speeches · January 19, 2005

Speech

William Poole · President

The Outlook: Mississippi and the Nation NortheastMississippiEconomicForecastConference Tupelo,Mississippi January20,2005 Iam pleased to be here today to discuss perpetuallyconfrontthoseinthebusinessof the economic outlook for Mississippi and businessorofmakingmonetarypolicy.I’lltalk the nation. Although the focus of this aboutsomeofthosechallengesshortly. meeting is Mississippi, it is important to Aweekfromtomorrow,whentheBureauof emphasize that all the states are bound together EconomicAnalysisreleasesitsadvanceestimate in the national economy. Thus, the national ofrealGDPforthefourthquarterof2004,we’ll outlook is the place to start in discussing the findoutwithsomeprecisionjusthowgoodlast Mississippi outlook. year’seconomicgrowthwas.Theconsensusesti- Afterdiscussingthenationaleconomy,I’ll mateoftheBlueChipforecastersisthatrealGDP turntoafewaspectsoftheMississippieconomy increasedatabouta3.75percentannualratein asitrelatestothenationaleconomy.Oneissue thefourthquarter.Ifso,thenrealGDPwillhave concernsthebusinesscycleinMississippiand increasedbyabout4percentoverthefourquarters theextenttowhichthestate’srecentexperience of2004.Wealreadyknowthattheunemployment hasbeeninsyncwiththenationalexperience.A ratefellhalfapercentagepointto5.4percentover secondissueconcernssomeofthedifferences thecourseoftheyear. betweentheMississippiandnationaleconomies; Oneofthebiggesthurdlesfacedbypolicy- makers,consumers,andbusinessesin2004was thisanalysisservestohighlightthemostpressing theunexpectedsurgeinthepricesofcrudeoil challengesfacingthestate.Finally,I’lloffersome andrefinedproducts.Infact,oilpriceshavebeen viewsonhowpublicpolicymightimprovethe trendinghighersinceDecember2001,whenthe state’sbusinessclimateintheinterestofimprov- acquisitioncostofcrudeoilpaidbyU.S.refiners inggrowthoverthelongrun. fromdomesticandforeignsourcesaverageda Beforeproceeding,Iwanttoemphasizethat shadeover$16.50perbarrel.ByOctober2004, theviewsIexpressherearemineanddonot priceshadreachedanall-timehighincurrent- necessarilyreflectofficialpositionsoftheFederal dollarterms,averagingalittlemorethan$46per ReserveSystem.Ithankmycolleaguesatthe barrel.Whenadjustedforinflation,though,oil FederalReserveBankofSt.Louisfortheircom- priceswerestillwellbelowtherecordhighsseen ments,especiallyKevinL.Kliesen,associate in1980. economistintheResearchDivision,whoprovided Oneoftheuniquefeaturesofthecurrent specialassistance.However,Iretainfullrespon- episodeofrisingoilpricesisthatbothsupply sibilityforerrors. anddemandfactorswereworkingintandemto pushupprices.Incontrast,duringmostprevious oilshockepisodes,pricessurgedbecauseof THE NATIONAL OUTLOOK unanticipateddeclinesinsupply—ortheexpec- Byallindications,2004turnedouttobea tationthereof.Demand-sidefactorsincluded prettydecentyearfortheU.S.economy.That’s unexpectedlystrongworldwidegrowth,particu- nottosaythereweren’ttheusualchallengesthat larlyamongfast-growingeconomieslikeChina 1 ECONOMICOUTLOOK andIndia.Onthesupplyside,therewerenumer- theeconomyperformedbetterorworsethan ousglobaldisruptionscausedbywars,laborstrife expected. andhurricanes.Eventually,spareproduction Usingdatathroughthethirdquarter,it capacitywaswhittleddownsignificantlyand appearsthattheBlueChipConsensusforecast markeddeclinesinworldwidepetroleumstocks for2004publishedinDecember2003waspretty occurred. closetothemark—largelybecauseforecasters Oneofthetreasuresofamarket-basedecon- nearlynailedtheirestimateofthegrowthofreal omylikeoursisthatthepricingmechanismeven- consumerspending,whichisabout70percent tuallyallocatesresourcestotheirmostproductive oftotalspending.InDecember2003,theBlue uses.Hence,higheroilpriceswillstimulateboth ChipConsensuspredictedthatrealGDPwould increasedproductionandactiveenergyconser- increaseby3.9percentin2004,whichisitsactual vationmeasures,bothofwhichwilltendtolimit growthoverthefirstthreequartersoftheyear. furtherpriceincreasesandperhapsdrivedown Diggingalittledeeperindicatesthatthe pricesovertime.However,theriseinlonger-dated economyin2004surprisedforecastersinafew futuresprices,suchasthecontractfordelivery importantrespects.First,capitalspendingby ofWestTexasIntermediatecrudeoilinDecember businesseswasalittlestrongerthanexpected. 2007,haspersistedabove$30perbarrelformore Second,residentialconstructioncontinuedto thansixmonths.Thisfactsuggeststhemarket powerahead,tothesurpriseofmostforecasters. expectsthathigheroilpricesmightbewithus Infact,newsinglefamilyhomesalesin2004will forsometime. probablysetanall-timerecordhighforthefourth Shouldwebeconcernedaboutlonger-term consecutiveyear.Mortgageratesessentiallyended economiceffectsofpermanentlyhigherenergy theyearwheretheystarted—roughly100basis prices?Certainly,butprobablynottothedegree pointsbelowtheirfive-yearaverageofapproxi- weoncewere—say,inthe1970s,1980s,oreven mately65/ 7 percent. intheearly1990s.Ofcourse,higheroilpricesdo Third,thegrowthofU.S.exportsofgoodsand haveadverseeffects,butweshouldnotunderes- serviceswasmodestlyweakerthanexpected, timatethecapacityoftheU.S.economytoadjust whilethepaceofdomesticpurchasesofforeign- tothosehigherprices.Technologicalimprove- producedgoodsandserviceswasalittlestronger ments,whichhavemadeoureconomymuch thanexpected. moreenergyefficient,andimprovementsinour Finally,thegrowthofconsumerafter-tax regulatorystructure,whichhaveallowedtheprice incomeadjustedforinflationwasappreciably mechanismtoworkmorefreely,meanthattoday’s weakerthanexpected.Thisoutcomewasareflec- economycanendureperiodsofsharplyhigher tionofdeclineinpurchasingpowerstemming energypricesthat,inearlierperiods,mighthave fromhigherenergyprices.Imightadd,however, causedconsiderableeconomicdisruption.Indeed, thatbecauseconsumerspendinglargelytracked oneoftheremarkableaspectsoflastyear’seco- thewayforecastershadexpected,thepersonal nomicperformancewasjusthowwelltheecon- savingrateoverthesecondhalfof2004willcome omyperformedinspiteofasharprun-upin inbelowforecast.Thesavingrateprobablyaver- energyprices.Unfortunately,manyofthosein agedaround0.5percent—clearlytoolowtobe thebusinessofdiscussingtheU.S.economyseem consistentwiththesavingnecessarytosupporta tounderestimateoureconomy’sresilience. sustainablepaceofcapitalformationovertime. Inthinkingaboutthenear-termeconomicout- Thelabormarketcontinuedtosurprisemany look,oneofthemoreusefulexercisesananalyst analystsoverthepastyear.In2004,nonfarm canundertakeistocompareactualoutcomes payrollsincreased2.2million,oranaverageof withforecastedoutcomes.Ananalysisofforecast nearly186,000amonth.Thisincreasewasalittle errorscansometimesprovidecluesastowhy betterthantheexpectedaveragegainof166,000 2 TheOutlook:MississippiandtheNation permonthin2004.1Ishouldalsonotethat,for powerreflectinglowerenergyprices,growthof thefirsttimeinfiveyears,employmentgainsin consumerspendingshouldalsoremainhealthy. theestablishmentsurveysurpassedthosemeasured Theoutlookforinflationisnotatopicthat bythehouseholdsurvey.Theestablishment,or shouldbeforgotten.TheFederalReserve’sstrategy payroll,seriesistheonethatiswidelyreported forencouragingmaximumsustainableeconomic inthepressandwhichmostanalystsbelieveis growthhasdependedonmaintainingpricesta- themoreaccurateofthetwomeasures. bility.Forecastersweresurprisedbythepickup Peeringinto2005,itseemslikelythatlabor ininflationlastyear:Theconsumerpriceindex marketconditionswillcontinuetoimproveand (CPI),thebestknownmeasureofconsumerprices, thatmonthlyemploymentgainswillprobably roseby3½percentoverthetwelvemonthsof exceedbyacomfortablemargintheroughly 2004,whichwasabout1½percentagepoints 125,000permonthnecessarytokeeptheunem- higherthanforecastershadexpected.Muchof ploymentrateconstant.It’sanopenquestion, thisforecasterrorwasduetounexpectedlyhigher though,whetherwewillreturntothedayswhen energyprices.Still,whenwestripfoodand monthlyemploymentgainsof200,000permonth energypricesoutoftheCPI,wefindthat“core ormorewerethenorm,astheywereduringthe inflation”wasabout2¼percent,substantially lasttwobusinesscycleexpansions.Today’seraof higherthan2003’sunusuallylowincreaseof1.1 higherlaborproductivitygrowthandincreased percent. globalizationmaytendtolimitemployment TheFed’spreferredmeasureofprices,though, growth. isthepriceindexusedtodeflatepersonalcon- However,morerapidemploymentgainsmight sumptionexpenditures(PCE)inthenational welloccurifasignificantpercentageofthose incomeandproductaccounts,lessfoodand workerswhoexitedthelaborforceafter2000 energyprices.IntheJuly2004MonetaryPolicy returnastheeconomycontinuestostrengthen. ReporttotheCongress,theFederalReservepres- Areasonableexpectation,basedonpastbehavior, identsandgovernorsprojectedthatthecorePCE isthattheparticipationratewillbegintoincrease inflationratewouldfinish2004between1.75 asthegrowthofGDPbeginstooutpacethatof and2percent.ThroughNovember,corePCE laborproductivity.Trendproductivitygrowth priceshaverisenata1.5percentannualrate. seemslikelytosettledowntosomethingaround Fromthisperspective,then,inflationiscoming 2½percent—arespectableestimateofitssustain- inslightlybelowtheFOMC’smidyearprojection. ablerate.Inthatscenario,realGDPgrowthof4 Recentdata,then,suggestthatinflationiswell to4½percentfor2005seemsprettyreasonable. controlled.TheFOMChasemphasizedthatitis But—andthisisanimportantpoint—we prepared,ifnecessary,tomovemoreaggressively shouldnotforgettheusualforecasterrors.Given toprotecttherelativelylowratesofcoreinflation alltheunpredictablethingsthatcanhappen,a thatnowexist. pointforecastof4percentgrowthoverthefour quartersof2005shouldreallybeexpressedasa growthrateof4plusorminus1¼percent. HOW MISSISSIPPI GROWTH Overall,Iexpectthatthisyear’seconomic CORRELATES WITH U.S. GROWTH growthwillbeboostedtoanimportantextentby continuedstrongbusinessfixedinvestment.In Economicmodelsofthenationaleconomy addition,augmentedbycontinuedstronglabor oftenuseaggregateindicatorsofeconomicactiv- productivitygrowth,improvementsinthelabor ity,suchasthegrossdomesticproduct(GDP), market,andarecoveryinhouseholdpurchasing whichisavailableonaquarterlyfrequency.The 1 BlueChipforecasterswereaskedtopredicttheaveragemonthlyincreaseinnonfarmpayrollsintheFebruary10,2004,issue.Thiswastheir firstjobforecastmadein2004. 3 ECONOMICOUTLOOK correspondingmeasureofeconomicactivityat sectorthatwashithardestbytherecessionand thestatelevelisthegrossstateproduct(GSP), hasdraggeddownemploymentgrowthduring whichisavailableonlyonanannualbasisandis therecovery. releasedwithalagoftwoyears.Between1990 and2002,thelatestavailabledate,Mississippi’s State Business Cycle Phases realGSPgrewatanaverageannualrateof3.3 Inanattempttounderstandthedifferences percent;thisrateissomewhathigherthanthe inrecessionandexpansionexperiencesacross rateofgrowthofthenationalrealGDPduring thestates,andhowtheyrelatetothenational thesameperiodof2.9percent. businesscycle,colleaguesofmineattheFederal ReserveBankofSt.Louishaveanalyzedstate Employment businesscyclesusingcoincidentindexesas Anotherusefulindicatorofeconomicactivity measuresofeconomicactivity.2Intheiranalysis atthestatelevelisthepayrollemploymentmeas- theyuncoverthedatesofindividualstatereces- urefromtheestablishmentsurveyproducedby sionssince1979,andfindthat,likemuchofthe theBureauofLaborStatistics,whichisreleased south,Mississippi’speriodsofrecessionand onamonthlybasis.Fromthebeginningofthe expansionhavebeeninsyncwiththenational recessioninMarch2001untilitsendinNovember experienceabout80percentofthetime.They ofthesameyear,totalnon-farmpayrollemploy- alsofindthatthedifferencesacrossstatesinthe mentfelljustslightlymoreinthecountryasa timingofrecessionsandexpansionscanprobably wholethaninMississippi—1.2and1.1percent- beexplainedbyacombinationoffactorsinclud- agepoints,respectively.Asyouarenodoubt ingdifferencesinthestates’industrialcomposi- alreadyaware,therecoveryfromtherecession tionaswellasindemographiccharacteristics. hasbeenslowinproducingjobs.Thiscircum- Differencesinstates’growthratesduring stancehasbeenevenmoreevidentinMississippi recessionstendtobeassociatedmorewithdif- thaninthecountryasawhole.Betweentheend ferencesintheirindustrysharesratherthanwith oftherecessionandNovember2004,themost demographicfactors.Duringexpansions,how- recentmonthforstate-leveldata,theUnited ever,differencesingrowthratesareexplained Statesreplacedaboutthree-quartersofthejobs bydifferencesindemographicfactors—suchas lost,whileMississippireplacedjustlessthan educationalattainmentlevels—butnotbydiffer- halfofthejobslost. encesinindustryshares.Theimplicationsof Unfortunately,thepictureforMississippihas thisresearchforMississippiarethattheseverity beenevenbleakerthanthesenumberssuggest ofrecessionscanbelessenedbyhavingamore becausepayrollemploymentinMississippi diverseeconomyandlong-termgrowthcanbe peakedmorethanayearearlierthannational enhancedbyimprovingeducationalattainment, employmentdidandstartedtodeclinewhile whichincludesattractingtalentedpeoplefrom nationalemploymentwasstillrising:Mississippi elsewhereandretainingtalentedMississippians. lostabout2percentofitsnon-farmemployment betweenSeptember1999andMarch2001.Ifyou includetheselosses,onlyaboutone-sixthofthe CHALLENGES FOR MISSISSIPPI jobslosthadbeenrecoveredbyNovember2004. RELATIVE TO THE NATION ThereasonforMississippi’smoreunfortunate employmentperformanceisthatitismorecon- Aconvenientwaytodescribelocalconditions centratedinmanufacturingthanthecountryasa istofocusonsomekeyspreadsordifferences whole.Itwasemploymentinthemanufacturing betweeneconomicanddemographicindicatorsin 2 Owyang,MichaelT.;Piger,JeremyandWall,HowardJ.“BusinessCyclePhasesinU.S.States,”FederalReserveBankofSt.LouisWorking Paper2003-011E. 4 TheOutlook:MississippiandtheNation MississippiandtheUnitedStates.Thisapproach Education permitsustospecifysomeproblemareasand Thedifferenceofeducationalattainmentin challengesfacingMississippi. Mississippirelativetotherestofthecountryisa historicallynotoriousproblem.Nevertheless, Employment Composition duringthelastdecadeMississippihasseensig- Overthepastseveraldecades,employment nificantimprovements.Educationalattainment inmanufacturingasashareoftotalemployment inMississippimeasuredbytheproportionofall hasdeclineddramaticallyintheUnitedStates, personsaged25yearsorolderwhohavecom- toabout11percenttoday.Manufacturing,how- pletedhighschoolincreaseddramaticallyduring ever,remainsanimportantsectorofthenational the1990s:from68.9percentin1990to80.3per- economy,andonethatisparticularlysensitive centin2000,anincreaseof11.4percentagepoints. tobusinesscyclefluctuations.Inastatesuchas Thisincreasewasalmostdoubletheincreasein Mississippi,wheremanufacturingemployment therestofnation,helpingtonarrowtheeduca- stillrepresentsabout16percentoftotalnon- tionalattainmentgapbetweenMississippiand farmemployment,businessfluctuationsinman- theUnitedStates.Duringthe1990s,thisgapfell ufacturingcanhavesignificantconsequencesfor from8.7percentagepointstoonly3.8percentage theeconomyofthestate. points. Whilemanufacturingemploymenthas Mississippihasalsomadeprogressinthe declined,theproportionofservice-sectorjobs attainmentofcollegedegrees,althoughnotas hasincreasedintheMississippiandnational impressiveastheincreaseinhighschoolcom- economies.Service-sectoremploymentrepre- pletion.Duringthe1990s,thepercentageofpeo- sentsabout79percentoftotalnon-farmjobsin pleinMississippiaged25orolderwithacollege Mississippi,aproportionthatisonlyatadlower degreeincreasedbymorethan4percentage thanthe83percentoftheUnitedStatesasa pointsto18.7percent.Thisincreasewasslightly whole.Incontrasttomanufacturingandoverall smallerthanthenationalincreaseofabout4.3 employment,employmentintheservicesector percentagepoints.Asaconsequence,thegapin hasincreasedinbothMississippiandtheUnited thepercentageofcollegegraduatesbetween StatessinceMarchof2001.Servicespayrollsgrew MississippiandtheUnitedStatesremainsstub- byabout28thousandjobs,orabout3.2percent, bornlylargeatabout7percentagepoints.Toa inMississippifromMarch2001toNovember largeextent,thisgapcanbeattributedtothedif- 2004.Duringthesameperiod,servicespayrolls ficultyMississippihashadinattractingpeople increasedbyalmost2millionjobs,orabout1.8 withcollegedegreesandinretainingitsown percent,intheUnitedStatesasawhole. collegegraduates. Astheshareofmanufacturingemployment continuestodeclineintheUnitedStatesandin Measures of Economic Development Mississippi,drivenbyproductivitygainsandthe movementoflower-skilledjobsoverseas,thenew Overthepast75years,theUnitedStateshas faceofmanufacturingisoneofhighefficiency seenadramaticincreaseinthestandardsofliving anduseofadvancedtechnology.Theprospects ofitscitizensbroughtaboutbyeconomicgrowth. forMississippiandthenationtogeneratehigh- ResearchattheClevelandFedindicatesthat payingjobsinthissectorhingeonattracting duringthisperiod,thedisparitiesinpercapita high-skilledworkers.Andthisleadsustowhat incomegrowthacrossstateshavedeclinedand isperhapsthemostimportantchallengefacing continuetodoso.3Thestudyfinds,however, Mississippi:education. thatawidegapbetweentherichestandpoorest 3 Gomme,PaulandRupert,Peter.“PerCapitaIncomeGrowthandDisparityintheUnitedStates,1929-2003.”FederalReserveBankof ClevelandEconomicCommentary,2004. 5 ECONOMICOUTLOOK statesstillremains.Theobservedconvergence slowerthanthenationalaverageannualrateof acrossstatesisthusassociatedwiththefactthat 1.2percentduringthesameperiod.Muchof poorerstatesareimprovingatafasterpacethan thedifferencebetweentheUnitedStatesand richerstates.Mississippiisnoexception,and Mississippiisduetocontinuingoutmigration particularlyinrecentyearsithasseenasignifi- fromMississippi,particularlyofprime-aged cantimprovementnotonlyinpercapitaincome workers. butalsoinawidearrayofeconomicdevelop- mentandqualityoflifeindicators. Mississippi’srealmedianhouseholdincome FUTURE GROWTH was$32,728in2003,whichrepresentsonlyabout OPPORTUNITIES 75percentofthenationallevelof$43,318.From InthefinalpartofmyremarksIwilloffermy 1990to2003,however,realmedianhousehold personalviewsonhowpublicpoliciesmight incomeinMississippigrewatanannualrateof improveeconomicactivityandwilldescribemy about1.3percent,whereasthenation’sannual viewsonhowtocreateamorefavorablebusiness growthratewasonlyabout0.4percent.Bythis climate. measure,then,Mississippihasbeencatchingup WhatcanMississippidotoimproveitseco- withtherestofthecountry,butthereisstilla nomicsituationrelativetothenation?Amajor longwaytogo. concernofpolicymakersinanystateistheability Anotherindicatoroftheconvergenceof ofthestatetogeneratehigh-skilledandhigh- Mississippiandtherestofthecountryisthe payingjobs.InMississippi,thestategovernment fasterdeclineinthepovertyratethatMississippi overtheyearshasmadegreateffortstoimprove underwentinthe1990s,relativetothedecline thestate’sbusinessclimatebyprovidingincen- observedfortheUnitedStatesasawhole.Census tivestoattractinvestmentandfosterthecreation estimatesindicatethat,fortheperiod2000to ofbetterjobs.Theseincentiveshaveincluded 2002,theproportionofallpersonsinpoverty directincentives,suchastaxbreaks,subsidies averagedabout18.5percentinMississippiand andfinancialprogramsfortrainingworkers,as 11.7percentintheUnitedStates.Comparedwith wellasinstitutionalincentives,suchasmain- thepovertyratesof1989,thedeclineexperienced taininglimitedlabormarketregulationsanda inMississippiwas6.1percentagepoints—more relativelysimpleandfavorabletaxcode. than5timesthenation’sdeclineofonly1.1per- Mypersonalviewfavorstheuseofthesecond centagepoints. typeofmeasures,whicharegeneralmeasures Themostimportantdemographicchallenge consistingofestablishinginstitutions,laws,and facingthenationtodayistherisingproportion regulationsthatreducethetransactionscostsof ofolderpeopleinthepopulationratherthan runningabusinessandfacilitateentrepreneur- populationgrowthitself.Themedianageinthe shipbyprivateindividuals.Mississippi’sbusiness UnitedStateshasincreasedfrom30.0yearsin climateischaracterizedbylabormarketsthatare 1980to35.3yearsin2000.Themedianagein relativelyfreeofexcessiveregulationsandby Mississippiduringthesameperiodhasrisen personalandcorporateincometaxcodesthat from27.6yearsin1980to33.8yearsby2000. featurerelativelylowtopmarginalrates.Lowtax Althoughthemedianagespreadbetween ratesandtheabsenceofexcessivelabormarket Mississippiandthenationhasnarrowedin regulationareonlytwoaspectsofafavorable recentyears,themedianageinMississippiis businessclimate. stillabout1.5yearslowerthanintheUnited Incontrast,theuseofactivemeasures,such Statesasawhole.TotalpopulationinMississippi astargetedincentivesintheformoftaxbreaks grewatanaverageannualrateof0.9percentfrom andsubsidies,oftengeneratedistortionsinthe 1990to2003;thisgrowthratewassomewhat behavioroffirmsandindividualsandmaypre- 6 TheOutlook:MississippiandtheNation ventresourcesfromflowingtothoseareaswhere CONCLUDING COMMENTS theyaremostvaluable.Attractingbusinesseswith Iwillconcludemyremarkswiththediscus- favorabletaxreliefprogramsandgovernment- sionoftworecentreformsenactedbythe providedfinancialassistanceseemstobethe Mississippigovernment. unavoidableconsequenceofhavingtocompete First,Mississippiseemstobemakingdefinite withotherstates.Althoughtheseeffortsmaybe progressontheeducationfront,particularlyin successfulandleadtothecreationofnewjobsin veryrecentyears,andthestateappearstobecom- theshortrun,policymakersshouldbecautious mittedtocontinuingtheseefforts.Thebrandnew thatfinancingtheseincentivesdoesnotprove EducationReformActproposedfor2005high- oneroustothestate’staxpayersandthatattract- lightsthebenefitsoffocusingthestate’sefforts ingcertaintypesofbusinessesdoesnotdivert onimprovingperformanceofstudentsbyprovid- resourcesfrommoresociallybeneficialactivities. ingincentivestoteachersandparentstoachieve Insum,Iwouldfocusonthegeneralbusiness thisgoal.Animprovedincentivestructureis climateandplacearelativelyhighbartooffering preciselythefeaturethatacademicexpertsinthe targetedincentivestoattractparticularfirms. economicsofeducationsuggestshouldbepart Asmanyobserversemphasize,probablythe ofaneffectiveeducationreform.Anemphasison mostimportantchallengefacingMississippiis incentivescontrastswithpreviouseffortstargeted improvingthelevelofeducationofitscitizens. atmerelyincreasingfundingforeducationwith- Aneducatedworkforceisacriticalaspectofa outregardforstudents’performance.Theneed state’sbusinessclimate;businessescertainly forimprovingMississippi’seducationalsystem valueithighly,buthavinganeducatedworkforce stillremains,however,andcontinuingefforts canalsogenerategreatsocialbenefitsthroughits willberequiredinthefuturetonarrowthegap spillovereffectsonotherareasofsociety.More- withtherestofthenation. over,businessleadersconsideringmovingtoa Second,Mississippihasmadenationalhead- newlocationinsistongoodschoolsfortheirown linesinpastyearsbecauseofexorbitantawards children. grantedincivillawsuits.Thelargenumberof ArecentstudyattheFederalReserveBank civillawsuitsandthemagnitudeofdamage ofSt.Louissuggeststhatincreasesinthepropor- awardshavemadeitexpensiveforindividuals tionofeducatedlaborforceincitiestendtobe toengageinthemedicalandotherbusinesspro- associatedwithfuturegrowthinthenumberof fessions.Highcostsofmedicalmalpracticeinsur- high-payingjobs.4Thesamestudyfindsthatthe ance,forexample,reducereturnsinmedicine creationofhigh-payingjobstendstobefollowed andencouragephysiciansandhospitalstolocate bywageincreasesinlower-payingjobsaswell. elsewhere. Thiswagespilloverinwhichhigh-payingjobs Tortsystemreformhasbecomeapressing tendtoincreasewagesinlow-payingjobsdoes issueinMississippiandmanyotherstates.With notoccurintheoppositedirectionwhenmore theTortReformActof2004,Mississippihas low-payingjobsarecreated.Tobesure,mostof joinedtheranksofstatesthathaveenacted theresultsfromthisstudycanonlybederived comprehensivereformsimposinglimitsonthe forjobsinmetropolitanareas,asthedatarequired amountsofpunitiveandnon-economicdamages fortheanalysisarenotavailableforruralareas; inmedicalandothercivillawsuits.Itisstilltoo however,theeconomicandsocialbenefitsfrom earlytoidentifybenefitsineconomicperform- thecreationofhigh-payingjobsshouldbeobvi- ancefromthisreform,butthislegislationmay ouswithoutanysophisticatedcalculations. beafirststepinimprovingthefairnessofthe 4 Wheeler,ChristopherH.“EmploymentGrowthinAmerica.WhatDeterminesWhereGoodJobsAreCreated?”FederalReserveBankofSt.Louis Bridges,Winter2004-2005. 7 ECONOMICOUTLOOK state’slegalsystem,whichshouldmakeitmore attractiveforbusinessactivitytocontinueto growinthestate. Adetailedknowledgeoflocalconditionsis requiredtomakeappropriatejudgmentsasto howbesttousescarceresourcestoimprovethe businessclimate.Butcitizensineverystateand everycommunityshouldbeaskingthemselves continuouslyhowthebusinessclimatecanbe improved.Someimprovementscanbehadfor free,byeliminatingburdensomeregulationthat wasenactedinanearlierageandnolongerserves productivepublicpurposes.Otherimprovements requireacarefulanalysisofhowbesttospend scarcetaxresources—tradeoffsareoftenneces- sary.Withoutquestion,though,therewardsof investmentinanimproved,andcontinuously improving,businessclimateareimpressive. Nooutsidercandothejobforanygiven community—eachcommunitymustlooktoits ownleadershipandnotexpectthatsomeone else—fromWashington,forexample—willtake theinitiativetodowhatneedstobedone.This isamessageIamespeciallypleasedtoofferin Tupelo,forIknowfrommypriorvisitsherethat thiscommunityhasbeentakingresponsibility forimprovingeducationanditsbusinessclimate foratleastahalfcentury. 8

Cite this document

APA

William Poole (2005, January 19). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20050120_poole

BibTeX

@misc{wtfs_speech_20050120_poole,
  author = {William Poole},
  title = {Speech},
  year = {2005},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20050120_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}