythinking.Goodreporting theFedhasdoneamuchbetterjobinrecentyears requiresathoroughknowledgeofthesubject,and thaninthepast.Myknowledgeofthisareagoes IthinkIcanassistreportersbysharingmyknowl- farback,asIhavelearnedalotovertheyears edge.Intheend,ofcourse,eachreporterhasto fromreadingFedpublicationsandtestimony. decidewhetherwhatIthinkI“know”isreally Fedcongressionaltestimonyispartlyreporting true.Still,everyonewouldagreethatnoonecan toCongressandthepublicandpartlyeducation. understandwhereIamcomingfromifIdon’t Theeducationalsideoftheendeavorshouldnot spendtimetalkingaboutwhatIbelieveandwhy. beunderestimated.Anincidentfrommyown Imightalsonotethateconomistsuselotsofpro- experiencetestifyingbeforetheHouseBanking fessionaljargon;manyofthewordshavesome- Committeemanyyearsago,whenIwasatBrown whatdifferentmeaningsineverydayEnglishand University,illustratesmypoint.IntheQ&Afol- that’saninvitationtomixed-upreporting.Mixed- lowingmypresentation,itbecameapparent upreportingisnotinanyone’sinterest,andsoI thattheHousememberquestioningmewas workhardtobeasclearasIcan. uninformedabouthowcommercialbankreserve Myexperiencewiththepressisalmostuni- requirementswork.Thismember,whosatonthe formlypositive.IsaythatnotbecauseIalways BankingCommittee,didnotunderstandthe getgoodcoverage—Idon’t.Butreportersdowant mechanicsatthelevelofafreshmaneconomics toreportaccuratelyanddowanttosaysomething text.NomemberofCongresscanpossiblybe usefultotheirreaders.IfIgiveaspeechanda informedabouteveryaspectofcongressional reporterwritesagarbledstory,Ideservepartof responsibility,buteachmemberandthemember’s theblamefornotbeingclear,ornotspending staffshouldbewell-informedaboutthebusiness enoughtimewiththereportertobesurethatthere ofoversightcommitteesonwhichthemember arenomisunderstandings.Idon’tmindbeing sits.Inthisincidentmanyyearsago,Ididnot criticizedforapositionI’vetaken,butIdomind haveanopportunitytobringthememberupto havingthatpositionmisstated.Iwantalwaysto speedonreserverequirements,butIcertainly sharpentheissuessothatthegeneralpublichas seizesuchopportunitieswheneverIcan. beforeitaclearstatementaboutwhatisatstake. FINAL THOUGHTS FED REPORTING TO THE TheFedisintheeconomiceducationbusi- CONGRESS ness,then,toaffectchange,toraisethebar,soto Fedpresidentsrarelytestifyincongressional speak,onthepublic’sknowledgeaboutmoney, hearings,andIhaven’tsinceIcametoSt.Louis bankingandtheFed.Weapproachthistaskfrom lastMarch.However,governors,andespecially manydifferentdirections.Weprovidepublica- thechairman,dotestifyfrequently.TheCongress tionsforstudentsandteachers,elementary hasanimportantoversightresponsibilityforthe throughcollege,aswellasforbusinessandcom- Fed,justasitdoesforexecutivebranchdepart- munitygroups.Wehostteacherconferencesand 5 ECONOMICEDUCATION workshopsandcollaboratewithlocaluniversities springandfall.Oureconomistsgiveaseries toprovidegraduatecoursesforteachers.Wework ofpresentationsonatimelytopic—an closelywithnot-for-profitandgovernmental upcomingconferenceisonthe“Asian organizationswhosegoalistopromoteeconomic Contagion”—andlocaleconedprofessors education.Wefrequentlyhittheroad,making conduct“application”breakoutsessions, speechesandmeetingwithallsortsofgroupsto completewithclassroommaterials,tohelp exchangeideas. teachersintegratethetopicintotheirevery- Historically,intheUnitedStatesandaround dayactivities. theworld,centralbankershavebeenasecretive • Weprovideassistancetonational,state lot.Theywereoftenarrogantabouttheirknowl- andlocalassociationsliketheNational edgeandbelievedthatthegeneralpubliccould AcademyofFinancewithfinancecareer notunderstandmonetarypolicy.Policydecisions academiesinsome300schoolsacrossthe werekeptconfidential.Thepublicwastoldthat country.That’struealsofortheNational itsimplyhadtotrustcentralbankers,forthey CouncilforSocialStudiesandstateeco- weretheexpertsandwoulddothejobthathad nomiceducationcouncilsandcenters. tobedone. • Weworkwithlocalschooldistrictsand CentralbankingintheUnitedStateshas stateeducationdepartmentsoneconomic alwaysbeenmoreopenthaninmostcountries, educationprogrammingandstaffdevelop- reflectingthestrongdemocratictraditionsinthis ment.Nextweek,forexample,oneofour country.ButitiscertainlytruethattheFedneeded St.LouisFedeconomistsisdoingan“Ask tobecomemoreopenthanitwasinthepast,as anEconomist”videoconferenceonthe indeedithas.IamconvincedthatFedopenness euro,whichwillbebroadcastfromthe isgoodforourdemocracyandgoodforourecon- CooperatingSchoolDistrict’sstudioto omy.ItisaninescapablefactthatFedopenness fiveareaschools. willnotbehelpfulifrecipientsoftheinformation • Wecollaboratewithstatetreasurers’Bank donotunderstandenougheconomicstointelli- atSchoolprogramstoteachbasicmoney gentlyevaluatewhatwedo. andbankingconcepts. So,economiceducationisnotjustanice, feel-goodactivitydesignedtoinducepeopleto • Wedevelopteachingmaterials—videos, likeus,butisinsteadanessentialpartofmone- curriculumguides,bookletsandmore— tarypolicy.Ifwefailinoureducationalefforts, andthey’relistedintheCatalogofPublic ourpolicyroadwillbealottougher.Indeed,Iam InformationMaterialsImentioned. convincedthatlong-runeconomicperformance • Wewriteanddistributenewslettersfor generally,andmonetarypolicysuccessspecifi- teachers,featuringcurrentinformationon cally,dependscriticallyoneconomicliteracy. economicissuesandhowtointegrateit ThinkbacktosomeofthesurveyresultsIcited intoavarietyofsubjects. earlierinmyremarkstoday—allofushaveabig • WeprovideinformationontheBank’sweb jobaheadofus. sitewitheverythingfrommoneyquizzes tosophisticateddatabases. • Weprovidetours,mainlyforadultand APPENDIX highschoolgroups.Ourguidesarevolun- IntheEighthFederalReserveDistrict,we teeremployeeswhoenjoytalkingabout sponsornumerousothereconomiceducation BankandFederalReservehistory,andthe effortsaimedmainlyatK-12educators: Fed’sroleintheeconomyandthepayments system. • Weholdday-longteacherconferencesin St.LouisandourBranchcitiesinboththe 6

William Poole (1999, February 11). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19990212_poole

@misc{wtfs_speech_19990212_poole,
  author = {William Poole},
  title = {Speech},
  year = {1999},
  month = {Feb},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19990212_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}