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Michael Brandl > Macro Updates > Archives > June 1, 2003 March 16, 2004 Thinking about Economic Public Policy Every fall here at UT Admiral Bobby Inman, who is the Lyndon B. Johnson Centennial Chair in Public Affairs, offers a graduate course on Public Policy that is cross listed between the McCombs School of Business, the LBJ School of Public Policy and the UT Law School. Admiral Inman, who is one of the most impressive people I have ever met in my life, has asked me to a give a guest lecture in his course on the topic of economic public policy. Feeling honored by this invitation and not wanting to wait to the last minute to prepare, I have found my thoughts constantly mulling over various economic policy concepts that I might cover in my lecture. So here is what I have been thinking about: 1. U.S. Economic Policy and Globalization. Have our economic policies truly taken into consideration the globalization of our various markets? If we look at this question in a truly non-partisan way, I think the answer is no. For example, think about the interplay between trade policies, international capital flows, exchange rate stabilization, and monetary policy co-ordination. It seems that each of these, from a policy stand point, is working independently of each other. The U.S. pushes for reduced trade barriers and freer capital flows, but what have we done in terms of reducing exchange rate volatility (and by this I do not mean simple minded intervention) and something more than ad hoc monetary policy co-ordination. And what of our policies on “freer trade and capital flows?” Just how do we pursue freer trade? Are our policies hypocritical in terms of what we expect from other countries? How can this be rectified? 2. Domestic Impact of a Globalized Economy. As we develop a truly globally intertwined economy, the benefits will surely outweigh the costs. But that is not to deny there will be costs. We see stories about outsourcing of jobs, American manufacturing job that are probably “lost” forever, etc. What are doing, from a policy perspective, to ease the costs of globalization locally without resorting to Draconian isolationalism? What can and should be done for workers dislocated by globalization? Which policies seem to work and which are less successful? As the world’s economies become even more intertwined surely the rate of change in the American economy will pick up. What are doing to insure that future generations of Americans are ready and able to adapt to rapid changes a more global economy will bring? How do our public policies need to change and adapt? 3. Our Changing view of Stabilization Policy. Back in the old days of the 1980’s when I was first learning economics, we were taught that stabilization policy consisted of the following: during an economic slowdown Washington would pursue expansionary fiscal policies and the Fed might be somewhat helpful in lowering interest rates. On the other hand, if the economy started to “overheat” wage and price controls as well as contractionary fiscal and monetary policy would be used to cool the economy down. Life was good as we slid up and down the Phillips Curve. My how times have changed. Today we recognize there is a difference between short term and long term behavior. Milton Friedman and Edmund Phelps has showed us that the Phillips Curve is a lot more complicated than we thought. Robert Lucas showed us that when people actually think about what policymakers are going to do this may result in policymakers not being able to achieve what they set out to do. So today monetary policy is the only short run tool we have, and that may not work so well, while fiscal policy is viewed as a long run tool. So, can we even talk about “stabilization policy?” Well, yes, in the sense that policies can impact how flexible our economy is or isn’t. This flexibility is necessary in order for our economy to be able to bounce back from the “shocks” that can hit it thus give us recessions and stagflation. So how can public policy make our economy more “flexible?” What does this mean in terms of financial market regulation? What does this mean for our labor markets? What does it mean for our tax system? Speaking of taxes… 4. What About these Growing Federal Government Budget Deficits? This too needs to be discussed in a non-partisan fashion. Why do deficits come about? What impact do these deficits have on the U.S. financial markets and the global financial markets? These tie-ins might not be as simple as they sound. 5 Social Security and Pensions. Where to even start on this one? 6. U.S. Public Policy and Emerging Financial Market Development. This is a topic near and dear to my heart. There is so much to talk about: how and why the IMF has failed. Why equity flows are so important but often misdirected. Why we need to move beyond just “bank centered” financial models. How legal systems are important to this discussion. This topic alone is going to occupy six weeks in the Global Finance course I am team teaching with Steve Magee this semester. 7. The U.S. Federal Reserve After Alan Greenspan. It is always fun to attempt to peer into the future. However this future might happen a lot sooner than we expect. So, what do we want in our next head of the Federal Reserve? Who is on the list of leading candidates? How will local and global financial markets react? And this is only my short list. It is a lot to cover in one three hour lecture. How I wish the people running for public office would be the ones talking about these issues and not just me and the people in the audience of the lecture. All the best, MB P.S. For more on Admiral Inman see http://utopia.utexas.edu/articles/alcalde/inman.html?sec=law&sub=none |
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