View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

8. HIio. 103-611



l.r.11 ■ 1

GPO Depository


AUG 221994



MAY 6, 1994

Printed for the uae or the Committee on Banking, Housing, and Urban AtTain



For sale by Ille U.S. Govemment Printiq Office
Superintendent of Documents, Congressional Sales Office, Wubington, DC 20402

ISBN 0-16-044602-3

Digitized by


DONALD W. RIEGLE, JR., Michigan, Chairman
JIM SASSER, Tenneaaee
JOHN F. KERRY, Maaac:huaetta
I.AUCH FAIRCLOTH, North Carolina
WILLIAM V. ROTH, JR., Delaware
PATl'Y MURRAY, Washington
STEVEN B. HARRIS, Staff Director and Chief CoUIIUl
HOWARD A. MENELL, Republican Staff Director
PATRICK J. LAWLER, Chief Economist
AMY KOSTANECKI, Professional Staff Member
IRA PAULL, Republican Deputy Staff Director/Counsel
SHELIJE BERIJN, Republican Staff Assistant

FRIDAY, MAY 8, 199'

Opening statement of Chairman Riegle ................................................................
Opening statements, comments, or prepared statements of:
Senator D'Amato ...............................................................................................
PreJ)!lred statement ...................................................................................
Senator Sarbanes ....................... ·......................................................................
Senator Dodd .................................................................................................... - 11
Prepared statement ...................................................................................

J .J. Pickle, U.S. Representative in Congress ........................................................
PreJ)lll'ed statement ..........................................................................................
Bill Bradley, U.S. Senator in Congre11 ........ ;.........................................................
Frank R. Lautenberg, U.S. Senator in Congre11 ..................................................


Alan S. Blinder, of New Jersey, to be Vice Chairman and Member of the
Board of Governors of the Federal Reserve System ........................................ ..
Prepared statement ........................................................................................ ..
Biography ...................................................................................................
Monetary policy methods ........................................................................ ..
Goals of monetary policy ...........................................................................
The independence of the Fed .................................................................. ..
Biographical sketch ..........................................................................................
Response to written questions of:
Senator Riegle ......................................................................................... ..
Senator D'Amato .......................................................................................
Senator Mack .............................................................................................
Senator Faircloth ...................................................................................... .
Steven M.H. Wallman, of Virginia, to be a Commi11ioner of the Securities
and Excha~ Commi11ion ................................................................................ ..
Prepared statement ........................................................................................ ..
Biographical sketch ........................................................................................ ..
Response to written questions of:


W.:to ..:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Phili_p N. Diehl, of Texas, to be Director of the U.S. Mint ................................. ..
Prepared statement ......................................................................................... .
Biographical sketch ........................................................................................ ..
Response to written questions of:
~?=to .. :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Digitized by







Buaineu Week. May 16, 1994, article entitled "Why Are We So Afraid or
Growth• .................................................................................................................
New York Times, M,?a 6, 1994, article entitled "Fed Goes Ghostbus~ ....... ..
Wf:,lu'f:i!nfost,..... ay. 6,. 1994,. article. entitled. •GAO __to. Push. Dorivatives

Digitized by




FRIDAY, MAY 6, 1994


Washington, DC.
The Committee met in room 538, of the Dirksen Senate Office
Building at 10 a.m., Senator Donald W. Riegle, Jr. (Chairman of
the Committee) presiding.

The CHAJRMAN. The Committee will come to order.
Let me welcome all those in attendance this morning. We are a
little late in starting. The Senate was in session last night unti\
well after midnight, and so our schedule slipped a little bit this
I want to welcome everyone, very particularly our three nomin~E!S that ·;,e will be dealing with. We will be starting with Mr.
Alan Blinder for the position on the Federal Reserve Board of Governors.
We have accompanying him this morning, three of our distinguished cofleagues; the two Senators from New Jersey, Senators
Bradley and Lautenberg, and also our good friend and my friend
of lon~tanding and service together in the House, Congressman
J.J. Pickle.
Let me just extend the courtesy of the Senate to you, Congressman Pickle, and call on you now to make your initial comments,
and then I will call on my colleagues from the Senate.

Digitized by



Representative PICKLE. Well, Senator Riegle, I thank you for recognizing me and for extending me the privilege of going first. I am
a little bit hesitant to do that, but-The CHAIRMAN. Well, you are a senior so-Representative PICKLE. Since you recognized me, I will accep~
your offer because I do have a plane to catch. I am very grateful
for this chance.
I am here to add m_y recommendations in approving the nomination of Mr. Philip Diehl, President Clinton's nominee to be Director
of the Mint. I am going to ask that my remarks be revised and extended into the record.
The CHAIRMAN. Without objection, so ordered.
Representative PICKLE. Let me just simply add that, in my judgment, Philip Diehl has amassed a very excellent record of acliievement and expertise since he has been in the service. He has been
Executive Deputy Director of the Mint since last September, and
he has served as former Senator and now Secretary Bentsen's chief
Prior to that time, before he went to the Treasury, not only was
he staff director of the Senate Finance Committee, but legislative
director for Senator Bentsen. Senator Bentsen has a reputation of
maintaining a high level of business achievement and philosophy.
I think Philip Diehl has been a very major factor in doing that.
Philip Diehl has had both practical and business experience. He
has been with the telecommunication industry in Texas. He has
been vice president of the Re~atory Affairs for International Telephone Exchange, and he has"been connected with the Texas Public
Utility Commission.
He bas had gi::eat experience here in the Senate. He helped draft
the highway bill formula legislation of the 1991 Highway Bill
which has helped my State and I think, Mr. Chairman did not hurt
Michigan either. He knows how to put together good legislation.
Now I want to simply add, in conclusion, Philip Diehl is not only
a man of achievement and recognition. He is Acting Director of the
Mint now. But even more importantly, he is a constituent of mine
from Austin, Texas, and a graduate of the University of Texas. So
I am pleased to recommend Philip Diehl.
I know this is a big job, but in Texas, we say that is no big hill
for a high stepper. And Philip Diehl is a big stepper and can do
the job, so I am proud to be here and make my statement on behalf
of him.
I thank you, sir.
The CHAIRMAN. Well, thank you.
He is getting good service from his Congressman today, I will tell
you that.
And your word carries great weight with me and with this Committee, and we are pleased you came over to share those remarks
with us. Let me permit you to leave. I know you have got a plane
to catch, but we appreciate your comments and I will share them
with Senator D'Amato, as well.
Representative PICKLE. Thank you very much, and you are very
courteous to let me proceed like this.

Digitized by



Senator Bradle1. and Senator Lautenberg, I appreciate this courtesy but I accept 1t with great pleasure so thank you.
The CHAIRMAN. It is good to seelou.
Senator Bradley, we are please to have you and we'd like your
comments now.

Senator BRADLEY. Thank you very much, Mr. Chairman. I consider it an honor to be able to introduce to the Committee Dr. Alan
Blinder, the President's nominee for Vice Chairmanship of the Federal Reserve Board.
rve known Alan for many years and consider him to be one of
our Nation's most distinguished and most highly regarded macroeconomists. Dr. Blinder will serve our Nation with great distinction I believe, and we will all be proud that he is there.
Afan Blinder has made important contributions throughout his
career in a number of different areas. For over 20 years, he served
as one of our State's and Nation's finest educators. In addition to
serving as the chair of the Department of Economics at Princeton,
he founded one of our Nation's premiere economic think tanks.
Alan also pushed the frontiers of economic research on a broad
number of issues, ranging from monetary policy to trade policy to
national savings.
Most recently, Alan has served our Nation on the Council of Economic Advisers, helping President Clinton in a new era of economic
Finally, Alan has been a devoted father and husband. And, Mr.
Chairman, if I could, I'd like to introduce his wife, Madeline, and
son, William, and parents who are here today. If they could just
stand and take a bow.
Thank you.
Mr. Chairman, in nominating Alan Blinder, the President described him as, quote:
A keen intellect who reached the top of his profession without loeing the common
touch or ever forptting the human ll!IPlicationa of the often ahlltract economic decisions we in Government must make. He has served aa an economic conac:iou1 in my


Those are very strong and moving words from a President of the
United States.
But I think it's this ability to combine the theoretical with the
pragmatic that has perhaps most impressed me about Alan's career. His voluminous body of work has shown him to be a clear and
effective thinker about each of the leading economic issues of the
His writings in both the popular and academic press are renowned for their insight and I might say, for their wit. Given the
critical impact that Federal &serve actions can have on the lives
of all Americans, this sensitivity and depth will be an invaluable
asset, as Alan continues his career of public service.
Mr. Chairman, I might say that I do think that this is probably
the best friend I ever had to assume such a high post. So I am kind
of approaching it with a little caution, because I don't want to go

Digitized by



At the same time, I believe it's an extraordinary appointment for
an extraordinary person who will serve with distinction, who will
make us all proud of his values and his mind, and who I think will
truly be effective on the Federal Reserve Board, so I am sure this
Committee will grant him speedy and unanimous confirmation as
the next Vice Chairman of the Federal Reserve Board.
The CHAIRMAN. Thank you very much, Senator Bradley.
Senator Lautenberg, we'd like to hear from you now.

Senator LAUTENBERG. Thank you very much, Mr. Chairman.
It's a pleasure for me to sit here with Bill Bradley who has
known Dr. Blinder for some time. I hadn't but I know quite a bit
about him, and as a matter of fact, we were chatting in the anteroom. I was talking to this pleasant fellow and I walked out here
and I asked where Dr. Blinder was, and they said, well, you were
just talking to him. And I said, well, I thought he was a much older
man. He'd written so much and he'd said so much, and so much
attention's paid to him that I didn't think it could be in a body as
young as we saw back there.
But it's a pleasure for me to introduce and to recommend Dr.
Blinder and to congratulate his family. His sharp intellect and his
professional skills will add a strong and steady voice to the Board's
Mr. Chairman and Members of the Committee, there is no better
testimony- than that which comes from Mr. David Mullins, the most
recent Vice Chairman, who Dr. Blinder's going to replace, has stated that the appointment of someone of Dr. Blinder's stature, ability, and intellectual integrity will strengthen the Federal Reserve.
And we are delighted to near that said.
Until his most recent position on the President's Council of Economic Advisers, Dr. Blinder had a distinguished career at Princeton University which dates back to 1971.
In addition to chairing the Economic Department, he was named
the Gordon S. Rentschler Memorial Professor of Economics at
Princeton, and founded Princeton's Center for Economic Policy
Studies. I won't list all of the boards and panels on which Dr.
Blinder has served, nor all of the books and articles he's written
because, though they're impressive, we'd be here all morning if we
attempted to do that.
Mr. Chairman, this is a particularly significant appointment because our Nation has been through some very difficult economic
times. And in the recent recession, New Jersey lost over 260,000
jobs, many of which were high wage, high technology jobs that will
be hard to replace. And the Federal Reserve Board plays a critical
role in guiding our Nation's economy. Its' decisions, while complex
and removed from the rough and tumble of the political arena, significantly affect the lives and the livelihoods of all of our constituents. So we need wise and understanding hands on the wheel of
the Board. Hands that understand the complexities of our economy
and the hopes and the fears and the concerns of our people.
Dr. Blinder has all of the requisite skills to do this difficult job,
and beyond that, he's demonstrated a clear, dedication to the public
interest and a boundless appetite for making correct, tough deci-

Digitized by



sions. We are lucky to have his services in Government, and obviously I h~pe that the Committee and the Senate will be able to
move quickly to confirm his awointment.
Thank you very much, Mr. Chairman.
The CHAIRMAN. Thank ypu, Senator Lautenberg.
Let me say that we aiji>reciate both of/ou coming. I want you
to feel free to excuse yolJf'Selves and atten anything else you need
to and you're also welcome to stay if time permits that.
\;t me now sort of set the stage for what will happen here this
morning. We will be considering three Presidential nominees, two
of whom now have been introduced, first by Chairman Pickle from
the House side, and now our Senate colleagues.
Let me just say, for the record, that in addition to Alan Blinder
who is here with respect to the Federal Reserve position as Vice
Chairman1 we will be hearing later and questioning Stephen
Wallman tor the Securities and Exchange Commission and then, of
course, Philip Diehl for the Directorshi1> of the Mint.
We will be starting this morning with Mr. Blinder. It's certainly
fair to say that the Vice Chairmanship of the Federal Reserve
Board is an ex:tremel_y important position in our Government and
it's one that powerfully affects the daily life of literally everybody
in the country-.
The Federal Reserve has a critical role in national economic policy and in financial regulation, and I think we are seeing literally
at the present time the impact that Fed policy decisions can have
on the economy and on expectations and economic behavior.
It has the prime responsibility for minimizin~ economic fluctuations and maintaining low rates of price inflation. In addition to
that, I think it has a critical role to see to it that our economy operates as closely as it can to full employment so the job opportunities
are out there, not just for Federal Reserve Board members and people who are well-situated in our society, but for everybody across
the country.
It is a very important public charge to be there and to have to
carry so much important policy responsibility as it relates to what
actually happens to people out across the countryside.
The Fed 1s also the principal financial rea;wator for a large share
of our State-chartered banks, and it supervises and partly operates
our payment system. These powers give the Fed a key role in
avoiding s_ystemic financial market failures, another essential task
that they have.
I would underscore what has earlier been said. This nominee's
qualifications for this job are superb. The Committee favorably reported the nomination of Alan Blinder just 10 months ago for his
current_ position as a Member of the President's Council of Economic Advisers. And on that team he has proven to be a key member and that experience adds now to his already impressive background. Serving as he has, as a professor of economics at Princeton
for more than 20 years, being the author of numerous articles for
professional journals, receiving a number of academic honors, and
as the author of one of the most widely used economics principles
textbooks, he brings with him a wealth of relevant experience.
I am not sure tliat anybody's experience., however, that fully prepares one to assume a position on the Fea as Vice Chairman or as

Digitized by



Chairman because of the enormity of the implications of the policy
decisions that have to be made, and the fact that things keep
Ala~ Greenspan has said, many times before this Committee,
that tr:ying to make sense out of the monetary aggr_egates and how
people handle their money and how instruments change and how
money moves around· makes it very difficult to use yardsticks that
might have been appropriate or seemed appropriate even 3 or 4
years ago, in terms of Judging the velocity of money through the
system and the way money changes forms and how it in turn impacts the real economy on a dail1 basis.
At the present time, the Fed faces a number of very demanding
and difficult issues. Of primary and central importance is finding
the interest rate policy which can best sustain the current economic expansion. And there's a lot of concern about that at the
present time.
I heard some last night from one of the major business developers here in the Wasnington area with a superb record who expressed to me very directly his real apprehension that, if interest
rates keep going up, we are going to see this recovery aborted.
That's one person's opinion, but it's more and more typical of the
kind of opinions that I am hearing from people who are out there
trring to make the economy grow.
We know the Fed recently has moved short-term rates up 75
basis pointsi but morq;age rates have thus far risen twice that
amount. Ana that certainly ought to have, and is I think beginning
to have, a significant effect on the economy. If it's the Fed's intention to tighten, certainly that has had a tightening effect, perhaps
what they sought or perhaps more than what the_y sought. But I
do think we are approaching the point where further increases in
interest rates can run a real risk of a halt to growth here, and the
last thing we need to do is to go back into another recession.
I thinli the interest rate policy of recent years has to do more
than just repair balance sheets, as important as that is to do, and
as much as that's been accomplished. There are a lot of economic
entities in the country that need to not only get on a solid footing,
but also stay there, stay there and not be put into a situation
where we start sliding backward ~in.
Also the Fed has a nuinber of important and noteworthy regulatory issues to resolve, along with the other bank regulators.
These include a need for significant consolidation of our bank regulatory agencies, and how to ensure that public risks posed by the
private use of derivatives are limited and kept within a boundary
that ensures that we do not run systemic risks that we would onl1.:
find out about too late, risks that we couldn't properly manage if
we were not very alert and ahead of the_ curve.
We also need far better enforcement and application of our community reinvestment and fair lending laws on the part of the Fed.
Of all of the banking regulatory agencies, the one that seems to
have the hardest time really getting with it with respect to stopping the abuses in fair credit practice and fair lendin~ has been tlie
Fed. And while some progress has been made, more 1s needed, and
I certainly would look forward to this nominee to do something
about it.

Digitized by



I know the citizens in the count~ who are minority people, unlike most of us in this room, are still struggling to get the kind of
fair shake out of our financial system that the law says that they
should get, and so our regulatory authorities have a lot to do with
making sure that the laws are applied fairly, and we've got some
progress to have to make in that area.
I very much look forward to hearing your views and will question
you about these issues.
Let me now yield to Senator D'Amato.

Senator D'AMAro. Thank you veey much, Mr. Chairman.
Mr. Chairman, I have an amendment that I am going to be offering on the floor in a few minutes, so I will not be able to stay for
the full hearing.
I am going to ask that my statement be ineluded in the record
as if read in its entirecy in order to save some time.
The CHAIRMAN. Witliout objection.
Senator D'AMAro. I will note that I had a meeting with Alan
Blinder. I am convinced that he certainly has the intellectual capacity, the experience, and the integrity to do the job in a manner
that will be exemplary.
I think we all feel very strongly about the independence of the
Federal Reserve. I recognize that Professor Blinder has served in
key positions including being a Member of the President's Council
of Economic Advisers. I believe Professor Blinder has the intelligence and capacity of keeping the Federal Reserve independent.
That independence is something that many people, including myself. believe is critical.
Now one of the problems that Professor Blinder finds himself in
is that he has written extensively. Judge Bork found that to be a
problem, too, you know. We pick all of tliese statements and we use
them whenever. We sometimes forget the original context in which
they were made. Then some years later, they come up at a confirmation hearing and they're thrown at you.
Senator SARBANES. Could the Senator yield on that point?
Senator D'AMATo. Certainly.
Senator SARBANES. As Senator Bradley pointed out, he's written
with wit, which is even more dangerous.
Senator D'AMATO. And sometimes, you know, these thing~ come
back to haunt you. Unfortunately, you're probably better off if it's
"see no evil, hear no evil, saY' no evil." Then you go sailing through.
Nobody can just say, "Well, that's a good question, we will have
to think about that. At this point in time, it would be inappropriate
for me to take a position for that matter." We've all seen those
types of nominees come thro~h. It doesn't matter which Administration. That's the best, and then you win.
I hope I don't ruin your reputation because I don't know whether
or not they've read this. However, let me quote from something
that _you've written entitled "Hard Heads, Soft Hearts." Maybe we
shouldn't let Senator Sarbanes hear this.
You say:

Digitized by


Mandatory price controls aubatitute the political judgment or the State for the •
personal judgment or the market, thereby interfering with the aignalJing role of
~rices and i m ~ economic efficie~. fn the early stages oC • controls pmgram.
the costs are small and almost invisible, but the distortions mount and beci,me concrete u a system or controls ages and ouifies.

I have to tell you, I have never, in two short paragraphs, heard
something more eloquently, and more cogently put. I am convinced.
given your intellectual capacity, the fact that you understand balancing the various needs. We nave talked about the imp_ortant role
of the Fed, recognizing the signals as it relates to inflation, and
how one would attempt to move in a way that would give due recognition to all of the considerations. The President has put forth
someone most qualified to serve in this very important capacity.
Mr. Chairman, I intend to support Professor Blinder. I said to
him before, how can I be of help, should I say something good
about you or say something bad.
We will just let it fall out there. I am delighted to see your beautiful, m~ificent family with IOU.
The CliAIRMAN. Thank you, Senator D'Amato.
Senator Sarbane~ who I want to call on next, serves, as you
know as the Vice linairman of the Joint Economic Committee and
has done a distinguished job there, and will be, in all likelihood,
the next Chairman of this Committee. And that is a positive thing
to anticipate.
Senator Sarbanes also served as the Administrative Assistant to
Walter Heller when he was the Chairman of the Council of Economic Advisers for the President and has a been a ve_!Y serious student of economic policy matters, and particularly Fed policy actions.
And so I want to call on Senator Sarbanes at this time.

Senator SARBANES. Well, thank you very much, Mr. Chairman.
As you said in your opening statement, this is a very important
hearing, and the position of Vice Chairman of the Federal Reserve
is obviously a very substantial position in our policymaking spectrum.
I frankly think that every position on the Federal Reserve Board
is a very important position, and I regret that I think in recent
times there has been a tendency to focus only on the Chairman and
the Vice Chairman and not on all seven members of the Board,
since they in effect are equal in terms of their votes and in terms
of malting policy.
And I will not get into the role of the regional bank presidents
who serve on the Open Market Committee but are never nominated or confirmed by any public officials. They simply get there
on the basis of being picked by private interests, but that is another and a separate issue.
I am going to say just a few words about Alan Blinder in a moment, but I want to set the stage for what I may pursue later.
This is this week's Business Week. The cover story is "Why Are
We So Afraid Of Growth?" Conventional wisdom holds that the
U.S. economy cannot sustain rapid growth without inflation. But
that may be wrong. The reason, a wave of innovation is boosting

Digitized by



productivity while global competition is keeping prices down. And
it then goes on, on the inside, in the continuation of this story to
say, why strong economic growth will not cause inflation. It then
says, productivity is surging, workers are more skilled, capital investment is more efficient, international trade is expanding, the information revolution is gaining speed. The result, low inflation.
The U.S. economy's expanded at a 2.4 percent annual rate since
1980. Most forecasters figure that the economy's ~wth potential
is 2.5 percent at best. But the evidence is mountmg that it could
be as high as 3.5 percent without touching off inflation. Here is
Now that is another 1 percent. If this is in fact accuratef that is
another 1 percent on the growth rate, which is tens of bi lions of
dollars of additional outputb hundreds of thousands of additional
jobs without an inflation pro lem, according to this analysis.
And coincidentally, there is an article in today's op ed page of the
New York Times by Lester Thoreaux entitfed ''The Fed Goes
Ghostbusting,,. And talks about their pursuing ghosts on the inflation front and the impact that it is having on growth.
So I just wanted to make that by way of a preliminarr. in terms
of our economy and how it may function, what the possibilities may
be at this particular time in which we find ourselves. In fact, the
Business Week says, far from being a mature economy, the United
States is one in the throes of an historic transformation. And of
course, if that is the case, we need to adjust our thinking to accommodate it; otherwise, we may be squandering some wonderful opportunities. And I think we need to keep that very much in mind.
The CHAIRMAN. Would you yield at that point, just for one moment?
Senator SARBANES. Certainly.
The CHAIRMAN. First, I would like to make a unanimous consent
request that we include both of those items, the op ed piece today
from the New York Times and the Business Week article in the
But also to say that across the country, there are still millions
of people who cannot find work, and I am talking about people at
all skill levels. People with Ph.D's, people with training in computer technoloID' and so forth, as well as people lower down on the
skill ladder. And many people have lost their jobs as big companies
have downsized, and so they are out there trying to get reestablished.
Many times, there is a big backward slide. They may lose a job
that pays $35,000 a year and after 6 months or a year, find a job
that may pay $22,000 a year.
So I think the issue of getting all the growth we can out of the
economy, without an inflation problem, is essential to those people
in the country who are, in many cases, desperate for work. Want
to work, need to work, need to be producing for themselves and
their families and for the country.
The country undergoes an enormous loss of gain if we are not
more fully employing our people and our resources because we
have got some artificial notion that we cannot have as much
growth as perhaps we really can have if we are really thinking
about those kinds of issues.

Digitized by



I will tell you this. With respect to the problems of our inner
cities, where there is so much social tension and difficulty and deprivation and hardship, if we do not ~et more economic activity infused in those areas, that we are gomg to continue to pay a huge
So there are a lot of reasons to want to get the growth rate as
hi~ as we can possibly take it in a responsible fashion, and I think
this is a real issue at this time.
I thank the Senator for yieldi~g.
Senator SARBANES. Now, Mr. Chairman, I am pleased, along with
other Members of the Committee to welcome Alan Blinder here
this morning. I strongly welcome the President's nomination of him
to go on the Federal Reserve Board and to serve as the Vice Chairman.
I have known Alan Blinder for many_ years, largely because of
our common association with Princeton University. I was fortunate,
as a young high school student, to get a scholarship which made
it possible for me to attend Princeton, and my children were all
there as undergraduates.
Professor Blinder earned his undergraduate degree at Princeton
and his Ph.D from MIT. He became a professor at Princeton at a
very young ~e. In fact, since 1982, has held a very distinguished
endowed chair there, the Rentschler Memorial Professor of Economics.
He was chairman of the Economics Department in the late
1980's, was the founder of Princeton's Center for Economic Policy
Studies. He's a prolific author, ten books on economics including a
textbook which has come to be in standard use in introductory
courses in economics~ so that there are young men and women all
across the country wno are being led into economics [notice I said
into and not away from] by Alan Blinder's textbook.
He's written many scholarly articles on macroeconomic policy.
He's served as vice president of the American Economics Association, a mark of recognition from his peers. He served briefl_y_~ the
Deputy Assistant Director of the Congressional Budget Office in
1975, and as you noted, for the last 10 months, has served as a
Member of the President's Council of Economic Advisers.
I think it's fair to say that he's generally re~arded as one of the
leading economists of his generation. He brmgs to Government
service analytical skills of the highest order and, in my view, a welcome, real world pragmatism unhindered by ideological preconceptions, something that I think is very, very important.
I don't think he comes to this job or that he has reflected in any
of his past work any sort of rigid thinking. I mean, he's prepared
to look at the facts and make his judgments accordingly.
Unlike, if I may for the moment, introduce a light note into these
proceedings in terms of rigid thinking, the man who came home at
3 o'clock in the morning, and his wife said to him, "where have you
And he says, "I have been out riding my bicycle." She says, "you
haven't been out riding your bicycle. I took rour bicycle mto the
shop this afternoon in order to get it repaired.' And the fellow says,
"that's my story and I am sticking to it."

Digitized by



Now he's never reflected that kind of hidebound thinking, and I
certainly welcome that. We need someone who's a realist and a
pragmatist to take over these responsibilities at the Federal Reserve Board.
He also brings a keen sensitivity, and you made reference to this
I think, to the impact economic policy has on the everyday lives of
people. I think he understands that. I think it's very important
that that be understood by policymakers in whatever position they
find themselves whether in the Executive Branch or the Legislative Branch or the Judicial Branch. I mean, they need to have some
understanding of how these decisions impact the ordinary lives of
We held a hearing earlier this week with the homebuilders and
the Small Business Council who came in to tell how they were
being impacted by the rising interest rates, and how it meant less
jobs and so forth and so on.
I think, in conclusion, this is an outstanding appointment to the
Board, and I believe Alan Blinder will serve with great distinction.
I notice that his nomination has met with widespread acclaim and
I share in that.
Thank you very much.
The CHAIRMAN. Thank you, Senator Sarbanes.
Senator Dodd I think was called out for a telephone call, and I
want to let him make his statement before we start with you, so
let's just wait 1 minute here.

Senator DODD. Mr. Chairman, I would ask unanimous consent to
be able to submit a statement for the record.
The CHAIRMAN. Without objection, it's so ordered.
Senator DODD. I welcome our witness here this morning. We are
very honored to have someone of your background and quality
nominated by the President, and I look forward to statements and
some questions.
The CHAIRMAN. Very good.
Thank you, Senator Dodd.
Let me ask you to stand now and raise your right hand as I administer the oath.
[Witness sworn.]
The CHAIRMAN. I know Senator Bradley acknowledged members
of your family, but please feel free to make any personal comments
or introductions you want to make, and then we'd like your statement now.
Mr. BLINDER. Thank you, Senator.
I would like to introduce my wife, Madeline.
The CHAIRMAN. Madeline nice to see you.
Mr. BLINDER. My son, Wi1liam.
The CHAIRMAN. William.
Mr. BLINDER. I have another son, Scott, who's in Chicago right
now and couldn't be with us.
My mother, Shirley Blinder, from Florida, and from Bayonne,
The CHAIRMAN. Welcome.

Digitized by


Mr. BLINDER. And my wife's parents, Shirley and Leon Schwartz.
from New York.
The CHAIRMAN. It's nice to have all of you.
Mr. BLINDER. It looks like we have geographical diversity, as on
the Board.

Mr. BLINDER. Mr. Chairman and Members of the Committee,
this is the second time, as you have noted, in less than a year that
I have appeared here as a nominee, and I want to thank you spin.
as I did then, for the speed with which this Committee is handling
my nomination. I know you have a crowded agenda and I appreciate the prompt attention.
There is, as you have noted, very important work to be done at
the Fed, and I am quite eager, with the Senate's approval, to get
down to doing that.
I'd like to just betpn by saying that I am deeply honored that the
President has nominated me to be Vice Chairman of the Board of
Governors. Having spent much of my adult life watching monetary
policy from a distance and studying its effects on the economy, I
am keenly aware of how difficult the Fed's job is and how very important.
Millions of Americans who haven't the slightest idea of what goes
on at the Fed are nonetheless affected by its decisions, so I approach this assignment with a mixture of humility and awe, and
with the utmost seriousness.
Because I was before this Committee so recently, and because I
have had such very nice introductions, for which I thank all of you.
I think I will just skip the little biographical information in the
statement, except to issue a semi-apology at the beginning.
I think I am quite familiar by now with current, prospective and
indeed past monetary policy issues because I have been studying
these for many, many years. I am rushing to educate myself on the
many legal and regulatory issues now facing the Fed. I have
learned a lot in the last 10 days. But I have got a lot more to learn.
It's given me, by the way, an appreciation for the wei~t and
thickness of the agenda in front of this Committee, and if I can't
answer any of your questions on this, I will apologize in advance.
I think I can answer many of them by now, and I will certainly
try to answer all of them, and not just say, "that's a very good
question." I will try to, to the extent I can, do better than that.
As I mentioned a moment ago, monetary policy is an arcane art
understood by few but affecting many. Along with fiscal policy, it's
one of the two tools the government has for influencing the pace
of macroeconomic activity. And indeed, in today's environment,
with the macroeconomic aspects of fiscal policy all but locked in for
5 years, monetary policy must bear almost the entire burden.
Monetary management was never an easy job and nowadays,
with the financial markets more complex and more global than
they ever were before, it is harder than ever. To complicate that,
as Chairman Greenspan has noted a number of times, the tradi-

Digitized by


tional monetary aggregates, the so-called "M's," are currently of relatively little use as guideposts to monetary policymakers.
So the Fed really has no choice but to watch everything and
make its best judgments about when the economy needs to be
spurred on and when it needs to be reined in to guard against inflation.
Nowadays, changes in the Federal Funds rate are the normal vehicle for puttin~ such decisions into effect.
That very bnef characterization of monetary policy seems to encapsulate the way the Fed has been conducting its business lately.
And it's a framework, I must say, with which I feel quite comfortable.
At this juncture in history, no one on the FOMC can afford to
be dogmatic, nor to swear allegiance to any particular indicator.
But the techniques of monetary policy are far less important
than the g<Jals. What should the Fed's objectives be?
To me, this is a very, very easy question, for Congress has prescribed them for the Fed in the Federal Reserve Act, as amended,
and I just want to quote the words exactly. It says:
To promote effectively the goals of maximum employment, stable prices, and mod-

erate long-term interest rates.

And I just want to say a few words about each, and especially
about stable prices.
The phrase "maximum employment" cannot be taken literally. In
principle, every person in America could be working, but that's
hardly desirable. A large, dynamic economy like ours will always
have millions of people who are, in a literal sense, between jobs.
They may be looking to improve their prospects; they may have recently lost their jobs and are looking for new ones; they may have
skills which don't match very well the available jobs and therefore
need retraining, and a variety of other things.
So economists say that, at any point in time, the economy has
a so-called natural rate of unemployment which, to a first approximation, and this is the important point, cannot be changed by monetary or fiscal policy. I interpret the goal of maximum employment
to mean limiting unemployment to this natural rate.
Mr. Chairman, you said it exactly right when you used the
phrase, "all the growth we can without igniting an inflation problem." That's exactly what I take maximum employment to mean.
To a significant extent, the second of the three things in the Federal Reserve Act, moderate long-term interest rates, follows directly
from stable prices; and I am coming to that in just a moment.
I only wanted to mention, however, that interest rates, long-term
or short-term, have a real component as well. The plain fact is that
while monetary policy has a profound effect on long-term inflationary expectations, its influence on real long-term interest rates is indirect and muted.
Many other factors, such as the balance of private saving and investment, and importantly, the prospects for the Federal budget,
have larger effects on long-term real interest rates. And in this respect, I have been very proud to be associated with the Clinton Administration's efforts to bring down the Federal budget deficit
along with the Congress.

Digitized by



Let me now come to "stable prices," the phrased used in the Federal Reserve Act.
This translates directly into low inflation. Some would even say
zero inflation, but that's a more illusive concept than it seems at
first. Different measures of inflation give you different readings.
For example, over the last year, the core CPI inflation-by core,
I mean excluding food and energy-has increased 2.9 percent. The
core producer price index has increased just 0.4 percent. And the
GDP deflator has increased just 1.9 percent.
Those are three different numbers, three measures of inflation,
but they all share one thing in common. Each of them is at or very
near the lowest readings recorded in a generation.
This country has indeed made great strides in reducing inflation
and this achievement should neither be forgotten nor belittled.
A second set of complicatiol\S in defining what we mean by stable
prices stems from measurement problems that make conventional
price indexes overstate inflation. Among these are difficulties in accounting for quality improvements and for the introduction of new
products, and also consumers' quite intelligent tendencies to shift
their spending toward products and toward sales outlets where
prices are rising less rapidly than average, and away from those
where they're rising more rapidly than average.
For all of these reasons, analysts believe that the consumer price
index, for example, may overstate inflation by something between
half a percentage point a year and 1.5 percentage points a year.
So just as zero measured unemployment would be an inappropriate translation of the phrase "maximum employment," zero measured inflation would be an inappropriate translation of the phrase
"stable prices."
Chairman Greenspan has said that his working definition of stable prices is when inflationary expectations do not play a role in
household and business decisions. I have often, in conversation,
used a similar definition that zero inflation is when ordinary people
stop talking about inflation. By either of these definitions, to me,
the United States now looks to be close to, but not quite at, stable
Since I have been accused of being "soft on inflation," I'd like to
take a few minutes, if you will allow me, to clarify my views on
that very important subject.
First, it is clear that lower inflation is always better than higher
inflation, at least until we reach zero true inflation, whatever
measured inflation that might correspond to.
In a book of mine, which has been cited as evidence that I am
a friend of inflation, and from which Senator D'Amato just kindly
quoted, I wrote the following:
Inflation does indeed bring losses of efficiency. It also makes people feel insecure
and unhappy. We would no doubt be better off without it.

Now, somehow, some people have read that and said that that's
evidence that I am a friend of inflation. I am not quite sure how
you get that from statements like that. But let me say that, to me,
the only real questions are: how low should we try to push inflation
and how fast? At what point is the benefit of further inflation reduction worth the incremental cost of achieving it?

Digitized by


And that brings me to my second point, which is that there is
no magic bullet for fighting inflation. The painful truth is that reducing inflation is costly. This country paid a very high price, a
deep and long recession, to bring inflation down from about 10 percent to about 4 percent in the early 1980's. But that price was necessary because double-digit inflation was intolerable.
Then, after we overshot normal capacity and inflation crept back
up above 5 percent in 1989 and 1990 we suffered through another
tliough smaller, recession to bring it back down to the current level
of something below 3 percent.
These costs, as you Members of the Committee have stated, are
not abstract costs. It means that millions of people lost their jobs
by enlisting in the battle against inflation, some of them for long
periods of time. And we sliouldn't forget that. Having paid that
price to achieve these gains on the inflation front, it would, in my
estimation, now be sheer folly to squander them. There is simply
no good reason to push the economy beyond its normal capacity
and into the inflationary zone.
Any job gains we enjoyed in the short run would be balanced by
job losses later.
If unemployment is to be pushed down below what is currently
estimated as the natural rate, and I think we should try to do that,
it must be done by structural policies, like education and training
and things like that, not by monetary policy.
Third, short run fluctuations · in inflation depend on more than
just monetary policy. Fiscal policy, thro~h its affects on aggre_gate
demand, can be either inflationary or disinflationary. Food and energy prices, which are largely, though not entirely, beyond our control, may _push inflation up or down for a while. Sometimes we are
lucky and inflation declines, as in 1985-86 and again last year.
Sometimes we are unlucky, as when OPEC struck in 1973-74, and
in 1979-80, when inflation shot up.
If monetary policy is used effectively to cut our inflation losses
when luck runs against us and pocket the ~ains when good fortune
runs our way, then we can continue to chip away at the inflation
rate, which is already low, and make sure it continues down.
Fourth, and finally-this is my last point on inflation-there
really is wisdom in the old adage that where you stand depends on
where you sit. The Federal Reserve is societys ultimate bulwark
against inflation. That's a stark fact that I thmk gives every member of the Board a special responsibility that I, for example, never
had as an outsider.
It is the reason I think that Congress wisely gave the Fed so
much political independence. CongJ_"ess' intent was, pretty clearly,
to ensure that the Fed would be able to take the long view and do
what is best for the economy, passing up opportunities for short
run gains if they came at the expense of the economy's long run
If you take that long view, there really are no conflicts among
the three goals that Congress gave the Fed: maximum employment,
stable prices, and moderate long-term interest rates.
Mr. Chairman, given what I have Just said, it won't surprise you
to learn that I am strongly supportive of the independence of the
Fed. And the main reason for that is simple: I think an independ-

Digitized by




ent central bank is best for the long run economic welfare of the
country. But independence need not and should not mean arrogance, insensitivity, or lack of accountability. The Fed should not
be watching election returns or public opinion polls, but it should
be watching the economic well-being of the average American. And
it should always remember that it has 260 million clients.
The American people do not want inflation, and they do want
jobs. That's what Congress has asked the Fed to deliver, and that's
what it should try to do. Yes, the Fed is judged everyday bl the
financial markets, but these are fleeting evaluations. Its ultimate
judges are the public and history. In fac~i. I believe that the ultimate long run verdicts of the markets, of tne public, and of history
will all be the same.
Independence of the central bank also need not and should not
mean mystery. The minutiae of central banking will always be
mysterious to most people, nor do they much care. But the Fed's
basic decisions about monetary policy affect almost everyone. And
while the process of reaching them is best conducted in private, so
that frank interchange is encouraged, the decisions themselves
should be transparent.
In this regard, I heartily applaud the Fed's recent practice of announcing FOMC decisions explicitly and promptly, rather than
leave markets guessing while professional Fed watchers divine its
intentions. It is a step I have long advocated, and I hope it will be
made a permanent part of the Fed's operating procedures.
Indeed, I think the Fed can do a better job than it has to date
of explaining its goals and policies to the American people, and I
would welcome the opportunity to assist in getting that done.
Mr. Chairman and Members of the Committee, I thank you for
listening. I hope this statement has conveyed to you my basic views
on monetary policy, and I'd now be happy to answer any questions
you may have.
The CHAIRMAN. Thank you very much, and of course, we will
make your full statement a part of the record.
As you have watched the recent upward adjustments in monetary policy rates by the Fed, have you been surprised as to what
the market reaction has been? I mean, as a scholar and as a student of these issues, you must have had an expectation as these
policy moves were put in place as to what the effect would be. But
as you watched them play out, have they sort of played out as you
imagined, or are we seeing things that perhaps are outside of what
you might have thought would be the case?
Mr. BLINDER. On the effects of the Fed's actions on long-term interest rates, I was certainly surprised. I think most observers of financial markets were surprised.
The historic norm is for long-term interest rates to move in the
same direction as short-term interest rates, but by a smaller m,ignitude. Sometimes, in fact, they go the other way. Occasionally,
long-term interest rates fall when short-term interest rates rise.
There are historical cases in which that has happened. But the historical norm is certainly for them to rise, but by much less than
the increase in short-term interest rates.
What we have seen in this recent episode, since early February,
is about 75 basis points on short-term interest rates, on the Fed-

Digitized by


eral funds rate, let's say, but 110 basis points or so on long-term
interest rates, the 10-year or 30-year bond rate, and as you noted
a f'ew minutes ago, even more than that on home mortgage rates.
It's not historically unprecedented for certain, but it's historically
unusual and, yes, there was some surprise in that.
The CHAIRMAN. What do you make of that? Having seen that
now sort of come in differently than we might have expected it
would, what's your interpretation of that?
Mr. BLINDER. There are a number of possible factors that could
have driven the market interest rates up to the extent that they
One h,i,othesis, and I think it's a leading hypothesis, is that
while this was all going on-starting in fact before this was going
on, before the Fed started moving but continuing through the Fed's
move and even continuing to today-there have been increasing
perceptions in financial markets, in America and all over the world,
about the stren,rth of the U.S. economy, how fast it's likely to grow
in the short ancf intermediate run.
Now I think some of these perceptions may have been exaggerated in fact. Many people got too excited at the 7 percent growth
rate in the fourth quarter, which was never going to be sustained.
It is nonetheless a fact, I think, that most private sector forecasters marked up their forecasts between, say, last December and
now, or between January and April. So there was a feeling that the
U.S. economy was doing better than people thought a few months
ago. When something like that happens, it can trip off two kinds
of beliefs that affect long-term interest rates.
One has to do with the real demand for credit. If you think the
economy is going to grow faster than you thou2h.t a few months
ago, that means you believe the demands for creciit will be growing
faster than you thought a few months ago.
So the real component of the long-term interest rate, to which I
made reference a few minutes ago, will rise. And I think a great
deal of this recent run up in interest rate had to do with that.
Now you could ask very well, was this warranted? Maybe it was,
maybe it wasn't. But I think it had a great deal to do with the rise.
The second kind of belief that economic strength trips off in people's minds is about inflation. The critical-Senator DODD. If I could just interrupt you, you have answered
our question. Was it warranted. I mean what's your opinion of
Mr. BLINDER. I believe it was warranted as to direction and most
likely the magnitudes were exaggerated. Now that's a hard question to answer because different people have different beliefs, so
when I say the magnitudes were exaggerated, there are no doubt
many people who didn't have exaggerated views.
But I can tell you that as we saw these data coming in at the
Council of Economic Advisers, we did not find them terribly surprising, given our basic outlook for where the economy was going
in the short run. A little bit on the optimistic side, but only a little
Now, as I was saying, the other kind of belief this can trip off
in people's mind is greater worries about inflation.

Digitized by



First, of all, I think, as a short run matter, those who harbor
such fears have ~erated fears.
Second, I don't tlimk the main issue is in the short run. I don't
think in fact that many market participants harbor inflation fears
for the very short run. So let me say a little bit about each.
The indicators we have, the current readings on inflation and the
best indications we have of what's on the short-term horizon, do
not indicate any acceleration of inflation.
The issue really is what is coming up on the horizon a year or
two later. And here the question that Senator Sarbanes raised in
his opening statement is critical. How fast is the economy gl'9wing
relative to the speed at which capacity is growing? How quickly are
we closing the gap between actual GDP and capacity GDP? And by
capacity, I don't mean the limit of what the economy could
produce-we are nowhere near that, but the normal operating
rates of companies above which inflationary pressures begin to
There's a wide range of opinion on that issue right now. My own
view is, to some extent, agnostic but not completely. I think some
peoele are voicing very strong views on this issue, which I would
be inclined to reject. But tliat nonetheless leaves a reasonable
range for people to disagree over, for example, how long could the
economy grow at, say, 3 percent before reaching capacity.
Some people might say only about a year. Some people might say
2 years. I suppose there are people who would say more than that.
I wonder about that. But I think there's reasonable room for dis•
agreement in that kind of a range.
And so there are people, I think, who may have extrapolated recent high growth rates too far into the future, and have visions of
the economy shooting through its capacity into the inflationary
zone not 3 months from now, not 6 months from now, but a year
from now, or 15 months from now, or a year and a half from now.
The CHAIRMAN. I want you to be complete, but I don't want to
have all my time used on just this one matter, because I want to
go to a next phase of that question.
So let me give you a minute just to finish that, and then I
want-Mr. BLINDER. I can stop there, if you like.
The CHAIRMAN. All right. Let me tell you the concern I have at
this point.
I've talked with many families out there that are trying to buy
a house-maybe they've waited a long time to sort of get their financial footing, and have the economy show some additional
strength and so forth, and have a little more job security-who've
been waiting to buy a house or maybe to trade up because they're
in too small a house and their family has grown. All of a sudden
the interest rates have gone up. Long rates have gone up an abnormally large amount from these more modest, short-term Fed policy
rate acijustments. To them, that's inflationary. I mean, as they look
at it, that's an element of inflation to them, especially if it's an unwarranted premium that's coming into those long ranges.
I think inflation is sort of in the eye· of the beholder. I mean,
there's a lot of different ways to decide what is or what isn't inflation, but to somebody who 1s thinking they might finance at 7 per-

Digitized by


cent and is now looking at 8.5 percent, that's a price inflation in
the interest rate that may in fact prevent them from financing
right now.
Senator SARBANES. Mr. Chairman, would you yield on that point?
I want to visually demonstrate the point you're making.
These are the mortgage interest rates, 30-:Year conventional percent. The week of February 4, it was just under 7 percent.
The CHAIRMAN. That's our joint birthday.
Senator SARBANES. That's ri2ht.
The CHAIRMAN. Coincidentally.
Senator SARBANES. And the week of April 22, 8.49 percent. Now
that's exactly the point you were just making. This is what these
people have come up against, and of course-Senator DODD. My birthday's on May 27.
Senator SARBANES. You're going to be oft' the chart. You better
get your mortgage now.
Senator DODD. I did.
Senator SARBANES. This jump from 7 to 8.5 percent, if you have
$100,000 mortgage, is a jump from $660 to $770 a month in your
monthly payment.
The CHAIRMAN. Well, I make the point not to be dogmatic the
other way, but I sometimes am concerned that there are people
that may be, Fed policymakers that don't understand that high interest rates can also be inflationary. I mean, it can be, all this sort
of cross-connects.
What I am really interestod in is where we ,;~ from here, and
whether we would likely see further upward adjustments in Fed
rates maybe again having an unintended and perverse effect, but
instead of bringing down long rates or raising long rates a lesser
amount than the short-term rates go up, that lo and behold, you
get this double whammy. You have a smaller short-term rate increase and you get an amplification in the long rates, and then all
of a sudden, you're running into all kinds of problems with home
equity loans, car loans, house loans, other things. And I don't think
we need that at this point, and I am wondering where do you think
we are here? In other words, if another adjustment were to jack up
long rates, is that a wise policy prescription now?
Mr. BLINDER. Senator, just as I said, I found it quite surprising
that long rates jumped up as much as they did in response to what
was, after all, a quite modest rise in short rates, especially at the
beginning. It was only 25 basis points at the beginning.
Just as I said that, I would certainly not anticipate, looking forward, that if the Fed were to raise short-term interest rates again,
that we would have the kind of magnified reaction.
This is1 as I said, not the historic norm by any stretch. That's
sort of wny I ran on so long explaining what I thought might be
happening in the current context.
The answer to the implicit second part of your question is:
Should there be such a magnified reaction of long rates to short
rates again, I think there's very little doubt that that would have
a slowing effect on the economy. It's not what I would anticipate
in terms of.-.

Digitized by



The CHAlRMAN. Of course, it's what you didn't anticipate the last
time either, so-----·
Mr. BLINDER. I was about to say, markets are full of surprises.
I didn't anticipate the last one, and nobody could sit here confidentl)'. and say, no, it will not happen again. Nobody can say that.
The CHAIRMAN. I want to do just one, quick follow-up and I won't
trespass on the time of others here at length. But what I don't
want to see ri§!it now, and I would hope that you would not want
to see, is I don t want to see the economy start so sputter and that
we start to slide back into a quasi-recession.
We were in a recession of sorts for a long period of time, and in
fact the time that it took to work our way tiack up to the same employment level was much longer than has been true in other recessions in the post-war period.
And no one's quite sure, even though our prospects look good,
you know, how vulnerable we might be to getting into a situation
where we start to lose steam and go back into a situation that I
don't think any thoughtful person wants to see happen.
I guess I would want to hear from _you today, a view to the effect
that it is important to stay on a solid growth path here into the
future, and not go off into recession. I am concerned that there's
some people that might think because there's been a needed and
a valuable repairing of balance sheets that that somehow means
the all clear signal is out there.
I don't sense that. I find that there are an awful lot of businesses
today, particularly small and medium-sized businesses, as well as
a lot of big businesses, that are going through difficult transitions,
and I think they need to have vibrancy in the economy for a perioa
of time here to continue to acijust and to work off _p~st problems
and to get through some of these transition issues. Would that be
your view?
Mr. BLINDER. Yes. I do not think that what this country needs
now is another recession. I most certainly do not think that.
The job of the Federal Reserve no~t as I see it, is to assist the
economy. I don't want to exaggerate tne extent to which the Federal Reserve controls the economy, because it does not.
The CHAIRMAN. I don't mean to imply that either.
Mr. BLINDER. But to assist the economy into gliding back to capacity. We are getting closer.
A year and a half or 2 years ago, we were so far away from capacity that it was almost an irrelevant consideration. It is not irrelevant now. We are getting much closer to capacity, but I don't believe we are there yet. So I think it is of the utmost importance
to let the economy, and help the economy, back to capacity without
Now there is no perfection in this business. And there is no
doubt that there will be errors in one direction or another. I think
it's critical now that members of the Federal Reserve Board, balance the risks, and I certainly would The risks are not only onesided. The risks are not only of going too far and having inflation,
nor are they only~ of going too slowly and having continued slack.
They are both. They are quite balanced now in a way that they
weren't balanced a year or two ago. They were quite unbalanced
then, and the clear need was to grow faster.

Digitized by


Now they're becoming quite balanced. But I don't think we
should go overboard to the other extent and be, as the Business
Week headline suggested, "Afraid of Growth." Growth is good for
this society as long as, exactly as you said, it doesn't pass the point
where it starts tripping oft' inflation.
The CHAIRMAN. Senator Sarbanes.
Senator SARBANES. Thank you very much, Mr. Chairman.
I must say, I think that was a very reasoned discussion of some
very important economic issues, and it's the kind of discussion that
I think we need to encourage, not only in policymaking centers but
all across the country.
I was struck when you said in your statement that the Fed ought
to sort of explain it's decisions. I forget exactly how you put that.
Explaining its goals and policies.
More broadly than that, I think there's a real need to try to analyze the economic situation. You know, we need to ask the kinds
of questions that are being asked in this article. Are we unreasonably afraid of growth or changes taking place that in effect would
enable us to have a different analysis for the economy.
Let me just underscore one point. You said in your statement,
analysts believe that the CPI, for example, may overstate inflation
b_y between.½ and 1½ percent per annum. Now you're not out
there by yourself on that.
Let me read you this exchange I had with Chairman Greenspan.
I said to him:
Now I alao understand that the Bureau of Labor Statistics has done aome studies
published in the Monthly Labor Review, which suggest that the inflation figure of
2.7 percent, which was what the figure was for last year, it's now even lower on
a year to year basis, could actually overatate the actual inflation rate by as much
as ¾ a percentage point. Are you familiar with those studies?
Chairman Greenspan replied that he was and that, in fact, their view is that they
mspect that the adjustment may be even more than that.

Then I asked:
And is that based on some studies which the Fed staff has done?
Chairman Greenspan answered yes. He explained that the Fed staff and a number of economists in the private sector have been looking at these data in aome detail.

Then I said:
Well, now, if those studies are accurate, and I will not, because time is limited,
probe into the facton of those studies, although, Mr. Chairman, at some point it
might be helpful for us to do a hearing that would do that, but if those studies are
on track, then it is quite possible that we are really dealing with an inflation rate
more around 2 percent than 2.7 percent. Would that be correct?
Chairman Greenspan replied yes, that is a CPI inflation rate.

The point I was making earlier with Chairman Ovey is that if
one looks at the broader inflation rate, it is probably less than that,
even less than 2 percent.
So as we consider this inflation question, if in fact the current
measurements are overstating it, we need for people to understand
and to comprehend that.
Now Chairman Riegle made reference to the potential inflationary impact of the rise in interest rates itself. I just came from a
hearing with the Bureau of Labor Statistics where they reported
the monthly unemployment figure, which has dropped a tenth of a
point to 6.4 percent, with some good job growth last month.

Digitized by


But we pursued this impact of higher interest rates on the CPI.
Now, as it turns out, the only direct measurement in the CPI of
the impact of interest rates is the cost of financing the purchases
of automobiles.
And according to the BLS, a 20 percent increase in interest rates
on auto loans from say 8 percent to 9.6 percent, would raise the
inflation rate b_y a tenth of a point.
There are other ways of course higher interest rates would raise
the inflation rate. They raise business costs, they raise home ownership costs.
Now we are measuring home ownership in a different way. We
impute the rental value. But if we did it the old way, of course an
increase of the sort that I showed on that chart represents a 17
percent increase in the monthly carrying char~e for that mortgage.
Now if that applied to all housing costs, you d get almost a 5 percent increase in the CPI. Obviously it doesn't apply to all housing
costs, but if applied at 10 percent only of the housing costs, you'd
get a½ a point increase in the CPI.
The CHAIRMAN. And might I just say that would include home
equity loans as apart from new originations of mortgages because
a lot of those are cranking up right now, so you have got that builtin effect. The rise in interest rates automatically starts to get
passed through to a lot of home equity loan holders and people
with ARM's.
Senator SARBANES. That's right. I was going to add that. The adjustable rate mortgages as well.
So we have always regarded this interest rate question as slowing the economy, impacting on the speed and movement of the
economy, but it also, in and of itself, it seems to me1 has an inflationary component to it. I wonder if you have any ooservations
that particular issue?
Mr. BLINDER. Yes, I will be glad to Senator, especially if you'JJ
stop me short if I start devolving into techno-babble. I will try to
not do that.
Senator SARBANES. The other thing, as Chairman Riegle noted,
I know you're used to speaking in 50-minute clips when you give
a lecture.
We need to ask some additional questions here, so I'd add that
Mr. BLINDER. But I get a lot of ideas out in those 50 minutes.
I will be much shorter than that.
When interest costs of businesses rise from one level to another
level, the business will experience a one-time increase in cost. That
will presumably translate into a one-time increase in prices, probably with a lag. It doesn't happen in an instant.
In order for interest rates, through the mechanisms you were
speaking of, to actually be an engine pushing up inflation, that is
the change of prices, the interest rates would have to be racing upward, upward, upward, upward, rather than just going up once and
leveling off.
The second part of the answer is that there is a substantial
amount of evidence in econometric models, and here's where I

Digitized by


apologize especially for the techno-babble, that when you look at
the direct-what I would call the cost push-effects of interest
rates, which is what you were just refemng to, and the effects of
hildier interest rates or tightening of monetary policy on inflation
inclirectly through aggre~te demand and the balance of supply and
demand in the economy, I think the evidence is pretty overwhelming that on balance a tightening of monetary policy or an increase
in interest rates would be a restraining influence on inflation, notwithstanding the cost push impact that you just mentioned.
Senator SARBANES. Now of course, I would regard this movement
in the mortgage interest rates as racing upward and upward. It
may not go on, but certainly that movement from where this arrow
is right here, which is 3 months ~go only, to where it is now would
meet II!}' definition of racing upward and upward.
Mr. BLINDER. Well, absolutel)'. What I meant by that is continuing to race upward. We certainly don't expect it to be moving upward at that kind of a clip for very long.
Senator SARBANES. I want to throw out a thought I had, and rd
be interested in your views.
I am increasingly concerned by the extent to which there seem
to be these overreactions to the latest monthly figures. Now all
these fello"!s are sitting over here at the ta~le, waiting for you to
say something that would warrant them bolting from the room and
racin~ to the telephone and putting in the call, and then the market will move one way or another.
But increasingly now, we are getting this volatility playing off
of-you know, the latest CPI figure, the latest unemployment rate.
We get some good job reports, so you get good news, and then )'OU
g_et a bad news reaction to it, so to speak. And there's all this
churning of the markets that seems to be going on all the time,
without reference to more basic medium- or longer-term trends. In
fact, the long-term trends are all very good.
I mean the core inflation rate in 1990 was 5.2 percent. In 1991
it was 4.4 percent. In 1992, 3.3 percent. In 1993, 3.2 percent, and
for the 12 months just ended in March, it was 2.9 percent.
The producer price index is even better than that, much better.
I don't know what can be done about it, but I think this constant
instantaneous reaction to yet the latest little bit of economic news,
which isn't factored into a more comprehensive look or more of a
pattern, it just moves around a little bit, I am increasingly concerned about it.
But you get this tremendous volatility, you get all this churning
in the markets. I take it some probably make significant moneys
out of playing off of that volatility and that churning, and therefore
it's advantageous to them. But I don't see any benefit that accrues
to the long-term or even medium-term economic objectives of the
Mr. BLINDER. The participants in financial markets, as you
know, Senator, are constantly searching for news of some sort. A
long-term trend, such as what you just cited, is of course much
more important to .the long run well being of the society of the
~conomy or anything. But long-term trends like that, almost by defmitiont are not news. They don't change in a day. They certainly
don't cnange in 15 minutes.

Digitized by



In financial markets, there is a premium on being there first and
reacting in the correct direction to the latest news.
Now rou say a lot of money is made on that and, yes, a lot of
money 1s also lost on that. There is usually someone on the other
side. If someone is making money, someone is losing money. So
market participants are constantly searching around for scraps of
news and, as you suggested, I will try not to add any scraps in answering your question.
You will remember, Senator, that it was not that long ago that
people used to dote on the Fed's announcement of the weekly
money supply figures-the weekly. That used to be the big news
that hit the market every week. And markets reacted very strongly
to weekly measurements, most of which most of us thought were
mainly measurement errors at a weekly frequency. But markets
moved on them anyway. They do not move on them anymore. The
weekly money figures hit. The Fed is still announcing them-or
rather monthly, I should say. They are not really big news any
The markets are now responding to a variety of other things, including some of the things that you mentioned.
It .is worth mentioning, however, that despite impressions to the
contrary-and these impressions always come back when you have
walked through or lived through a period of short-run high volatility as we have-there really is not any evidence of a great increase in volatility, say, in the 1990's compared to the 1980's or the
1970's in most of these financial markets.
These markets have been volatile at short frequencies for a very
long time. They still are volatile. They will probably be volatile for
as long as any of us are alive.
The last thing I would say about it is just to come back to your
point about policy makers, what really matters for policy decisions
is not the hour-to-hour or day-to-day movements in markets, but
exactly those long-run trends to which you were calling attention.
Senator SARBANES. Mr. Chairman, I know my time is up. I just
want to make one final point; it goes back to the necessity to try
to develop a deeper level of understanding about-Let me give you this example: When we got the GDP figures
most recently, the GDP figures and the GDP deflator we~t ui:, from
2.3 percent to 2.9 percent. That then triggered a reaction m the
bond market. The growth figure was down to 2.6 percent from 7
So that in effect should have been a reassurance that you were
not having a ranging kind of economy here mo~ng to be out of control. But everyone looked in there and they said, ah, but the GDP
deflator went from 2.3 percent to 2.9 percent. .
The GDP deflator includes exports, whose pnces went up-la~ely food because of the floods, but those ar~ goods tha~ are be~g
sent abroad whose price has gone uJ>-:but 1t. does not ?n!!lude imports, which of course as we have mentioned 1s a restrrun1ng factor
on the rise of prices in this country.
. h
In fact Chairman Greenspan m testimony srud t ~t the better
thing to iook at is the deflator in final sales to domestic purchasers
which would include imports. Now if they had looked at that
deflator, it would move from 2.3 percent to 2.4 percent.

Digitized by


So what happened is the markets reacted off of a measurement
which I would suggest was completely inappropriate because the
increase in that measurement was from the rise in export prices,
and that measurement failed to take into account import prices
which are restraining the rise in this country of domestic _prices.
If you took the import prices into account, you really had no
niovement at all: 2.3 percent to 2.4 percent.
The CHAIRMAN. Thank you.
Senator Dodd.
Senator DODD. Thank you very much Mr. Chairman.
You are covering an awful lot of the ground on the inflation
issue. I iust want _to join mr _colleagues liere, the Chairman and
Senator Sarbanes, m emphasIZmg the concern.
It is a national concern, obviously, but I do not need to tell _you,
given your own familiarity with the New England States and I am
not going to focus on New England. Obviously your decision-making process does not deal in limited ~eography.
Nonetheless, the legitimate point 1s being made I think about the
fragility of the national recovery that is exponentially true when
)".OU start tal~ about New England, and particularly a State like
Connecticut where even the modest recovery that is occurring is
not something we can relate to. We are still feeling it very, very
Obviously my constituents feel very strongly about the interest
rate hikes and what that has meant to even some possible improvements in the local economy.
I am concerned, coming back now to the national perspective on
this, there is a very _good article this morning-I do not know if the
Chairman or others have mentioned it-by Lester Thoreaux.
Senator SARBANES. We put it in the record.
Senator DODD. Oh, it is in the record already.
You do not have to agree with everything there, but looking at
some of the jlobal statistics, I think they are important in terms
of wages an what has happened and what is happening around
the globe.
So again the prospect of a looming inflationary cycle seems unwarranted. But the erratic behavior of the Fed, aside from the negative implications that it is creating in terms of the currency markets, is a matter of immediate concern.
I wonder iflou might address what your thoughts are regarding
the dollar an currency markets and whether or not you are concerned about the short- and long-term implications for the economy
with what steps have had to be taken in the last few days.
Mr. BLINDER. I will, Senator, although there is a limited amount,
as I am sure you can understand, that I can say about that.
If you will excuse me, could you just clarify a little bit what you
meant when you said "the erratic behavior of the Fed"? I was not
quite sure.
Senator DODD. Well, in a sense, the anticipation of moving up1
coming back rl·ust does not seem to be well thought out here ana
explained we -1 think the point that Senator Sarbanes has made,
and I think you made.
I have a great deal of respect for Alan Greenspan and people at
the Fed, but there does not seem to be a linkage here that is being

Digitized by


drawn very clearly. Just the mere anticipation. I mean, the news
this morning in anticipation of the May 17 meetings in light of the
reports on job creation here at home is having its own impact.
It seems to me an appropriate statement being made by the Fed
at this particular juncture mil?ht do an awful lot to cause markets
to react dift'erentl,: and people to react differently. So maybe the
word "erratic" is a little tough, but I will still use it.
Mr. BLINDER. The way I heard it-and please correct me if I am
wrong-is that the question is directed at the notion that the Fed's
recent actions, or maybe prospective actions, have created certain
Senator DODD. Absolutely.
Mr. BLINDER. OK. I think you have a point.
Whether the short- and medium-run strategy of the Federal
Open Market Committee is in fact well thought out I do not knowi
because I have not been on the committee yet. I hope it is wel
thought out and with the approval of the Senate, I will be there
soon and I will bow. I do agree, however, that it has not really
been well articulated.
As a result of that, Members of Congres!'..1 people in the public,
people in the markets, are not quite sure. xou can never be quite
sure and, indeed, even if you are on the Federal Open Market Committee you have got to keep your eyes open and be nimble and prepared to change. So there is no such thing as "certainty."
Senator DODD. I agree.
Mr. BLINDER. But I think, as I was su~esting in my opening
statement and I think you were suggesting 1t strongly, that the Fed
could have done a better job than it has of articulating what it sees
as its basic mission-not in the very, very long term; we all know
what its basic mission is in the very long term-but over some
shorter horizon and how this all coheres.
I agree with that.
Senator DODD. Let me just add, for instance on the first hike
frankly I was supportive. I think .YOU could make a case that the
less-than-neutral rates, and so forth, need to be corrected.
I think the reaction of the market that day of a 100-point drop,
had we waited longer, it might have been 400 or 500, and what a
reaction that would have created.
So I do not want to be in a position that I have disagreed with
every step here.
I am less than enthusiastic about the second.
I find the third very troubling in the direction we seem to be
So let me make it clear here that I am not goin~ to take a position of every time the Fed reacts with regard to mterest rates is
wrong; quite the contrary. In fact, I would find myself being supportive of the first hike.
I am sorry. I did not mean to interrupt you.
Mr. BLINDER. You did not interrupt at all. I was just agreeing
with you. I took the sense of your suggestion to be that the Fed
could do a better job of articulating what it was up to, and I agree
with that. I agree with that very much.
Senator DODD. We have covered the inflation point pretty well.
I want to raise two other questions with you.

Digitized by




One is in the derivative activities. There is a lot of discussion
about this of banks and other financial firms. There are some concerns particularly being rais.ed by some Members of Congress about
the potential impact of the markets to a systemic risk associated
with the use of some of these new exotic products.
Let me take advantage of the forum here to say that I find derivatives, and in fact exotic products, to be exciting and encouraging. I do not have the reaction that some do that, because it is new
we ought to be fearful of it.
That has to be balanced, obviously, with some 25-year-old going
out and being unchecked by more responsive elements in where
they take us, but I would be very interested in how you respond
to this iBSue and whether or not you think there is a need here for
a heavy regulatory involvement.
Mr. BLINDER. In some sense there is a need-and there already
is. The bank regulators are watching this activity quite closely.
I would not go so far as to say they have achieved perfection in
this. I do not think the regulators believe they have achieved perfection.
This is a new phenomenon. A lot of banks are involved in it.
Only a very small number of banks are involved in it in a very serious way, those committing large amounts of money to these kinds
of trading activities.
To me there are two concerns that overwhelm all the others.
The first is that none of these activities ever impair the safety
and the soundness of the banking system. That is primary. That
is my opinion as a citizen. When I go on the Federal Reserve Board
it will be my opinion even more strongly, because that is one of the
responsibilities of the Board.
Second is the concern that you raised about systemic risk. People
are quite excited now about some of the very large market movements and the role of derivatives in perhaps promoting that. You
hear very large numbers bandied about about the size of this market.
Senator DODD. Right.
Mr. BLINDER. I do not think we know nearly enough about that
to make good judgments.
I think the regulators need to be watching this because it is new,
and it is evolving. This is not a constant phenomenon. If you spoke
about the derivatives market 3 months ago, and the derivative
markets 3 months from now, they are going to look different. So
this is indeed a serious challenge to how nimble regulators can be.
The Federal Reserve, I know, is collecting a tremendous amount
of information on this activity right now.
One thing that needs to be improved, that I do know about already, is better assessments of market risk as opposed to credit
risks. I think the Fed has a fairly good handle, although not a perfect one, on credit risk aspects and therefore how much capital, by
conventional definitions, needs to support activities like that.
FDICIA, as you know, directed the authorities to work on interest-rate risk. I think that was absolutely appropriate. It was something that I as a private economist had long thought should be

Digitized by


It is not easy, but it needs to be done. The derivatives are a particular challenge in that re~ because a lot of these are unconventional instruments. But 1t is a challenge that is not impossible.
I know the Board staff', and I presume the other bank renlators,
are working on this now. There is just a lot more work to l>e done.
But that is a direction in which we must move, I think.
Senator Donn. Well, I would hope-and I know the Chairman
has a strong interest in this subject matterf and we have got a lot
on our plate here in the next few weeks- would hope we might
be able to work very closely with you on this.
There is going to be a lot of activity on the House side on this
issue _pretty' quickly. It seems to me it is in our interest to be involved, to the extent we can be, in obviously the work the Fed is
doing. I am aware of it, and it is very, very helpful in this re28l'd.
So let me extend the invitation to you-and you obviously nave
an interest in it-that as soon as you are confirmed that we set up
maybe some informal meetings to talk about ways in which we can,
maybe through an informal structure in a series of meetings with
Members, begin to talk about what are some of the areas of interest, again based on the Committee agenda and calendar here, and
I will talk with the Chairman who again I know of his interest in
this area. Hopefully we can work very closely with _you.
Last, and a very: quick question to you and I will be through my
questioning. The Chairman and others in the Administration like
Secretary Bentsen on regulatory consolidation has been a major
I think there are some very valuable points in the consolidation
proposals. There were some obvious concerns reflected in news stories appearing today on this sort of tug of war between Treasury
and the Fed.
This has gone on now for a few weeks, and I will just speak for
myself: I am getting tired of it. I expressed some concerns that I
thought were legitimate about who was going to prevail in all of
this, but there are some very sound and important principles incorporated in the consolidation bill· that the Chairman and others
have introduced.
We are getting late in this_year, and now there is talk about the
House not moving on this. But let me use the opportunity here
with you in a confirmation hearing-again, you are not a member
of the Fed yet, but this Senator is losing patience very quickly.
· I would strongly urge at some point here that we just move forward I think the votes exist on this Committee. Then we can talk
maybe in conference or something else down the road. But I think
delaying this process and playing chicken with one another is not
serving the interest of the consumers, the public, or the financial
institutions of this country. I think it had better stop, and stop very
Mr. BLINDER. I will give you a very short answer to that question, which is an agreement.
When this developed as a bone of contention between the Administration and the Fed I was {and am now) in the Administration.
When it became clear that I was _going to be a nominee for the Fed,
I recused myself from the details of this. So I am not up to the
minute; I have deliberately not been up to the minute because

Digitized by


there are elements of this battle, as you have just said, that are
in conflict between the Administration and the Fed.
It is my understanding that the Treasury and the Federal Reserve are very close to an agreement. Now if you ask me, does that
mean 2 days, or 2 weeks, I just do not know because I am not in
the midst of 1t; but very close to an agreement, which will I think,
achieve most of the objectives that various Members of Uris Committee are quite l~timately concerned with-having to do with
consolidation, simplification, reducing complexity and costs both to
the Government and to the banking system, and bringini p-eater
rationality to the system. But at the same time, not wnting the
Federal Reserve out of the system so much that it starts to impair
the Fed's ability to conduct monetary policy, to guard against systematic risk-Senator DODD. Well, that is the point I made earlier. But what
happened, it seems to me, is the Fed took that as sort of a green
light that they did not have to talk. They misread my remarks entirely, if that was the interpretation.
I have heard that "we are close" so many times already, and then
nothing happens. So again I am expressing my own view her!, personally, bec"use obviously other Members ma_y have dinerent
points on this or different feelings about it, but this idea of who is
ahead up here and sort of nose counting as to whether or not there
is a dan1;er of legislation is something I have lost patience with and
I would Just as soon move ahead and let us get the votes together
We can do it that way, but I do not think that is a very 200d
way of proceeding, quite candidly. I would hope we could reacli an
intelligent agreement on what needs to be done. But more than an
adequate time has passed now for that to happen. My view is that
if that is not going to happen that way, then we will do it up here
and move ahead It is obviously the Chairman's call, but that is my
own view.
The CHAIRMAN. I thank the Senator from Connecticut. This has
been a long mating dance and it is time to sort of fet it finished.
I am goin§, to ask you a series of questions that hope you can
give me "yes or "no's" on, because I want to establish this for the
record. We can take a long time doin~ it, or we can do it efficiently.
With two other witnesses coming, lets try to do it efficiently.
The CHAIRMAN. First of all, can I anticipate that you will work
actively and ~gressively to get a financial consolidation, a regulatory consolidation, plan tog~ther if you are confirmed here?
Mr. BLINDER. Absolutely.
The CHAIRMAN. You feel it is important?
Mr. BLINDER. Oh, yes. I would hope it is actually done before I
am on the Board. If it is not, I will certainly, yes.
The CHAm.MAN. We can count on you to get your shoulder to the
wheel in getting that done?
The CHAm.MAN. May I also ask, too, with respect to the Fair
Lending Laws and access to credit on a fair basis and the problems
we have seen with the Boston Fed's study and other things, can we
count on you to be an aggressive, forceful voice on malring sure
Digitized by

81-247 0 - 94 - 2



·that all of the fair lending laws are being enforced vigorously a~ the
Fed including the Community Reinvestment Act?
Mr. BLINDER. Yes, Senator. Those laws are on the books, and I
think Congress put them there for very good reasons.
In the case of Fair Lendinf, I think there are mostly enforcement
issues. In the case of CRA, think there are mostly, at this point.
rulemaking issues that need to be done. And the Federal Reserve
has the responsibility to enforce these laws as best it can. Abs~
The CHAIRMAN. So we can expect some active, vigorous leadership from you on that front?
Mr. BLINDER. Ye~, sir.
The CHAIRMAN. All right.
Now on derivatives, we are having a hearing in this Committee
on May 19, 1994. I am concerned aliout the derivatives, partly because I cannot find anybody out there who can convincingly explain
to me that they understand exactly what is going on. That starts
with the Chairman of the Federal Reserve who in public settings
has indicated that these are very hard to fully comprehend and understand, but many, many others.
The number that is used is that there is something on the order
of $10 trillion in notional value out there in the form of derivative
transactions now.
I am of the view-which is I think sort of a generally held viewthat part of the instability of the long-term bond market recently
was when there was an unwinding of some of these derivative fositions because of the sharp interest rate fluctuations. A lot o the
traffic made its way into the long bond market. So you were seeing
positions being liquidated one wa)' or the other and seeing an abnormal sort of burst of activity in that area.
I think that surprised a lot of people, that you could maybe have
a systemic problem in the derivatives area where, if suddenly there
were a traffic jam of people wanting to exit positions and take
losses before losses got bigger, that you would suddenly see this
bul__ge of activity and this distortion over in the long bond market.
That to me is another reason for us to understand what is going
on here and what the volume is that, under a slightly different set
of circumstances, might descend upon us in a hurry, and what the
implications and complications might be.
What I am most concerned about is whether, among other things,
if private elayers can take losses and want to take risks or create
the possibility of large losses, that is one thing; but to the extent
that we start to ed~e over into an• area where the system itself
would have a hard time clearing all of this activity in a very short
space of time, or by the end of the day in an international financial
system that is cross-connected now, that to be is a source of great
Sometimes these things happen without our knowing that they
happen, that they can build UP. to point where suddenly you are
into a new condition that, until the test comes you are not quite
sure how the system will work.
I think we have to get on top of this derivatives' issue, and I
think there has been too much complacency, quite frankly, in the
•view that somehow markets will sort of work things out in such a

Digitized by


way that, once way or another, we can take the moments of maximum stress. We have to be sure of that, given the enormous buildup in value and the fact that it is coming back through now parts
of the banking system.
There are sharp differences of opinion between the regulators on
this. I am hearin~ different levels of concern from different re_gulators, and there 11 a lot of ideology sort of washing throl!Jh this.
I think we have to understand exactly what the implications
miiht be in terms of just the ability of the system to handle the
rislt that has now been created that way.
I do not see this exactly as easily resolved offsetting risk. I am
all for the hedging operations. I do not disagree with Senator Dodd
in that area. But the whole question of what we can manage in a
short period of time without getting cardiac arrest in part of the
system is a different problem and I am concerned about it.
I would like your pledge that you will take what I consider to be
superior technical knowledge and experience and zero in on that
problem. Can I ask you to do that? Can .I expect that you will?
Mr. BLINDER. Yes. I would be delighted to. This is a very serious
issue. I think you phrased it quite appropriately. We do not quite
know how serious this might be. We need to learn a lot more.
There are very few responsibilities of the Federal Reserve more
fundamental than safeguarding the payments' mechanism. If you
start having difficulties in the payments' mechanism, then all
kinds of things could happen. We must really be sure that that
never happens.
I do not know as much about this market as I will in a month.
I know something about it already. I will know a lot more than I
do in a month.
Just so you understand, I do not come to such issues either with
a pure laissez faire attitude, that the government should never do
an)'thing about any of these things, nor do I come to these issues
with an attitude that the Government should always be regulating
We need to look at these markets. There are things that Government ouJltt to be doing and probably things Government ought not
to be domi, But it is one of the big questions facing the financial
system right now. So I am very happy to say "yes."
The CHAIRMAN. One final thing for me.
I am concerned about the buildup of consumer debt and the
stress that a lot of consumers are under with income streams that
are not as strong maybe as they should be.
There are a lot of families today where both mother and father
are holding as many as two or three jobs each to try to aggregate
enou,di income to be able to provide enough for their family. We
are all familiar with what some of the problems have been out on
the job side.
But as I look at the buildup of consumer debt in all of its forms-credit card debt, these home equity loans which are out there
where people financed houses and got in using adjustable rates
when rates were quite low-I am concerned atiout the degree to
which there is a buildup of pressure of consumer debt on the back
of a lot of sort of citizens out there that may now pose an economic

Digitized by


concern for us. Have you looked at that? Do you have a view on
that? How would you assess that at the moment?
Mr. BLINDER. I have looked at that a little bit, Senator I need
to look at it more. I certainly recognize the legitimacy of the concerns that you are pointing to.
It is the case that the consumer debt burden is now a bit lower
than it was a year or two ~o. Part of that is due to lower interest
rates which, as you just s&1d, are somewhat reversing right now.
Se the fact that it went down due to lower interest rates should
not let us forget the fact that it can go back up again due to higher
interest rates. That is certainly one of the things that members of
the FOMC have to keep on top of. There is no doubt about that.
The CHAIRMAN. Well take a look at that, if you would, as well.
We will have you back at some point, and at that time I am sort
of signaling now the questions that I am going to pursue with you
then and expect you to have a much deeper sense for.
Senator Sarbanes.
Senator SARBANES. Mr. Chairman, I have no further questions.
I would just note the fact that the GAO is about to submit a report
to us on Ma_y 18 with respect to derivatives, and I assume we will
be hearing from the Comptroller General at that time with respect
to this issue.
The CHAIRMAN. Senator Dodd.
Senator DODD. No further questions.
The CHAIRMAN. Thank you, very much.
We may have some additional questions for the record and from
other Members who were not able to be here today.
We thank you very_much. We look forward to moving your nomination along as quickly as we can.
Mr. BLINDER. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Let me excuse you now and call our next nominee.
Mr. Wallman, please come forward and be seatod.

The CHAIRMAN. We will resume now. The Committee will consider the nomination of Steven Wallman to be a Commissioner of
the Securities and Exchange Commission.
Mr. Wallman has an outstandini legal background. Since 1986
he has been a partner in the Washington, DC, law firm of Covington & Burling. He graduated in 1978 from Columbia Universi~
Law School where he was & Harlan Fiske Stone Scholar. He holds
bachelors and masters degrees from MIT. MIT is doing very well
here this morning.
His nomination has received widespread support.
I worked with Mr. Wallman when I served as Chairman of the
Securities Subcommittee in 1987 and 1988, and I know him to be
a distinguished lawyer and a conscientious public servant, and I
am very much in support of his nomination.
Senator Dodd, did you want to make a comment?
Senator DODD. If I could, Mr. Chairman, let me join you in welcoming Mr. Wallman before the Committee.

Digitized by



In many ways, Mr. Chairman, the SEC has one of the broadest
and most important assignments of any governmental agency
charged, as _you well know, with ensuring the honestly and efficient
operation of our capital markets.
The SEC oversees the securities industry and the many thousands of professionals who work in the industry. It also oversees
the operation of mutual funds and other investment companies, an
area which has become critically important to average liouseholds
in recent_years.
The SEC has always been creative in trying to make markets
function better. It has been quick to tackle difficult issues when it
believes the protection of investors or the integrity of the market
is at stake. The challenges are greater now tlian they have ever
been. It is an exciting time, I would say, for Mr. Wallman to be a
Commissioner in an agency engaged in complex and important issues.
I am pleased to say that in my view you are highly qualified to
take on this job. I think President Clinton has made a very fine
selection with your nomination. You certainly have a background,
as the Chairman has already pointed out, that makes :you intellectually qualified to handle the job of a commissioner. Obviously it
is not just a question of intellect; it is a question of having a sense
of values to what is important along with a sense of balance.
I noted in your prepared remarks-and I may not be able to stay
for the entire process here-but in your prepared remarks on page
3 you say:
Entrepreneun raiee money on the basis of a dream and a promise. And when
stock prices do not always follow the expected path, investors justifiable, want to
know why. Distinguishing between fraud and mere changes in circumstances is not
always easy. But we must try harder, lest we encourage frauds and taint our markets on the one hand, or stifle innovation and information and capital flows on the

You know Senator Domenici and I have legislation in the area
of litigation reform in the securities industry. The number of cosponsors are growing almost on a daily basis, the people interested
in this.
I would argue the system is broken. When investors are recovery
6 cents on the dollar in class action suits and the attorneys are collecting outrageous sums, then something is wrong.
When computers generate complaints-I looked at a complaint
the other day where the computer screwed up. Half the complaint
talked about one defendant and the other half of the complaint
talked about another because the computer messed up.
There is something very wrong with the system where merely on
fluctuation, mere fluctuation, you get that kind of activity. There
is a growing interest in that here. We would very much like to
have the SEC's support and involvement with this.
I noted this morning's New York Times with regard to the Supreme Court decision recently on aiding and abetting-excuse me,
The Wall Street Journal, on the aiding and abetting issue, that
some of these cases are being dismissed.
I am going to be very interested in how that is working. That is
an important decision by the Supreme Court. We are foing to have
a hearing on it next week to look at all of this, but would hope
the SEC would slow down before dismissing cases and not over-inDigitized by



terpret what aiding and abetting means here to create more of a
problem than is necessarily the case.
Because I know there is some hostility and opposition to the securities litigation reform proposals we are talking about, and I am
not going to be fooled by all of a sudden dismissing a lot of cases
in tliat area.
There are not a lot. We are talking about 10. But I would like
you to hold up until we decide exactly what that decision meant
and how broad it should be interpreted in my view before trying
to expand it beyond the scope of the decision itself.
Then, obviously, I would be very interested in the SEC's ideas
and suggestions on the securities litigation reform proposal that is
before the Committee.
So with that, Mr. Chairman, I thank you very much for giving
me a chance to welcome our witness. I really wish you well and
look forward to working with you as the Chairman of the Securities
We have had a wonderful working relationship, in my view, with
the SEC in the past. We have had some great successes legislatively up here, and I am looking forward to a continuing positive
The CHAIRMAN. Very good.
Let me ask you now to stand and raise your right hand.
[Witness sworn.]
The CHAIRMAN. Do you swear that the testimony you are about
to _give is the truth, the whole truth, and nothing out the truth, so
help you, God?
Mr. WALLMAN. I do.
The CHAIRMAN. Do you agree to testify before any duly constituted Committee of the Senate?
Mr. WALLMAN. I do.
The CHAIRMAN. Very good.
I know you have some family members here. We would like you
to introduce them and then make your opening statement.
Mr. WALLMAN. The person behind me is my wife, Kathy. I would
like to introduce her.
The CHAIRMAN. Hello, Kathy.
[Mrs. Wallman stands.]
Mr. WALLMAN. And my mother is sitting next to her, Doris.
The CHAIRMAN. Nice to have you.
Mr. WALLMAN. Mr. Chairman, Members, it is with great pleasure
that I appear before you today. It is an honor to have been nominated by President Clinton to serve as a Commissioner of the Securities and Exchange Commission.
I would like to thank you, Mr. Chairman, the other Members of
the Committee, and the Committee staff, many of whom I have
worked with in the past, for ;rour consideration of my nomination.
My first recollection of the Commission dates back to when I was
about 6. I remember my father talking to me outside of a subway
station in Manhattan near the apartment where we lived. He was
talking about what he did. He was a lawyer practicing alone, predominantly handling securities and corporate matters. He had
some issue before the Commission and he was talking about how
tough the agency was and how dogged in the pursuit of its mission.

Digitized by



And, when like 6-year-olds sometimes do, I said something to show
my dad that I was on his side. He told me how fair and right the
Commission was and how terrific a job they were doing. That started me down the road of understanding how good a Federal agency
can be, a road that has led me to share the tremendous respect
that people throughout the world feel for the Commission. If my father were alive today, I know he would be very pleased about my
The Commission's unswerving determination to protect investors
has contributed to the creation of the largest, most efficient and
most envied capital markets in the world. By ensuring the integrity
of those markets, entrepreneurs find capital at reasonable cost, investors retire wealthier, and companies produce products, provide
jobs, and improve the standard of living. In a capitalist system,
protecting investors and preserving market integrity increases the
incentives for investment, decreases the cost of capital, and enhances the potential of society to do better for all of its citizens,
even those who may currently lack the wherewithal to invest.
For the past decade and a half I have practiced law as a corporate and securities attorney fascinated by the evolving potential
of our system to improve our lives. As a Commissioner I would
work to promote that potential and to try to continue to convert it
into reality. I would do so here with the advantage of having the
exceptional leadership of Chairman Levitt and Commissioners
Schapiro, Roberts, and Beese.
The challenges facing the Commission and the markets at any
one time vary with changes in the world. Currently, new communications technologies, computer capabilities, and quantitative
methods allow for the creation of new instruments that can be
traded globally and promise higher returns at lower risks. They
may not always work as intended, but mostly they do. With new
products come new issuers providing additional choices to investors
and services to end users while blurring, and sometimes erasing,
the traditional lines that compartmentalize the financial sector. If
confirmed as a Commissioner, I would hope to work closely with
the banking regulators, the CFI'C, and others on such matters
which are of interest to all of us.
Entrepreneurs raise money on the basis of a dream and a promise. And when stock prices do not always follow the expected path,
investors justifiably want to know why. Distinguishing between
fraud and mere changes in circumstances is not always easy. But
we must try harder lest we encourage frauds and taint our markets
on the one hand, or stifle innovation and information and capital
flows on the other. With an open mind, if confirmed, I would make
it a priority to learn more about these issues and work with this
Committee as it wrestles with a difficult task.
We must work to ensure that emerging democracies have the
benefit of our capital markets' experience and the advantages of
the expertise of our capital markets participants. There are no examples of major, sustained democracies without capital markets'
Participation. I believe the two are inextricably linked. If confirmed, I look forward to working with those around the world who
share a similar view.
Digitized by


Our markets are very efficient and very transparent, and they
consistently improve. If confirmed, I would like to devote attention
to lowering further the cost of capital and ensuring better capital
availability for all our companies, small as well as large, to help
them compete and grow and to help them produce products and
provide services that benefit us all.
At heart it is the promise of what Main Street can do for Wal)
Street, and what Wall Street can do for Main Street, that is so alluring to me and what makes the opportunity to work as a Commissioner and at the Commission such an honor.
Mr. Chairman, if confirmed by the Senate I look forward to working with you, _your colleagues on the Committee, and the Committee staff'. I will be honored to have an opportunity to be part of a
team that protects investors, preserves and enhances the integrity
and efficiency of our markets, facilitates capital formation,
strengthens industry, and thereby improves our society and betters
our world.
Thank you, and I would be pleased to answer any questions you
may have.
The CHAIRMAN. Let me just pose a cou_ple of questions here, and
then Senator Dodd may have some as well.
Last year the Director of the SEC's Division of Enforcement testified for the Agency re~niing the importance of these private securities' fraud suits which Senator Dodd has touched on here this
morning. At that time he said, and I quote:
The impli~d _private right of action under Section lO(b) and Rule 108-6 thereunder is critically important t.o the effective operation of the Federal Securities Jaw.

Two weeks ago the Supreme Court ruled that private investors
may not sue parties who aid and abet securities frauds under the
antifraud provisions of the Federal securities laws. I am wondering,
does this decision unduly restrict the usefulness of shareholder
antifraud suits. If so, would you recommend that the Congress address this decision through legislation?
Mr. WALLMAN. The Central Bank of Denver case that you are re·ferring to is a 5 to 4 tlecision. The minority, in its dissent, stated
that in their view the Commission's enforcement powers with regard to aiding and abettinJ liability would be adversely affected by
the reasoning of the majonty. The majority was silent on that matter.

The Commission has consistently taken the position that the activities of private litigants in connection with enforcing the seC\lrities laws are necessary, appropriate, and critical elements in ensuring investor protection and in ensuring that the markets are efficient and have integrity.
What effect the Central Bank case will have with regard to the
Commission's enforcement power, and what action the Commission
should take at this time, are still being reviewed within the Commission in contemplation of the testimony that the Commission intends to give before Senator Dodd's Subcommittee next Thursday.
I note that in connection with The Wall Street Journal article
today there was a statement from Barry Goldsmith, the chief of
litigation of the Division of Enforcement, that he would be surprised if the number of cases affected by that decision exceeded
much more than ten.

Digitized by


But I have been requestod, and I agree with the request, that it
would be inappropriate for me at this point either to second-guess
or anticipate the Commission's testimony on Thursday. So, for any
further statements I would defer to the Commission's planned testimony.
The CHAlRMAN. Let me just ask you something, too, with respect
to derivatives. You were here for the earlier discussion.
I think it is fair to say that Chairman Levitt has also expressed
some concern about this, and I have been reading news accounts
,of that just recently, as you have. But when we see sophisticated
players like Procter & Gamble and others taking big losses in this
area, I think it is a signal that we need to know a lot more about
I am not sure who today, if anyone, has the financial regulatory
know-how and sort of reach to make sure that we know what is
going on, and that what is going on is within the broad bounds of
sound public policy and, for that matter, some private policy.
I am also concerned about the Kidder, Peabody episode where
substantial losses associated with derivatives were hidden for some
period of time, even within a very sophisticated organization, and
that suggests to me that the firms themselves do not have adequate internal controls, let alone in the sense of from the outside
and the outside regulatory view as to what may be at play here.
I am also wondering whether the Working Group on Financial
Markets, consisting as it does of the Treasur,, the Federal Reserve,
the SEC, and the CFTC, can by itself provide sufficient coordina·
tion in the area of derivatives.
So what I would like now-and you can elaborate on the record
this answer, because we are going to be pressed for time today, and
because we have got another nomination to handle as well, but I
do not want you to feel squeezed by the time in terms of the response that you give to this question because this is a very serious
That is, I would like to know your views as to what additional
steps the SEC ought to be taking in this area, either separately or
in combination with others, and how you see this issue, whether
capital requirements need to be harmonized in some way here
where we really are sort of playing with a set of rules that are
more uniform in terms of across the various playing fields with respect to the different regulatory bodies.
Mr. WALLMAN. Senator, the whole issue of derivatives is one that
is exceedingly complex for a number of different reasons that have
different impacts.
First, the term "derivatives• itself is applied to all sorts of instruments, some of which have been around for an awful long timeoptions, for example, that have been around for centuries-and
that we understand very well, or are familiar with how the markets react, having been used for hedging in certain cases and speculation in other cases, to new instruments that have been around
now for only a few minutes.
Nobody quite knows what these new instruments will do, not because ~el are necessarily so complex no one can figure them out,
but nobOC1y knows for sure how the market will respond and react.
Digitized by



The question of market risk that Alan Blinder mentioned earlier
in addition to credit risk is clearly there. So are guestions that are
similar to the kinds of things that you had mentioned earlier with
rel?BJ'd, for example, to interrelational risk and liquidity risk.
'l'here are a variety of other issues that are called into play with
regard to derivatives. On the other hand, I think we need to r ~ nize that derivatives have also been used for hedging and to avoid
risk, and that in part what derivatives do is allow those who are
willing to pay to avoid risk to do so while permitting others who
are willing to be paid to assume risk also to do so.
If one were to limit or eliminate the ability of persons to assume
risk, you also limit or eliminate the ability of others to avoid risk.
So to some degree we need to be careful with regard to this market. It does constantly change and it is dynamic.
With regard to how the market works, we need to recognize that
it is also global So whatever we do here, whether it be within the
Working Group or otherwise, we need to take into account how our
foreign regulators will react as well as what measures could be put
into place with or without them.
The CHAIRMAN. Let me ask you this: Is there a risk that derivatives could operate in such a fashion, or that certain players could
operate in such a fashion that you could get a kind of a pyramiding
effect, and that in a sense you sort of lever up investment positions
so that you do not just have a first-order issue of a winner and
loser on one side or the other of a transaction, but that you can
get a layering of transactions and an accumulation of risk in such
a way that in effect you can create an amplification and a magnification that may bring something else into play that one would
not think about just in a sort of one-dimension, across-the-table,
two-party transaction?
Mr. WALLMAN. People have certainly speculated, and some believe they have observed, that exact phenomena in various cases.
Whether it is sufficiently widespread for one to try to fix on a regulatory basis worldwide is an interesting question.
The CHAIRMAN. Can we get an answer to that?
Mr. WALLMAN. I think we have to get an answer to that. I think
that some of the steps that have already been taken, the G-30
Study, the GAO study that will be issued shortly, the CF'TC reviews that have already occurred here, the Commission's own internal reviews that are occurring are all aimed-and Alan Blinder
mentioned the Fed is also ptnering information-are all aimed at
getting additional information.
In addition, the FASB importantly is putting forward a project
to ~ to improve disclosure so that end users and others dealing
in derivatives will be presenting better information and be in a position to have better internal controls with regard to their own risk.
You mentioned Kidder. I will not comment on the Kidder case
particularlr, but clearly the question of internal controls is one that
the Commission for a long time has thought was critical. To the extent that you have major industrial companies that believe they
may not have known what was transpiring with regard to these instruments, it is imperative that I think those companies have better internal controls.
The CHAIRMAN. Senator Sarbanes.

Digitized by


Senator SARBANES. Thank you very much, Mr. Chairman.
The first question I want to put to you is whether you intend to
serve out the full term.
Mr. WALLMAN. Yes. Actually, the full term here is a truncated
term as it currently stands, and I certainly do intend to fill it out.
Senator SARBANES. When does it truncate?
Mr. WALLMAN. It is a continuation of the term left by Commissioner Fleishman. It ends in June 1997.
Senator SARBANES. June 1997.
Mr. WALLMAN. Three years or so from now.
Senator SARBANES. Would you entertain continuing to serve?
Senator SARBANES. After that, I mean-Mr. WALLMAN. Yes.
Senator SARBANES. -for yet another term?
Mr. WALLMAN. Yes, I certainly would.
Senator SARBANES. Well I am very pleased to hear that. Unfortunatel;y-, I think increasingly serving on these Commissions is being
used by people as a stepping stone to other things instead of being
seen-not necessarily as the culmination of a career; I do not want
to put it that way-but that you have risen to a very high level
which warrants assuming this very important public responsibility;
and that that is what you are there for, to really serve the public,
and it is not yet another item in one's curriculum vitae then to be
used to sort of further them in some private career.
Of course you have established a very fine record as a partner
in one of the Nation's leading law firms, so you obviously do not
need this as a stepping stone in private practice; and in fact I am
very pleased that we have been able to draw you into assuming
this responsibility. I think Arthur Levitt needs people like/ou on
the Commission with him. So I welcome the nomination an I welcome the response to that question.
I know we are under tight time pressures here, Mr. Chairman,
and I am not going to pursue any substantive questions with Mr.
Those are your two young sons there, I take it?
Mr. WALLMAN. No, those are-The CHAIRMAN. Mr. Diehl's sons. We are going to get to them
Senator SARBANES. Oh, those are Mr. Diehl's sons? Well, I am
jumping the gun.
I thought that-Mr. WALLMAN. I can affirmatively deny that.
Senator SARBANES. I was struck by the story you told about the
conversation you had with your father very many years ago. We
hope that you are going to contribute to that standard he spoke
about with respect to the Commission and the work it was doing
and its responsibilities.
I wish you well in the task that lies ahead of you.
Mr. WALLMAN. Thank you, Senator. I have been looking forward
to the opportunity to be m public service for an awfully long time.

Digitized by


That is why I came to Washington in the first instance, so this is
quite a great honor and privilege for me.
Senator SARBANES. Good luck to you. Thank you.
The CHAIRMAN. Thank you very much. We appreciate the sentiment you just expressed.
We will have additional written questions for you for the record,
I am sure, from other Members. That will conclude our questioning

We thank you. Let me excuse you now and invite Mr. Diehl to
come to the table.
Next we are moving to consider the nomination of Philip Diehl
of Texas to be Director of the U.S. Mint.
Mr. Diehl is familiar to many of us because of his long and distingujshed association with Senator-and now Treasury Secretary
Lloyd Bentsen.
As was mentioned earlier b>7 Congressman Pickle, he has served
as Senator Bentsen's Legislative Director and later his Staff Director on the Senate Finance Committee.
I want to say at the outset that I strongly support 1,our nomination. He comes before us today with outstanding qualifications and
In addition to the previous service, he has also worked as a
teaching assistant at Stanford; been a public policy and economic
researcher for the Texas State Comptroller; worked for as a Constitutional law research consultant for Pillsbury Madison & Sutro
in San Francisco; and served as the Director of Telephone Re~ation at the Texas Comptroller's Office to the Texas Public Utility
Commission. He has had other important duties, as well.
He is currently serving as the Executive Deputy Director of the
Mint where, from all reports, he is doing an excellent job. I know
him to be highly knowledgeable with respect to all aspects of the
Mint, and we look forward to having you serve there in a distinguished way.
Let me now ask _you to stand and take the oath.
Do you swear that .the testimony you are about to .rtve is the
truth, the whole truth, and nothing but the truth, so help you,
Mr. DIEHL. I do.
The CHAIRMAN. Do you agree to appear and testify before any
duly constituted Committee of the Senate?
Mr. DIEHL. Yes, I do.
The CHAIRMAN. Why don't you go ahead and introduce your family and your two handsome young sons there and your wife-or is
that your daughter?

Mr. DIEHL. This is my wife, Jacquita, and my son Michael, and
my_son Alex.
The CHAIRMAN. Nice to have_you here.
Mr. DIEHL. Thank you, Mr. Chairman.
Senator SARBANES. I welcome those two young men, and I apologize.

Digitized by



The CHAIRMAN. You [speakini to Michael and Alex Diehl] will
have to come up here and sit this chair when we finish so )'_QU can
just see how it feels and see how it looks from this end. We will
do that when we finish here.
Mr. DIEHL. Thank you very much, Mr. Chairman, Mr. Sarbanes.
It is an honor to come before the Senate Committee on Banking,
Housing, and Urban Affairs as President Clinton's nominee to be
Director of the United States Mint.
As you know, the U.S. Mint is one of the Nation's oldest Federal
agencies with a history dating back over 200 years. Unlike the
Treasury Department of which the Mint is a part, the U.S. Mint
traces its origins to Thomas Jefferson rather than his political and
ideological rival, Alexander Hamilton.
Among his many other interests, Jefferson was a coin collector
and had strong opinions regarding the type of coinage system the
Nation would need to ensure the efficient flow of goods and services
within its borders.
Out of his commitment to economic growth and equity, Jefferson
authored, and advocated to eventual adoption by the Congress, the
decimal coinage system we use today. He also founded the United
States Mint during his tenure as the Nation's first Secretary of
Today the U.S. Mint has grown into a billion dollar a year international manufacturing and marketing enterprise with 2,200 employees, the largest coin production operation in the world. If the
Mint were a private concern, it would be counted among the Fortune 500.
In 1993, the Mint produced over 14 billion circulating coins valued at more than $500 million and generating over $300 million in
seigniorage profits to finance the Federal debt, making the Mint
one of the few Federal agencies to generate a profit. Faster economic growth in 1994 will boost coin production demand by 25 percent to some 18 billion coins.
In 1993, the Mint also produced and sold some 40 million coins
in bullion and numismatic markets around the world, generating
another $40 million in profits for the Federal treasury and $20 million in surcharges for sponsoring organizations authorized by Congress to receive these funds.
All tolled, the Mint commemorative programs over the past decade have raised $250 million for sponsoring organizations, providing funding for the training of Olympic athletes, the restoration of
the Statue of Liberty and the Statue of Freedom on the Capitol
Dome, fellowships for study and teaching related to the U.S. Constitution, and to complete the circle in 1994, an endowment to preserve Monticello, the home of Thomas Jefferson.
These commemorative programs and the gold and silver bullion
American Eagle programs play important roles in supporting demand in the U.S. gold, silver and copper mining industries, providing jobs for American miners and coin strip manufacturers, and allowing for controlled disposal of excess supplies from the Federal
stockpile of silver.
In the process of making these contributions to the U.S. economy,
the U.S. Mint has built the American Eagle into the most successful bullion coin program in the world, with the Silver Eagle taking

Digitized by



70 to 80 percent of the world market and and registering total
sales of over 55 million one-ounce silver dollars. Likewise, the gold
Eagle, after competing in world bullion markets for only 7 years,
is now the world market-share leader with total sales of over 6 million ounces of gold.
If I am confirmed by the Senate as Director of the United States
Mint, I intend to pursue three priorities during my term.
First, the Mint is one of three Treaslll)' bureaus that has not received a clean audit from its outside auditors under the Chief Financial Officers Act. My first priority will be to implement an aggressive schedule of financial management improvements that will
lay the foundation for the Mint to receive a clean audit within 2
The CHAIRMAN. Good for you.
Senator SARBANES. Yes.
Mr. DIEHL. In fact, we have already begun this effort in the past
6 months and I can report that good progress has been made with
the Mint obtaining an unqualified opinion on its manufacturing
balance sheets.
Second, the Mint shares with this Committee a challenge on
which I hope we can make progress in the near future: Finding a
means of controlling the continuing proliferation of commemorative
coin programs.
As the Congress recognized in 1992 when establishing the Citizens Commemorative Coin Advisory Committee, and again in a
Sense of the Congress Resolution passed in 1993, the Congress is
authorizing the production of a rapidly increasing number of coin
programs into a shrinking market for commemorative coins.
This proliferation of coin programs is testing the limits of both
collectors' willingness to buy and the Mint's ability to produce and
market in a business-like fashion.
Last November Secretary Bentsen appointed the members of the
Citizens Advisory Committee, which was created by Congress to
provide advice on how to limit the number of commemorative programs. This Committee will produce a report before the end of this
year recommending a 5-year plan of commemorations and suggesting additional actions which might be considered to address this
Third, there are opportunities on several fronts for the Mint to
increase its profitability and thereby make a larger contribution to
financing the Federal debt, and increasing employment among the
Mint's private-sector suppliers.
One opportunity is through the acquisition of more modem communications and production technology and the adoption of modem
personnel· management practices.
I am persuaded that in this regard the Mint is especially ripe for
"reinvention," with a significant potential for productivity improvements and savings.
I believe there are opportunities over the mid-term to expand
coin collecting into geographic and demographic markets that in
the past have shown little interest in numismatics.
One reason the commemorative coin sales have declined over the
past decade is that the Mint has invested little in expanding its

Digitized by


markets beyond the white males over 50 years of age who dominate
our customer base.
We must develop marketing strategies that expand the appeal of
coin collecting into younger and more ethnically diverse markets in
order to respond to the rising demands in Congress for authorization of commemorative programs.
Finally, the Mint must secure the loyalties of its long-time customer base, as well as its new customers, by rapidly improving customer service, enhancing the artistic appeal of our products, and
expanding the range of commemorative themes beyond the athletic,
military, and veteran themes that have dominated coin programs
over the past decade.
The Citizens Commemorative Coin Advisory Committee will address the matter of commemorative themes in its 5-year plan to be
issued later this year.
The Mint has already begun a major effort to improve customer
service by cutting in half average order fulfillment time and improving the responsiveness at our customer service center.
I want to take this opportunity in closing to thank President
Clinton for the honor of this nomination, and Secretary Bentsen for
his continuing support and confidence.
I also want to thank my wife and my sons for the patience with
which they have accommodated the demands of life in official
Washington over the last 3½ years.
That concludes my statement. I am happy to answer any questions.
The CHAIRMAN. Very good. Good statement. You have covered
the waterfront, and I appreciate that.
I am going to just pose one question to you, and I am going to
have you give me a brief answer. If you want to elaborate for the
record. I would like you to do that.
We have a GAO report that suggested that the replacement of
the $1 Federal Reserve Note with a $1 coin could save up to $395
million in production costs in the 14th year of a 30-year program.
So this is a complex issue.
According to the GAO, key elements for the successful conversion
to the $1 coin are, number one, elimination of the $1 paper note;
a reasonable transition period; a well-designed coin; adequate public awareness of the change; and administrative and congressional
support. So it is not a simple matter. Do you have a position regarding the $1 coin, yourself?
Mr. DIEHL. No, I do not. The Administration has not yet determined its position on the $1 coin, although it is under active consideration in the Treasury De.partment as we speak, as a matter
of fact.
I think the GAO has it exactly right. We have had several failed
experiments with $1 coins, the most recent being the Susan B.
AnthonyThe CHAIRMAN. Right.
Mr. DIEHL. -and the Mint is very sensitive about what it believes are the requirements necessary to have a successful program.
There are foreign governments that have made this transition
and they have shown us how to do it if we choose to do it. I think

Digitized by



it is absolutely essential that we make a commitment up front to
eliminate the $1 bill in order to ensure the success of the $1 coin,
and also to have an appropriate transition period.
I say that one concern, a parochial concern from the point of view
of the Mint, regarding the current legislation eendin~ in Congress
is that it only provides for an 18-month transition penod, if I recall
correctly. I think we probably need something closer to 30 months
to make that a reality.
We also need to make a commitment to spend the funds necessary in order to conduct a public relations campaign to prepare
the American people for the transition to a $1 coin. The Canadians
did that when they introduced the maple leaf, and I think it went
a long way to smoothing the path.
The CHAmMAN. Thank you, very much.
We will give you other questions for the record. I think we have
covered the ground we need to now, so I am going to put the Committee into recess and I am going to invite you to bring your boys
up here and let them look at things from this end of the room.
Mr. DIEHL. Thank you, very much.
The CHAmMAN. The Committee stands in recess.
[Whereupon, at 12:35 p.m., the Committee was recessed, t.o reconvene upon the Call of the Chair.]
[Prepared statements, response to written questions, and additional material supplied for the record follow:]

Digitized by


Chairman Riegle, Memben of the Committee, I am pleased to appear before you
today to intmduc:e Philip N. Diehl, President Clinton's nominee for Director of the
United States Mint.
Philip baa IUD888ed exceptional experience and expertise in both the public and
private aecton. He has been Executive Deputy Director of the Mint since lut Sept.ember and he baa served Secretary Bentsen as Counselor and Chief of Staff. Prior
to moving_ to the Treasury on Janull1:)' 21, 1993, he was Staff Director of the Senate
Finance Committee and Legislative Director for Senator Bentsen. These two offices
have had a reputation for being run according to Senator Bentaen'a buaineu-like
and in my judgment Philip was largely responsible for maintaining that


fore joining Senator Bentsen in 1991, Philip worked in both the public and private sector of the telecommunications industry. He was Vice President of Regulatory
Affairs for International Telecharge Inc., a long distance telephone company in Dallas, Texas, and was Director of Telephone Regulation for the Texas Public Utility
Commission. He also baa had extensive experience in the management of public ana
liacal policy research with the State Comptroller's Office in Austin. He will bring
practical buaineu experience and extensive knowledge of the public sector to bear
m thia new job aa Diredor of the United States Mint.
I mi,dit .ad that aa Director of the Mint, Mr. Diehl will be leading__one of the few
Federal agencies that actually returns a profit to the United States Treasury. Having watched his work on the funding formulas in the 1991 Humway Bill, I have no
dm'bt. he can do FOR the Federal Treasury what he baa hefped Senator Bentsen
do for Texas 1rith those funding formulas. (By the way, Mr. Chairman, I believe the
State of Michi,ran was one of the big winnen under those reforms.)
I am pleaaecl to note that Philip is a former constituent of mine aa a long-time
resident of Austin, Teua. In addition to his career in State government, he earned
a Muter of Arte in Government at the Univenity of Texas at Austin.
Philip Diehl'• eq,erience, knowledge, and energy make him uniquely suited to the
directonhip of the United States Mint. He is a strong advocate for making Government more efficient and responsive. Reinventing the mint is a big job, but aa we
say down in Texas, it ain't no step for a Bt.efper, and Philip is a stepper. Let'• face
it, anybody capable of being Uoyd Bentsen a top hand is capable of handling just
about anytbinj!
I am deliglited to appear before you today, Mr. Chairman, and to formally- introduce Philip Diehl to you aa the President's nominee to be Director of the United
States Mint.


Mr. Chairman, thank you for holding this hearing on the nominations of Alan

Blinder for Vice Chairman of the Board of Governors of the Federal Reserve, Steven
Wallman for Commiuioner of the Securities and Exchange CommiBBion, and Philip
Diehl as the Director of the Mint.
Mr. Blinder is not a stranger to this room. About 9 months ago he aat at that
~ table for his confirmation hearing to be a member of the President's Council
of Economic Advisers. Even though the move from the Old Executive Office Building
lo the Federal Reserve Board is a short move distance-wise, the move job-wise will
be miles apart. In your former _position at the CEA, you, along with Ms. '!)raon and
Mr. Stiglitz, were Jiven the task of advising the President on economic polil:l'-_ However, your mggeat10ns did not throw the financial markets into an uproar. The determinations you make at the Federal Reserve will affect a lot of people. The world
financial markets will hang on every word you, the other governors, and Mr. Greenlpln, will aay. You cannot t.ake that power for granted.
Mr. Wallman, I welcome you to the Banking Committee. In your qualifications,
JOU atate that you are deeply committed to protecting and enhancintr the interests
~r the investing public and to promoting the ability of American buameBB to create
~ and to enliance the standard of livin_g within our market structure. I agree with·
>IWI phil010phy and I hope that you will be able to meet that J!Oal. The SEC must
play an active role in seeing that people feel aafe and secure 1n investing in businea.

Digitized by


l.Doking at passed and proposed legislation dealina with the minting of ooina, the
need for a e&I>&ble and responsible director for the""Mint becomes obvious. During
the past two Congresses, there has been a proliferation of commemorative coin ~
grama. Aa these projects go into effect, it is imperative to have a competent individual who can accurately foresee the implications of these coins and effectively man•
age the operations of the Mint.
Since Mr. Diehl has joined the Mint's staff as Executive Deputy Director he hu
taken an active role in the formation of the Citizens Commemorative Coin Advisory
Committee by serving as its Chairman. I, along with my colleagues, look forward
to the reec,rt the Advisory Committee is preparing.
There 1B reason to beheve, based upon his_ performance to date that Philip Diehl
is <JU&lified for the position of Director of the Mint.
Again, I want to thank the Chairman for promptly scheduling these nominations.


fd like to welcome you here today Dr. Blinder.
You are without a doubt, superi>ly qualified for the position of Vice Chairman of
the Federal Reserve Board. I think we are fortunate to have someone of your caliber
ready and willing to serve in such an important position.
The Committee is f&m1liar with your record and your views. It was less than 10
months ago that you were here before us as a nominee to the Council of Economic
Advisers. However, since you last appeared that relatively short time ago, the domestic and international economic landscape has changed quite a bit.
The Federal Reserve has raised short-term interest rates three times. We have
had periods of intense volatility in our financial markets. International trade tensions with Japan have increased considerably. The dollar has slid to historic )owe
relative to other currencies. And these are just a few of the- more significant developments in recent months.
It is an enormously challenging time for economic policymakers. Getting ~
arms around a domestic and international economy which are more intertwined
than ever before is no easy task.
The instruction manual that the Fed and others have used to steer the economy
for many r_ears is outdated, but we're not exactly sure in what ways. In many re•
specte, we re simply no longer sure what button moves what lever.
This is particular true in terms of monetary policy. And it brings me to my concern about the recent Fed interest rate increases. Aa a Member from a State and
a region that have been economically devastated over the last several years and
have yet to recover, I am very concerned about the impact of the recent rate in•
creases. Whatever, economic recovery may be under way-and I have doubts about
it in my State-it is going to be strangled.
How sure is the Fed about the nature and origins of the "inflation" it is fighting.
Are our traditional gauges of inflation and economic growth still relevant? Have we
identified the right enemy and are we fighting the right battle?
I am very interested on your thoughts on this matter.


Mr. Chairman and Members of the Committee, this is the second time in less
than a year that I have appeared before You as a nominee, and I want to thank
you once again for the speed with whichlou are handling my nomination. I know
the Committee has a crowded agenda, an I appreciate the prompt attention. There
is important work to be done at the Federal Reserve, and, with the Committee's approval, I look forward to getting down to business as soon as JIClSSible.
I would like to say, first, that I am deeply honored that President Clinton has
nominated me to be Vice Chairman of the Board of Governors. Havinjr spent much
of my adult life watching monetary policy from a distance and studying its effects
on the economy, I am keenly aware of how difficult the Fed's job is-and how important. Millions of Americans who haven't the slightest idea of what the Fed does are

Digitized by


nonetheleaa affected by its decisions. So I approach this lllllignment with a mixture
of humility and awe-and with the utmost aerioumeaa.
Because I wu before this Committee ao recently, I will be very brief on penonal
biOlll'&eh_y and set right down to my views on monetary policy and the role of the
Federal Reserve.

I waa bom in New York, but since 19ing to collep in 1963 I have lived 111011t of
life in the Third Federal Reserve District (Philadelphia). M_y A.B. deirree from
Princeton University, M.SC. from the u,ndon School of'Econonnca, and Fft.D. from
MIT are all in economics. From 1971 until I joined the Clinton Administration in
January 1993, I taught at Princeton; and I am still a faculty member there, on unpaid leave of abeence. My academic writings include more than 50 articles and several books about macroeconomics or monetary ~licy. I am alao the co-author of a
textbook from which well over a million students have learned introductory economica. Finally, for almost 12 yeara I wrote monthly newspaper and magazine articles
on a wide variety of economic iaauea.
At present, I am serving aa a Member· of President Clinton's Council of Economic
Adviaen. where macroeconomic monitoring,__forecaating, and policy are amo~ my
~ reaponsibilitiea. Needleu to aay, my CEA job baa involved me in m!lJlY diacusaiona of interest rate, and monetary policy, including periodic talks with Federal Reserve governors and staff. So I am quite familiar with current and~ proapective fu.
ture monetary policy i88Uel. While I am rushing to educate myself on the man1,
legal and re_gulatoty iuuea facing the Fed, I would like to a~logize in advance if
I am not u knowledgeable on these matten u I should be-aiid aoon will be.


As I mentioned. monetary policy is an arcane art, understood b,: few but affecting
IJ!llDY· It is one ot the two major tool, the Government baa for influencing the pace
of macroeconomic activity-tlie other being fiecal policy. In today', environment,
however, with the macroeconomic aspects. of fl8Cal policy all but locked in for 5 years
by OBRA93, monetary policy must 'bear almost the entire burden of stabilization

po;:!~tary management wu never an e&8)' job. And. nowadays, with the financial
nuukets more COIJ!Plex-and more global-than ever before, it i1 harder than ever.
Furthermore, u Chairman Greenspan bu noted, the traditional monetary agregates are currently of relatively little use u _guideposts. So the Fed really bu no
choice but to watch everything and make its beat ju~nts about when the economy need& to be •purred on and when it needs to be remed in to guard !IJainat inflation. Nowadar,, c:hanp1 in the Federal funds rate are the normal vehicle for putting auch decisions into effect.
Thia brief characterization of monetary policy aeema to encapsulate the way the
Fed hu been conducting its buaineu of late, and it ia a framework with which I
feel quite comfortable. At this juncture in history, no one on the FOMC can afford
to be dogmatic:, nor to swear allegiance to any one ))articular indicator. Paul Samuelaon once Bald that the IArd gave u1 two e)'ell ao that we could watch both intereat rates and the money supply. Thanks to the explosion of electronic information
gathering and proceuing, we now have, in effect, many more than two eye1. That'•
fortunate, for we need to be watching many things at once.

But the techniques of monetall' policy are far leBB important than the objective,.
What should be the Fed's aoala? To me, this ia a simple ql)estion, for Congreaa bu
prescribed them in the Federal Reserve Act, aa amended: "to promote effectively the
aoala of maximum employment, stable pricea, and moderate long-term interest
rates.• Let me aa,: a few words about each.
Maximum employment: "Maximum employment• cannot be taken literally. In
principle, every penon in America could be at work; but this ia hardly desirable.
A IIIJ'BI! aynamic economy like oun will always have millions of people who are, in
a real aenae, between jo6s. Some are looking to improve their proapecta; aome have
recently )oat their jobs and are looking for new ones; aome have akilla that do not
match the available jobs and need retraining; and ao on. Economiata aay that, at
any point in time, tlie economy haa a "natural rate of unem_ployment" which, to a
rll'llt approximation, cannot be changed by monetary or fiscal policy. So I interpret
the goal of •maximum employment• to mean limiting unemployment to this natural


Moderate long-term interest rates: To a significant degree, •moderate long-term in-

tereat rates" follow directly from stable prices; and I will dwell on that in a moment.
But, in addition to the inflation component, interest rates have a real component.

Digitized by


The plain fact is that, while monetary policy hu a profound effect on long-t.erm inflationary expectations, its influence on real long rates is indirect and muted. Otha:
facton, such as the balance of private saving and investment and pro11pecta for the
Federal budget, have larger effects on real long rates. In this respect, I haw been
proud to be 8880Ciated with the Clinton Administration's efforts to bring down the
Federal budget deficit.
Stable prices: "Stable prices" translates directly to low inflation. Some would even
say zero inflation, but this is a more elusive concept than it seems. Different price
indexes offer different mea1111rea of inflation. For example, over the last year the
core CPI has increased 2.9 percent; the core PPI has increased just 0.4 percent; and
the GDP deflator is up 1.9 percent. These numbers are all different, but they all
share one thing in common: They are at or near the lowest readings in a generation.
We have, indeed, made great strides in reducing inflation, and this achievement
should neither be forgotten nor belittled.
Another set of complications in defining stable prices stems from meaaurement
problems which make price indexes overstate inflation. Among these are difficulties
m adjusting for improvements in quality and for new products, and conaumers' ten•
dencies to shift spending toward products and sales outlets that charge lower prices.
Analysts believe that the CPI, for example, may overstate inflation by between 0.5
percent and 1.5 percent per annum. So, just as zero measured unemployment is an
mappropriate translation of "maximum employment," zero measured inflation is an
inappropriate translation of •stable prices:
Chairman Greenspan has said that his working definition of stable prices is when
inflationary expectations do not play a role in household and business decisions. I
have often used a similar definition: When people stop talking about inflation. By
either of these definitions, the United States now looks to be close to, but not quite
at, stable prices.
Since I have been accused of being "soft on inflation," I would like to take a few
minutes to clarify my views on the subject.
First, it is clear that lower inflation is always better than higher inflation-at
least until we reach zero "true" inflation. In a book of mine which has been cited
as evidence that I am a "friend• of inflation, I wrote:
Inflation does indeed bring losses of efficiency. It also makes people feel
insecure and unhappy. We would no doubt be better off without it. (Hard
Heads, Soft Hearts, p. 51)
rm not 1111re how that makes me a friend of inflation. To me, the only real ques•
tions are: How low should we try to push inflation and how fast? At what point is
the benefit of further inflation reduction worth the incremental cost of achieving it?
Second, there is no magic bullet for fighting inflation. The painful truth is that
reducing inflation is costly. America paid a very high price-a deep and long reces•
sion-to bring inflation down from about 10 percent to about 4 percent in the early
1980's. But that price was necessary because double-digit inflation was intolerable.
Then, after we overshot normal capacity and inflation crept back above 5 pereent
in 1989-1990, we suffered through another, albeit smaller, recession to bring it back
down to its current level of below 3 percent. These costs were not abstract. Millions
of Americans lost their jobs, some for long periods of time.
Having paid the price to achieve these gains on the inflation front, it would be
sheer folly to squander them now. There is simply no good reason to push the econ•
omy beyond its normal capacity and into the inflationary zone; any job gains we enjoyed in the short run would be balanced by job losses later. If unemployment is
to be pushed below the currently estimated natural rate, it mu~t be done by structural policies-like education and training-not by monetary pohc~.
Third short-run fluctuations in inflation depend on more than Just monetary policy. Fisc'al policy, through its effects on aggre~ate de~and, can be either inflationary
or disinflationary. Food prices and energy pnces, wh1~h are largely beyond our control can push inflation up or down for a while. Sometimes we are unlucky, as when
OPEC struck in 1973-74 and 1979-80, and inflation shoots up. Sometimes we are
lucky, and inflation declines, 81! in 1~85-86 and again last year. _If monetary policy
is used to cut our losses on the mflat1on front when luck runs aga1nst us, and pocket
the gains when good fortune runs our way, we can continue to chip away at the
already-low inflation rate.
Fourth, and rmally, there is wisdom in the old adage that where you stand depends on where you sit. The Federal Reserve is society's ultimate bulwark against
inflation, and this stark fact gives every member of the Board a special responsibility that, for example, I never had as an outsider. It is the reason, I think, that Congress wisely gave the Fed so much political independence.

Digitized by


The intent of Congreu wu, _pretty clearly, to ellllUre that the Fed would be able

t.o take the long view and do what ia beat for the economy, puaing up opportunitie1
t.o rea_p short-run gains at the expense of the econom,)"■ king-run interest■. If you

take the long view, there are really no conflict■ among the three 8'1al■ that Congreu
pve the Fed: maximum employment, ■table price■, and moderate long-term interest
. Given what I have just ■aid, it will not ~ you that I strongly ■upport the
independence of the Fed. The main reason ia ■llD.ple: I think an independent central
bani i■ beat for the long-run economic welfare of the country.
But independence need not and should not mean aJTOpnce, insensitivity, or lack
of ICCOUntal>ility. The Fed iahould not watch election return■ or public opinion polla,
but it lhould watch the well-beina of the proverbial man and woman on the street.
And it lhould alwar remember tliat it bu 260 million client■. The American people
do not want inflation, and they do want jobs. That'■ what Congreu bu uked the
Fed to deliver, and that'■ what it should t!'Y to do. Yea, the Fed ia judged eve~day
bJ the financial market■• But these are fleeting evaluation■• It■ ultimate ju
the publio-and history. In fact, I believe that the ultimate, long-run verdict■ o the
martet■, the public, and the hi■toiy book■ will all be the same.
Independence al■o need not and should not mean mystery. The minutia of central
~ will alway■ be mysterious to moat ~pie; nor do they much care. But the
Fed'■ tia■ic decisions about monetuy policy affect aimo■t eve~ne.- And while the
/JTD«a of readiliur them ia beat conducted in private, 80 that frank intermange ia
8JlCXIUrqed. the d«iaona themselves ■hould lie tran■J)!lrent. In this renrd. I a~
plmd tlie -Feel'■ recent ~ of announcing FOMC decision■ explicitly and
~ rathe:r than leavmg market■ g11e1■ing while professional Fed-watchen di'nlle \ta intention■• It i■ a step I have long advocated, and I hor. it will become a
permanent put of the Fed'■ oper_ating procedure■. Indeed, I think the Fed can do
a better job than it ha■ to date of explaining it■ goal■ and policies to the American



and Memben of the Committee, I thank you for
and hope
lhia ltatement bu conveyed to you my basic view■ on monetary policy. I would now
be happy to an■wer any question■ you might have.

Digitized by



Name: _ _.B..J..x..NP




Position to which Vice Chai1'11An, Board of Governor■ of
Date of
A 11 22 1994
tlte h ■ -tt•
nomination: __P_r___,_____
Date of birth:
Place of blrth:_B_ro_o_k_l_yn_,_N_ew_Y_o_r_k_ _ _ _ _ _ _ _ __


Marital status:




full name of spouse: Madeline Donna Blinder



Name and aps
Scott Blinder, 21
of children: _ _ _ _ _ _ _ _ __

Willig Blinder, IZ





Massachusetts Institute
of Technology
London School of Economics
& Political Science

9/69 - 8/71



9/67 - 7/68



Princeton University

9/63 - 6/67



Syoaset High School

9/59 - 6/63





Honors and awards: List below all scholarships, fellowships, honorary de1rees, military medals, honorary socitl
memberships, .and any other special recosnitlons for outstandin1 service or achiavametl

Fulbright, London, 1967-1968
NDEA Graduate Fellowship, 1969-1971

Professional: Fellow, American Academy of Arts and Sciences, 1991Vice President, American Economic Association, 1 989
Vice President, Eastern Economic Association, 1992-93
Richard T. Ely Lecturer, American Economic Association
W.S. Woytinsky Lecturer, Univ. of Michigan, 12/81
Fellow of the Econometric Society, 1981Visiting Scholar, Russell Sage Foundation, 1991-92
Visiting Scholar, Economic Planning Agency, Tokyo,
Summer 1991
Visiting Fellpv, Brookings Institution, 1985-86
Fellow, Institute for Advanced Studies, Hebrew Univ.
of Jerusalem, 1976-77

Digitized by



List below all memberships and offic:es held in professional, fraternal, business, scholarly,
civic, charitable and other or1anizations.

(ii any)

----------- -------(SEE ATTACBED C. V. )

Employment 1'9COrd: List bel- all positions held since collep, lncludln1 the title or description of job, name of
employment. location of work. and dates of Inclusive employment.

Keaber, President's Council of Econoaic Advisers
ro •••or o
conomics, Princeton University, 9/71 to Present
Self-a.ployed aa writer, public speaker, at hoae, 9/71 tg I/93
Visiting Scholar, Russell Sage FoUDdatioa, 9/91 to 8/92
Viaiting Fellow, Brookings Institution, 9/85 to 6/86
Visiting Fellow, National Bureau of Econoaic Research, 9/80 to 6/81
Deputy Assistant Director, Congressional Budget Office, 5/75 cg 9/75
Economics Instructor, Boston State College, 1969
Finance Instructor, Rider College, 1968 to 1969


Digitized by



Ust any experience in or dirKt association with Federal. State. or local pei .., . .a, •
cludin1 any ldviso,y, -native. honon,y or other part-time a.vice or positions.

Neaber, Preaident'a Council of !c:.,_ic MTiaera, 1/93 to P r Deputy Aeaiatant Director, Con1reaaional lud&et Office, S/75 - 9/75
Alao, He attached


for a liatin& of Congreaaional ~ t t e a

1 tiltifDd Aidtl.



List ttae titles, publishlts and dates of books. articles, r9POl'll or atlllr publlslled ~ :.:
)'1111 " - written.

SD ATTACBm C.V. plua liat of n-•paper and aapziDe articl.ea.

and activities:

Ust all memberships and offices held in and HfVicn rendarad to all political parties or
election committHs durin1 the last 10 Y9ars.

I have been an adviaor to the Clinton and Dukakia campaigns.


Digitized by



ttemize all political contributions of S500 or more to any individual, campai1n or1aniza.
tion. political party, political action committee or similar entity during the last e11ht
years and identify the specific amounts. dates, and names of the recipients.


State fully your qualifications to ..,,,. in the position to which you have been named.

Futin employment
1. Indicate whether you will all connections with your prqMt 1111ployer, businesa
firm, association or Ol'l■nization If you are confirmed by the Senate.

I a on offietal leave froa Princeton University. Since joining the .
•Council of Econoaic Adviser ■, I have severed all connections with other

eaptuyeta, a■■ bCiltiODi, and organizations with which I had past contact

other than purely honorific or professional associations.
2. As far II can be , _ , state whether you h.,,. any plans after completlnc IOYWn•
ment service to resume employment, affiliation or practice with your previous e,r,.
pl~r. business firm, association or orpnization.

I expect to return to Princeton University.

3. Has anybody made you a commitment to a job after you law 1QWmmentl


4. Do you expect to ..,,,. the full term for which you haw been appolntedl


Digitized by




Attachment to Senate Banking Questionnaire
Qualifications. page 4:
While the Federal Reserve has many tasks, its principal
responsibility is surely the conduct of monetary policy.
Effective monetary management, in turn, is predicated on careful
study and analysis of all aspects of the macroeconomy--a task to
which the Fed, appropriately, devotes enormous staff resources.
Most of my professional life has been devoted to precisely this
subject: theoretical and empirical research on macroeconomics. At
the time, I was not thinking of any of this as preparation for
being Vice Chairman of the Federal Reserve Board. But, in
retrospect, much of my career turns out to have been directly
relevant to the job to which I have been nominated.
Several of my earliest research projects dealt with the
measurement and evaluation of monetary policy ("New Measures of
Monetary and Fiscal Policy, 1958-1973," Alnerican Economic Review.
December 1976, pp. 780-796 (with Stephen M. Goldfeld), and
"Implications of Endogenous stabilization Policy," Brookings
Papers on Economic Activity 3, 1972, pp. 585-640 (with Stephen M.
Goldfeld)), and the subject has been a continuing interest of
mine throughout my academic career--both as author and teacher.
In fact, my most frequently-cited scholarly paper ("Does Fiscal
Policy Matter?," Journal of Public Economics, November 1973, pp.
319-337 (with Robert M. Solow)) examines the interaction between
budget deficits and monetary policit- Several of the last
scholarly papers I published before joining the government
related either directly ("The Federal Funds Rate and the Channels
of Monetary Transmission," American Economic Review, Vol. 82, No.
4, September 1992, pp. 901-921 (with Ben Bernanke)) or indirectly
("On Sticky Prices: Academic Theories Meet the Real World,"
Monetary Policy. forthcoming, (edited by N. Greg Mankiw)) to the
conduct of monetary policy. All together, I have written or
coauthored 18 papers that were explicitly about monetary policy
and another 37, plus several books, on related topics in
Academic economists are often aloof from practical policy
debates; but I have not been. For years I watched the Fed's
behavior closely from the outside, wrote about it in newspapers
and magazines, participated in Fed advisory groups, and testified
about monetary policy before Congressional committees. Sometimes
I was critical of the Fed's decisions, sometimes full of praise.
But all of this Fed-watching has given me a deep appreciation of
the subtleties and difficulties of conducting monetary policy. It
is not an easy job, and I have learned from both the Fed's errors
and its triumphs.

Digitized by


Ollalificatiop■, RISI

t (cont'd):

Since I joined the Council of Economic Advisers in January
1993, a large part of my job has been macroeconomic analysis and
torecasting--which includes, among other things, study and
analysis of the Fed'• current and prospective policies. Much, if
not all, of this work is directly relevant to what I will do if
confirud as Vice Chairman of the Federal Reserve Board. In
addition, I have acquired a broad understanding of how a wide
variety of econoaic policies are made.

Digitized by


Potential conflicts
of interest:

1. Describe any financial arranaements or deferred compensation aareements or other
continuin& dulin1s with business associates. clients or customers who will be at,
fected by policies which you will Influence in the position to which l/0U hfte bNII



2. List any investments, obligations. liabilities, or other relationships which mietrt lnvalvt
potential conflicts of interest with the position to which you haw been nominated.
town some U.S. Government securities, which I will divesc before
being sworn in.

3. Describe any business relationship, dealing or financial transaction (other than 111·
paying) whi:h you have had during the last 10 years with the Federal Government.
whether for yourself, on behalf of a client, or acting as an agent, that mleht in any
way constitute or result in a possible conflict of Interest with the position to which you
have been nominated.



Digitized by


4. Ust any lobbying activity during the past 10 years in which you haw enppd for the
purpose of directly or indirectly influencinc the passage, defeat or modification ot
any legislation II the national lewl of government or affecting the administration and
execution of national law or public policy.

S. Explain how you will rnolve any potential conflict of interest that may be disclosed by
yaur responHS to the above items.
I Will divest a,self of any assets for vh.ich I•• asked to do so.

1. Give the full dc'.alls of any civil or criminal proceeding in which y:,u wer. a defendlnt
or any inquiry or imrestlption by a Federal, State, or local apncy In which you were
the subject of the inquiry or inwstiption.


2. Give the full details of any proceeding. inquiry or investi1ation by any professional
association includin1 any bar association in which you -re the subject of the ~
eelding, inqujry or inwsti11tion.

Digitized by


APll1L 1994
Pre■ ident'■

Council of Economic Advi■er■
17th and Penn~lvania Avenue, NW
Rm. 314, OEOB
Washington, DC 20500
(202) 395--M46

Bom: October 14, 1945, Brooklyn, New York.
Marital StatuB: Married; two


ape 21 and 17.


Ph.D., Mauachu■ett■ In■titute of Technology, 1971.
M.SC. (Econ.), London School of Economic■, 1968.
A.B., Princeton Univer■ ity, ■umma cum laude in economic■, 1967.

Member, Pre■ ident'■ Council of Economic Advi■er■, 1993-.
Fellow, American Acade~ of Art■ and Science■, 1991-.
Vice-Pre■ ident, American Economic Auociation, 1989.
Executive Committee, 1985-87.
Commi■■ion on Graduate Education, 1988-90.
Committee on Honors and Award■, 1988-S3.
Vice Pre■ ident Eastern Economic Association 1992-93.
Member, Academic Advisory Panel, Federal &serve Bank of New York, 1~3.
Member, Research Advisory Board, Committee for Economic Development, 1992-93.
Member, Selection Committee, Frank E. Seidman Distingui■hed Award in Political
Economy, 1991 and 1992.
International Associate Member, Foundation for Advanced Information and Research, Japan, 1989-93.
Member, Board of Directors, Social Science Re■earch Council, 1987-90.
Executive Committee, 1988-90.
Member, Advisory Committee on Economics, Alfred P. Sloan Foundation, 1984-83.
Member, NSF Economics Panel, 1985-86.
Chairman Economic Policy Committee, National Policy Exchange. 1981-85.
Member, ec;nference on Re■earch in Income and Wealth (NBER), 1~3.
Member, National Academy of Social Insurance, 1988-S4.
Member of Advisory Board, Penman Asset Management, 1992-93.
Member, Board of Editor■, Journal of Economic Uterature, 1981-84, 1988-93.
Member, Editorial Board, Journal of Monetary Economics, 1981-93.
Associate Editor, Journal of Public Economics, 1982-93.
Member, Editorial Board, Challenge, 1984-93.
Member Board of Editors, The American PrOBpect, 1989-93.
Joseph L. Lucia Lecturer, Villanova University, October 1992.
Kane Lecturer, Bentley College, November 1991.
Distinguished Speaker, Eastern Economic Association, March 1990.
H. Chase Stone Lecturer Colorado College, January 1990.
Tennenbaum Lecturer, ae;;rgia Institute of Technology, Nov. 1989.
Henry George Lecturer, University of Scranton, October 1988.
Richard T. Ely Lecturer, American Economic Association, December 1987.
David Kinley Lecturer, University of Illinoi■, October 1986.
Kathleen Bryan Lecturer, University of North Carolina, Green■boro, March 1986.
W.S. Woytin■ky Lecturer, University of Michigan, December 1981.
Director, Center for Economic Policy Studies, Princeton University, 1989-93.
Bicentennial Preceptor, Princeton University, 1975-78.
Fellow of the Econometric Society, 1981-.
Member, Brookings Panel on Economic Activity, 1981 and 1985; Senior Advi■er,
Research Auociate, National Bureau of Economic Research, 1978-93.
Member, American Economic Association.
Member, International Society for Inventory Research.
Economics columnist, Business Week, 1985-92.
Economics columnist, The Boston Globe, 1981-85.

Digitized by


Occuional mlumniat., Wawn.flan Pod. 1982-80.
Occuional mlumniat., Nanday, 1987-92.
Editorial acmaor, Bristlecone Boob, 1990-82.
De_puty Aaiatant Dinctor, FilCal Analyai■ Division, Congreuional Budget Office,
Wuhington, DC, 1975.
Con■ultant, Congreuional Budget Office, 1975-82.
Gonion 8. Rent■cbler Memorial ProCeuor of Economic■, Princeton Univ., 1982-.
Chairman, Department of Economic■, Princeton University, 1988--80.
Profe■■or or Economic■, Princeton University, 1979-82.
A■mc:iate ProCeaor or Economic■, Princeton University, 1976-79.
A■si■tant ProCeaor or Economic■, Princeton University, 1971-76.
In■tnic:tor in Economic■, Boston State College, Boston. MA, 1969.
ln■tructor in Finance, Rider Colleae, Trenton. NJ, 1~9.
Visiting Scholar, Russell Sa«e Foundation, 1991-92.
Visiting Scholar, Economic Pl.anni~ Agency, Tokyo, Summer 1991.
Visiting Fellow, The Brooking■ Institution, 1985-86.
Bryan Visiting ProCeaor, University or North Carolina at Greensboro, March 1986.
Visiting ProCeuor, Institute for International Economic Studies, Stockholm, Summer
Visiting Professor, Institute for Advanced Studies, Vienna, Summer 1982.
Fellow, Institute for Advanced Studies, Hebrew University or Jerusalem, 1976-77.
Visiting Aui■tant ProCeuor, Stanford University, 1974.
Stabilization policy, macroeconomics, income distribution, the Japaneae economy.

Growing ToRether: An Altematiw Economic Strategy for the 1990's, Whittle, 1991.
Paying for Productivity, Brooking■, 1990 (edited volume).
Maeroeconomics Under Debau, Harvester-Wheat■hear, 1989.
lnvenla? ~ and Consumer Behavior, Harve■ter-Wheat■heaC, 1989.
Economic Opinion, Harcourt Brace Jovanovich, First edition 1989; Second edition
Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society, Addison-Wesley, 1987; paperback edition: 1988· Japanese translation: 1988.
Economics: Principles and Pol~. Harcourt Brace Jovanovich, First edition 1979;
Second edition 1982; Third edition 1985; Fourth edition 1988; Fifth edition 1991
and Sixth edition 1994 (with William J. Baumo)); also Canadian, Australian, and
Ja~se edition■•
Private Pensions and Public Pensions: Theory and Fact, The University or Michigan.
Economic Policy and the Great Stagflation, Academic Presa, 1979, 229 pp. (paperback edition: 1981· Japanese edition: 1982).
Natural Resources Vncertainty and Gene10l &uilibrium Systems: Essays in Memory
of Rt,.fad., Academic Press, 1977 (co-edited with Philip_ Friedman).
Toward an Economic Theory of Income Distribution, The MIT Press, 1974, 176 pp.
(paperback edition: 1977).

"On Sticky Prices: Academic Theories Meet the Real World," MDMtary Policy, University or Chicago Press, edited by N. Gregory Mankiw.
"Should the Former Socialist Economies Look East or West for a Model?," International Economic Auociation Moscow Congr_eBB Proceedings, forthcoming.
"International Difference■ in Lii,;;r Turnover: A Comparative Study with Emphasis
on the U.S. and Japan," (with Alan Krueger).

"Free Trade," in D. Henderson (ed.), Fortune Encyclopedia of Economics, pp. 526529, 1993.

Digitized by


"Keynesian Emnomica,• in D. Hendenon (ed.), Fortune Encyclopedia of Economicl,
1993, pp. llS-123.

"More Like Them?," AIIIO"ican Prmpect, Winter 1992.
"Growing Together," Princeton Alumni WeeWy, March 4, 1992.
"lntemational Penpective: Tradi!ll with Japan: Why the U.S. Loae9-Even on a
Level Playin_g Field,• Bruinns Economics\ Vol. 27, No. 1, January 1992.
-rhe Federal Funds Rate and the Channeaa of Monetary Tranmiialion• (with Ben
Bemanke), American Economic RelMW, Vol. 82, No. 4, September 1992, pp. 901921.
"Conaumer Durable■: Evidence on the Optimality of Uauallv Doing Nothing,• Joa,.
nal of MOINY, Credit, and Bauin.f, Vol. 24, N"o. 2 (May f992), pp. 258-2'12 (with
Avmr Bar-Dan).

-rhe Reaurpnce of Inventory Reaearc:h: What Have We Learned?," Journal of Economic Surveys, Vol. 5, No. 4 (1991) (with Louis J. Maccini).
"Report of the Commiuion on Graduate Education in Economics," Journal of Economic Literature, Vol. 29 (September 1991), pp. 1035-1053 (with other memben
of the Commiaanon).
"Profit Maximization and lntemational Competition," Forthcomirur in Richard
O'Brien (ed.), Finance and 1M lnlB'national Economy: 5-The AME}(Bani ReUNIII
Pria Essays, Oxford University Pren, 1991.
-Ia the National Debt Reallv-f Mean, R,o~A Burden?" in Debt and U.. 7\oin
Deficits Debot., edited by Jame■ Roc:1!.z Ma 1eld Publishing Com~Ll991.
"Why Are Price■ Sticky? J>reliminary Heau ta from an Interview Stuciy,• American
Economic Review, May 1991, pp. 89-96.
-ihe Supply of and Demand for Macroeconomic Advice• (printed in Finnish u
"Talouapoliittinen neuvonanto-kyaynti ja tarjonta"), Finnish Economic Journal,
Vol. 87, January 1991, pp. 80-90.
"Taking Stock: A Critical Aaaeument of Recent Reaearch on Inventories,• Journal
of Economic Perspectiua, Winter 1991, pp. 73-96 (with Louis J. Maccini).
•A Shred of Evidence on Theories of Wage Stickineu,• Quarterly Journal of Economies, Vol.1!1r~:Ue 4, November 1990 (with Den H. Choi), pp. 1003-1015.
•Leaming By
· g Thoae Who Are Doing,• Eaat.m Economic Journal, Vol. 16,
No. 4, October/December 1990, _pp. 297-306.
"Economic Policy and Economic Science: The Cue of Macroemnomica,• in ~ tiue 2000, edited by K. Newton, T. Schweitzer, and J.-P Voyer, Economic Council
of Canada, 1990.
•A Report on the Evidence: Pay, Participation, and Productivity,• TM Brooldngs Ju.
view, Winter 1989/90.

"In Honor of Robert M. Solow: Nobel Laureate in 1987,• Journal of Economic Per• ~ • . Vol. 3, No. 3, Summer 1989.
-nie Monetary-Fiacal Transition in the United States," Institute ofFiacal and Monetary Policy, Financial Review (Tokyo), May 1989 (published in Japaneae translation).
-rhe Stylized Fact■ About Credit Aggregate■," in Macroeconomics Untkr JJebat.,
Harvester-Wheataheaf, 1989.
-rhe Comparative Static■ of a Credit-Rationing Bank," in Macroeconomics UndN
Debate, Harveater-Wheataheaf, 1989.
-rhe Fall and Rise of Keynesian Economic■," The Economic Record, December 1988.
Reprinted in-P. Maxwell (ed.), Macroeconomics: Cont.mporory Autralian R,adina■, Harper & Row, 1991.
-rhe Challenge of High Unemployment," AIIIO"ican Economic Review, Vol. 78, No.
2, May 1988.
-credit, Meney and Aarelrate Demand," Arnericon Economic Review Papa-, and
ProcudJnBa, Vol. 78, N"o. 2, May 1988 (with Ben S. Bemanke).

Digitized by


'The Life-Cycle Permanent-Income Model and Conaumer Durabl•: Annala
d'Eeoitomw et a Sta&tique, January-March 1988 (with A~r Bar-Dan).

"Why Ia the Government in the Pension Buaineu!z" in SuKD Wachter (ed.), Prouid!111 for Rdin,unt in 1M Tloml}'-Fint ~ u . C . Heath. 1988.
'The Rules-wnua-Diac:retion Debate in the
t of Recent Experience," WeUWlacha/llidta
Sept. 1987 (reprin
in H. Giench (ed.), Macro and
ll"u:ro Pollt:in for More GrowU. and Emj,loy,unt, J.C. B. Mohr, 1988, pp. 46-63).


"Credit Ratloninl and Ef'l'ec:tive Supply Failures," Economic Journal, June 1987, pp.
"Knnea. Luc:u. and Scientific ~ • Ammcan Ecanomic Review, Mq 1987, l!I'·
U0-138 (:re~ted in Jolan Maynard Keyna (1883-1948), Volu,u 11, edited by
Malt Blaug (Edgar EJaer Publwung Co.), 1991, pp. 188-194).
"Credit Ratiomg and Aiarrelate Supply in Economiee with Leu-Developed Financial Syatema,• Conferena on Economic Dewlopmaat and Social Welfare in Taiiaan, Volume I, Imtitute of Economica, Academia Sinica, Taipei, Taiwan, January
6-7, 1987, pp. 41-63.
~ After

Lucu,• Eaatem Economic Journal, July..Sept. 1986,_pp. 209-216.

"Can the Production Smoothing Model of Inventory Behavior be Saved'r' Quarterly
Journal of Econonaica, Auguet 1986, pp. 431-453.
"Mare on the Speed of Atljuetment in Inventory Modeie,• Journal. of Money, Credit
and Ba,w,w. Auguet 1986 pp. 35~5.
" A ~ Note on the New Econometrica,• in M.H. Peston and R.E. Quandt
(eda.), Prka, Competition and Eouilibriuna: Eaays in Honor of Williana J.
Bauniol (London: Plulip and Alan), 1986.
"Imentory Flw:tuatione m the United Statee Since 1929,- in R.J. Gordon (ed.) 77,,e
American Buinaa Cycle: Continuity and Change, National Bureau of Economic
~ 1986 (with l>ou__glu Holtz-Eakin).
"Macroec:onomice, Income Dietribution, and Poverty," in 8. Danziger (ed.), Fightin/1
~ : What Woru and What Doa Not, Harvard Univenity Pre11, 1986 (with
Rebecca M. Blank), pp. 1~208.
"l'he Time Seri• Coneumption Function Revieited," Brooleings Papers on Economic
AetwUy 2: 1985 pp. 465-511 (with Ansu• S. Deaton).
"l'he Polle, Mix: i;uone from the Recent Paet," in TM Economic Outlooi for 1986,
Univennty of Michigan, 1985. (Reprinted with change• in Economic Outloole USA,
Pint Quarter 1986,_pp. 3-8.)
"No~• AIIIO"ican Economic Review, September 1985 pp. 736-747 (with Harvey
"A !<eYn•ian Revival • . .?" in A. Heertje (ed.), TM U.SA. in 1M World Economy

<Freeman Cooper) 1984 pJ>. 106-113.
"Public Opinion and the Balanced Bu~t," American Economic Review, May 1984,
144-149 (with Douglae Holtz-Eakm).
mice and Growth: The Meuage in the Modele," in C. Hulten and B. Saw(eda.), The Luaey of R~mics, Urban Inetitute, 1981, pp. 199-227.
"Aarention and Stabilization Policy in a Multi-Contract uonomy: Journal. of
llonitary Economica, January 1984 (with N. Gregory Mankiw).

"Money, CNdit Comtrainta, and Economic Activity: American Economic &view,
May 1983 pp. 297-302 (with Joseph E. Stiglitz).
"lanea in ~ Coordination of Monetary and Fiecal Polig,," in Monetary Polkl.._ lslUCB in tM 1980's, Federal Reeerve Bank of Kaneu City, 1983,~ pp. 3-34. (Par-

~y re_pinted in T. M. Havrileeky (ed.), Moam Concepts in Mocroeconomice,
Harlan Davideon, 1985.)
"On the Monetization of Doficita," in L.H. Meyer (ed.), 77,,e Economic Consequenc:a
a( Gowmmaat Deficits, Center for the Study of American Bueineee, 1983). Alao
~ted in Spanieh, "Acerca de la monetizacion de 101 deficit," in ~
Ecionomicae lee, No. 28, 1984/83, pp. 39-68.


Digitized by

81-247 0 - 94 - 3


"Social Security, Bequests, and the Life.Cycle Theory of Sa~: Crou-Sectional
Tests," in R. Hemming and F. Modigliani (eds.), The Determinanta of National
Savings and Wealth, International Economic AsBOCiation, 1983 (with Roger Gordon and Donald Wise).
Conversations with Neo-Keynesian Economists: The "Younger Generation," in A.
Klamer, Conversations with Economists, Rowman & Allenheld. 1983, pp. 151-169.

"Inventories and Sticky Prices: More on the Microfoundationa of Macroeconomics:
American Economic Review, June 1982, pp. 334-348.
"The Anatomy of Double Digit Inflation in the 1970's," in Robert E. Hall (ed.), Inflation, University of Chicago PreBB for NBER, 1982, l>P· 261-282.
"On Making the Tradeoff between Equality and Efficiency Operational," in G.
Feiwel (ed.), Samuelson and NeodaBBical Economka, Kluwer-NijbotT, 1982, pp.
"Retail Inventory Behavior and BusineBB Fluctuations," Broolcings Papers on Economic Activity, 2: 1981, pp. 443-505.
"Monetary Aa:ommodation of Supp_ly Shocks under Rational Expectations," Journal
of Mone,, Credit, and Banlcill!f, November 1981, pp. 425---438.
"lnventones, Rational Expectations, and the Busineu Cycle," Journal of Monetary
Economics, November 1981, pp. 277-304 (with Stanley Fiac:her).
"The 1971-1974 Controls Program: An Econometric Poat-Mortem," Journal of Mo,wtary Economics, July 1981, pp. 1-23 (with William Newton).
"Inventories and the Structure of Macro Models," Americ:on Economic lkuiew, May
1981, p_p. 11-16.
"Supply Shock Inflation: Money, Expectations, and Aa:ommodation," in M.J. Flanden and A. Razin (eds.), Development in an Inflationary World, Academic Preas,
1981, pp. 61-101.
8Temporary Income Taxes and Consumer Spending," Journal of Political Economy,
Feliruary 1981, pp. 26-63.
"The Consumer Price Index and the Measurement of Recent Inflation," Brooldngs
Papers on Economic Activity, 2: 1980, pp. 539-565.
"Market Wages, Reaervation Wages, and Retirement Decisions,• Journal of Public
Economics, October 1980, pp. 277-308 (with Roger Gordon).
"Reconsidering the Work Disincentive Effects of Social Security," National Ta% Journal, December 1980, pp. 431-442 (with Ror,r Gordon and Donald Wise).
"Inventories in the Keynesian Macro Model, Ky/elos, Vol. 33, Fasc. 4, 1980, pp. 585614.
"The Level and Distribution of Economic Well-Being," in M.S. Feldstein (ed.), The
American Economy in Transition, University of Chicago Press for NBER, 1980,
pp. 415-479.

"Macroeconomic Activity and Income Distribution in the Postwar United States,"
Review of Economics and Statistics, November 1978, pp. 604-609 (with Howard


"Indexing the Economy Through Financial Intermediation," in K. Brunner and A. R
Meltzer (eds.), Stabilization of the Domestic and International Economy, CamepeRodtester Conference Series (a supplement to the Journal of Monetary Economics), Vol. 5, 1977._pp. 69-105.
"A Difficulty with Keynesian Models of Aggregate Demand.• in A.S. Blinder and P.
Friedman (eds.),_,Naturol Resources, Uncertainty, and General Equilibrium Sy,tems: Eaays in non.or of Rafael Lusky (1977).
"New Measures of Monetary and Fiscal Policy, 1958-1973," Americ:on Economic Review, December 1976, pp. 780-796 (with Stephen M. Goldfeld).

Digitized by



-i;,cr_: and Mobility in the Diltri'bution of Wealth,• K3~, No. 4, 1976, pp.
"'Human Capital and I.iior Su_pply: A ~thesis: Journal of PoUtit:al Economy,
June 1976, 'PP· 449-472 (with Yoram WeJU).
" I n ~ o n a l Tranafen and Life Cycle Conaumption,• American Economic &uiew, May 1976, pp~ 87-93.
"On Pogmatiam in Human Capital Theory: Journal of Human &IJOW'Ca, Winter
1976, pp. S-22.
"'Distribution EtTec:ta and the Aarente Conaumption Function," Journal of Political
Economy, June 1975, pp. 447476.
•Anab't,ical Foundations of Fiscal Policy," in A.S. Blinder, et. al., The Economica of
Public Finance, The Brookinp Institution, 1974, pp. 3-115 (with Robert N.
Solow). Portions reprinted in R. L. Teigen (ed.), &adfflll• in Money, National Income, and Stabilization Policy_, 1978.
•A Micro Simulation Model of the Size Diatn'bution of Income," Journal of Economic, and Buainea, Fall 1974, pp. 1-9.
-ihe Economics of Brushing Teeth," Journal of Political Economy, July-August
1974, pp. 887-891. (Swedish translation reprinted in E/ronomialc Debolt, 1987.J

"Does Fiscal Policy Matter?," Journal of Public Economics, November 1973, ~P- 319337 (with Robert M. Solow), ("A Conection• appears in the same Joumal m 1976,
pp. 183-184). Reprinted in T.M. Havrileslt_y and J. T. Boorman (eds.), Current 11in Monetary Theory and Policy_ (AMH Publishing: 1976). Reprinted in Antlxmy Atkinson (ed.) Modern Public Finance, 1991.
"A Model of Inherited Wealth," Quarterly Journal of Economics, November 1973, pp.
-W!IP Discrimination: Reduced Form and Structural Estimates," Journal of Human
Rii,o,,uca, Fall 1973, pp. 436--455.
-Can Income Tax Increases Be Inflationary? An Expository Note," National Taz
Journal, June 1973, pp. 29~1.



"Some Implications of Endogenous Stabilization Policy," Brooking• Paper, on Economic Activity 3, 1972, pp. 585-640 (with Stephen M. Goldfeld).

Notes, Commenu, Diacuuiona, Etc.
-Commental)': Dejll Vu All Over Again," in M. Belongia and M. Garfinkel (eds.), The
Bueinal Cycle: Theories and Eviaence, Kluwer, 1992 pp_. 189-196.
Panel Di11C11ssion of "U.S ...Japan Relations After the Gulf War," Center for JapanU.S. Studiel!i, Occasional Paper Series1 Vol. 1, No. 21 1991, pp. 27-82 and 67-71.
"Research on .l!iCOnomic Education and tne Teaching 01 Econonucs," Journal of ~
nomic Education, Vol. 22, No. 3, summer 1991, pp. 251-254.
"Introduction" in A. Blinder (ed.), Paying for Productivity, Brookings, 1990, pp. 113.
Diacuuion of paper by George Peterson, in A.H. Munnell (ed.), ls There a Shortfall
in Public Investment, Federal Reserve Bank of Boston Conference, Series No. 34,
"Politica Effects of the Social Security Surpluses," in Social Security's Looming_ SurJJluau, edited by Carolyn Weaver, Amencan Enterprise Institute for Public Policy
lleaearch, 1990.
Di11C11asion of "Educating and Trainlllg New Economics Ph.D.s: How Good a Job Are
We Doing?" by W. Lee Hansen. AEA Pacers and Proceedings, Vol. 80, No. 2, May
Comments and Discu1111ion of faper by Barry Bosworth, Brooking, Papers on Economic Activity 1: 1989, pp. 1 1-114.
Comment, and Discuuion of paper by S. Fazzari, G. Hubbard, and B. Petersen,
Brooking, Paper, on Economic Activity 1: 1988, pp. 196-200.
Comments on 11_aper by Franco Modigliani, in Modelling the Accumulation and Distribution of Wealth, edited by Denis Keasler and Andre Masson, Clarendon Preas,
1988, pp. 6S-76.


Digitized by


Comments and ~!'>~ or paper by L. H. Summen and C. Cam,ll, Broolci.n/rs Papen on Econonuc Al:tluity 2: 1987, pp_. 636-638.
Comments on__J»!,pel" by C: Y. Cyru■ Chu,_ in Con/ereru:e on .Economic Dewlopmat
and Social Welfare in Taiwan, Volume ~_In■titute oCEconomic:a, Academia Sinic■,
Taipei. Taiwan, Janu~ 6-8 1987, pp. mS-267.
Comments on papir by .Joan C. C. Lo, in Con(DVtCe on Economic Developmmt and
Social Wd(an m Taiwan, Volume I, In■titute of Economic■, Academia Sinica, Taipei. Taiwan, January 6-8, 1987, pp. .COMO&.
Comment on paper by M. Weitzman, in NBER MOC7'0fCOIIOllli Annual, 1986, pp.

Comment on paper by L. H. Summer■ in Federal Re■erve Bank of Kanas City,
Debt, Financial Stability'-and Public Pol.ic,1 1986Jp. 193-201.
Comments on pa~ by, V. .ruch■, Journal. of L,abor Economics, July 1986.
"Rumination■ on Karl Brunner'■ Reflection■,• R. W. Hafer (ed.), Tlie MOMta,y wnua
FiBcal Pol.icy IJebaa: uaon11 from Two Decaclu (Rowman & Littlefield), 1986.
Di■cuuion of_paper by Bennett T. McCallum in Federal Re■erve Bank of Kan■u
City, Price Stability and Public Pol.icy, 1985, pp. 129-136.
Di■cuuion of paper ~ D. Ellwood and L. Summen, in U B. Bureau or the Cenm■,
Conferaice on the Measurement of Noncash &M{ita. William■burg, December
1985, Volume I, pp. 28-31.
Di■cuuion of papel' by J. Slemrod in Federal Re■erve Bank of Bo■ton, Economic
Consequenca of Tcu Simplification, Conference &Tia No. 29, October 1985, pp.
Comments on paper by G. Kirc:hga■■ ner, European Economic RefMW, June/July
Di■cuuion or paper by Gerald Dwyer, Journal. of Money, Credit, and Baniing, 1986.
Comment■ and Di■cu■■ion or paper by Olivier Blanchard and Lawrence Summer■,
Broolcing', Pa~rs on Economic Activity 2: 1984, _pp. 325-330.
Comments and Discuuion or paper by Thoma■ D. Simp■on, Broo/cing, Paper, on
Economic Activity 1: 1984, pp. 266-272.
Di■cuuion or papen by Sargent and Perry, American Economic Review, May 1984,
P(I· 417-419.
ReVIeW or Core Inflation by Otto Eck■tein, Journal of Political .Economy, December
1982, pp. 1306-1309.
Di■cuuion or paJ>er by Gregory Jump in Saving and Govenunent Polu:y, Federal Reserve Bank or Bo■ton, Conference Serie■ No. 25, October 1982.
"Rhetoric and Reality in Social Security Analysi&-A Rejoinder,• National Ta Jour.
nal, December 1981, pp. 473-478 (with Roger Gordon and Donald Wise).
-rhouipit■ on the Laffer Curve: in L.H. Meyer (ed.), The Supply-Suk Effect. of Economic Pol.icy, 1981, pJ>. 81-92.
Comment on paper by R. Barro and M. Ru■h, in Stanley Fi,cher (ed., Rational &pectation, and Economic Pol.icy, Univenity or Chicago Pren Cor NBER, 1980, pp.


or paper by M. Feld■tein, American Economic JI.view, May 1980, pp.
"What's 'New' and What'■ 'Keynesian' in the 'New Cambridp' Keyne■iani■m?,- in
K. Brunner and A.H. Meltzer (ed■.), Public Pol.icie, in Open Economic,, CarnepeRochester Conference Serie■, Vol. 9, 1979.
"Doe■ Fi■cal Policy Matter? A View from the Government Budget Re■traint,• Public
Finance, 1978 (with R.M. Solow).
Comments on E. F. Doni■on'■ paper in Henry J. Aaron (ed.), ln/latum and the Income Tcu, Brookings 1976, pp. 261-264.
"Doe■ Fi■cal Policy Stih Matter1 A Rej>Jy,- Journal. of MOMtary .Economica, November 1976, pp. 501-610 (with Robert M. Solow).

Pamphlets, Beporta, etc.
"'Maintaining Competitivenes■ with High Wage■," Occa■ional Papen No. 26, International Center for Economic Growth, 1992.
-rhe Keyi;ie■ian Revolution: ¥ifty Year■ After: Policy Implication■," in Lawreru:e
Klan'• TM ~ R.11ol.ution: 60 Ymn A/ur. Conference ~ or the
12th Annual E'mnomic■ Day, Department or &ionomic■, Univer■ity or Penn■ylva­
nia, Ai>_ril 10, 1992.
"Fourth Pre■entation: in Social Security and the Bud/fet, Proceedinp of the Fint
Conference of the National Academy or Social In■urance, edited' by Henry J.
Aaron, Wa~n, DC, 1989.
-rhe Fi■cal Tran■ition,• in The Conference Board, U.S. Economic Outloo/c 1987-88,
May 1987.

Digitized by


"Ille 1983 Emnomy: Principle■ and Policie■," Kanaas BusiMBB Rev~w, Jan.-Feb.
1933, pp. 1-6.
"Dealing with the Shortage or Mathematic■ and Science Teacher■: An Economic
Analyaia,- report to the Advi■ory Council on Math/Science Teacher Supply and
Demand, State of New Jer■ey, July 1983 (with Madeline Blinder).
"Ille Truce in the War on Poverty: Where Do We Go From Here?• National Policy
Papas, No. 3, May 1982.
"An tmpirical Study or the Effects or Pen■ion■ on the Saving and Labor Supply Dec:i■ion■ or Older Men,• (with Roger H. Gordon and Donald E. Wise), for the U.S.
Department or Labor, May 1980.
Inflation and UMmpluyment: A Report on 1M Economy, Congressional Budget or.
fice, June 30, 1975, 80'/p. (with Frank de Leeuw and Nancy Barrett).
Rtcover:,: How Fast an How FarF, Congressional Budget Office, September 15,
1975, 65 pp. (with Frank de Leeuw, Cornelia Motheral, and Nancy Barrett).
"Ille Macroeconomic Impact of Immediate Decontrol of Old Oil Prices," Congres■ional Budpt Office, November 1975, 44 pp.
"Indexing for Inflation: Some Formal Model■ and an Informal Policy Propo■al,"
Technical Analy■is Paper No. 30, Office or Evaluation, Office or the Asst. Secretary for Policy, Evaluation, and Research, U.S. Department or Labor, May 1975,
Fianl Policy in Theory and Practice, General Leaming PreBB, 1973, 42 pp.
Activ~s by Various Central Banlrs to Promote Economic and Social Welfare Prol{TtUnB, Staff Report, House Committee on Banking and Currency, December 1970,
332 pp. (with L. Thurow, P. Temin, J. Quinn, and E. Tironi).

Testimony before Committee on Environment and Public Works, United States Senate, September 22, 1992.
"Trickle Down or Percolate Up?," Testimony before Senate Appropriations Subcommittee for Labor, Health, and Human Services, May 6, 1992.
Testimony before House or Representatives, Committee on Ways and Means, December 17, 1991.
Testimony before Hou■e or Representatives, Committee on the Budget, May 22,
Testimony before Senate Finance Committee, Subcommittee on Deficit■, Debt Manapment, and International Debt, April 12, 1991.
"Shortchanging Our Future," Testimony before the Joint Economic Committee, July
19, 1989.
Testimony before Senate Banking Committee on Monetary Policy, Washington, DC,
July 12, 1988.
"Policy Guidelines for 1988," Testimony to the Joint Economic Committee, January
22, 1988.
Testimony on the economic outlook to the Joint Economic Committee, July 2, 1987.
"Tax Reform and Tax Progressivity," Testimony before the Joint Economic Committee, July 15, 1986.
"Budget Targets for Fiscal 1987 and Beyond," Testimony before the House Budget
Committee, February 21, 1986.
"Pre■entation or Alan Blinder," in A Symposium on tM 40th Anniversary of 1M Joint
Economic Committee, January 16, 1986, pp. 137-139.
"Preblema with the Gramm-Rudman Proposal,• Testimony before the Joint Economic Committee, October 11, 1985.
"Monetary Policy After Monetarism,• Te■timony before the Senate Banking Committee, July 21, 1983.
"Indexing and the Consumer Price Index," Testimony before the Subcommittee on
Congressional Operations & Oversight or the Senate Committee on Governmental
Aft'ain, U.S. Senate, April 20, 1982.
"Re■earch on the Economic Effects or Social Security," Testimony before the Subcommittee on Monetary and Fiscal Policy or the Joint Economic Committee, September 23, 1981.
"Fighting Inflation by Monetary Policy," Testimony before the Subcommittee on Domestic Monetary Policy or the House Committee on Banking, Finance and Urban
Aft'ain, July 28, 1981.
"Economic Policy for 1980: Short-Term Problema and Long-Term Remedie■," Testimony before the Joint Economic Committee, U.S. Congreu, May 29, 1980.

Digitized by


Newapaper and Mapdae ArticlN
"Princet.on Economilt Alan Blinder Makes Economica Unclentandahle for All,• TM
M~. Fall 199'l, f!t»· ~11.
"A Krineaian Restoration h Here,■ ClaallDwe, Selltember-October 1992. pp. 11-18.
"Why l>oee Good Economic:a Make Bad Politlc:a?,■ l'1ae Senior Economial, Vol. 5. No.
3, "Mardi 1990, pp. 8-4.
"Foc:ua on the Deficit i■ Blockhur Critical Long-Term Inve■tment■," NortJa«uil Midi«s Economk &ukw Vol. 2. No. 15, Augu■t 7, 1989 l!P• 5-8.
"A Tip on Hard-Headed inve■tig,• State Liaialatura, July 1988, p. 46.
"Monetarimn i■ Ob■olete,• Challenge, SeptlOct., 1981, pp. 35-41 (reprinted in R.D.
Bartel (ed.), The C/aalle",f_c of Economics, 1983).
-ru: Cut■ and Inve■tment lncentive■.r.: Claalle"ll,, Nov/Dec. 1980, pp. 56-57.
". . . A Bot.tJe Half Fun,· Claalle"ll,, NOV/Dec. 1986, pp. 51-32.
-right Money and l.ooae Fi■cal Policy,- Sockty, Ju)y/Augu■t 1987, pp. 80-83.
Over 100 aJticlea in Buainaa Wed, The &,don Globe, The Was/ungton Po.I and
el•where (■ee attached li■t).

Newspaper and Mapzine• by Alan 8. Blinder


List of columns publiaJacd in TM Bosloll Globe


"Economic:a Excitemen~ March 5, 1985.
"Work-for-all Scenario, February 5, 1985.
"Who'■ Goiqto Stand Ul!_forthe Weary Taxpayer?," January 8, 1985.
-i'u:ation Lay■ An Egg,• December 11, 1984.
"The Joe Palooka Effect," November 13, 1984.
"Balanc:ed-budaet Ri~" October 16, 1984.
~ Tu:tleform, September 18, 1984.
"Reagan va. Carter: Little-inown Fact■ : Augu■t 21, 1984.
"Good New■, Bad New■,• July 24, 1984.
"Prometheua Bound: The Modern Venion,■ June 16, 1984.
"Deba~ lndu■trial Policy,■ May 1, 1984.
'The National Pa■time,- April 3, 1984.
"America in Hock: Debt Grow-But Can We Afford to Stop?,■ March 6, 1984.
"Are You Better Off Now?," February 7, 1984.
"New Year'■ Ncmre■olution~ December 13, 1983.
"Thinp Regan Fail■ to~ November 15, 1983.
"Happy _Anmvenary, OPEC;," October 18, 1983.
"Swediah Le■■ona • • .,• September 20, 1983.
"The Merit■ or Merit Pay~ Augu■t 23, 1983.
"O■car Wilde Knew Beat, July 26, 1983.
"Economic:a va. Politic■,• June 7, 1983.
"Mlll"PhY'■ Law of Economics,■ May 31, 1983.
-ro T'ax Or Not To Tu:,• May 2, 1983.
"Footnote■ to the Forecast," April 5, 1983.
"A Plea for E!ll'Y' Money • Mum 8, 1983.
"Euy Now, Uncle Harofcl," February 8, 1983.
"Chri■tmu, Revi■itec1,• January 11, 1983.
-i'u:iiig America'• Joblea■ " December 1-4 1982.
"It'• Fciurth and Long for Social Security,!. November 16, 1982.
'The Day Keyne■ Turned Over in Hi■ Grave.t• October 19, 1982.
"S!raightenjJJg Out the Flat Tu: Propo■al: ljeptember 21, 1982.
"(Groucho) Marx Economic■," Aupst 24, 1982.
"A La■t Will and Testament," J~ 27, 1982.
"End the Capital Gain■ Charade June 26, 1982.
'Three Cheer■ for a Good Idea: Revenue Enhancement," June 1, 1982.
"An Open Letter to the Fed Chairman • May 4, 1982.
•~eeze i■ on the Poor-A.rain," April 6, 1982.
"How to E-pe Budaet Hofe?,• March 2, 1982.
"Unempl~t UJ,> Ileana Inflation Down," February 9, 1982.
"Government Deliclt i■ Figured lnacx:uratell,- January 12, 1982.
"Stoclrman 1111d the Critic■ or Reaganomiai, Decomber 15, 1981.
"A Dial~e on Budpt Deficit," November 17, 1981.
"It'■ A Peter Pan Style of Economic■," April 10, 1981.
In Buainu■ Wed
"Adam Smith Meet■ Albert Shanker," December 14, 1992.

Digitized by


~ the Coat of Semcea is Soaring," November 16, 1992.
-rhia Election. They're Not Just Stuck in the Mud," October 19, 1992.
"Clintonomica: Figure the Merits Alon, with the Math," September 21, 1992.
"OX., I was Wrong. We De Need to Stunulate the Economy," Auguet 24, 1992.
"We Should Focue on Human Capital. Not Capital,• July 'l:1, 1992.
"What Wasn't on the Rio Agenda? A Little Common Senee: June 29, 1992.
"Did You Hear the One About the Balanced Bu~t?," June 1, 1992.
"Bounced Checke? That'• Not the Real Problem, May 4, 1992.
"America's Trade Gap Isn't Made in Japan.• Ap_ril 6, 1992.
-rile State of the Umon Adclreu That Should Have Been." March 9, 1992.
-ilie Daya of Ozzie and Harriet Are Gone for Good," February 10, 1992.
"Let'• Start the New Year by_ Cutting the Debt Load," January 13, 1992.
"A Tax Cut May Quicken Puleee, But It Won't Help the Economy," December 9,

"How Japan Puts the 'Human' in Human Capital," November 11, 1991.
"A Japaneae Buddy Syatem that Could Benefit U.S. Bueineu," October 14, 1991.
"What's Good for Japan hn't Neceuarily Good for the U.S.," September 23, 1991.
"Can Japan'• Cozy Syetem Come to Terme with Change?," Auguet 19, 1991.
"Time Ia Not on America'• Side," July 22, 1991.
"What's So Bad About A Nice Little Recovery?,- June 24, 1991.
"If Y011 Think Teen Motherhood Caueee Poverty . . . Think Again,- May 'l:1, 1991.
"Y011 Heard It Here: Recession Won't Laet the Summer," Afril 29, 1991.
"Remember When the Markets Made Senee?: AJ_>ril 1, 199 .
-i'reaaury's Midterm Report Card: Shows Prenuse, Needs Improvement," March 4,
-rile Bank Crisie and the s&L Fiasco: Two Sides of a Bad Coin," February 4, 1991.
"Can Congrea Make the Buchlet Stick? Don't Bet on It," December 31, 1990.
"Why rm Banking on A Mild 'Receuion," December 3, 1990.
'"lllere Once Wae A Nation That Paid All It, Bills . . .," November 5, 1990.
'"lllere Are Capitalist,, Then There are the Japaneee," October 8, 1990.
"Land of the Free, But Not of the Free Market," September 10, 1990.
'"llle Shortest Route to Shoring Up the Hildtwaye," Au, 13, 1990.
"Wb_y__ AW ar Mentality About Ja_pan is Seff-Defeating, July 16, 1990.
"01 That Thie Too, Too Solid Deficit Would Melt!," June 18, 1990.
"To All You Inflation Alarmiets: Relax," May 21, 1990.
"Taxes: I Hate to Bring Up the Subject, But •..," April 23, 1990.
"Uncle Herman and the Peace Dividend," March 26, 1990.
"Bush'• Social Security 'Fix': New Math Meets Newepeak," February 26, 1990.
"Let'e Help the East Block by Exporting Entrepreneul?t" January 29, 1990.
"A Commonaense.Approach to Taxing Capital Gains," IJecember 25, 1989.
"The Economic M)'the that the 1980'1 Exploded," November 27, 1989.
"Getting Back to the Spirit of," October 30, 1989.
"Caution: War May Be Dangerous to Your Earninge," October 2, 1989.
"101 More Reuone Not to Cut Capital-Gains Taxes " September 4, 1989.
"Plaetic Puzzle: Why Ratee for Credit Cards Don't Go Down," Auguet 7, 1989.
"Two Cheers for Bueh'• Plan to Clean Up the Clean Air Act," July lt _1~.
"Don't Laugh: Thie Plan for Regulating AT&T Actually Sounds uooa," June 12,
"100 Daya of Treading Water? So What?," May 15, 1989.
"Want to Boost Procluctivi!)'? Try Giving Workers A Say," April 17 1989.
"!light Now, An Ounce of Prevention le All Inflation Neede, M~ 20, 1989.
"11 the Deficit Too High? Yee. Should It Be Hiizher? Maybe," February 20, 1989.
"A Midwinter', Nightmare: Looking Back on t6e Bueh Yeare," January 23, 1989,
"Diepu.tee Over Dumping: Where the Trade Referees Go Wrong," December 19, 1988.
"One Man'• Hooray for the Feel," November 21 1988.
•An luueleee Cam_paign? Take A Cloeer Look, ii October 24 1988.
"Dithering on the Hill is Cri_ppling A Key Agency," Sea_tem\,;r 26, 1988.
"Are Crumblina Highway, Giving Productivity A Flatr,' Auguet 29, 1988.
"Fixing A Tax Mess-Arid Keeping Old Loophole, Cloeecl," August 1, 1988.
"Congreea Should Keep Its Hands OtTThie Nest Egg," Ju7 4, 1988.
"Plant Cloei~: It Paye to Give Workers Advance Notice, June 6, 1988.
'"l'bie Crystal Ball Reads: Preeident Bueh," M~ 9, 1988.
"Could the New Tax Fonne Be Al Bad Al Everyone Saye? Trust Me," April 11,
"l1le Tough Tax Talk You Won't Hear from the Candidatee," March 14, 1988.
"Balancing the Eciuation Between Inflation and Jobleaneee," February 15, 1988.
•All in All; 1987 Wasn't Bad-E-ven for the Stock Market," January 18, 1988.

Digitized by


"Improving the Chance■ or Our Weake■t Underdop-Poor Children,• December 14,
"How to Read Wall Street's Scrambled Me■■Bgll■, • November 16, 1987.
"The Market Want■ the Dollar to Fall. Let It Happen,• October 19, 1987.
"Plain Talk About the Dreaded T Word,• September 21, 1987.
"How to Cut Pollution and the Deficit at the Bame Time~_Augu■t 24, 1987.
"Balance the Budget-But Not with an Amendment," Ju_iy 27, 1987.
"Paul Volcker WU the Babe Ruth oC Central Banking," June 29, 1987.
"Mr. Volc:ker: Higher lntere■t is the i.■t Thing We Need,• June 1, 1987.
"It's Time to Put an End to the Berro~ Binp_," May 4, 1987.
"Yea, InOation Could Hit 5 Percent. No, It'■ Not Cause Cor Panic,• April 6, 198'7.
"U.S. Import■ ~t■: Goina Once, Going Twice •• .,• March 9, 1987.
"A Handicapper'■ Guide to lw~mic:a,• February 9, 1987.
Make■ Good Sen■e," January 12, 1987.
"A Way to 'Free S
Saver■ Crom the 'Cuino Society,'• December 8, 1986.
"Gramm-Rudman Critic■ wen, Right on the Mark," November 10, 1986.
"It'■ Time ror Rich Nation■ to Forgive Needy Debtor■,• October 13, 1986.
"Ju■t a Note to Say Thank■ for the Tax Bill," September 15, 1986.
"Where the Government Doesn't Spend Nearly Enough," Augu■t 18, 1986.
"Ch~ the Beat or Both Tax Bill■," July 21, 1986.
"U.S. Trade Problema are Made in America,• June 23, 1986.
"There'■ Plenty That'■ Worth Sa~ in Gramm-Rudman,• Ma_y 26, 1986.
"Here Wu A Tu Reform. When Come■ Such Another?," April 28, 1986.
"A Dro_pping Dollar: The Fa■te~ The Better," March 3_11 1986.
-ihe.r_ Buried the Budaet with nil Military Honor■," March 3, 1986.
"A 7 Penient Jobie■■ Ifate i■ Ju■t Not Good Enousrh," February 3, 1986.
"Who Needs Gramm-Rudman to Tame the Doficii?," December 30, 1985.
"Unbalancin~veiything But the Budaet." December 2, 1985.
"Congre■■ i■
~ Risky Game■ wit6 tlie Budpt," November 4, 1985.
"Once Upon a Time in ~omics Land . . ;," October 7, 1985.
"Let'■ Bring the Coat or Berrowig Back to Realit)'." September 9, 1985.
"Economic Policy Can Be Hard-Headed-and Soft Hearted," Augu■t 11, 1985.
"Shoe Quota: Reagan Should Put Hi■ Foot Dewn," Ju~ 15, 1985.
'Tax &Conn: They Should Have Let Reapn Be Regan, June 17, 1985.
"Reaganomica Made the Trade Gap_ Inevitable,• May 20, 1985.
"Let'• Hear It ror Economi■t■ (No Kidding)," March 18, 1985.
"Uncle Harold'■ Election View■,• November 3, 1984.
"Keynesian■ ~ Some Courage " February 12, 1984.
"Keynea Return■ After the Other■ Fail," February 19, 1984.
"Why Not Sell Pollution bl the Pound?,• Augu■t 1987.
"Let"■ Get Rid or Pennie■, January 5, 1987.
"We Need More Government in the Right Place■," Augu■t 19, 1986.
"Bad Grade■ ror Joblea■ne■■," January 29, 1986.
"Lire After Gramm-Rudman," December 4, 1985.
"Neither Borrower Nor Lender Be," SeJ>tember 4, 1985.
"At Lea■t the ~ e I■ Deductible," June 16, 1985.
"Share the Wealth. Febn~ 10, 1985.
"la the Recovery Unwindin,rr November 30, 1984.
"So You Think We Need Tu ReCorm: October 8, 1984.
'The EconolD,I_h A Lot Better, Riaht? Wrong,• Augu■t 22, 1984.
"Battling the Dril Grind Cartel," June 5, 1984.
"Gimme Shelter, ~ril 11, 1984.
"Soci•lb4 Sweden Loaka to Stocb," September 27, 1983.
"Fun With Ml and M2," August 10, 1983.
"Add Another Mlll'llhY'• Law," ,lune 3, 1983.
"Reagan'• Right Amit A Tax Hike Now, But How Do We Cut Tboee Dericit■?: Mq
16, 1983.
"Good News f'ar All But the Sheik■,• Februll!Y 18., 1983.
'Taxing U ~ ~ n t Benefit■ I■ A Good Idea, December 15, 1982.
"Raiabijr Keyni■, October 25, 1982.
"An Exfravapnt Relative'• ~eat,• A~t 9, 1982.
"Capital Gama: Tu Them Like Income," July 2 1982.
•A ProDOUI f'ar Supply-Side Economics That ~ ' t Squeeze Out the Poor,• June
U, li82.



Digitized by


~ fir A Way Out ortbe Pltf'.U. ofRNpnomb,- March 2, 1982.
"Economiita, Jullt Look Out the Window,- Aupllt 14, 1981.

'Tax Plan: So Many Stand to Gain,• May 12, 1986.


Can Ba_y National Security,• F e ~ 7, 1990.
Plan: A Drop In Our Bucket■,• October 6, 1986.
•A De&lt Deliide Candid■tei Don't Want to Join,- March 11, 1988.
"Unclernandiu the 8t.ack Market E ~• December 12, 1987.
"Save the Bn'YU'ODIDIIDt: Iuue Pollution Permit■,• Aup■t 18, 1987.
"For Smarter Protecticmi■m,• March 6, 1987.
"Rebmld from Bottom Up by lnwatmg,• November 1, 1992.


"'Bulb'■ ~


Mr. Chairman and


of the Committ.-: It la _with pat pleaure that I
appear befbre_JUU today. I am honored to haw b e e n ~ by PN■ident Clinton
to _,,. u a Commi■aioner or the 8ecurWn and E ~ Cornrniuion,
I ww1cl ftnt like to Introduce you to my wife, KathY, who recentl__y: had the prjvile,e or enterinir Gowrnment aervice u the peputy Chief or the Cable Service■ Ba19au of the Feaer.I CoJDJDDnk:ation■ ConuniuJOn. Her low, friend■hip, advice, and
enmaraaement have been an in■piration for me. Alao here la my JDOthe!', poria, who
baa inmlled. in me mnfldence, tern~~ with the de■ire to do tJie rudit unng.
I would like to thank p,u Mr. Chairman, the other Member■ o1 the Ccimmitt.and the Committ.-'• lltaff, many or whom I have worked with in the put, for your
consideration of my nomination.
M)' ftnt recollec:tion of the Commialion date■ back to when I wu about aix. I remember my father~ to me outside of a 111bway lltation In Manhattan near
the a ~ t where we lived. He wu talking about what he did-he wu a lawyer
pnu:ticinl alone, predominantly handling aecuritiea and corporate matter■• He h;f
some iuue before the Comrnia■ion, and he wu talking about how tough the agency
wu, and how doged in the purmit of its mission. And, when like 6-year old■ sometime■ do, I aaid aomethillJ to ■how my dad that I was on hi■ aide, he told me how
fair and ~ t the Commission wu, and how terrific a ~b they were doing. That
atartecl me down the road of understanding how good a Federal agency can be, a
road that baa led me to ■hare the tremendous re■J)8Ct that JMl!)ple throughout the
world feel for the Commiuion. Ir my father were alive today, I know he would be
ve!f pleaaed about my nomination.
1be Comrnia■ion'• unswerving determination to protect fnve■tor■ baa contributed
to the creation of the largest, mollt efficient, and JDDllt envied capital llllll'kets in the
world. By ensuring the in~ty of tho■e market■, entrepreneur■ find capital at reasonable coat, invellton :retire wealthier and mmpaniea produce products, provide
jobe and im{m>ve the standard of living. In a capitalist system, protecting investor■
and pre■e~ llllll'ket integrity increaaea the incentive■ for investment, dec:reuea
the mat of capital, and enhance■ the potential of society to do better for all oC its
citizens even thoae who may currently lack the whe:rewithal to invellt.
For the put decade and a half I have practiced law aa a coryorate and aec:uritiea
attorney fa■cinated by the ewlving potential of our system to unprove our lives. A■
a Commiaaioner, I would work to proJDDte that potential and to try to continue to
mnvert it into reality. I would do ao here with the advantage of havhyr the exceptional leadership of Chairman Levitt and Commiaaionen Schapiro, Roberta, and


1be cballeqea f ~ the Commission and the markets at any one time vuy with

~ in tho world. Currently,
bilitie■ and ~antitative methods

new communication■ technologies, computer capaallow for the creation of new instruments that can
be traded ,rlol,ally and promiae highor return■ at lower risk■• They may not alwar.
work u fnlendecl, but mostly they do. With new products come new iuuen providing additional choic:es to investor■ and aervk:ea to end uaera while blurring, and
aometime■ eruinar, the traditional lines that compartmentalize the financial sector.
H conftrmed u a Thmmiuioner, I would hope to work cloaely with the banking regulaton and the CFTC on 111ch matters, which are of interellt to all of u■.

Digitized by


EntreJ.>reneurs raise money on the basis of a dream and a promise. And when
stock pnces do not always follow the expected path, investors, justifiably, want to
know why. Distinguishing between fraud and mere changes in circumstances is not
always 8118)'. But we mmt try harder, lest we encourage frauds and taint our markets on the one hand, or stiJ1e innovation and information and capital flows on the
other. With an open mind. if confirmed I would make it a priority to learn more
about these i1BUes and work with this Committee as it wrestles with a difficult taak.
We mmt work to ensure that emerging democracies have the benefit of our capital markets' experience and the advantages of the expertise of our capital markets
participants. There are no examples of major, sustained democracies without capital
mamets participation. I believe the two are inextricably linked. If confirmed, I look
forward to working with those around the world who share a similar view.
Our markets our very efficient and very transparent, and they consistently improve. If conf'mned, I would like to devote attention to lowering further the cost of
capital and ensuring better capital availability for all our companies, small as well
as large, to help them compete and grow, and to help them produce products and
provide services that benefit us all.
At heart, it is the promise of what Main Street can do for Wall Street, and what
Wall Street can do for Main Street, that is so alluring to me, and what makes the
opportunity to work at the Commission such an honor.
Mr. Chairman, if confirmed by the Senate, I look forward to working with you,
your colleagues on the Committee and the Committee staff. I will be honored to
have an opportunity to be a part of a team that protects investors, preserves and
enhances the integrity and efficiency of our mamets, facilitates capital formation,
strengthens industry, and thereby improves our society and betters our world.
Thank you, and I would be pleased to answer any questions you may have.

Digitized by






lllli 1111111:




Securities and Exchange Cgmmigjon

1, 11 53


Marts Harte



,u1 -


Namlllallalc 4-13-?b

,._ o1111r1t1: .,.N....ew.. . ,y_.o.,.rtt.,_, . N...ew.....,V_.ork'""-------ol apauM:

t<ltbltto Mary Harte WaHman





Horace MaM High School



High School







Muu-:huaetls Institute of Technology

1871-1875 S.B.

June 1875

Cok.rnbia Unlveraity School of Law

1975-1878 J.D.

May 1878

Harvard University School of Law




LIii Nlllw al ldlcllaWllpl, f9How9hipl, honorwy deglw, ma.y 111111111, hliraay ICIClaly
lllllllbiiatllpa, .nf Ifft CIIW apecllk ,-gilillal• far ou1a111dl11g _ _ . or ac:flll---.

Admftled to memt>ecsbiP In tbe American Law._...
· .......
, -·-----Htdlo f •kt Stone Scholar <Columbia Voiv•mttv School mLaw)

Digitized by


UllllllowllW¥:lCJI _


. . . . . . . _,

5 &

_ . . . _ .... Mp. 1p1·1 ..



Office Held (If any)


American LN lnllllula



American Bar Anociation



MIT Alumni Aa11<1 clalio,1



Diatrid d Columbia Bar



Vlrginlll Bar Aa11<1 cialion



Wamen'a Legal o.r...




.,......., ___ .,,.., ....... .,, ...... ............

Emplaylwlt NCOld: Ull llllow II . . . . . . Mid.._ oalllgl. illculng . . . . or dlia-.., ~- -



Cof'ln bMt ,,,..,, •od lllortmf PCblc atudtot Qlnl8r r:tll1ISf ■ctjyities

IS MII during 1YD1D1R 1975 IQd 1970,


Summar 4'vodltl CiJllml, BPAl"I & Vflll m,c, IQd Nn YOds) §urnmlr

liU •ad Pld-tirnt during l&U-ZI




,...__,. <1PZl:3W>

Bgstpn Ccgultinq

Grpyp lMtolP e,,tt, CflRnil) flL 1m


C1Pff:9rntn0 Cqytnqtpn I IYdoA <P c >·

Digitized by





Ull lltr eicplftlla Ill o, dnc:I n■ ac:i.. a"-'"" ,...,.., ._, o, lacal 111111__., lllclucling any
adwiloly, ~ - llalllnly Of -

......,,. . . . . Of




Lilt Ill ..... putililhell

811d dalN rJ lloalll, arliclN, NP0111 • - - 1U111111N ,,.,_ you hive

Writings: •independent Oirec:torl: Answer to Belter Boerdsr 28
Directorship 12, 5 (1993); "The Proper Interpretation of Corporate
Conltituency Statutes and Formulation of Dnc:tar Outi■I: 21 St■tlort Law
Review 1, 183 (1991); "Corporate Constituency Concepla: RationalK .l
Benefltl• peper deliv~red ■t the 1990 Virginia Bar Alloclation SunY."LN
Meeting in Hot Springs, Virginia; "The Reemergence of the Co,JMnte
Conltituency Concept" paper delivered ■t the Americlln Bar Aaloclation
Annual Meeting in Chicago, Illinois in August, 1990; "Pennaytvani■'s AntiRaider Legill■ tion" in Insights (August, 1990~ Vol. 4, No. 8; "CorJ)cnte
Conltituency Statutes: Placing the ~ • s lnt■rNtl First' appearing
In The BulinNI Lawyer Update (NovlDec, 1890) Vol. 11, No. 2; and
-commentary" on ALI Corporate Governance Project Section S.02 In BNA's
Corporate Counsel Weekly (August 7, 1891) Vol. S, No. 32; "Slate
Takeover L■wl Work Weir in Legal rmes, Septamber 21, 1987 at 22 and
In Manhattan Lawyer, October 13, 1987 at 35; "Rnponee• tn Debate In
Harvard BUlinNI Rt ,ie·.v, July/August 1992 ■t 138; (high IChool and
college student put.I' ,.:;.ins have been omitted)•

MIIICtivttill: LIii

ii_,..,.,. 811d

alllcle halCI Ill and wvlcll IWlllerad ID II pallcal ...... Ot aecllall

rmws•111dlllllg . . 111110,-..

Ln•I arvlca rendered to ttJe Ptrn0crJ1tic N1tion11 commfttto ttJrpygb
Cqyinqton & Burfjng from J•nuary l ◄ 1n2 to January 1s 1993

Member - Democratic e,r1v


Digitized by




w•• l500 or - t0ffftlndlvldual,miipaig/11111"
111n f/1

lllmlle al pallml

1111D ~ pallCIII pally,
lhl ... alglll,-.and~lhl . . . . . . . . . . .

..... a n d - r l ..........

None. except In 1112 • fallows:
1) $300 on June 1, 1112 and S500 on 0c:tober 28, 1992 to Sllrbara Boxer for
U.S. Senate, candidale commiltN for Senator Barbara Boxer (D-CA).
2) $500 on September 30, 1992 to Pennsytvanians for ~ . candidate
committee for RepreNntative Paul K■njorlkl (D-PA).
3) $500 on September 30, 1892 to Andrews for eong,... Commlltee,
commillN for Repr■Nntatlve Rob Andnlwl (D-NJ).


lllala Yr ,o111'. T

111 • IO -

In~ pollllon IO wllldl , O U , _ ~ IWllld.


§et Allact.ment A, ___________________

Fulln .,,....._
INlianlllipl· 1. lndlcaewllllw,au . . _a1·11111.,1Cli11Wwll'IJOUl' .....

1111c·car or

•-illallcii, lf,au- oanlmlld llr ,_ ..._

§et Attaclwnant B,
2. M far• can 1111--., llal whaltier ,ou , _ ffft pllrll lllllf ClllfflPlallnl ~
. . . _ . _ _ ...,_,., alllliltianorpiaclclwll'IJOUl'p,wvloul......,_, 1111111W
Inn. IIIJC°IUI'(,,


§et A11actmen1


3. H a l ~ ..... ,au a wnmllmall ID a jab . . . you lla6 pu111.-c'P

4. Do ,au_,.. ti> -

,_ U 111111 tllr wllldl you,_ .... 4, 1>lld?


Digitized by




1. DNcrltle.,,tillllCill . . . . . . . . Nllncl-..1.- ............ CIDl'linuing
clNlinpwll'I....,_. auocialea. --•--WIIOwll N allllelldt,r paliaea
wllidl Voll wll . . . . . . 111 h PIOlliGn ID wllidl yall ' - 11e1n---.i.


2. LIit _,, IIM.._.., allligllionl, ...._, o, C1111r iw11r .... wllidl mlglll lllwdW'I polll1lill
mrllic:la d - - - 111111 h paallon ID wllidl Voll'- NIii ~

Sn Attachment P


-■r Uclllrt ( - I W I - ~
3. Dalcrlie _,, . . , _ IIIIM ilflip, ,...,.
wtlidl ya11,- hid Uinll lie• 10 , - . 111111 h F..,., Go.-11. .,.._tar
llllmlglll 111_,, __, _ . . .
lllf. on llellllf d I client. o, IC:llllg •
wll'I h paallon IDwllldl WIii' , _ NIii ..--cl.
o, _.Illa poelitlll canftic:I



None''" Attachment E),


Digitized by




4. Ull_,,...,._....., . . . . . . . . 10,-.111wllldl,-,,_. .......... IIIIIIIIN
.,..., • .......,lnlu..:ine ... peauge, .... o, r Ir: a ,

ll ... ,..._ ..... .,go._.•.....,.h•••-111a11..-.clWISolld
NSonll •

• PIMC pallcy.

Attac;hmtnt E.


i,_,_, ..........

Mlc;hment E,

CMI, alllllnal and
lnu llliplOi ;f



cM • CftNIIII J"J I: 11 f 4 Ill wllldl y,DII · - a ....... •.,,
... U ..... If.,,
ca. lllqully.-n
Sg I ,.,.,....._ . . . . . . ...-.,ir,.,_,.,_,_Uljad

., .. lllqully • ... ,,

5 •



.... ,.,

ca. ... U

..... I f ~ ,.II f .. lllqully • n 1 ,.
llidudllll.,,lllr1111d 5 1lllwllldl,-,- ...

m1 'r .... es:r
.. P"II


1111 ••- -..



Digitized by


I haft been a mrporate and NC11ritiea lawyer at Covigton & B ~ for over 15
~ - Before that I wmked for a few months for the Boston Conaultmg Group, a
lelldiDg IIUlllapment mmulting firm. My educational biuqround include■ degreea
from both law ■ehool and IJUUate bulineu ICbool.
In additicm t.o a tnmuctional and NC11ritiea law practice for Covington &
Burlina(■ corporate client■, I have alao been involved in NC11ritiea and corporate law
policy matten. Durin,r 1987 and 1988, I re~nted a coalition and certain companie■ with reaped t.o P'ederal lobbying activities in favor of legialation introduced by
Senator■ Pnmmre, S.--, and Sanford. In addition, I wu involved in State Jqialation that lel'V8d t.o reaffirm the obligation of corporate director■ t.o act in the beet
i.ntereet■ of the corporation, that permitted minority ■hareholder■ t.o obtain a wr
value for their ■hare■ in the event of a chanp of control, and that permitt.ecl the
Cl>IP.)ftltioD t.o recover, for the beneftt of all ita ■harebolder■, profita from abort-term
~ enpaed in by per■on■ trying t.o put a corporation "in play.•
In connect»n with theee activltiei, I liave worked clo■ely with variou■ group■, includin,r bu■ineu grou_p11 ■uch u the Bu ■ine■■ Roundtable (the Corporate Govemance T'a■k Force of which ha■ recently been a client of ~ D & Burling_ (from
June 18, 1993 t.o February 16, 1994)) and the National Auoc:iation of Manufacturer■, and other _groupe ■uch u the National Governor■ A■■ociation and the National
Conference of State Legi■lator■• I have al■o developed relation■bip■ with labor o:granizationa, and the Penii■ylvania AFL-CIO wu a primary proponent of the State legi■lation mentioned above. In addition, I have ■poken and lectured numerou■ time■
on corporate and ■ec:uritiee law and policy i■■ue■ before profe■■ional group■ and
have written a number of abort articles and a few longer pieces on theee and related
to •
~re recently, u change of control ia■uee have bemme le■■ of a fact.or in corporate and aecuritiee law poliC).', I have been working clo•ly with bu■ineu, ■hare­
holder and labor group■ momt.oring and reviewing ia■ue■ of mmmon concern t.o
the■e pup■•
A■ a lawyer

in private ~ • I have been in a po■ition t.o observe the eO"ecta
of regulation on the activities of the11e who are re~lated and t.o under■tand the
need t.o weigh the co■ta u well u the beneftta of regulation. I am deeply committ.ecl
to protec:tiq and enhanc:iDJ the intereata of the investing public and t.o _promot~
the ability ol American bu■me■aes t.o create jobs and t.o enhance the ■tandard of living within our market ■tructure.

I am

a partner in the law firm of ~ & Burling. I certify that
I will re■ian from tlii■ ~tlon prior t.o taking the oath u Commi■■ioner, aJicl will
aever all olber ties with & Burling upon confirmation of my apPOintment
to the Commi■aion. Upon confirmation of my appointment t.o the Commiuion, my
inter.t in the Covingt;on & Burling pen■ion plan will be terminated. I intend t.o roll
11981' UV' bolclinp in the pen■ion plan int.o another qualified retirement plan •parate from ~ n & Burling. CoV8!_a&'e provided under the life and accidental dismemberment and di■ability plan■ offered by Covington & Burling ■hall aut.omati~ terminate not later t&an 2 months after my resignation from the partner■hie.
For pul"JIONII of com_pliance with my ethic■ agreement, except u otherwi• not.eel,
■uch undertakiqa ■hall occur upon confirmation of my appointment or, con■iatent
with OGE regulalion■,_ within 3 month■ of my Senate confirmation, unle■■ an exten■ion i■ approved by OGE.
Pursuant t.o =ncler■tandi;DJ with Covington & Burlirur and con■iatent with
Covington & Bu
s partner■hip agn,ement and policy, I will receive a J1everuo,/
termination payout m Covington & Burling. I will receive full payout of thi■ .verance amount in one lump ■um upon mnfirmation of my appointment t.o the Commi■aion. The amount of tne payment will be equal t.o the avel'llp of the Ii ~
year■• partner■hip draw, di■countecl at the borro~ rate for Covington & Burlbur
over a 3 rar, period. In addition, I will be paid a prorated pol'.tion of my annual
partner■bip clilitribution in connection with J1emce■ rendered and allocated through
the date of my termination from the Co~n & Burl~ ~artner■hip. Thi■ amount
will be paid up,n mnfirmation of my appotntment t.o the Commi■aion. My partner=:e,.,capital will al■o be returned to me upon my termination from the partner■hip,
iach 111DOUDt will alao be_~d u~n confirmation of my appointment t.o tlie
C,ommi•ion. Tbe■e amounta will be fixed upon my withdrawal from Covigt.on &
Burling and are not contingent on an, future ■ervice■ that I will provide t.o tlie firm,
nor are they tied t.o the future Onancial fortune■ of the firm.

Digitized by



After completing_Government aervic:e, I expect to retum to private aect.or employment. I have no offer of future employment l'rom Covington Ii Burling or any either
enti~, nor have I committed myaelf to retum to employment with Covington &
Burling or to join any other entity.


Aegis Reeearch Corporation
Chesapeake Utilities Corporation
Democratic National Committee
Duke Univel'lity
Galileo International
Gillette Co!J!pan_y
hnl)e!'ial Holly Corporation
JLG Industries Inc.
J._ynagh and Dahlman
National Football League
Scott Paper Company
The Busmea■ Roundtable
The Cellular Income Fund
The Hampton Mercantile Corporation
World League of American Football

Covington & Burling
Charles Schwab & Co., Inc.
Dean Witter Reynoldai Inc.
Fidelity Investments, nc.
Investment Company of America (Capital Research Management, Inc.)
Oppenheimer & Co., Inc.
Dominion Roaources, Inc.
Water.Jel Technology, Inc.
NationsBank, Inc.
Metropolitan Life Insurance Co.
Hartford Life Inaurance Co.
Imaatt Corporation
Savings Barut Life Insurance Co.
Connecticut Mutual Life Inaurance Co.
Loyola Federal Savings


>.. noted elsewhere in this questionnaire, in 1987 and 1988, I represented,
through Covington & Burling, a Coalition (now-dissolved) and certain com~ea
(Intemational Paper Company, Georgia-Pacific Corporation and Scott Paper Company) that favored legislation introduced by Senator Proxmire (S. 1323) and Senaton Sauer and Sanford (S. 1324). More recently.I from June 1~ 1983 until February 16 1984, I represented, through Covington &; Burling, the U>rporate Governance Task Force of the BusineBB Roundtable with respect to Federal securities matter■, with limited lobbying activities occurring in the fall of 1993. Moat of this work
consisted of monitoring, review and analysis (with respect to stock option accounting
and, to a far leaser extent, the commencement of monitoring, review and analyaia
with res~ to securities litigation) and no position was taken, in connection with
my actiV1tie1, with res~ to any proposed legislation. (Not described are other rep.
resentations engaged m by Covington & Burlillf, for which I had no substantial involvement.) The ethics arrangement■ which I will undertake to resolve any appearance of a conflict of interest presented by theae and other repreaentationa are deacn"bed in the other attachments to this CF.estionnaire, and in my ethics agreement.
a copy of which I undentand will be furnished to the Committee.

Digitized by


I haw been fbrnubecl with a copy of 18 U .S.C. f 208, u amended by the Ethlca
Beam Ad of 1989, and the Canon■ or Ethic:■ for Member■ or the Securitie■ and
Commiaion, 17 C.F.R. I i00.60 et eeq., both of which I have read. I underad
18 U.S.C. ll08, I mu■t recuae my■elf from ~icipating
penana)Jy and IWNltaJltial)y in any D&riic:ular matter in which, to my knowledp,
I ar myme wbo■e intel"Nt I■ impui.ed to me would have a financial intere■t, unleu
1 written waiftr i■ ~iuued pur■uant to 18 U.S.C. 208(b). 1 Alternatively, I will conaider diwatm« any finandal intel"Nt that P1'81181,lt■ a conflict of intere■L
I ■Ila intena to di■qualily myaell for a period of 1 IUI' from J>Qticipation in any:
~ l a r inwlwlg ■petjfic partie■ in which Covington II BurliDJ or any of
my client■ lilted on Attacmnent D i■ or re_pre■ent■ a party, unle■■ authonzed to proceed_]lll!'mant to Sub~ E or the Standarda of Etliicaf Conduct for Employeea of
the Eacutiw Branch, 5 C.F .R. 2635.602(c).
Notwithstanding the foregoing, I intend to participate in matter■ of general applieahility. Such matter■ ma1 include pneral policy con■ideration■, rulemakig P.J'Oceedinn. and ~ g , including matter■ that JI!~ involve Covington & Bur11n1
or my Tonner client■• or cour■e, a■ required- by 18 U:S.C. ll08, I will not participate
in ■ny particular matter in which to my knowledge, I or anyone who■e intere■t■
are imputed to me hu a rmanci;f intere■t, if the particular matter would have a
direct and ~ b l e effect on that intere■t, unle■s a written waiver i■ i■■ued purlU8Dt to 18 u.s.c. 208(b).
Finally, I intend to di■qualify myaell on a case-by-case ba■ia, with re■pect to any
other matter where, in order to avoid the ~••ible appearance of impropriety, it aJ>-:
pean desirable to me to di■qualify mysell, despite the lack of any actual conflict or
mtere■t or any requirement to do ■o.




Mr. Chairman, Senator D'Amato, it'■ an honor to come before the Senate Commit-

tee on Bankin,r, Houain1, and Urban Affair■ a■ President Clinton'■ nominee to be
Director'United State■ Mint.
Aa you know, the U.S. Mint i■ one of our Nation'■ olde■t Federal agencie~~ with
a hiatory datina back 203 year■. Unlike the Treasury Department, of whic:n the
Mint i■ a ~ the U.S. Mint trace■ it■ origin■ to Thoma■ JefTer■on rather than hi■

great polit1c:al and ideological rival, Alexander Hamilton. Among his many other intere■t■, JefTer■on wa■ a coin collector and had strong opinion■ regarding the type
of c o ~ ■y■tem the Nation would need to ensure the convenient and efficient flow
of aooda and aervicea within it■ border■. Out of his commitment to economic growth
equity, JefTer■on authored, and advocated to eventual adoption by the Congreu,
the decimal coin.ap ■ystem we use today. He also founded the United State■ Mint
dU!inB hi■ tenure u the Nation'■ fir■t Secretary of State.
Today, the U.S. Mint ha■ grown into a billion-dollar-a-year international manufac1».ring and marketing enterprise with 2,200 employee■, the large■t coin-production
oeeration in the worfcl. If the Mint were a private ■ector concern, it would be counted among the Fortune 600.
In 1993, the Mint produced over 14 billion circulatiDf coins valued at more than
$600 million and '9nerating over $300 million in seigniorage profit■ to finance the
Federal debt, making the Mint one of the few Federal agencie■ to generate a profit.
Faster economic growth in 1994 will boost coin demand by 25 percent, to ■ome 18
billion coin■•
In 1993, the Mint al■o produced and sold some 40 million coin■ in bullion and
mimi■matic market■ around the world, generating another $40 million in profit■ for
the Federal trea■ury and $20 million in surcharges for spon■oring organization■ authorized by Congre■a to receive these funds. All tolled, Mint commemorative pro81'11111 over the pa!lt decade have raised $250 million for ■pon■oring o~ization■,
pro:riding fun~ for the training of Olympic athletes, the restoration of the Statue
of Liberty and the Statue of Freedom on the Capitol dome, fellowships for study and
t:eadrlng related to the U.S. Constitution, and to comJ!lete the circle in 1994, an endowment to pre■erve Monticello, the home of Thomas JefTer■on.


11 andentand &bat the financial intereata that would be imputed to me are thme fL • ■poaae,
depmdmt cba'ld, ...,.I partner, or any organization in which I am aervi..r aa officer, clirectar,
Ill' tr.tee, or any penon with whom I ■m negotiating ror empl~L

Digitized by


These commemorative progra11111 and the gold and silver bullion American Eagle
programs play important roles in ~PJ>Orting demand in the U.S. gold, silver, and
copper mining industrieia, providing p,~ for American minen and coin strip manufacturen, and allowing for contl'Olled disposal of eirceBB supplies from the Federal
•~pile of silver. In the proceu of making these contributions to the U.S. econom,,
the U.S. Mint baa built the American Eagle into the most aucceuful bullion com
program in the world, with the silver Eagle taking 70 to 80 pen:ent of the world
IIUUi[et and registering total sales of over 55 million one-ounce silver dollan. Likewiae, the gold Eagle, after competing in world bullion markets for only 7 ~ ia
now the world market share leader, with total sales of over 6 million ounces of pd.
H l am confirmed by the Senate u Direc:tor of the United States Mint, I intend
to pursue three priorities during my term. First, the Mint ia one of three TreUU?7
bureaus that has not received a clean (i.e., unqualified) audit from its outside aucliton under the Chief Financial OfT'icen Act. My first priority will be to implement
an aggreuive schedule of financial management improvements that will la)' the
foundation for the Mint to receive a clean audit within 2 yean. In fact, we have
already begun this effort in the past 6 months, and I can report that good pl'Ogress
has been made, with the Mint obtaining an unqualified opinion on its manufacturing_ balance sheets.
Second, the Mint shares a challenge with this Committee on which I hope we can
make progress in the near future: The continuing proliferation of commemorative
coin programs. AB the CongreBB recognized in 1992 when establishing the Citizens
Commemorative Coin Advisory Committee and again in a Sense of the Congress
Resolution passed in 1993, the Congress is authorizing the production of a rapidly
increas!_DJ number of coin programs into a shrinking marliet for commemorative
coins. Thl8 proliferation of coin progra11111 is testing the limits of both collecton' willingness to buy and the Mint's ability to produce and market in a busineBB-like fashion. Last November, Secretary Bentsen appointed the members of the Citizens Advisory Committee, which was created by Congreu to provide advice on how to limit
the number of commemorative programs. This committee will produce a report before the end of 1994 recommending a 5-year plan of commemorations and suggesting
additional actions which might be considered to address this matter.
Third, there are opportunities on several fronts for the Mint to increase its profitability and thereby make a larger contribution to financing the Federal delit and
increasins employment among the Mint's private sector aupplien. One opportunity
is through the acquisition of more modem communications and production technology and the adoption of modem personnel management practices. I am persuaded that, in this regard, the Mint is especially ripe for "reinvention,- with a significant potential for productivity improvements and savings.
I believe there are also opportunities, over the mid-term, to expand coin collecting
into geographic and demographic marlcets that have in the past shown little interest
in numismatics. One reason that commemorative coin sales have declined over the
put decade is that the Mint has invested little in expandinf its markets beyond
the white males over 50 yean of age who dominate our base o customen. We must
develop marlceting strategies that expand the appeal of coin collecting into you!189r
and more ethnically diverse markets in order to respond to the rising demands in
Congreu for authorization of commemorative programs.
Finally, the Mint must secure the loyalty of its long-time customer base u well
u its new customen by rapidly improving customer service, enhancig the artistic
a_ppeal of our products, and expanding the range of commemorative themes beyond
the athletic, military, and veteran themes that have dominated coin programs over
the past decade. The Citizens Commemorative Coin Advisory Committee will address the matter of commemorative themes in its 5-year plan to be issued later thia
year. The Mint has already begun a major effort to impl'Ove customer service by cutting in half average order fulfillment times and improving responsiveneBB at our
customer service center.
I want to take this opportunity to thank President Clinton for the honor of this
nomination and Secretmy Bentsen for his continuing aufport and confidence. I a1ao
want to thank my wife, Jacquita, and my sons, Michae and Alex, for the patience
with which they have accommodated the demands of life in official Wuhirurton.
That concludes my statement. I am happy to answer any questions the Committee
might have.

Digitized by





_ _iwa.....,.,....;....._ _


Mlfflll 1tat111:


.,.. tii






Pl1C11of~---Pa.i1l1.1),11.j!S;i_,•.,_JJ.Se:.ii.xa,;as1..-------Fua 111111uhpou11:


Jacqui ta Pearson


Soren MjcbaeJ D1ebl • ....._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Alex Douglas D;ehl -

_6_ _ _ _ _ _ _ _ _ _ _ _ _ __




Austi.n C.ollege




Univ. of Texas• Austin




Stanford University


IIDnols and -nls: List beloW ,n scholarsllipS, ftllowshlps, llonorl,Y CltlfWS, mllltlry IMCIIII. llananry _,..,

lllltllbel"Shipa, and any either special recocnitlona for outstandlne sel'Vlee or achllW9ment.

Academic Fellowship - Stanford University

Digitized by


Lilt belo# 111 ffl.,,-.betsllips 111d aft°ICN held in p,afeuional, ll'ltefflll. ~ ICllcllarly,
civic, dllritallle Ind Dthet o,pniutiolls.




First Presbyterian Church,



CASA (Court-Appointed Special
Advocates Austin Texas
----flNleettRe---Sigma Tau Epsilon (s~cial fraternity)
A11st1n College Sbermaa, TX;::;,i;,,;d;;;e;.;n~t__
First Presbyterian Church



Lubbock. 1e1as

ILapla)n•ot NHN: Uat ia... all 11119lt!4'111 held llna col ...., lneludlfl8 tllll title OI' delcrtDtlon of JD1i. ·
t111ployment, location of ~ 111d data vi incl11slw lfflPIOr111ent.

l, Great Plains Canstrocticr co ,

._uiloeli, iH.


P;peJine coostcuction

laborer and equipment operator, 1973.



La Quinta Motor Inns, San Antonio, TXj Motel Manager, 1974-1976.


Bob Bullock of Texas State Comptroller, Austin. Texas;
campaign consultant, 1974


Texas State Comptroller's Office, Austin, Texas; puhlic
policy research , 1976


Pilsbury Madison & Sutro 1 San Francisco, CA., constitutiona)
law research consultant 1977


Stanford University. Stanford, CA.; t~achiM assistant. 1977-78


Stanford lloiuorcit:}' and 0ioh~ linierpr4sc9 1 Ous4'4::; Tcwat91
ho11se painting, 1Pl7 _9_1_


Texas Comotro]ler's Office Austin


economic/public policy

research, 1981-85
(see continuation sheet)

Digitized by


Employment Record (Continued)

9. Texas Public Utility Conmission, Austin, TX.; Director-Telephone Regulation,

10. International Telecharge, Inc., Dallas, TX.; V.P.-Regulatory
Affairs, 1988-1990.
11. U.S. Senator Lloyd Bentson, Washington, D.C.; Legislative Director and
Staff Director, Senate Finance Conmittee, 1991-1993.
12. U.S. Department of Treasury, Washington, D.C.; Chief of Staff and
Executive Deputy Director of the U.S. Mint, 1g93_present.

Digitized by




List 1ny aperieftee ill or cliNct moclatian with f.-,.1. S1&ta. Ot local l'MffllNlltl. illelu41ft( anr ldvllofy. -iratwe. MIWIIY or other part-tlN..,.. o r ~


U.S. Dept. of Treasury, Chief of Staff to Sec. Lloyd Bentsen

1992-93: Staff Director, Senate Coaittee on Finan~e
1991•92: Legislative Dinctor, Senator Lloyd Bentsen
1988-9D: V/P,Regulatory Affairs, International Telecharge, Inc., Dalla



Director of Telephone Regulation, TX. Public Utility C011111issi


Economic/public policy research, TX. State Comptroller's Off1


Public Policy Research, TX. State Comptroller's office •

List Ille lltles, pulllishln 1111d clllill of


•Ill. lrtlclll.,..,..




and activities:

Litt Ill ll'llfflllerslllPI 11111 offices llelcl in tnd ~ 111111,,., 1D Ill polltlcll "1tln or
ellctlon CllllffliftlN durin1 tile lilt 10 Ytars.

* Served as precinct judge (election officer) in Hays County, Texas,
in 1986-87.
* Active in 1984 Gary Ha.r.t President Campaign during primary in

Travis Co., Texas.


Digitized by






bffliff all

polltlcal - ~ of HOO or 11111N to any indlwidual. c1111pelp .,..._.
tlon, DQlltlcal ,-ty. pali1ical action CllllfllldN o, lifflllar Mf1Y durln1111e lalt tipt
,..,. and idantn, tlle apeciflc IIINIUlltS. d..... Incl ..... 111 lfll NCtplanta.

. _ fully ,-,r QlllllficlltiOlls ID W'II In Ille position lo lllliell JIU haft

b..11 lllfflld.




1. llldlcltl IIIMltler ,-, wlll _., an CIDMICtiotll witll ,-cir Pwt -s,io,.r, lllllfMII
lffll, .-Jation worpniDtion i f J I U l l l ~ b)otlles-ate.

Not applicable

2. Al far


lftwallllilllnl ....,n.
llfililtlon OI' p,actice wtrll your pl'fflOUI 1111-

Ill 1 - - . ltlta WhlttlWJIIU , _ an, plans

IIMflt Mf¥lce lo ,_Uffll lffli,lo,ffllnt,

fllo,lr, llulNn firm. la.lltioll wo,plllutlln.


Mn......, .....

JIIU I eollllllllfflen lo I

folt lfter ,eu . . . IIM'Sill!MC?

,. Do JIU IIPK\ lo 111W 1111 full ltrffl fOr wllldl JIU haw 111M appolnlid1



Digitized by




Five months experience in senior -nag-ent of the U.S. Mint


Considerable knowledge of the programmatic and management
challenges facing the U.S. Mint


Extensive experience with congressional relations, both
progri:I.Jalllatic and appropriations processes


Excellent working relationship with constituencies of the U.S.


Knowledge of the decision-making process, and immediate access
to senior management, of the Treasury Department


Strong public and private sector management experience and


Solid foundation in market-based economics


Experience with improving the competitiveness of monopolies like
the U.S. Mint


Strong commitment to bringing sound business practices..and a
customer-driven focus to the U.S. Mint


Excellent work ethic and high-energy commitment to getting

Digitized by


Fllllntilt -fllcts

flnalldll ltl'lllflllllll « clefeff9CI ~ ICINiillllltl or ..,_
-,,.IIIIUiftc dealiftp with business . - - . clilnea ot CIIIIOIWltl who will be -.1fectad .., pollcla whidl )'OU will Influence in llle poaltilln IO .... lch ""' ,..... ---

1. Describe any



2. Ult_,,, .,,...,._its. ollllpliolls, llall,11tin, or .... relatlollllllpa WIIIGII 111iCM 1m11:11we
IJCllll,liaf confticU If inllrat witll the politiDII to
JOU ._. . . . -,inated.



DNctllM - , llull- NlatiollshlD. dellin& or financial tr1nllCtlon (orller than t11•
parlnl) ..tli:II ,ou hive had durtn1 the last 10 ,urs with die !'aderal GOftfflllllnt,
,-ursalf, on Nhllf of I cflllll. or eatn1 n 1ft acent. that miCftt In 111V
wa,CIOlll1IIUll or,.... In ■ ,...,..Mnfllctelll!MfKtwtth U. pMitiant.'Whicll,au

....., w







Digitized by


c. Ult any lobbyinc actiVlty durina the past 10 YNtS In .iiich yc111 haft allPalll for the
purpose OI diract1y or lnditntly lnflUC11cinC 11M pasap. llefeet or medlficatlon ol
any lelislation at 1111 n11i-• ievel of pw,IIITlent Dr 1flectinc the adrnlnmratian and
11ecution of nation.ii law or public oollq,.


5. !&plain i - you will molve any potential Cillllfllct of interest tllat may bl dilclosad by
JDUr responsea ta tl)e •lloft itema.

None to resolve

CMI, Plminil and


1. Oi'fe tll• 11111 d~il1 9f any elvll or eritniftal Dramecllnl in whidl pu ...,. I dafendant
or any illQuiry or lnvatiption II)" a flderal, Stltl. or local •P"C>' in which )IOU-.
t11t sulljec:t ol the inquiry ar lnvestlption.

2. Gi.,. th1 full datails of any proceedinc. inq11lry or ~ti1ati0n Ill)' any professional
usoclatiOII includin1 any bar tSIOCiatian In which you - • the subject of tne Dn>ceedin&. inquiry or itlvu1lptloll.



Digitized by



Q.t. Do you believe we can get further reductions in the unemployment rate without causing a reacceleration of inflation? How low
an unemployment rate can we realistically expect to sust.ain? What
policies would you advocate that would allow us to safely reduce
unemployment beyond that level?
A.1. The margin of effective slack in the labor markets has been
materially reduced over the past couple of years, and the unemployment rate is now near the range of estimates of the "natural
rate of unemployment" reported by serious analysts. In my own
view, a number close to 6 percent by current measurements is a
reasonable estimate of that rate in today's labor market, but the
change in the dat.a st.arting in January 1994 has created uncertainty in this regard. If 6 percent is right, there is still some room
for above-trend economic growth before we enter the inflationary
zone. But no one should overst.ate the precision of this estimate.
As you suggest, we should cert.ainly be looking for policy tools
that might reduce the natural rate and permit us to maintain
lower levels of unemployment without inflationary consequences.
The Administration has advocated a range of programs intended to
improve labor market information flows and to facilit.ate training
that should better match workers' skills with areas of expanding
job opportunity. I believe that these are import.ant complements to
monetary and fiscal policies that seek to keep economic activity
close to potential.
Q.2. President Clinton promised that his Administration would create 8 million jobs. Are we on t.arget for that?
A.2. Yes, we are. Payroll employment increased more than 12.8
million over the 15 months between January 1993 and April
1994-a pace that, if maintained, would produce a gain well in excess of 8 million by January 1997. The consensus forecast for GDP
growth is consistent with 8 millions jobs over 4 years.
Q.S. Over the past 2 years, our trade deficit has resurged. Net imports of goods and services have risen from $7 billion at an annual
rate to $82 billion. Our economy's recovery and others' st.agnation
accounts for much of the change, but it is clear that we have not
made much progress in balancing our forei~ accounts. In _your
view, what are the long-run consequences of these continued huge
trade deficits? What do we need to do that we are not doing to reduce them?
A.3. As you point out in your question, nearly all of the rise in net
imports of goods and services, or in the detenoration of our current
account, over the past 2 years can be explained by the growth of
the U.S. economr relative to that of our trading partners. Our external accounts should benefit as the economies of our major trading partners recover and their rates of economic growth approach
ours. HoweverJ.. even the 1993 U.S. current account deficit, at 1.7
~rcent of GDi-, was substantially below its peak of 3.6 percent of
GDP in 1987 and is thus viewed by many observers as less troublesome--especially in light of the cyclical character of much of the

Digitized by



Nevertheless, the U.S. current account deficit must be financed
by capital inflows from abroad that increase our external indebtedness. In the long-nm, the United States will have to run a surplus
in goods and services in order to service the increased external indel>tedness.
The large U.S. external deficits are, by definition, the excess of
U.S. domestic investment over U.S. domestic saving. In the final
analy~is, we must either increase Government saving by reducing
the U.S. structural budget deficit or increase private saving relative to the rates of private investment in order to reduce our external deficit.
QA.a. While I think CRA can be improved, the bank regulatory
agencies' proposal to reform CRA represents a significant improvement over the current regulation in shifting the focus to performance. The proposal includes data collection on small business and
consumer lending by banks with more than $250 million in assets.
It does not include the collection of those data by race and gender.
Some have argued that data collection by race and gender would
be burdensome. Others say it would be as useful in fighting dis,crimination as the HMDA data are in the housing area. Do you
think the proposal is preferable to the current legislation?
A.4.a. I believe it represents a positive step in shifting the focus
of CRA away from process and toward results.
Q.4.b. What are the proposal's strengths and weaknesses?
A.4.b. Again, I believe the proposal's chief strength lies in its focus
on performance. The notion that small institutions should be subject to streamlined assessment processes also seems reasonable to
me, though I am open-minded on the details. I would like to think
further, however about the proposed market share test. We must
strike a balance ~tween streamlining and effectiveness, while trying _to steer clear of credit allocation.
These issues, as well as others raised in public comments, will
need to be reviewed closely to ensure that the new CRA regulations
not only emphasize performance, but also achieve the President's
goals of making the examination process clear, predictable, and
Q.4.c. What do you think about the collection of such data by race
and gender?
A.4.c. Insured depository institutions are obligated under CRA to
meet the credit needs of their entire service area, and I understand
that this data collection is intended to help examiners fully evaluate an institution's _performance under that standard. That is an
important goal As I understand it, the specific proposal calls for
collecting such data as the number of small business and consumer
loan applications, denials, and the number and amount of approvals. Lenders would code this information by the location of the
loan. Besides allowing a purely geographic analysis of lending, the
data could also be analyzed by reference to the predominant income and racial makeup of the census tracts to which loans relate.
I have thought about the benefits that have accrued from the collection of data on race and gender that the Congress required in
HMDA I believe that data has served a useful public and regu-

Digitized by



latol)' purpose. It has helped to direct attention to issues of discrimmation and has assisted in the enforcement of the fair lending

With regard to CRA, however, the issue is more difficult, and I
do not have a fixed position. With small business loans, for example, it may not be easy to determine whether a particular loan is
to a "female" or "black" business. I certainly agree that the agencies should be willing to consider the idea of expanding data collection to race and gender. But I would prefer holding a final decision
until I know more about the details. From my initial reading of the
CRA proposal, the proposed data requirements appear to be reasonably related to evaluating CRA _performance. But I have not yet
read the many comments on the data issue. I am told that many
commenter& recommended expanding the data requirements to include the race and gender of individual applicants, but that some
lending institutions are opposed to any new data collection requirements. The Board and the other agencies will have to analyze the
merits of both arguments before adopting any final position.
Q.5.a. Recent studies indicated that minority borrowers are 60 percent more likely to be rejected for home mortgage loans than white
borrowers. Evidence suggests that Federal efforts to enforce the
Fair Housing Act and Equal Credit Opportunity Act have been
minimal. Do you believe the Fed has done an adequate job in enforcing fair lending laws?
A.5.a. As an outsider to the Fed it is very_ difficult for me to answer
your question. I do know that the Fed has referred several cases
to the Justice Department, has conducted landmark research (such
as the Boston Fed Study), and is upgrading its examination procedures to improve its detection of discrimination problems. But I am
also aware of complaints about the Fed's record. .
I know that improved enforcement of fair lending laws is very
important to this Committee, and I could not agree more. I intend
to make sure that the Fed adopts the best procedures possible on
tightinJ discrimination. I understand that several Federal agencies
are usmg, or considering using, "testers." As a social scientist, I
have some sympathy with doing so at the Fed. "Testers" could fill
an important gap in current procedures for detecting fair lending
violations, and, of course, improved detection is the key to better
enforcement. I intend to study this issue in the near-term future.
Q.5.b. What steps would you take to improve the Fed's record in.
this area?
A.5.b. I will have more ideas once I am on the Board. One important step I do know about is the use of a computerized statistical
model, patterned on the Boston Fed study, which uses HMDA data
to help examiners assess fair lending. The model enables examiners to match minority and nonminority pairs of applicants with
similar credit characteristics, but different loan outcomes, better
and more efficiently than was possible in the past. This should help
identify any instances of discrimination. As mentioned in the previous answer, "testers" are another possibility.
Q.8. The banking agencies, HUD, and the Department of Justice
recently published a policy statement on discrimination in the Fed-

Digitized by


eral &gister. Some in the industry have criticized the statement 1

for creating a catch-22 situation: encouraging banks to do self-testing then subjecting them to legal repercussions if they find in-'
stances of improper conduct by employees. WJ"iat do you think the !
role of self-testing should be?
A.8. Enco~g voluntary self-testing to improve compliance with !
fair lending laws seems appropriate to me. I understand that many 1
institutions want to test their operations to see if they can im~rove ,
their minority lending. We should certainly encourage such efforts.;
I recognize, however, that this advice seems to create a conflict.
for financial institutions who choose to test their performance I
under the fair lending laws. On the one hand, these efforts are:
commendable ways to help an institution correct any problems and;
ensure that all customers are treated fairly. On the other hand, 1;
am told that the information produced by self-testing could be used 1
against the bank. The problem needs to be addressecl and, as I un- 1
derstand it, the policy statement seems to deal with this conflict in,
a reasonable way.
Q.7.a. Concerns about the extensive and rapidly growing involve-;
ment of banks in derivatives activities have been voiced by many.1
Others have pooh-poohed the risks and said the banks have the situation in hand. Are you confident that the regulators have the ca-,1
pabilit, to adequately measure and constrain banks from taking on'
excessive levels of risk through derivatives activities?
A.7.a. Although the basic risks associated with derivatives are es-~
sentially the same risks that banks have traditionally managed,?
the complexity and diversity of derivative instruments and activi)
ties combine to make risk measurement and control more difficult~
than that associated with more traditional financial instruments.~
This complexity presents significant challeng-es to both banks and~
supervisors. Banks that are active in derivative markets must con-~
tinue to enhance risk measurement techniques, strengthen risk.I
controls, and make management systems more effective. Super-:i
visors must continue to seek to strengthen procedures, policies, and'.
techniques to ensure that these activities are conducted in a safe:
and sound manner. More disclosures may also be in order.
I understand that the Federal Reserve and other banking Bi;8nJ.
cies have taken a number of important steps in supervising denva-~
tives including establishing prudent capital requirements, develop-ll
ing effective on-site examination and off-site monitoring proce.i.
dures, iBBuing guidance to banking organizations on sound risk.
management practices, and requiring a<lequate disclosure of, andti
accounting for, a bank's derivatives activities. While derivatives ac-1
tivities are now probably being effectively supervised by the Fed41
eral Reserve and other banking agencies, improvements can nO'l
doubt be made. One critical need, I believe, is better aBSeBSment oft
market risk. Given the size, complexity, and rapid growth of thesai
markets, it is clear these activities wi11 continue to require inten-.i
sive supervisory attention.
Q.7.b. What steps would you recommend be taken by banks Ol"I)
their regulators in this area?
A.7.b. In my view, a bank's successful management of the risks as-l't1
sociated with its derivatives activities depends critically on th&b


Digitized by


strength of its related policies, procedures, risk controls, and man~ment information systems. To keep pace with the rapidly changing financial environment, including expansion of derivatives activities, both banks and regulators need to continue to enhance
their procedures for managing and controlling risks. This effort will
require increased management awareness and understanding of
the nature of the risks assumed. It will also involve committing
sufficient financial and managerial resources to the development of
risk monitoring systems and to the back office, accounting, and auditing functions.
As pointed out in the answer to "7.a.," the Federal Reserve and
other banking agencies have sought to ensure that the risks banks
are assuming in their derivatives activities are being prudently
managed and that adequate capital is held against risk exposures.
The agencies have also developed effective examination procedures
and accoll!1ting and reporti~g standar~s. I und~rstand these eff~rts
are on-gomg, both domestically and mternationally, and I thmk
they should be. I have yet to identify other specific steps that I believe should be taken with regard to the supervision of banks' derivatives activities.
Q.8. What risks, if any, do you see attributable to the recent significant exp_ansion of banks in the area of mutual funds?
A.8. Banks have been engaged in mutual fund activities for a considerable period of time without significant problems. But the recent p-owth in bank sales of mutual funds has focused attention on
certain aspects of these sales. The banking agencies have been concerned about possible customer confusion about whether mutual
funds sold to bank customers are insured and the related possible
loss of confidence in the bank if investments do not perform to the
satisfaction of customers. I share those concerns.
The banking agencies have addressed these issues with a variety
of policies governing sales practices and customer disclosures. The
agencies monitor these policies through the examination process.
Recently, the four Federal bank and thrift regulatory agencies issued a joint policy statement that sets out a framework for the
proper conduct of sales of mutual funds and other nondeposit investment products on bank premises. The Statement requires
banks, at a minimum, to inform customers that these investment
products are not insured by the FDIC, are not deposits and are not
~ranteed by the institution, and are subject to investment riskmclu.ding the possible loss of principal invested.
To further minimize the risk of customer confusion, depository
institutions are expected to separate the sale of mutual funds from
deposit taking areas physically, not to use fund names that are
identical to tlie bank's, and to obtain the acknowledgement of customers buying these investment products that the minimum disclosures have been received and understood.
Q.9. A proposal has been made for the financial institution regulators to use mystery shoppers to check on the mutual fund sales
practices of the institutions they regulate. While some agencies
have endorsed the idea, other regulators have voiced concern about
entrapment, etc. Do you favor the use of mystery shoppers in this

Digitized by

81-247 0 - 94 - 4



A.9. As I have indicated in earlier answers, I am open minded
about testers. Howeve~t the banking agencies have recently issued
a joint statement on tne measures banks should take to ensure
that consumers are fully informed about the nature and risks of
their investments. Until such measures are shown to be inadequate, I question whether we should rush to use Government testers to check for compliance. But I would certainly not object to the
use of testers by trade associations and the banks themselves.
Q.10. Serious concerns have been raised by some that our patterns
of taxing, spending, and deficits are creating huge transfers between different generations. The generational accounting data in
the President's liudget appear to support that view. Are you concerned about this? What should we do about it?
A.10. Generational accounts call attention to potentially important
intergenerational transfers that raise issues of both economic efficiency and equity-and that might otherwise be ignored. In this
general sense, they are a valuable analytical tool. However, I have
serious problems with several specific aspects of the methodology
used in those calculations and would certainly not want to endorse
the specific numbers in the budget as accurate. (The numbers were
produced by private scholars, not by the U.S. Government.)
Q.11.a. Current law places a fairly sharp divide between commerce
and banking. Some have proposed removing that divide to permit
holding companies that contain both banking and nonfinancial
business affiliates. What is your view on that?
A.11.a. There is a long tradition of separation of banking commerce, based on the American wariness of concentration of economic power and the view that banks must be disinterested providers of credit to all. Banking and commercial connections would put
this principle at risk. Moreover, it is unlikely that a bank would
maintain the same credit standards for affiliated firms. This is a
particular problem for banks with Government guaranteed deposits. Firewalls and restrictions could mitigate the loan-to-affiliate
problem, but not eliminate it.
It is argued that commercial firm purchases of bank holding companies would provide more capital and management resources for
banking. But banking, when profitable, can attract the capital it
needs. So I see few benefits and several potential costs in breaking
down the wall between banking and commerce.
Q.11.b. One area where the divide between banking and commerce
is not very sharp is nonbank banks. In 1987, Confess prohibited
the formation of new non bank banks ·and limite the growth of
those then existing. Do you support the law limiting the growth of
nonbank banks?
A.11.b. Commercial companies that own nonbank banks have a
competitive advantage in combining banking and commerce that is
not available to other commercial companies nor to bank holding
companies. In closing the nonbank bank loop-hole, Congress permitted commercial entities to retain ownership of nonbank banks
on condition that they be limited in size and scope. These limitations were intended by Congress to remain in place unless and
until Congress enacts proposals to allow, with appropriate safe-

Digitized by


guards, banks and bank holding companies to compete on a more
equal basis with grandfathered nonbank banks. There appears to
me to be no compelling reason to remove these limitations now.
Q.U. Current law prohibits or greatly inhibits some financial services activities at bank holding companies including securities underwriting and insurance brokerage. What is your view about relaxing existing constraints?
A.U. I have mixed feelings on this issue. There are three basic
principles that must be addressed: (1) public benefits; (2) the longrun health of banking in the United States; and (3) risks to banking safety and, soundness.
It seems clear that the public would benefit from greater competition and greater convenience if banks could sell insurance and
underwrite securities. In addition, banks' familiarity with their
business-customers creates a knowledge base that could be used to
facilitate smaller firms' access to capital markets-if banks co~d
underwrite securities.
Banks have been coming under increasing competition from
other financial institutions in recent decades. It seems likely that
banking will continue to contract, relative to total credit flows, unless banks are permitted to adapt to and evolve with technological
and market developments. Although the public might suffer no loss
if other institutions displaced banks, I do worry about a banking
industry that is weakened this way.
But safety and soundness remain paramount concerns. There is
virtually no risk to insurance brokerage, but securities underwriting and dealing does entail certain risks-though perhaps no more
than longer-term bank loans. There also may be diversification
gains to the banking organization as a whole, although the evidence on this point is modest.
On balance, when I weigh all these factors, I find myself mildly
supportive of insurance brokerage for banks and repeal of GlassSteagall But I would like to consider the issue further.
Q.13. Current projections indicate that deposit insurance premiums for banks are likely to decline sharply within the next 2
years, as the bank insurance fund achieves its required minimum
reserve ratio, while premiums for thrifts will need to remain 15 to
20 basis points higher for many years. Are there significant dangers in that scenario? Are large premium differences sustainable
for long periods?
A.13. This is a real problem. One set of depositories is handicapped
in competing with another if it is burdened by higher costs. It also
seems unfair to continue to burden the surviving, healthy thriftsmost of which, by definition, did not engage in the risky and fraudulent policies of many failed thrifts-with the cost of the resolution
of the failed entities. In short, the premium differential needs to be
Q.14. The Federal Reserve has the authority to charge bank holding companies for its examination and inspection but chooses not
to. Ultimately that practice contributes to the budget deficit by reducing the Federal Reserve's contribution to the general Treasury
fund, making the Federal Reserve the only Federal bank regulatory

Digitized by



agenc, which shifts examination costs from the institutions being
examined to the taxpayers. What is your view of the Federal Reserve Board policy?
A.14. '!he Federal Reserve supervises bank holding companies to
ensure that they operate safely and do not present a threat to the
Federal safety net by abusing their subsidiary commercial banks.
Substantial public interests are served in these oversight activities,
and an ai:gument can be made that the public should cover at least
some of tbe costs. While the holding companies themselves derive
some benefits from these activities, probably few organizations
would voluntarily choose such supervision. At this/oint, I am inclined to the view that the Federal Reserve shoul recover some,
if not all, of the costs it incurs in supervising holdinJ companies.
But before taking a firm position, I would like to famiharize myself'
with the details.
Q.15. Under 12 l.J.S.C. f 326, the Federal Reserve is authorized to
assess State member banks for the cost of their examinations.
However the Federal Reserve does not exercise its authority to
levy such assessments. Consequently, even large State member
banks that require significant reJ?Ulatory resources, such as Morgan Guaranty, Bankers Trust ana Chemical Bank, do not pay for
their Federal exams. If the Federal Reserve were recou_pin_g money
from State member banks, the amount recouped would add to the
surplus that the Federal Reserve turns over the Treasury every
year. By failing to assess these charges, the Federal Reserve is in
effect forcing taxpayers to subsidize the examinations of State
member banks. What is your view of this Federal Reserve Board
A.15. My answer here is largely the same as my previous answer.
One further point is that State member banks currently pa:y- the
same supervisory and re_gulatory costs as do nonmemoers. '!hey
also make payments to their State banking departments to cover
their share of the operating costs of those agencies, regardless of
their Fed membership. Nationally chartered banks pay supervisory
charges to the Office of the Comptroller of the Currency that are
t;ypically higher than those paid to State banking departments.
That difference is effectively the only source of imbalance between
national and State chartered banks, whether Federal Reserve
members or not.
Correcting that imbalance by charging State member banks
would create a new imbalance between State member and
nonmember banks. So the question is a vexing one. Before taking
a position on this matter, I would like to have the opportunity to
study the question further.
Q.18. How do you address the issue that while the Federal Reserve's primary mission is to oversee monetary policy, it also has
bank supervisory duties which present conflicts with its monetary
policy mission?
A.18.1 do not believe that these missions conflict, rather both monetary and supervisory policies are enriched by the other. '!he practical knowledge of banking and banking policy gained from supervision would appear to be a useful input to monetary policy, and
stabilization responsibilities limit the narrow safety and soundness

. Digitized by



focus that might otherwise come with supervision. In a world in
which globalization of financial markets is a reality, financial crises
will increasingly be international in nature and central bank cooperation is necessary. A central bank without supervisory knowledge, it seems to me, would be at a disadvantage in such cooperation.
Q.17. After passage of the last tax bill many economists were saying that this move would act to slow down the economy. The input
of the tax increase has just hit on April 15. It will take some time
to see if this will slow down the economy. Do you believe that the
tax increase will have any deflationary consequences?
A.I 7. There is no question that the tax increases are currently taking some purchasing power out of the econom_y. But, given the
character of the tax increases enacted, the advance notice taxpayers received, and the 3-year payment opti~n\ I would judge that
the direct •drag" on consumer spendintt prooaoly is not great. It
must also be remembered that the tax increases are an important
part of the deficit-reduction program, which is moderating the
amount of pressure that the Federal Government is placing on the
credit marltets today-and that it will in future years if we maintain the OBRA93 disciplines.
<J.18. Do you agree that the legislative history of the 1980 Financial Institutions Deregulation and Monetary Control Act show that
Concress intended the Federal Reserve, through pricing and other
policies, to give private sector entities equality of competitive opportunity with the Fed in the provision of payment services, including automated clearinghouse services?
A.18. I have limited familiarity with this history. My understanding of the pricing provisions of the 1980 Financial Institutions Deregulation and Monetary Control Act ("MCA") is that these provisions, coupled with the MCA's expansion of access to Federal Reserve payment services to all depository institutions, were intended
to _provide incentives for the private sector to offer services to depository institutions similar to those offered b_y the Federal Reserve-including automated clearinghouse serv1ces. The resulting
com~tition between the Federal Reserve and the private sector
would tend to optimize the payment services available to depository
institutions in terms of price, efficiency, and innovation.

Q.t. Prke Controlll-llealth Care. Mr. Blinder in your extensive

writings, you have covered the subject of mandatory price controls.
I am quoting you in Hard Heads, Soft Hearts (1987): •Mandatory
price controls substitute the political judgment of the State for the
impersonal juch?ment of the market, thereby interferin~ with the
signaling role ol prices and impairing economic efficiency.
"In the early stages of a controls program the costs are small and
almost invisil>le. But distortions mount and become concrete as a
system of controls ages and ossifies."
I agree with these observations and have criticized the Clinton
Administration health plan for the same reasons, altho~h not in
such eloquent terms. Were you consulted, as a member of the

Digit;zed by


Council of Economic Advisers, on the health plan? Did you give
them this advice?
A.1. As a Member of the President's Council of Economic Advisers,
I was involved in numerous discussions of health care reform over
a period of many months. In the early stages of those discussions1
"everything was on the table" in an almost literal sense, and I dia
indeed counsel against price controls of the sort we had in this
country in 1971-74. Such controls were not adopted. The "premium
caps" in the President's plan are something quite different. They do
not specify prices for specific commodities or services, but rather
give plan operators a budget and let them decide on prices and
quantities within this budget. Such premium caps closely resemble
the "price caps" which are now in wide use in public utility regulation.
Q.2. Fed Independence. l am concerned about the independence
of the Federal Reserve, as a central bank and as a regulator. The
Treasury's proposal to create a Federal Bank Commission has
raised a1arms over many issues, but especially the independence of
the agency from the Administration. In short, independence is not
to be taken lightly.
Can you assure the Committee that your experience and contact
as a high level Administration economic official will in no way
interfere with your service and judgment as the Vice Chairman of
the Federal Reserve?
A.2. I can give the Committee this assurance with no hesitation
what- ever. I understand very well that the role of Vice Chairman
of the Fed is fundamentally different from the one I now fill as a
Member of the Council of Economic Advisers. My current job, for
example, is purely advisory and explicitly political; my prospective
new job involves executive authority and is nonpolitical, even apolitical. As I noted in my written testimony, my current job is to
serve only the President; my prospective new job is to serve every
American-and to do so independently. Frankly, I find the contemplated transition an easy one since my entire professional life-prior to January 1993-was spent outside politics in a job with the
most independence I can think of: A university professor with tenure.

Q.t. Some people argue that the goal of monetary policy is price
stability, i.e., zero inflation. Others say that the goal ought to be
economic growth. What do you believe the goal should be, and why?
Also, please explain whether you believe there is a difference between the goals of price stability and high, long-term economic
growth. If so, why?
A.1. As I noted in my prepared statement, Congress has prescribed
the goals of monetary policy in the Federal Reserve Act as: "to promote effectivell' the goals of maximum employment, stable prices,
and moderate long-term interest rates." So in my view, the Fea
should be pursuing all three goals. My statement also noted that,
if you take the long view about what is best for the economy, there
are really no conflicts among the three goals.




Digitized by



Q.1. In your meeting with me on Wednesday, May 4, _you statedthis is a paraphrase-that were you to be convinced that gold was
agood indicator of incipient inflation, you would be more than willing to use it as a market signal. What evidence would you require
in order to be convinced that the price of gold and market expectations of inflation are linked?
.U. Shifts in market expectations of inflation may well be reflect.eel
in the price of gold because, as a durable commodity, gold can serve
to some degree as a hedge against inflation. Historically, the price
of gold has been elevated in periods ofhildl inflation. However, gold
prices can be affect.eel by a number of factors other than expectations of U.S. inflation, including inflation developments in other nations, shifts in supply, and political instability in other countries.
Afundamental problem in aSBessing the link between gold prices
and market expectations of inflation is our inability to directly observe those expectations. In the absence of such observations I
would want to see robust econometric evidence that gold prices do,
in fact, help to predict future inflation. In the past, gold prices have
not been consistently useful in making such predictions.
Q.3. Most of us agree that in a ceteris paribus world, budget deficits lead to higher interest rates. But because other factors affect
interest rates, there is little evidence that an empirical relationship
between budget deficits and interest rates exists. What do you believe is the most imPOrtant factor under Government control. that
affects interest rates?
A.3. As I indicated in my prepared statement, I believe that prospects for the Federal budget have important effects on real longterm interest rates. Higlier Federal debt-the result of higher
budget deficits-does . put added pressures on credit markets and
therefore tends to push up real interest rates. Monetary policy also
has important effects on interest rates. Shifts in the stance of monetary policy influence real interest rates in the short run. In addition, monetary policy, through its effect on inflation and inflation
expectations, plays an important role in determining the general
level of nominal interest rates.
QA. What effect does market uncertainty have on lon~-term interest rates? What is the magnitude of that effect? What 1s happenin~
these days, in your viewt to cause uncertainty in financial markets1?
Does the trade dispute oetween the U.S. and Japan contribute to
this uncertainty? If so, what is the extent of that effect?
A.4. The purchase of a long-term debt instrument is an act of faith,
since the investor is likelI to be uncertain about the prospects for
repayment (except for a Government bond), the purchasing power
of the principal when finally repaid, and the total real return, including interest payments, the instrument provides while holding
it. Increasing uncertainty about any of these factors should make
investors more reluctant to buy the security. Financial economists,
however, have had great difficulty in quantifying this effect, either
in terms of reliably measuring the risk premia required to compensate investors for moving from short-term to long-term debt or
for moving from domestic-currency to foreign-currency denominated
debt. Those premia can be large, but they are also variable and dif-

Digitized by


ficult to relate to observed economic indicators, including market
Measures of financial market volatility have moved higher in the
past few months, whether viewed in terms of backward-looking
proxies of recent price changes or inferred from the prices of options on financial instruments. But the increases have not been unprecedented historically nor have they pushed .these measures to
record highs. Market participants do have a lot to be uncertain
about: Incoming economic data suggest considerable more momentum to the economy than was thought just a few months ago, with
consequent implications for preBSures on prices and credit demands
that are difficult to predict; monetary policy has recently changed
direction for the first time in 5 years; newer participants in t.he
marketplace, who have had little acquaintance with bear markets,
may act skittishly; and, many aspects of Government policy-both
here and abroad-are under active and public consideration.
Among the latter influences, bilateral trade discussions between
the United States and Japan have garnered their share of headlines. However, the possibility of a "trade war" with Japan is extremely remote and there has been no fundamental shift in the
Clinton Administration's approach in dealing with this iBBue. So I
myself do not attribute much importance to it.
Q.5. When the Federal Reserve increased the Federal funds rate
recently, the expectation was that the dollar would rise on foreign
exchange markets as market participants would seek hi,dier-yielding dollar-denominated assets. Instead, the reverse has happened.
Why, in your view, has the dollar fallen so dramatically? Do you
agree with the subsequent decision of the Fed and other central
banks to intervene? Do you believe that, in general, a policy of dollar depreciation will increase U.S. competitiveness?
A.5. As a rule, a tightening of monetary policy does normally
produce some appreciation of the currency. In recent months, however, the dollar has weakened somewhat while the Federal Reserve
has tightened. This is, indeed, surprising. Part of the explanation
may be that while the Fed was tightening, new economic data were
indicating that U.S. economic activity was stronger than market
participants had previously thought. So market participants may
have feared that the Federal Reserve was moving too slowly to prevent a resurgence of inflationary pressures. It was also said that
the Administration welcomed a weaker currency, particularly
against the yen. Indeed, it was partly to dispel this misperception
that the U.S. and other monetary ·authorities intervened in exchange markets to purchase dollars against yen and marks, and accompanied these operations with a public statement by Secretary
Bentsen. These operations were a well-timed and judicious use of
the intervention policy instrument, and I fully support them.
In a literal sense, a cheaper currency does make a country more
"competitive." But exchange rates are just one element in a country's international competitiveness. In the long run, exchange rates
are determined by economic fundamentals and cannot be, artificially manipulated., especially when financial markets here and
abroad are free ana flexible. In the long run, the international com-

Digitized by



petitiveness of the U.S. is best assured by keeping inflation low
and enhancing the productivity of American labor.
Q.8. Please describe your views on the effects of the expanding
market for financial derivatives on the economy. Would you like to
see greater regulation of the derivatives market? If so, what type
mregulation would you recommend?
AA Financial derivatives allow risks to be unbundled and transferred to those most willing to assume and man~ each risk component. That is a valuable function which should not be regulated
Ollt of existence.
Nonetheless, I would emphasize that derivatives include complex
instruments which, if not properly understood and managed, can
result in significant losses to individual institutions, as several recent episodes amply demonstrate. In addition, the question of
whether derivatives have heightened s:r,stemic risks remains a subject of debate. Some fear that the failure of a major derivatives
dealer could inflict serious damage on their counterparties, although the failures that have occurred to date were contained without systemic disruptions. Also, some believe that dynamic he<Jging
of options portfolios has heightened the volatility of underlying
asset prices. (But statistical studies do not support this belief.)
Whatever the true danger that derivatives pose to individual institutions or to the financial system, I feel that several key issues
must be addressed to make sure these activities are on a sound
tooting. First, both regulators and market participants must implement sound risk management of derivatives activities. Banlting
regulators have a special responsibility to ensure that banks manage their derivatives activities prudently, so that the FDIC fund is
11ot threatened. Second, the legal and institutional infrastructure
ror derivatives activities must be stren~ened-especially as they
i>ertain to cross-border transactions. Third, both the bankinJ regulators and FASB need to strengthen accounting and financial dis:losure standards for derivatives. Finally, market participants and
regulatory authorities need to make sure that payment and settle111ent systems have the credit, liquidity, and operational safeguards
1eeessary to cope with expanded volumes resulting from more ac;ive trading of derivatives and other financial instruments.
~.7. You have been quoted as sayjng that your faith in the mess ~ sent by auction markets is declining. What makes you say
~ ? What are the implications of your loss of faith in auction marltets? Do you believe that markets nevertheless contain more wisdom than does the Government, or do _you believe that the Govemment--the Fed, the Treasury, the SEC, whomever-has superior
~7. My training in economics has convinced me no mechanism is
l>etter than a free market in reconciling the unbounded wants of
~e public to the limited resources that are actually available. However, affirming that the market mechanism is superior does not
imply that messages from markets are infallible. Policymakers
must recognize that market behavior critically depends on expectations about the futur8,,l including what market participants believe
future policy will be. vn this last score at least, policymakers may
know more than markets.
Digitized by



Shifts in expectations, which may well be amplified by the cur..l:
rent moods of investors, can sometimes lead to price swings that!
are only loosely related to economic fundamentals. I believe you are•
referring to something I wrote around the time of Iraq's invasion~
of Kuwait: that the law of supply and demand could not explain the•
sizable swings in oil prices, which went as high as $40 a barrel.J
I thought that swing was excessive at the time, and history seem~:
to have borne that view out.
While policymakers surely do not have more collective wisdom1·
than the marketplace, they can and should view events from e:
longer perspective. Government policies that changed with ever)•!
swing in market prices would only add to volatility. Instead, policy-:
makers should consult a wide variety of economic indicators, in.:
eluding, but not limited to, market quotes, in framing their decP
Q.8. You have also been quoted that you would "penalize short;:
term security trading by imposing a small tax on transactions.'~
Could you please explain your argument for this and explain whJi
such a transactions tax would not lead to lower securities price!:
and subsequently to lower nationwide financial wealth?
A.8. You probably are quoting from an article I wrote for Businesi~
Week in April 1990 in which I listed a variety of tax code change::
that might be worth considering-from the standpoints of revenue
raising effectiveness, economic efficiency, and fairness-in order ti:I
reduce the deficit. The argument that is suggested by your questio1
is, I think, that a tax of this sort would tend to discourage short,
term trading activity and thereby reduce market liquidity to som,;
degree; this could lower securities prices, all other things equal.
But, it is not clear that all other things would indeed be equal_:
It is arguable that a small tax that inhibited short-term trading-:
but had negligible effects on long-term returns-would help to re;
duce risk premia by diminishing market volatility. If so, that wouk,
raise securities prices. And it is also arguable that, by refocusini
the attention of market participants on the fundamentals of co1:'.
porate asset valuation rather than on short-term trading the ma1'
kets would perform more effectively their role as an ahocator c.~:
capital~learly a boon to wealth creation.
I should also point out that, in that Business Week column, )
packaged the transaction tax proposal with indexing of capiu:
gains. On balance, I'd say the package was pro- not anti-capital.
Q.9. Another quote attributed to you is that the Reagan tax cu:,
was an "ill-conceived tax giveaway," and that those who disagre:·
have an "anti-tax obsession." In light of the fact that tax revenue'.:
subsequently grew dramatically and the effective tax burden wa;
shifted even more to the wealthy, do you still believe the tax cut;
were a mistake? Why?
A.9. I think these two quotes actually come from two different art>;
cles which had different focuses; indeed, I believe the secon,.
phr~se was i!1cluded in ~he article tha~ was the source of{oui: prE~
ceding question. The pomt I was makmg there was that believe,:
that we could not fix the deficit problem solely on the spendini
side; tax increases of some kind would be necessary. Be that as i


Digitized by


-,, the thrust of the present question is my view of the wisdom
lithe Reamm tax cuts and I shall focus on that.
What I liad in mind in my remark was that the ERTA tax cuts
were premised on unrealistic notions of the favorable supply side
benefits that would be realized. I believe that the primary source
af the subsequent growth of tax revenues was the traditional shortnm stimulus to aggregate demand that tax cuts give, not any
major effect on labor supply and the like {which is not to deny that
taxes affect incentives; they do) ..
Lower m~al tax rates, in themselves, do reduce the incentive
for the wealthy to avoid taxes. But the shifting in "tax burden" to
which you refer seems to have been more a result of the considerable shifts in income distribution that were attributable to a variety of non-tax factors, including widening w~ differentials {associat.ed importantly with education), ana the ~ater gains the
wealthy reaped from some of the booming financial markets of the

Whatever their positive incentive effects the 1981-84 tax cuts
were unfortunate in that they were fart of an overall budget program that created a major structura imbalance between revenues
and outlays that generated massive increases in Federal debt. The
deficit problem continues to this day. So, yes, I still think they
were a mistake.

Q.t. Dr. Blinder, you have described yourself as an •inflation dove,"
and have written that "the harm that inflation inflicts on the economy is often exaggerated." However, in our discussion in my office
you also said that you think we can live with the current rate of
inflation, but that no case can be made far going back to the higher
rates of a few years ago. How much higher would you let inflation
get before you would take any steps necessary to keep it down to
present level?
A.1. As I noted in my prepared statement, it would be sheer folly
to squander our gains against inflation. The first concern of the
Federal Reserve today is to allow expansion to proceed without rising inflation. In light of the delays between monetary policy actions
and their effects on spending and inflation, policy steps to forestall
a prospective overshooting of the economy beyond its capacity, and
hence a future acceleration of inflation, ~ically would need to ~
taken prior to any pickup in actual inflation. Indeed, the ideal policy would prevent a rise in inflation from ever occurring, althouldi
in practice surprise short-run events may make this an impossilile
standard to attain. Even so, as I indicated in my prepared statement, if the Federal Reserve resists such unlucky inflationary
shocks but accepts disinflationary events, then we can continue to
chip away over time at the already-low inflation rate.
Q.2. Many people worry about maintaining independent bank regulato-ry: agencies, particularly in light of tlie situation in which the
President finds himself. One of the principle forces which has
slowed the Administration's _plan to consolidate bank rel?Ulation
under a board controlled by Clinton appointees had been the FedDigitized by


eral Reserve. As a member of the Federal Reserve Board,, wh:
would your position on regulatory consolidation be?
A.2. As I said in my confirmation hearin1;5, I am hopeful that
compromise can be reached that will achieve most of the obje
tives-including simplification and reducing complexity and cos·
to the Government and the banking syst.em-while at the san:
time maintaining a si~ificant independent role for the Federal :&
serve in bank supervision. I ple(!ged at that time that, after co1
firmation, I would make every effort to reach such a compronrls,
Q.3. Dr. Blinder, how long have you known President and Mr:
A.3. Prior to joining the Administration during the transition,
had met with President (then Governor) Clinton only onc~t i
meeting of economists with the candidat.e in August 1992. I do nc
believe I met Mrs. Clinton at that time. To the best of my recoUec:
tion, we first met-very briefly-at the Little Rock economic cor:
ference in December 1992.
Q.4. Outside of office and campaign work for the Clintons, in wha.
other situations-such as Renaissance Weekends-have you inter
act.ed with them over the years?
A.4. As I just stat.ed, I had never met either President Clinton OI
the First Lady prior to the campaign and the transition. Nor hav~
I ever been to Renaissance Weekend. Since the Administratim:
began, I have had many "office" contacts with the President, a fe-,.,1
with the First Lady, and have also int.eract.ed with them sociaU:;i
a few times.
Q.5. This Administration has a history of its political appointee::,
calling the independent agencies-getting and giving "heads up.• ;!
Dr. Blinder you work with Laura Tyson, of the University o:t
California at Berkeley, at the Council of' Economic Advisors. Jane:'
Yellen, Mr. Clinton's other nominee for the Fed, also is from thf~
Universit:r_ of California at Berkeley. As Vice Chairman of the Fed.,
if Laura Tyson calls you to talk about monetary policy-to get i\i
"heads up"-what would you t.ell her?
A.5. Having served on the CEA since January 1993, I would be~
very much surprised if Laura Tyson called to talk about monetacyti
policy-except in a very general, conceptual, way. Dr. Tyson, I, and\'
others in the Administration have been careful never to question~
members of the FOMC about their decisions nor to ask them about~
upcomi11g FOMC decisions. I would expect that polio/ to be main-l
tained. We have, however., often discussed a wide vanety of concep-·=
tual issues involving monetary policy, fiscal policy, and the econ-~
omy more generally with Fed governors. These conversations an~
useful to both sides, and I would expect them to continue.
My understanding is that, from time to time, the Chairman ofl!
the Federal Reserve does give the White House a "heads up" on im- Ii
minent changes in monetary policy. When this happens, it gen- •
erally is done by the Chairman, and I would expect this practice !Ii
to continue.
Q.6. If you could solely det.ermine our Nation's policy, would you:
be targeting interest, nominal GDP, some monetary aggregat.e, commodities prices, or something else? If you were monitoring ~
Digitized by


various targets, and those targets took divergent paths, which sin-

rte measure of the state of our Nation's monetary status would you
then regard as being most significant?
A.8. In my view, no single economic or financial variable provides
reliable indications of growth tendencies and inflation pressures. In
uaessing prospects for the economy, I find it most useful to monitor a very broad range of economic and financial data. I do not regard any one measure as most significanL As I indicated in my testimoni, •... the Fed really has no choice but to watch everything. To be sure, indicators can point in different directions, as
you note. 'lbe task of the Federal Reserve Board and the Federal
Open Market Committee is to weigh all available economic and financial informatiqn in the process of reaching judgments about appropriate monetary policy.
As to lour specific list,i_ I would put greater weight on nominal
GDP an interest rates. l,;Ommodity prices are useful to the extent
that they forecast overall inflation. At present, however, the traditional monetary aggregates are of little use.
Q.1.a. Mutual Funds-Mutual funds are an increasingly impor-

tant BegJDent of the financial services industry. With assets of close
to $3 trillion mutual funds now rival insured bank deposits in importance to Alierica's families. What changes, if any, do you think
should be made in the area of regulation of mutual funds?
A.I.a. I believe the regulation of mutual funds is essentially sound.
I understand that 2 years ~ the Commission's Division of Investment Management released a report in which it reexamined investment company regulation (PROTECTING INVESTORS: A HALF CENTURY OF MUTUAL FuND REGULATION (1992)) and concluded that
the approach of the Investment Company Act of 1940 had worked
well and should not be fundamentally altered.
Although I do not believe the fundamental elements of the way
in which mutual funds are regulated needs to be changed, I do believe the extremely rapid growth of the fund industry requires the
Commission to address a host of significant regulatory issues. Recent surveys by the Commission and others, for example, cause me
to be concerned about the level of understanding of the U.S. fund
investor. The Commission needs to continue to consider ways in
which to enhance disclosure by funds and to address issues arising
in connection with the sales of mutual funds, particularly bank mutual funds. We should seek to determine, for instance, whether existing suitability rules are sufficient to protect fund investors. (Also
see answer to question 1.b. below.) The Commission, in my view,
must also evaluate its rules governing funds' use of derivative instruments to ensure that these rules strike a balance between promoting effective money mana~ment and protecting investors. I believe the Commission should also review the issue of portfolio managers trading practices and disclosures. (I understand the Investment Company Institute has recently released a report on this
matter, and the Commission is nearing completion of its own
study.) Finally, I believe an interesting issue that may benefit from

81-247 0 - 94 - 5

Digitized by


Commission attention in the future relates to corporate governance
matters and mutual funds.
The specific issues I have described are only examples of the
myriad of issues I believe involve the fund business as it has
grown. That growth has, as I understand it, far outdistanced the
growth of the Commission's resources. Because over one-quarter of
all American households have savings and retirement dollars in investment companies, the safety of investment company operations
is extremely important to the economy. I believe assuring adequate
Commission resources in this area should be a high priority of Congress and the Commission.
Q.1.b. A growing percentage of mutual fund sales are taking place
in banks. Recent surveys suggest that banks customers may not be
distinguishing between insured deposits and uninsured securities
products. Can the SEC and the banking regulators coordinate their
examination and enforcement efforts to ensure that bank customers receive the information they need?
A.1.b. I know the Commission, the National Association of Securities Dealers, Inc. ("NASO"), and the banking regulators have expressed concern that bank customers who buy securities on bank
premises may not understand that those securities are not insured
bank deposits. I understand that the Commission, the NASO, and
the banking regulators have each taken a number of steps to counteract these misperceptions, including steps designed to ensure
that customers receive disclosure that the securities in which they
invest are not insured bank deposits. I further understand that
Chairman Levitt and Comptroller Ludwig have met several times
to discuss coordinating the Commission's and the Comptroller's regulatory, inspection, and enforcement efforts with respect to the sale.
of securities to bank customers, and that during the past few
months the staffs of the Commission and the banking regulators
have met to discuss coordination issues relating to bank securities
sales. I also understand the NASO recently provided training and
other assistance to the Federal Reserve Board regarding their examination program, and banking regulatory staff have been invited
to participate in the Commission's comprehensive training program
for broker-dealer examiners.
In addition, I believe strongly that investor protection should be
the same regardless of whether a security is sold through a bank
or broker dealer or otherwise.
Generally, I believe coordinated regulatory efforts are not perfect
substitutes for rationalized and efficient regulatory structures. The
disparate regulatory structure for bank securities activities as opposed to nonbank securities activities likely either causes duplication of scarce regulatory resources between agencies, or results in
a lack of regulation or uneven regulation. For example, as I understand it, under the current system, broker-dealers on bank premises are being examined by both the SEC and the banking regulators. Further, as the difference between the current level of coordination and past levels of coordination show, the success of cooperative efforts may well depend on the personalities and goodwill
of the principals involved. Ultimately, I currently believe that fur-

Digitized by


ther rationalization of the regulatory structure will be necessary to
achieve consistent regulatory goals.
Q.2.a. Liating Foreign Stocka-More . than 500 foreign stocks
from over 30 different countries now trade on U.S. stock exchanges.
The SEC recently adopted rules chan~es des_igned to make it easier
for foreign firms to list their stocks m the United States. This included allowing foreign companies to use international accounting
st.andards that differ from U.S. accountin, rules. Did the SEC
strike a proper balance between encouragm~ listings of foreign
stocks, while ensuring that U.S. investors receive appropriate information and protections?
A.2.a. The Commission's recently adopted international initiative
to lower the costs of cross border offerings and listings maintains,
I believe, the goal of providing investors with adequate information
upon which to make an informed investment decision. As I underst.and it, the Commission's initiative focuses on providing foreign issuers the same level of efficiency in the registration process as
available to domestic issuers through short form and shelf registration. In addition, reco~izing the costs of transitioning into a new
reporting and accounting system, particularly with respect to historical information, the initiative permits first time foreign entrants to provide reconciliation for the two most recent fiscal years
and reqwsite interim periods; this transition provision does not
change the number of years covered by the primary financial statements or selected financial data. Likewise, the increased significance thresholds for providing separate financial statements for equity investees and business acquisitions does not affect the requirement to present the separate financial statements, but rather the
level of significance requiring reconciliation.
The Commission's action to allow foreign companies to prepare
their Cash Flow Statements in accordance with International Accounting Standard
supplementation, is, as I understand it, the culmination of a deliberate and considered process, during which the staff of the Commission commented on the improvements to IAS 7 as they were
being developed. As I also understand it, the Commission's recent
proposals to make use of IAS 21 and IAS 22 reflect the same deliberate, considered analysis of the quality of the information that
would result from application of the standards. Both IAS 21 and
IAS 22 were recently amended as part of the IASC's E32 Improvement Project-a project in which the SEC had substantial input
throu2h the work of the IOSCO Working Group on Disclosure and
its Sul>committee on Accounting and Auditing. I believe the deliberateness with which the Commission has undertaken its consideration of using IASC standards is reflected in the careful and selective fashion it proposes to use IAS 22.
Q.2.b. How do we prevent a weakening of securities regulation by
competition in laxity between exchanges around the world?
A.2.b. I strongly believe the tremendous success of the U.S. capital
markets demonstrates that standards that are both high and costeffective attract, not repel, participation of investors and issuers
the world over. The best way to prevent a race to the bottom in
securities regulation is to maintain the preeminence of the U.S.

Digitized by


capital markets as the most open, efficient, liquid, fair, and honest
securities market in the world.
The U.S. market has more than 51 million individual investors
participating in its securities market-multiples of the next la~st
market. I believe the Commission must, on a multilateral and bilateral basis, work with regulatory authorities in other jurisdictions
to develop internationally recognized principles and standards that
will promote the hi~hest standards of market transparency, integrity, openness, efficiency, and stability. I understand the Commission has undertaken those efforts through the extensive bilateral
MOU's and technical assistance agreements, regional cooperation
through organizations like the Council of Securities Regulators of
the Americas (COSRA) and global coordination through the International Organization of Securities Commissions (IOSCO).
Q.3. Corporate Governance-Mr. Wallman,lou have written extensively on corporate governance issues an the proper responsibilities of corporate boards. Many people believe that directors do
a better job of carrying out their responsibilities when shareholders
are able to communicate their views. Should the SEC be seeking
ways to allow more dialogue between corporate owners and managers, rather than relying on shareholders to sell their shares if
they are disappointed with management?
A.3. I strongly agree with those who state that there should be
more dialogue between shareholders and managers. The Commission's recent actions in reviewing and amending its proxy rules
have enhanced the opportunity for shareholders to communicate
among themselves and with managers. The Commission, among
other things, generally exempted from proxy statement disclosure
requirements those shareholders not seeking proxy authority and
permitted shareholders to announce their views on a matter subject
to solicitation of proxies. My understanding is that these rule
changes are working as intended, with the level of shareholder
communication on matters of corporate performance and management having substantially increased, and with managers increasingly willing to meet with shareholders to discuss concerns and
suggestions. As a Commissioner, I would continue to monitor this
area to see if adjustments are necessary. I believe the Commission
should, and as a Commissioner I would, continue to review the
Commission's system of proxy regulation to see if further action
should be taken to enhance shareholder communications between
shareholders and managers and, more importantly, to facilitate a
Q.4.a. Corporate Directors' Responsibilities-In a 1991 Stetson
Law Review article, "The Proper Interpretation of Co~rate Constituency Statutes and Formulation of Director Duties, ' you wrote
that corporate constituency statutes: "have arrested the recent misguided tendency of the corporate law to venture away from a corporation-focused concept toward the erroneous notion that the directors' duty is to act exclusively in the interests of the shareholders, with that interest increasingly defined by reference to shortterm stock prices." Would investors be less likely to invest in corporations if directors were not required to act exclusively in their

Digitized by



AA.a. The passage of corporate constituency statutes does not
deter investment. Approximately 30 States now have some form of
corporate constituency statute. Corporate constituency statutes, as
my article states, gl?de corporate law back to a corporation-focused
concept, and away from a view that the only duty of corporate directors is to maximize the current share price. As noted in my article, recent case law in Delaware takes a similar tack. The longerterm interests of shareholders will be advanced, in my view, if directors and man~ment focus on the best interests of the corporation as a whole. While some shareholders may be disappointed, in
the short-term, in some corporate decision made using such an
analysis, in the long-term what is in the best interests of the entity
as a whole is in the best interests of the shareholders. As I stated
in the article: "[B]y requiring directors to act in the best interests
of the corporation:\ [the corporate constituency concept] assures
shareholders that tneir money will be invested with the goal of enhancinJ long-term corporate wealth and the corporation's ability to
maxi1D1Ze corporate profits."
The article further states that: "[u]nder the corporation-focused
model, if the best interests of the corporation are not advanced by
[a] takeover, the board, as a matter of fiduciary duty, need not accept the bid, regardless of the premium offered shareholders."
Q.4.b. Does this increase the ability of corporate managers to protect their own interests at the expense of shareholders?
A.4.b. No. Only if the corporation's best interest is not advanced
would directors be permitted to reject the bid; in no manner does
such a rule authorize conflicts of interest. Directors remain unable
to J>refer their personal interests over those of the entity, and
would be liable for breach of fiduciary duty if they did.

Q.1.a. Over the last few years there has been tremendous growth
in the over the counter market for derivatives. Some Members of
Con~ess have expressed concern over the adequacy of regulation
and the potential systemic risk associated with these new financial
products. Do you think that the regulation of derivatives is adequate? Can it be improved? If so, how?
A.1.a. Federal securities, commodities, and banking regulators
monitor the derivatives activities of certain dealers and end-users,
such as banks, investment companies, futures commission merchantsi and broker-dealers. 1 The Commission's net capital rulei for
examp e, addresses credit and market risks assumed by brokerdealers in connection with their derivatives or other securities activities through the application of required net capital charges. I
understand Commission staff, however, have been informed by certain broker-dealers that the capital requirements necessary to conduct OTC derivatives activities in registered broker-dealers is one
factor among others, including business, economic, and legal con1 Some entiti• that engage in derivatives activities, such u State banks and insurance c:umpaniea, may be regulated by the States. Other dealers and end-users of derivatives, such u corporationa, penaion pla1111, and the unregistered subsidiaries and affiliates of broker-dealen, may
be required under certain cin:umatancee to report investment holdings to Federal or State regulaton.

Digitized by



siderations, that has encouraged derivatives activities to be conducted in unregistered
In addition to direct regulation of regist.ered broker-dealers, I understand the Commission thro~ its risk assessment program,,
monitors any material risks to broker-dealers posed by the activities of their unregist.ered Pursuant to the Market Ref"orm
Act of 1990, the Commission adopt.ed risk assessment recordkeeping and reporting rules that provide the Commission with an
overview of the financial and securities activities of broker-dealer In this manner, I understand the Commission is able to
monitor, to some degree, the otherwise unregulat.ed activities of"
certain unregist.ered derivatives dealers.
I believe the existing securities regulatory structure goes far toward prot.ecting investors and maintaining market st.ability, while
remaining flexible to innovation. There are areas, however, in
which I l:ielieve future change may be required to address derivatives activities, particularly those involving over-the-counter
("OTC") derivative products, both to facilitat.e and enhance the continuing development of a market that clearly serves a useful and
desirable purpose, and to prot.ect investors and the markets generally.
For example, various legal uncertainties surrounding the priority
of certain instruments in bankruptcy could be clarified, as could
the enforceability of various types of netting arrangements, thereby
removing some associat.ed risk. financial reporting and increased transparency would permit participants to evaluat.e better
credit risk, and obtain further information to understand better
market and liquidity risk. A continuation of cooperative efforts
with other regulators overseas as well as domestically in coordinating an effective regulatory approach to OTC derivatives would also
permit reduction in some of the uncertainties experienced by participants in the derivatives markets st.emming from disparat.e regulatory and legal provisions and interpretations, and facilitat.e the
increasingly necessary global review and monitoring, and any apprQpriate regulation, of these activities.
Changes in the net capital treatment of OTC derivative products
that develop from the Commission's review of its capital standards
may also encourage OTC derivatives activities now conduct.ed in
unregist.ered affiliates of broker-dealers to be brought within regist.ered broker-dealers under Commission jurisdiction. Additionall1,
the establishment of one or more clearinghouses that specialize m
the processing of trades in swaps may improve the current regulatory framework for certain instruments and certain participants
in the swaps market by helping to ensure the legal certainty of
swaps transactions and by improving settlement efficiency through
payment netting. A swaps clearinghouse also would provide a focal
point for coordination of industry practices and communication
with int.erest.ed regulators. While there are regulatory issues involved in the establishment of a swaps clearinghouse, I believe that
re~lators may usefully evaluat.e the development of such facilities.
Clearly, however, I believe the derivatives market is a fast growing and economically useful segment of the financial services marketplace, and that additional information and monitoring is necessary in order to formulate any appropriat.e regulatory provisions

Digitized by


that will benefit the reliabilit;r and integrity of the derivatives market, with the goal of enhancmg innovation while reducing various
risks to all participants and the markets more broadly.
Q.l.b. What are the risks associated with derivatives? How can
they best be managed?
A.l.b. I understand there are numerous risks associated with the
trading of derivative products, including market, credit, liquidity
and systemic risks, the risk from leverage, as well as legal and
operational risks.
Market risk is the risk of loss due to adverse price fluctuations
and is present in all financial instruments. With respect to derivatives, market risk generally results from a change in the price of
the security, index or yield of the instrument underlying the derivative.
In addition to market risk, OTC derivatives add another risk
that is not present in standardized, exchange-traded products (but
is present in many other securities or products). Unlike listed instruments that are cleared through a centralized clearing organization, OTC derivatives expose dealers and end-users to credit risk,
that is the risk that a counterparty will default.
Another concern is the issue of leverage. Highly leveraged market participants can contribute to downward pressure on prices
when they exit the market quickly as market prices begin to fall.
Similarly, attempts to liquidate or utilize a hedged or other position may not be successful due to lack of liquidity in the marketplace. There is also a concern that increased activity in a derivative
product, if there is a reduction in the liquidity and trading depth
of the underlying product, may result in enhanced volatility and
consequent mispricings of both products.
Finally, a major concern regarding the proliferation of derivatives trading is systemic risk. Systemic risk generally refers to the
risk that a failure or significant disruption in the operation of a
participant or group of participants may cause widespread difficulties throughout the financial markets. I understand that while derivatives, when used appropriately, can reduce risks, they also can
generate large exposures for dealers and end-users and also may
make it more difficult to contain and control a financial crisis.
I understand that an appropriate regulatory response to certain
of these risks is the application of prudent capital standards. Adequate capital standards diminish leverage, limit counterparty exposure, and provide a cushion to protect dealers against market
Because much of the derivatives products market is relatively
young, many legal uncertainties exist regarding the enforceability
of derivatives contracts. Le_gal risk is the risk of loss because a contract cannot be enforced. One example of legal risk is the concern
over the enforceability of netting provisions, whereby exposures
from multiple derivatives contracts with one counterparty are netted. In the event of bankruptcy of the counterparty, there is a risk
that the counterparty's receiver would seek to repudiate contracts
under which the counterparty was obligated to pay money, while
demanding _payment on those contracts under which the counterparty was due money. There is clearly a need to eliminate uncer-

Digitized by



tainty over the enforceability of netting arrangements and (as also
noted in the answer to l.a. above), I support efforts to cooperate
with other regulators and with industry to reduce uncertainties.
With respect to operational risk-the risk of loss that occurs as
a result of inadequate internal systems and controls, human error,
management failure or fraud-I believe strongly that the complexity of derivatives, which frequently are developed and priced only
through the use of sophisticated mathematical models, requires
special emphasis on maintaining adequate human and systems
controls to validate and monitor transactions and positions. I believe enhanced financial disclosure and reporting will also be helpful in this context, as well as in the context of reducing some of
the risks discussed above.
Q.2. This week the Senate passed a resolution expressing its concern over the impact of the Financial Accounting Standards Board's
proposed accounting treatment for employee stock options. What
are your views of the FASB proposal? Should the SEC try to influence the outcome of the FASB rulemaking? If so, how?
A.2. This is a complex and controversial issue that involves not
only the determination of the most appropriate accounting, but also
whether or how accounting standards setters should consider the
economic, social, or political consequences of proposed accounting
standards in determining whether to adopt those standards.
Since its creation in 1973, the FASB has fulfilled, I believe, its
role as the primary private sector accounting standards setter in a
credible and effective manner. The investing public has been served
well by the Commission's policy to look to the FASB for leadership
in the development and improvement of accounting standards.
The current FASB proposal has raised a number of concerns.
One is the impact that any proposal to charge to expense the value
of fixed, employee stock options is expected to have on the reported
earnings of certain companies. The FASB contends, and I agree,
that it is not qualified to address whether that impact outweighs
the benefit that may be derived from making financial statements
including such a charge available to investors. Other policymakers,
including the Commission, are capable of addressing that issue.
The F ASB proposal has also raised concerns as to whether a
methodology exists to value employee stock options in a manner
that will produce meaningful financial reporting. The resolution of
that issue lies within the FASB's mandate. It is necessary to resolve satisfactorily that issue, in order for any final standard to
achieve general acceptance. During the recently completed public
hearings, roundtable discussions 1 and field test of the proposed accounting standard, a number of issues related to the measurement
question were raised. I understand the FASB has stated its intention to consider all of those issues prior to issuing a final standard.
I also understand there are concerns as to whether there are
other approaches the F ASB could take that would provide the same
information the FASB seeks to make available to investors, but
without raising some of the concerns voiced by opponents of the
current proposal.
Although the Commission looks to the FASB for leadership in developing and improving accounting standards, the Commission can-

Digitized by



not abdicate its responsibilities under the Federal securities laws
for those standards. I understand the Commission has in the past
closely overseen the FASB's activities with respect to each o( the
FAS:S's projects, and I would exeect the Commission would do so
here. I understand that accounting for stock-based compensation
was discussed at length at a November 17, 1993 joint, open meetii!g of the Commission and the FASB. At that meeting, members
of the Commission expressed concerns about the project but, I understand, also fenerally continued to express support for the
FASB's~rocess. understand the Commission continues to monitor
the FASB's progress on this project. I believe oversight and continued input is the appropriate role for the Commission at this time.
I am very hopeful that the FASB process will result in a standard
that recognizes and addresses the concerns of those opposed to the
current proposal, while also recognizing and addressing the concerns of those in favor of the current proposal.
In the event the FASB issues a final standard that is consistent
with the current proposal and that fails adequately to address the
concerns of those opposed to that proposal, the Commission undoubtedly will be asked to consider overruling the FASB. It would
be appropriate for the Commission to consider at that time whether
the final standard results in financial reporting that is consistent
with the Commission's statutory mandate.

Q.1. Prloritie•-lf confirmed as Director of the Mint, what would
be your top priorities?
A.1. If I am confirmed as Director of the United States Mint, I intend to pursue three priorities during my term. M)' first priority
will be the implementation of an ~ssive schedule of financial
management improvements that will lay the foundation for the
Mint to receive a clean, i.e., unqualified, opinion on its Audited Financial Statements within the next two years. The Mint has not
received a clean opinion on the audits conducted to date by independent public accountants, as required by the Chief Financial Officers Act.
Second, I hope to work with the Banking Committee in finding
a means of controlling_the continuing proliferation in commemorative coin programs. The rapidly increasi~ number of coin programs is testinJ. the limits of both collectors willingness to buy and
the Mint's ability to produce and maFket these programs in a business-like manner. The Citizens Commemorative Coin Advisory
Committe!, established by Congress in 1992, will be producing a
report to liongress by the end of this year recommending a 5-year
plan of commemorations and su~esting additional actionii which
mudit be considered to address this matter.
'l'hird, there are opportunities on several fronts for the Mint to
increase its productivity and profitability, thereby making a larger
contribution to financing the Federal debt and increasing employment among the Mint's private sector suppliers. One opportunity is
through the acquisition of more modem communications and manufacturing technology and the adoption of modem personnel management practices. Also, I believe there are opportunities, over the

Digitized by



mid-term, to expand coin collecting into geographic and demographic markets that in the past have not been active in numismatics. We must develop marketing strategies to expand the appeal of coin collecting into younger and more ethnically diverse
markets in order to respond to the rising demands in Congress for
these commemorative programs. And finally, the Mint must secure
the loyalty of its long-time customer base, as well as its new customers, by rapidly improving customer service, enhancing the artistic appeal of our products, and expanding the range of commemorative themes beyond the athletic, military, and veteran themes that
have dominated coin programs over the past decade.
Q.2. New Policies at the Mint-A recent survey done by Mint officials showed that delays of 8 weeks or more were common in mail
order operations. According to an article dated March 11, 1994 in
the Washington Post, you have made some changes in the management of commemorative sales. The Mint has reduced the shipping
time on mail orders of commemoratives to 6 weeks and is now allowing customers to cancel orders anytime before shipment. You
commented that this was just the first step to dramatically improve
service to customers. What are some of the other changes you have
planned? Are there any legislative proposals that you could s~est
which would assist you in your efforts to streamline the Mints operations?
A.2. On February 7, 1994 the United States Mint announced a new
commitment to delivering customer orders on a more business-like
basis. A recent survey of Mint order fulfillment response time demonstrated that for recent programs our average was almost 8
weeks. This meant that about half of all orders required more than
8 weeks, and often as much as 3 to 4 months, to process. Our new
standard is to deliver 99.9 percent of all orders within 6 weeks.
Late last year we launched a major program consisting of some 28
separate tasks to meet this tougher standard in 1994. The first
commemorative program subject to these new standards is the
World Cup 1994 program. As of May 9, 1994, we have delivered 69
percent of all World Cup orders within 6 weeks, a significant improvement from the 15 percent record established in our final 1993
program, but still below our 99.9 percent standard. Our first two
numismatic programs of the year, the 1994 Proof and Uncirculated
programs, have met the 99.9 percent standard. As other programs
are introduced we will continue to work toward meeting the 6-week
As for other changes we have planned, we are implementing a
series of improvements in telecommunications technology and customer inquiry systems at the Mint's customer service center to provide customers with ordering and account services equal to the best
found in the private sector. As a part of this initiative, we are considering the installation of toll-free 1-800 service for customer inquiries to augment the 1-800 service already available for ordering
Mint products.
The Mint is also aggressively seeking ways to improve both the
artistic and technical quality of its coin products. On the artistic
front, senior management is giving greater emphasis to artistic
concerns and forging a closer working relationship on issues of ar-

Digitized by


tistry with the Fine Arts Commission and the Citizens Commemorative Coin Advisory Committee, both of which advise the Mint on
coin designs. As for technical quality, the Mint has implemented a
system of continual improvement to its coin products and packag-

~ e are also continuing, and extending, an initiative begun in
1993 to offer a broader, and more interesting, range of product and
packaging options designed to appeal to a wider range of numismatic customers. The World Cup 1994 program offers the widest
variety of product options the Mint has ever offered and additional
innovations will be offered in other 1994 programs.
The most significant legislative initiative that could be taken to
streamlining Mint numismatic operations would be establishing an
effective limit on the number of commemorative programs each
year and the mintage levels authorized for those programs. There
are sipificant and unnecessary inefficiencies created by the proliferation of multiple, overlapping coin programs which are often
authorized at the last minute and then rushed into production. As
demonstrated by an overall, steep decline in Mint commemorative
sales over the last 7 years, there is growing collector resistance to
a glutted coin market, where Mint products seldom hold their initial values. There is also increasing dissatisfaction with a perceived
lack of collector impact on Mint commemorative themes. Before the
end of 1994, the Citizens Commemorative Coin Advisory Committee will make recommendations related to these concerns.
As for circulating coin production, in the future I intend to
present to the Committee a proposal to extend the Public Enterprise Fund to cover all Mint operations. This proposal is designed
to produce significant efficiencies by streamlining financial, procurement, and production systems for the circulating half of our
business and allow for the consolidation of the Mint's balkanized
fund structure into a single, simplified revolving fund. Action on
this front has been recommended by the Mint's external auditor,
and I believe it is essential to meeting the requirements of the
Chief Financial Officers Act and obtaining an unqualified audit
opinion for the Mint's financial system.
Q.S. The Citizens Commemorative Coin Advisory CommitteeThe Citizens Commemorative Coin Advisory Committee is responsible for recommending to the Director of the Mint, on an annual
basis, themes for a 5-year period, mintage levels and reasons for
their recommendations. As chairman of the committee, how do you
perceive the status of the committee?
At the February 22, 1994 meeting of the Advisory Committee, I
understand that the committee members decided not to recommend
any additional coin programs for 1994 because there are too many
approved programs for 1994 already. Do you believe there should
be an absolute limit on the number of commemorative coins that
Congress authorizes each calendar year?
A.3. The Citizens Commemorative Coin Advisory Committee was
created by Congress in 1992 to advise the Congress and the Secretary of Treasury on the commemorative themes and associated
mintage levels that should be considered for each of the next 5
years. Furthermore, in a Sense of the Congress resolution passed

Digitized by


late last year, Congress expressed its intent not to enact more than
three coin programs for any year.
As enacted by Congress the Committee's role is purely advisory
and, in the end, it must depend upon the Congress to enforce any
limitations on commemorative coin programs. The Committee is
currently taking public testimony from advocates of proposed coin
programs, seeking input from coin collectors on commemorative
themes they favor, and developing objective criteria by which it will
select programs for inclusion in its 5 _year plan, which will be issued by the end of this year. To date, the Committee has not issued
opinions on the merits of any proposed programs, but in its February meeting, the Committee recommended that no additional
1994 coin programs be authorized by Congress.
I believe there should be limits placed on the number of commemorative coin programs authorized each year. But more importantly, it is also necessary to limit the total annual mintage of all
commemorative programs in order to address the glut of coins flowing into numismatic markets each year. If large coin programs on
the scale of those of recent vintage continue to be mandated, limiting the number of coin programs will be inadequate to preserving,
and eventually expanding, the potential of this market. Under current market conditions, the Mint can generally expect to sell no
more than three to four million coins a year, even if many millions
more are authorized. So long as coin programs are authonzed without limits recognizing the realities of this market, coin sales are
likely to continue their 7-year decline.
Q.4. The Penny-Do you believe that the penny should be eliminated? If so, what impact could the elimination of the penny have
on cash transactions by consumers? What effect will the elimination of the one cent have on sales tax transactions?
A.4. Despite the fact that the penny has lost some 80 percent of
its value to inflation over the past 30 years, it is still the most
widely-used coin manufactured by the United States Mint and represents between 70 and 80 percent of the Mint's total annual coin
production. In 1994 alone, we expect to produce 12.6 billion eennies. The penny is marginally profitable for the United States Government; associated costs are about 20 percent less than the face
value of the coin, providing a very small, but still positive, seigniorage margin to the Federal treasury.
A May 1990 GAO study entitled "National Coinage Proposals.
Limited Public Demand for New Dollar Coin or Elimination of
Penny'' studies these issues and noted: "There is no . . . economic
argument for eliminating either the penny or the half dollar coin.
Both are profitable to the Government in that their face value exceeds their production and distribution costs. Demand for the
penny remains high. While retail trade associations and the public
reco~ize some nuisance aspects of the penny, the problems mherent m rounding off retail transactions to the nearest 5 cents were
· troubling to many. The European countries that have eliminated
their lowest denomination coins all did so because the production
· costs exceeded their face value."
"Overall, general public participant reaction . . . was negative.

Most believed that businesses would increase their prices and ex-

Digitized by



pressed concern for the poor, who could not afford losses from
rounding ups. Business group participants were concerned that
rounding would result in bookkeeping problems, tedious verbal explanations of rounding to consumers, short-term costs involved in
cash register adiustments or purchase of software to accommodate
automatic rounmng, and rounding losses particularly for banks
when cashing checks that round up."
State sales tax authorities questioned by GAO thought that the
rounding rule would not affect or impose significant problems in
the collection of sales taxes. However, they did express concern
that merchants might try to set prices so that rounding would benefit them. Further, Virginia State sales tax officials thought that
rounding should be applied to all forms of payment, including
checks and credit cards. "They reasoned that people who do not
have access to checking accounts or credit cards, most likely poor
people, would pa_y the rounded amount, whereas people who do
have access to checks or credit cards would pay the unrounded
amount. They also noted that converting cash registers to compute
the rounded price would be a burden on merchants."
Q.5. The Susan B. Anthony dollar coin was introduced in the late
1970's and faced many problems which proved to be insurmountable. I understand the Mint has over 300 million Susan B. Anthony
dollars Mint and Federal Reserve inventories. What has the
Mint done to try to reduce the inventory?
A.5. As of MB)' 6, 1994 there were approximately 345 million Susan
B. Anthony (SBA) dollar coins in combined inventories at U.S. Mint
facilities, the Federal Reserve Banks, and the 25 Federal Reserve
Branches. The SBA dollar coin is being used in transit systems in
Baltimore, New York City, and Philadelphia. The Detroit Branch
of the Federal Reserve Bank of Chicago has reported increasing demand for use in vendin~ machines. The SBA dollar coins are also
available through depository institutions at face value. We sell the
1979- and 1980-dated uncirculated versions to Mint customers in
sets (by year/production facility) and bags ($100 and $2,000). I also
understand that as of June 1993, the U.S. Postal Service began installing stamp vending machines at post offices nationwide that
will accept a $20 note and dispense SBA dollar coins as chan~e. If
legislation for a new one-dollar coin is enacted, the coins remaming
in inventory should be melted, with the metal recycled in other
coins. The seigniorage previously credited from the SBA dollar coin
would need to be adjusted on a dollar-for-dollar basis against the
seigniorage from other coin denominations.
Q.8. Patronage Jobs at Mint-According to a December 10, 1993
article in The Washington Post, there are plans to eliminate nine
patronage jobs and depend on career civil servants to run the agency. Secretary Bentsen said that he wants the superintendents and
assayers at all Mints as well as the chief engraver sculptor in
Philadelphia1 to be career employees. (All the positions have been
patronage joos since 1873.) What is your position regarding career
civil servants running the agency? What qualifications are necessary for these positions?
A.8. I support Secretary Bentsen's November 1993 decision to ask
the Congress to eliminate nine Presidential appointment positions

Digitized by



at the United States Mint. The appointed positions are the four
field Mint superintendent positions at the U.S. Mints in Philadelphia, Denver, San Francisco, and West Point, New York; the four
assayer positions in each of these Mint facilities, and the Chief Engraver position at the Philadelphia Mint.
This action is designed to streamline and strengthen the management of the Mint by eliminating Presidential appointments that
are vestiges of the 19th Century era of political patronage. The
Mints at l>hiladelphia, Denver, San Francisco, and West Point are
production facilities more appropriatelr managed by professional
career specialists than by political appointees. A high level of management and manufacturing experience is necessary to deal with
tlie demands of producing some 18 billion circulating coins a year,
the administration of numismatic and bullion coin programs, and
the implementation of improvements in financial management systems mandated by Congress.
The Secretary's plan calls for the Mint superintendent positions
to be converted to professional career positions and filled on a competitive basis; the remaining five political positions would be abolished. All of these positions are currently vacant.

Q.t. Recently, we have seen a proliferation of commemorative coin

programs. News articles have accused Congress of "killing the golden goose." Do you agree that there are too many programs and do
you believe each existing program ·suffers when another coin bill is
A.1. I believe there should be limits placed on the number of commemorative coin programs authorized each year. But more importantly, it is also necessary to limit the total annual mintage of all
commemorative programs in order to address the glut of coins flowing into numismatic markets each year. If large coin programs on
the scale of those of recent vintage continue to be mandated, limiting the number of coin programs will be inadequate to preserving,
and eventually expanding, the potential of this market. Under current market conditions, the Mint can generally expect to sell no
more than three to four million coins a year, even if many millions
more are authorized. So long as programs are authorized without
limits recognizing the realities of this market, coin sales are likely
to continue their recent 7-year decline.
Q.2. The topic of the minting of a new dollar coin has been endlessly discussed. A total of 857.2 million Susan B. Anthony Dollar
Coins were minted between 1979--81, most of which are in circulation. According to the latest available figures, the Mint's inventory
of the Anthony coins is nearly 295. 7 million, with the Federal Reserve holding another 63.5 million of the coins. This number has
significantly decreased over the past 6 months. You should be commended for your efforts in trying to get the rest of the coins out
of public vaults and get them into private hands. What else could
be done to get more of these coins into circulation? Should the coins
in storage at the Mint and Federal Reserve be melted down?

Digitized by



A.2. I understand that the SBA dollar coin is now being used in
transit systems in Baltimore, New York City, and Philadelphia.
The Detroit Branch of the Federal Reserve Bank of Chicago has reported demand for use in vending machines. The SBA dollar coins
are also available through depository institutions at face value. We
sell the 1979- and 1980-dated uncirculated versions to Mint customers in sets (by year/production facility) and bags ($100 and
$2,000). We have seen an increase in demand for the SBA since
June of 1993 when the U.S. Postal Service began installing stamp
vending machines at post offices nationwide that accept a $20 note
and dispense SBA dollar coins as change. I am skeptical that there
is much more that the Mint, unilaterally, can do to increase demand for the SBA
If legislation for a new one-dollar coin is enacted, the SBA coins
remaining in inventory should be melted, with the metal being recycled in other coins. The seigniorage previously credited from the
SBA dollar coin would need to be adjusted on a dollar-for-dollar
basis against the seigniorage from other coin denominations.
Q.3. Many studies have been issued concerning the amount of
money the Government could save by issuing a new dollar coin.
How much would a dollar coin save the United States Government
if the dollar bill would remain in circulation? How large of a savings would there be if the dollar coin would totally replace the dollar bill?
A.3. The Treasury Department is currently reviewing these studies
and the claims of interested parties. However, I have no doubt that
retention of the dollar bill, along with the introduction of a new
dollar coin, would cause the coin to fail. Recent efforts to introduce
dollar coins, including the Eisenhower dollar in 1971 and the
Susan B. Anthony in 1979, failed largely due to the retention of the
dollar bill. The public has consistently resisted converting from
bills to coins, and in fact, a 1990 Gallup poll found that only 15
percent of the public favored replacing the bill with a coin. The
General Accounting Office (GAO), in both its 1990 and 1993 studies, has acknowledged the need to not only eliminate the dollar bill
to ensure the success of a new dollar coin, but to also prepare the
American people beforehand for the transition.
Estimates of annual Federal budget savings with the introduction of a new dollar coin and the elimination of the dollar note
vary. In its latest report, the GAO, citing a 1992 Federal Reserve
study, estimates that the United States could save an average of
$395 million per year by substituting the dollar note with the dollar coin. The Treasury Department a_gr:ees that if the dollar coin
successfully circulates, cost savings will be realized. However, since
there are a great many unknowns, such as demand for the dollar
coin, increased demand for the two dollar bill, and metal costs, predicting cost savings with confidence is difficult.
Moreover, since the potential savings are weighed in the "outyears" of these estimates, initial 5-year savings are likely to be
modest. In a 1990 GAO Report on dollar coin (which estimated annual savings of $318 million over 30 years) Government costs were
projected to actually increase by $80 million during the first year
of production, and the annual projected savings level of $318 mil-

Digitized by


lion would not be reached until 13 years after production of the
coin began.
Finally, a number of other factors must be considered to make
the introduction of a new dollar coin a success. The Mint would
need at least 30 months from the time of the legislation's enactment to the introduction of a new dollar coin. This lead-time is required to design, test, and produce production quality dies. Research and development is required to determine the optimum
alloy, coining and color tests on the alloy and wear tests on the
alloy. A commitment to fund a marketing awareness program is
also necessary to prepare the American public for the transition
from a dollar bill to a dollar coin. Such a program was an important component in the successful effort of the Canadian government to introduce their new dollar coin.
Q.4. What are your views on the elimination of the penny? Is that
a realistic possibility?
A.4. Despite the fact that the penny has lost some 80 percent of
its value to inflation over the past 30 years, it is still the most
widely used coin manufactured by the United States Mint and represents between 70 and 80 percent of the Mint's total annual coin
production. In 1994 alone, we expect to produce 12.6 billion pennies. The penny is marginally profitable for the United States Government; associated costs are about 20 percent less than the face
value of the coin, providing a very small, but still positive, seigniorage margin to the Federal treasury.
A May 1990 GAO study entitled "National Coinage Proposals.
Limited Public Demand for New Dollar Coin or Elimination of
Penny" studies these issues and noted: "There is no . . . economic
argument for eliminating either the penny or the half dollar coin.
Both are profitable to the Government in that their face value exceeds their production and distribution costs. Demand for the
penny remains high. While retail trade associations and the public
recopize some nuisance aspects of the penny, the problems inherent m rounding off' retail transactions to the nearest 5 cents were
troubling to many. The European countries that have eliminated
their lowest denomination coins all did 80 because the production
costs exceeded their face value.•
"Overall, general public participant reaction . . . was negative.
Most believed that businesses would increase their prices and expressed concern for the poor, who could not aff'oril losses from
rounding up. Business group participants were concerned that
rounding would result in bookkeeping problems, tedious verbal explanations of rounding to consumers, short-term costs involved in
cash register adiustments or purchase of software to accommodate
automatic rounmng, and rounding losses particularly for banks
when cashing checlts that round up."
State sales tax authorities questioned by GAO thought that the
roun~ role would not affect or impose significant problems in
the collection of sales taxes. However, they did express concem
that merchants might try to set prices 80 that rounding would benefit them. Further, Virginia State sales tax officials thought that
roundimr should be applied to all forms of payment, likely pqor people, would pay the rounded amount, whereas people who do liave

Digitized by



access to checks or credit cards would pay the unrounded amount.
They also noted that converting cash registers to compute the
rounded price would be a burden on merchants."
Q.5. The Citizens Commemorative Coin Advisory Committee which
you chair is expected to release their report in December on recommendations for commemorative coins until 1999. Your report
will be non-biding recommendations. As chairman, how will you encourage Congress not to pass coins that the Advisory Committee
have not recommended?
A.5. Quite frankly, I don't have a solution to offer yet. However,
I intend to work closely with the Committee in finding a means of
controlling the continwng proliferation in commemorative coin programs. The rapidly increasing number of programs is testing the
limits of both collectors' willingness to buy and the Mint's ability
to produce and market commemoratives in a business-like manner.
I expect the Citizens Commemorative Coin Advisory Committee
to encourage the Congress to establish a firm, effective limit on the
number of commemorative programs each year and the mintage
levels authorized for those programs. If large coin programs on the
scale of those of recent vintage continue to be mandated, limiting
the number of coin programs will be inadequate to preserving, and
eventually expanding, the potential of this market. Under current
market conditions, the Mint can generally expect to sell no more
than three to four million coins a year, even if many millions more
are authorized.
There are significant and unnecessary inefficiencies created by
the proliferation of multiple, overlapping coin programs which are
often authorized at the last minute and then rushed into production and marketing. As evidenced by the overall steep decline in
Mint commemorative sales over the last 7 years, there is growing
collector resistance to a glutted coin market, where Mint products
seldom hold their initial values, and increasing dissatisfaction with
a perceived lack of collector impact on Mint commemorative
themes. By the end of 1994, the Citizens .Commemorative Coin Advisory Committee will make recommendations related to these concerns.
It is im\)ortant to note, however, that the Committee's role is
purely adVIsoryi._and in the en~, it must depend upon the CoJ!gress
to enforce an__y limitations on tnese programs. Both as the Chairman of this Citizens Committee, and as Director of the Mint, I will
work closely with the Committee to address this mutual concern.
Q.8. Recently, some organizations who had received surcharges
from the sale of commemorative coins have complained that the
Mint had not sufficiently marketed their coin programs. Part of
their complaint is that the profit the Mint made off the programs
should have been put back mto marketing the coins. What is your
view on this? Should the groups who will receive surcharps be responsible for marketing the coins beyond the initial mailmgs from
the Mint?
A.8. I believe there are ways for the Mint to increase the effectivenelS of its marketing of commemorative programs. However, based
on 7 months of close observation; I have concluded that the Mint's
marketing staff' do very well under the circumstances they faj. For

Digitized by


example, in 1994, the Mint marketing staff is juggling the management of six commemorative programs plus another four annual numismatic programs as well as the gold and silver American Eagle
bullion programs. Five of the 1994 commemorative programs were
not enacted until late November 1993, with the mail drop-date of
the first of these five programs coming less than 5 months after the
legislation was signed into law. This is a remarkably short period
of time to bring to market a program expected to raise some $18
million in gross revenue.
However, I believe the source of the complaints you referenced
have little to do with how the Mint marketing staff confronts these
management challenges. Instead, I believe it relates, as your question suggests, to the fact that the Mint seeks to conserve a profit
from these programs.
As commemorative programs are currently structured under the
law, sponsoring organizations receive a surcharge set by law for
each coin sold, irrespective of whether the program ultimately
makes a profit or ends in a loss. In a nutshell, sponsors have a
strong economic incentive to drive the Mint to spend, as an example, $10 to market a coin from which they will derive a $5 surcharge, because the $10 marketing expenditure has no effect on
their return from the program. This is not simply a matter of economic theory; some sponsoring groups have behaved in precisely
this fashion.
I would recommend against making sponsoring groups responsible for any portion of the marketing of commemorative coins. To
do so would open the programs to potential abuses by organizations
that have strong short-term profit motives and virtually no longterm stake in numismatic markets. Instead, I recommend developing a way of structuring these programs so that the Mint and the
sponsoring groups share the same incentive to ensure that each
program is sustainable by its own revenues. I am not prepared to
make a specific recommendation at this time, but I'm convinced
this is achievable.
Q.7. Commemorative coin programs have been viewed by some
groups as an easy way to earn a couple of million dollars without
having to risk a dime of their own money. Due to the rise in the
cost of precious metals and increase production costs, the price of
the coins has risen. The total cost of the coins is increased by
added surcharges. These surcharges range anywhere from $10 for
the clad World Cup coins to as much as $50 for the gold 1996
Olympics coins. Do you feel these surcharges are a tax placed upon
the coin buying community? Should the surcharges be eliminated?
A.7. There is no question that the surcharges are an added cost
placed upon the coin which is then borne by the coin buying community. There are those in the coin buying community wlio feel
that the surcharges are not warranted and that these coin programs are being used by sponsoring groups only to raise money for
their particular cause irrespective of whether that cause is worthy
of a national commemoration.
I believe the question of surcharges and the allocation of risk between the Mint and sponsoring groups is something that needs to
be evaluated in the overall context of the continuing proliferation

Digitized by


of commemorative coins. I am not prepared to offer a proposal at
this time but I think this matter is likeJy to be addressed by the
Citizens Commemorative Coin Advisory Committee in its report to
this Committee later this year.

Digitized by



-.,J:""\!\.' I:': ~"T',!wln \\l,1 , ...... ,1,;;:.snl:'O 1n t::.l'

:':lt•:"t•,-;__.. 111 l'\t•!.'~I~:.! :..;':.\' ::-,:·1;.::..10n :':(."~~:~ ,

:;n~t•r :·11r:l:-n1. \ins: :11:-t."t.·:..asU!!"", a~:.U::tt'
~;s:.;1~ \-t ,,nnm\'WUll' :•rno11n1\'a ·. '.,!rnwtn
·.\ 11; :;,·,:rJ!.:t.' -.u~,· ! ., ., •. 1:'Jr. _.;,mt :n


L::.:Jt :;.;:N,r 111rn.:'


u; j_;;•.~ u:- 1~-. •

.;.~n i.l'.t• 1un'.,!-ll.?!'":'!': i::-:iw:r, ;,(,i,~:-.:.::,i; ,11
~:'II.." ,.,.vr:nm,· rntr.\:'~ ;,,, i~r.-...•tc"'.'R :;.tr.;, .i.::.<I

.-•.:·n· 1:an.• ::.slL·:- ~~.;.n l:-.;;:..
~tw ,_.,_,,nom,· ruSl'l~::., r.l:'aU1or:~
prou:1<·::11n th1l:.1r:1r•~i-;._, l:":;.it .~mt.i: :.i

~.:,~.. .i \\:':!:"



"'·a::~-.1nr.-u:-:ce so1:-::1.


c~ru:nl\". tne ClinLon Adm11"t1Sl~t1on !
~-:- C"'..,10r...1uie ~,tn :!.;.~.. a:. our 1orur-nm !
:o, t!C3s;. ;o•! :...lur:1 O"Andre1 Tyson. ;
. :':~ir ,,! -"" F:-es111~:-., ~ · ·,..,nc1i oi E...·o- 1

--:om1c Acv, ...ers. A!'!a ?.uN::-t :' ?arry.

of F:-.1nc1sco. ='"'-='t!nUY :..::,10 1 2:3Lier•
ti.:!ste:-:; ~:-.:a -'.o:- ~he 'li .. ·.·... ~
_ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ vt:3.Ni. .• :u? :-::.te ~: ::-:-o""'·t:-:. oe,en•
:.11 L .·e o:iv ~tter lnan this?
:.,e Feder:i.l Resen·"' 3o:ird has :i.lre:iay 1 ~r than tne economy C'ln sus~n tn
:: ... er s,nc~ the C. S. economv raised snort•te~ rat~ ,n tnree uclr· 1 lonr run: So wondu ev'erv bit oi rooo
ooweed JJlUO aL l t.omo pace t.1tt ter-oamt ins;..3.llmenu since e.1rly ':=° eb- \ ttonor.uc news ('Ives ~hP iinanc:a.i ma.r•, y~:ir. ~:,e iinanc, ... 1 have ruan·. And W:ill Streu upecu more kets tne 1itters-send1:hc hond ana SLOCk
1e:1ren tn:it ac:-eler:1un1£ k't'Owtn •.11ouid r:ne nikes to come. even tnouv:h the j pnces t.umohn~.
ser.a onces s0,r.w02. To be.3.t 1ntlauon to economy upanoed at on1y J 2.6~ chp tn :
aut ;,ne !.ears oi t:te ioreca.sters and
the puncn b~· cootmr oif the economy. this :,,ear·s i1rsl qua.r:er.
: the may be uniounded. ·?eooie





\ prc.;1dent ,,i :.:"le r~e:-::i1 2.eserve :fa1":k \

·:u, ,.. ··,•









... , ...

Digitized by



taSt 13 ynn and 11111. 1 heiwYN Lbe cconom,-··s unaertyinz ·1 mer ;,net: u1cre:nes are Nnninc H a
;,m,ft'llftC tnftft ,.,.....,,._- sa~ ilidl· i l(IWWI• U'l'lld GI proaucc.ivn~ in both :!.&'l. .aMual ~u 311d invescors are Ge·
ill lAlumbla l,;ai- ~ and sen,cn nu recent•
manciinc a y,etd of more Ulan 7,- on
\-..nn,~·. The nNWanuanai ouuaak UIICNI"•
Ir ma
U~ and tlw. Lhe noninfb-- 10-year Treasury honds. By conc.nst.
....umoun , ·ut1)0nLe Amencas hue•.· ~ ffOWth poc.enual ot the U.S. is when irub.uan v.·as Lhis low back in the
IJl"IWIUcu,·nr 11.uns. a b&Konc wave CN cenami,- iliciler wa tile mooesc. ~« m,d-1960s. invnton only required a
U,'C'llftllllJttl 1nnovauoa.. W the sprna pralftl,N by COllftftUonal wisdom. )-ieki of 5\..
•• ,-.111.akllm """'na tho world. ·Pn,. ·c. S. - - ill ,._,,, yoan have I
Kow i!ood can ~ set belcn Lho
•lunn·,,~ has QraraaUcally improved hea tawesciq iD new
econora.J overheau?
nNnp:ared •· Ole i,nor two decades.- capiul aad improvinc
Perh.apa a lot
sa'."'s linace Steinbe,.. ecoaomi1t ~, UIW aa of capital in
the' maa people think.
~lernll l.rn•h <I: Co. "And improvod ways Lllu an maiunf
, n FROM BEOver Lho put Lhree
proaucuvity means the economy cu the U.S. economy more
years. productivity hu
ICl"OW more r2padl~· ",thout triqerinc
prodactiwe.'" Greenspan
been rising lar futer
recm<iy wraca.
ING A MATURE lhan lhe raUI assumed
mu. mNoT. True. the recent pickup in
Still ;he fed isn·t
by the typical foremanuiactunn« 3c:uvity is raisinc the joiainc ia aa, victory
cut-a 2.6'- aven.ire
~ nt pnxiucuon bouJenecia. Yet in
danot-a least not yet.
annual rate. similar to
•• inerusin,ly •iobaJ eeonomy, many ..___ it baa been our•
<he experi••~ of I.he
.-\mer1c:3n companies can shift excess suiaif a ticbtfi:sted manel~SOs and 1960t.
urder 1low1 ,o faaories overseas. And W"J poliey u pan ol a
In port. Lhis reflects
W1th nearty one-fifth oi all goods boucht <::IIIIIPIIIII io canvince the
the tYl)ica.l productivi,y
in ,he IJ. s. prociuced oveneu. foreica ...-uu Iha iL - .·, lee.
ceOOU11d I.hat follows •
<.-umpeutors are eacer to upand their iAilalian enq,t..
............. . .. .............
recession.. But with
:S.1ies should stateside companies -.r·
Aad the markets. it.
business equipment ini.."T'ftSivel~ ruse pnces. White-hot seau.. neeG a iot of c:onvincin!. They
vestment hit.tin( 9'- of l1"0SI domestic l:
nat.ional competitinn puts a clamper nn _.. bf mepbudt losaeo during . produa. i t s ~ - level in tho_..- i
U\e ahilit~ oi U. S. companiea io jack vp
the 1970s price spin.J &nd won't risK . period. the productivity surge is likely
tri1lms mare until they have positive c.o continue. Tack on Labor-force growth. :.
~ ~-ed Chairman Alan :'.:;reenspan proof dw. h"her productivity growth and that means the economy's noninflaacren that lhe vowth prospecu oi :-a.a are here to stay and int1ation will tionary growth pc,tential could be u

:.are t~•uM Lftt'
.am ~....,._








. ,.•-···"··-·~ --,--.. -· . . ,.~-~-~ I




· 1heUS.emmnnyt.sexpamledata2.A%~~~.J.98~1hatthe- \ :: .";_-·
sgmwtl,poN!nlia{,s:LS~ctbest.B~tltee,,id.,aceismoun!ingtlmtitcauldbeashighca ·'. ·.' ._- ,:·.
. : .< · . ; _.. . . · · . · · ·.
: ' . . . -.. \



,. _ _ IS EXPANDING ••• _

,, _

.. --------=-"---!HI








M ·•J

1 .7":ll'l"11-.-a'1J-.. ·n-u u •u ·" ·" 11 'tf 't)





Digitized by











1or ~ n..-


•:\C'CS ana t:i.\•i;ir. The
, h,vncr ~=-owth r;ite
wrnud cumulat..i1.·eh· :i.dd
, :shout Sl.2 trillion ~ore.
~ in 1!:tS7 dollars. to the
; nuion·s output b~· the

..... oi defyinsc expect.a• I
tions.: :gys Alan Brink• !
ley. :i. proiess,r oi hLStOl"'y l
:i;t l:olumoia Univen1ty.
f'or example. econorrusu
exi,ec:ted anemic growth I
in Lhe U. S. in the wu.e
of World War 11. But for
the loUowirut generation I
the economy grew at a
stunning p:ice. How
about the limits-to-~wth panic of the

! ~-~:~e~:~v~~s:~~:~~

f:ar::~:~i;~ su;~~;



t he


r !w

!14,.•twnn u
._'T'O"-'ln r;: t c 111 ::.51,e :u,d


:.!.~•" m:i;,· !int ~ttm like
mucn. hut it's the differ•
,·nrc iiet '4'h"n nunt fish



· ~,x vl".irs h ,· S liO hillion.
? ~r-c:i.piu income wouid
. rise tn :i23.600 inuead
, " ' S:?:!.:!50. The 1ederal
l, ud1tet cieikit wnuld
~hr1,·PI. and t he L'. S.
. i:ou ld :.uiorri to spend
' plent y more nn eauca•
i tion. tr:11nin1t. :ind saen•
tific rPstarcn. Lhe seed•

:ire now in cheap aOundance. Say, Robert Eis-

ner. economist at Nonhwestun
University :


""'m,s", "',"•om~,na.,_1Jrv,'nocu~;hma~A~· meco•r",c°.:


' can't stTOw raster hecause ifs a m.iture
i tconom~·- The l,;. S.. they say. n3.S lost
1 iu economic :ind technol°'ic:il leader: ~hm 1n field :ifter ii eld to Astan :ind
~ Eur'npt-an n v:ils. To surv1Ye. comp:in1~
: :.1 re slasiunic eMU h~· eli min.iunv: wnrk•



··Economists looic: at what I
has been hap~ and \
say that mun be na.tu •
ral. Growth hu been
slow so it must stay

· corn ni iuture l(rowth. Strontt growth
'. :1 power1ul. seli-re1niorc1n!l
l d ~•no!n1c :ill iu own.



ers even enterinst the fourth year of
rl!C'Overy. The cold war's end. ',1,1'\th the
r esulL.lnL cutbacks 1n the defense industry. 1s d:impemn( gTowth. too. ·£very•
one hopes the r:it.e of technu:aJ p~ess
can pick up aM the ~te.of ?:-oducs.1""U.Y
itrowth u.·HI pici< up: says Gary Bun•
lt55. economLSt at the BrooKi~s lnstitu•
Lion. ·!Jut th ere is li ttle ha.sis for

Whal the slow-j{n)wth forecasters fail
to appreciate is that the U. S. is in the

throes oi a t.r:insionnauon.. Underl~ini
the recent acceleration in productivity
is a gatherinll web oi technological and
1.-ommerc:1ai innov.:m ons revolutionizing
the economy. much as st.eam power did
in the' late 1700s and electricity did in
the l:ite 1800s.
The industrial Era is givin( way to
But is the C. S. really stuck in medioc• . the lnform.iuon Av:e. ·we are li ving





;=====================================- "'=





SfrOW1n1t schonl o{
weren't ima'1nable 50 vears
i:ronom~u are \.!,'hat propels
al(o: >a y, foe i ~(okyr: eco-11rowth and drawinit insp1r:it100
nom1c histor.:in at :":orth\\:est•
rrom the ideas of J~ph A . ·1 .rn t.: nivermv.
1I~ •19:",01. ~he Austnan economist and
Tr3d it ion:iiiy. m:imstre3m
Harv:trd L"o1vers1ty proiesso; . Like I t.-<.-onom1cs h:.s 1~n un;ioie to !
:'M ·humpeter. these econom1sLS :ire 111cus• , d piain wh:it 01.:termmes ton~- I
in11 on lechnoiOI("'.". iMovaoon. ;.ino knowl•
te rm .irrow: ::. in :.he iJ.~ e !
i=0 ice. And t he ·underb·t n1t mhsa\!e 111
19505. ~ obei b.u re:ite ?..oben.
t h,• Y humncten:ins 1s tunct:imenl~ ll~- 11p~uiow nr ~!:iss:icnuse-tts intuni :-,. t11.:. · ~ c uni! 1act t h3L romt.~ irnm
-.uuae n1 T1:c nnn10~,· ~noweci th :it in1,·onnm1c i'ustnn· 1s the anil in· 111 thi! hu •
1.:reases 1n t;-; e e<·ona""m r ·s i::!:>or ~u pply
:nan mmri :11 hr~J.K throusrn h;irr,c-~ th:it


hese d:iys.








I! ).{.

~o tc-t" ;,nnln111c:il c ·.:i:iw: e . :,.: t a
w:is :.! :'':Cl\'

1.: :it!:c11 a1n:io1e.

. ::t :--,-~cmoete:-::ir. s .! O :-,1::.

:: nnc: : :-:iCm on:i: -.- ,·oJno~ :cs : c,
lomt .1: w r'!a t re:ui y r. :-:·.-e~ ~tc;, :,mc,~ c~1 ,·r.:in<!'. e. :-:-:e'" :::-e .!r.:i l \'?'l:".:: :,o ..._· q-:-o\\.":.~ :: · :tie-c:'l!-'.'I 1:v
u, e s;..:mon. :or ,.._~;,;,:c;:.: ;r.;,o\':i-

Digitized by



rewaros to entrepreneun tor comLng up
with new nroduct.s. A leaciinr Schumoe•
ien :in 1s ?-.1ul Romer oi the l,,;ni\'ers1ty 01
l'ali form:i at aer ke1ey. perh20s one 01
lhe·s most 1ru:luenu:i.l ~-Otm'f ~.-onom1st. Ro~er s theoreu c.:i.i worK n ; e.1x.s
new ICl"Ouno !1\' sno...,, nll' how ttcnr.0 101,.."'! c:ii pro~ress ~:in ~row th.
iusL as :i :iew Jl!t. ~~roine or :i :,ew :,,o: «:hno10ll"\· d ru,i spttls t.he ditie:-ence ho?·


~1oori1nr economy l.nd

:i. C:',"':"". :lr:1 ·

,-: one. P.o mer l no other n,,.... ~;-ou:t n



i,• "' IMM NllliamftuJ anG I OU!""II W ....... WI. crimp
\ M - pan-• - - - - - 8ut U., Ol'W ...i, :araunci •h• ' " - re- I it 10 -.urine haw
~ UW¥al. and an1i)"1is oi d1t1 aad lall- ~ 11'-< crowth; ia: , , _ anG ,_,..reinuon - . ·
Te - - &lie ..ia.ionlhlp be: -a.-, llichanl
aa _ , . , . . :and , _ - - . . . ud - t h calls for
• W....- "' Ulo C.:- llllllUM iar Aduaditian cbam•
~ 11nnrc11.
..... .., t.11e . . .,.... Schllffll)etll'.
-' ~ :\ad the lnionnaUOII llo,,olutiaa ii - • LIie 211111
intliloctual ci·
·I'"" no a much bitis• ~ - . ~ ~ tho
.-a,·e. t:. S . pa&enl applic:atioaa !lave .,...;.. ....,___
&lie procesa by
. r ~ hr • remaricablo 35~ - doe nidl - ~ new marit1t1.
si1 , - - TI,o finucial -


. .'

, , _ . . _ ........ 18



...__ta •~


• ..._..,. • - ctiununc -

&aiknd to -


,_ ......-.

.. '-I - ,. """-s "' bio&erh t D
mullino■dia are bui1cfi111..,. -

--•""'- ~
Karl Nan. Sdl--

&lie ay -

_. -


.,.. , . . i - . _

.. .
- a.s......._ _i.. r--. __. • _...,.
:JJIElec<ric.AT&T, &DdAlcoa_. ......,. • • I l4oj . . _ .

; '°""" ,___ri1ic1
' l,urnucracia :and

bilnrdries ,.

aad ..-ivicy. "In-

l. ____
...,.r.ian is IN _
ol .a con - _
_ .all..._and,._
! ,....,. .,; • corporatioa: sav1 Richard
dinc\ar 0t Kd(imoy.6 Co. "Aad
• 1·.
s. camponioa.,. coloctiwly 11ie UIIIU¥8tive in tho wmd."

_,, -l
. r.......


-i !ah .i-ti n ~ widl ~
Ille impocs
upheavals. Ibo ILiacl al

IIIOCiellth a&prwtic& aU~-to·. i111lationary ,row,h daaibo a warld
..-here th■ - y ptocil aheod at a
by Ille al capi• · and labor ""'plored. .,hile 6lral :and
-=ypc,licin arw~urecit owanl
Ml'IMC the
~ wicJI.



i iii • tairfr

' ..--ional •i""""1'1,ur



Of - . ._
do .., e...ilent job al

now internt rates


u - - -, - i c
....,..i,.• •JS Frederic
Sclionr. - y. u

q· la



~ ._ beoorne
• ~ liilK
al . . . . . . ..,..iiar

.. _


... _

i rallff"il, QI! -



" ' - 1lllliDIMd .
-biliue o/ M W . - and ,_.
nolaci-. "Knowlod~• d-·· bc:1 di-

miaisllin~ returns. It's u u,udiac
univ-.· A)'I Ricllatd Boldwui. miSl ac. tho Gnciuat■ lnaitut1 of lanationol Studia io G - Addi Paul
11onier. ~ u tJie
California. Borkoloy: "Wo tYll,Ul&tical·
ly undenppr■cia<o tho po<atial for
thilll(I t o ~ It's euy to looo sip& ol tho impor-


._ ...........

"-"- it
4 - ' l ha" ........


liu im!ll<L Picture
thil: a dim willl &II S,
shaped.....,._ W1,e,i •


-tec:lulalovis inU<>
into a compu,y.
prochactiYity ......Uy
lalll ..,.
u ~



PRONE , "ERi" "N



dill.-. terbniqu• 1nd slcilla. But
u,...... and,_.. pie _ . . 1111 tho lanl-


··············· "···········

Wlia cki>w ..-i,? U.. SchUJftllllOr
beb-od eo-~

Iha is doe ol capital•
is& JC--.. 111111 ill appticwon to
ral - - ........... for DION
tha ai,ilal U11 labor. tho traditional
- a l ............ Enlrepr--.i a4--- . - d i . urd knowledp are
_ . . 111a&1.
TN U. S. is - aa &(inc, maturl
e.:.aaoay c.o CM Schu.mpeuriana. but

ins ....,,.. tho IOChnolos7 bosim to
pay dividends: :and prodllCGYity 11q91
ahad.Aad _
_.......,...,.,, .
in c:lmc.n.
~ and otbor hiclt-<ocll in•
fonna&ioo . _ . Whea Iha& ►the S-curw edec1 is mapilled u adl

such•,_ - _,_

History offers scrilcins uamples ol
the S-curvo off..._ Taite electricity.
Moay ol the critical . i - . - .._ in
th• l810s ud 1880a. But it ......, uncil

Digitized by





:.wn to thr•• ci wcades 13.ttr tt'-~l the I lional outpl3.cement iirm. Delta Air systanu worker an replace six other
;1riwi11c.-L1\·ity•tmh:1nc1ntr promise -,j Lines Inc. hu jtat announcec ;ilans to I empklyees " -ithout .l.iftctinlf outpuL
,·it•rtruit":uinn w:as ruiited. Overall. eliminate 13.000 johs in a mar.:.~0th :-~ i
Savvv companies art also discover•
l ·. S. 11rnrhx.·m ·1:v j umoed to a :t.:'. :in- 1 ~tructurinct, :ind O\'~rall unt:IT'.:Hoyment i inc th3l brealanc aown the century-otd


:111al r:m.· 111 tht! tt:arly lUCIOs vs. l l.:S~ 11~vels :lrt disturbin1:tir hi~h. 7:-:.e letft:ii
:i.: tc~ m th~ l:.1t1t lt400s. :acxordi~ ti) Pau1
rombination 01 tecf\noiolnoi c:"::..-,sre and
I Jani I. l,·onom1c historn1.n :u St:Jniord i increasea competition has s::uned t:":.e
, real waces ut iow-sk ill and le:ss e-dunt•
rvo1.un0N a.• T CUM ■• Sirnil:1rl\·. :i.iLer :t I ~ wnriu!:rs. too.
!un\! ::&\C . n:i urrnauun ltthnoiwit!S :.&.rt I
~ ow. lht fl'{ M of ;he ;::iyori :irl! ::.
·11., l nu"' hnnc :: jl to tneir 1:1.·i,nomu· ! nallr ntre: ,:omo:in1es .art :.: ccom1r.&
: 1n 1m, .....
:--;u •.; \\". D:.anu!i Hilli:i. ,·.:• 1 much more 1:!iic1~nt. Anhel.!Sf:"•Busc::
·.,unill'r "' Thin,un~ )I JC~mt.>s 1..·urp .. :i I l°->s .. the ~·nnc·s llta'tst h re,..,·er. 1s :-e' .:;:11 ,r1,h!,· ,\l.:,.., :00.1 :r.:iKer 01 m:i,:,,l\'~I\' • : pl:ic1n1t ;,:icK:uonic ~,u,pm~:-.: ::!:iU!icC


I com~-and-conuol bUTuucnoes has
1mo:act on innovauon. For 'lll'!'~le.
i Toledo-oased O3.n& Corp •. a SS.5 b1lhon
I proauett 01 automOlivt and other indu.s•
I trial producu. XUvely ,oliciu ideas from
i empiO!fH:S at its 197 :nanuiactunnst I
; plants .:IC"'J.ttered 1111 over the worid. illt
1 flOWef ot th,:n is ancreciible.· sa:,s_Sou~:
1 wood J. ·Woody· '.\lorcott. Danas ch1e1 '.

I :in


~i?I~;: ~~,~~~.g~:flf.l~;~~; :~~~~~::iSqf~:i~ '.fi1l}~:g ~;1ti~§:~i~~~~\~~~f :
· .. \, .. ,,.,. :::•· , .. ·• >, :- \\"~ :-:;.in.·



• rnn1c

.. upp111.:r

111 ri :it:i :":.!f t.i .

-~ ,

\' t iopment

~•~;:·,~:~J::t·~-~~" ;,\fi,~/:\;~~~l!~:::\ :; tc~:~

•• ,,\:~:. .:;1. ; :1 1• " ll ~!ln(' t :-::n wd , ,.1rt '
• . .. .,:.1111 :::-::,· r,,; :~,· :1;1st ,:,,·a,i'-" : !\~J:t. and \,_.,..:;: :,roiiaill~· :.:.c:: ~50 i. ::·•· :::11r,·. : :11· -...:;;1,· ·.n in.:- 111 ·,:,•,t:-,11·• liun l'i,~r:actc~ : ::11 \' ti:&:-: .,.;::s ~urir.1·:
.,,t i::1•:•· •.,.,•!! :.i! : , •• :1..1 :n:u! ;:;;,: :i;,, L. 2n:•ril.3rt. :.:-':'ftti~nt ,11 ~:,.- .: i):i:.:..
:- ,:·, !H . ::..,a,·:-, .. , :,,. •.:,·1nus ,,,~:"11:;nn .
lmi~t. :;-,'l" :-:!:e 01 :-\.•tt: :--: :,~ :\•:~·
1:1, · .. ::,: .,i ,:·i ,;i, : . . ••~:~:.:.nh_•.. -:;:·. ,· , ummun1c;l~;11~~ :~\'\!:a;,m,:n:. : .. :-m.::-::
•.. :,,; a 1:;, .. , ::::11:-?"":"::.1:.:11:-: ·~·r.not111.!?•."• :,,r
·'Jr.:.. 1:\rluriir.:.: ·:-:c:irt't"t I~!':~:: :~ :u :;·.::

, ~:c:«utivt.


.. :•• 11 ·. 1·:1:1i :::.1tm\.!' ~ ::::ura1 ,11 11111... l ,.,. .
,1-r1num\•, ~:.1::s :=":-:::c-:, (:-,,r. ::-.. :::;u·.::..:· ,,r:1:,· :,:,.,,11 :m:,1111:,,,..~~nu, ,n 1111· !lr"'l : .:,\! mrenor ::i :..1~1. ~lrCra\,·• :": .:.. .\nc :.:
.. 1; :1 ·r '.\,•!"1· i. n 11•. :rnm UH· ,.1;?11• . :·n·1•!'lt. ,u1tl\' ~•·. :":-::nK :t :_, _:: :..:n111.•:-...:.
•·~ :,. , ..... : ·: ,·ar . :u·C'O:"'•~:::\!' :,·, l ·•:;..,.\•r~ · ., ...,u,n11M oil 1,,·... :1~t11:..i L'rw:t:-i :: ·: :-,·:"l.1••.
.a •·- 1 ·!:ri .. :~31 .::<" .• •1:: 1:i;,,•r'!':a· "' ltu~1n1.~»- :.. :;:'Ir. :::•t .. :;" :'.'"· . ...... ...



prori uC tl \"l t~·-

~;·:~( :::~

As Roc:Kwt li :

nt:.:~:f~e: ;,~:~:; ;

won to

!:z.»l•~eci comm~ ffl:lr·
~.eL :t :21 •~,nl' !:.i :toC1enr.isu to l«2ffl.S

•.n tn,n ~~~ ,1ri::ar.::..:ition • .icconiin• to
?.ohert :... \.':;aot. !'cn1or \"t~~resKitnL
;tl :'...IC"'""'~ii. S;a\' S .iuftr. ::iceeiy 3ro-·n . .
'.1~:ui 01 :h1t :•:crn~ LllrO.'s ?:do .~iLO •·~ l \•nlltf'. !~Utt!" snown u ~AMC;

·W.-\·~ :-:!o,·1."t1 1rn:-n :1~1n1' qu1c.t 1101.a•
:.i 1,n 1it :,, :~:,:.\·1ni::.:. :,ci': Ml 01 cocw«s:1·
;, 1un11 •.,·,:.!': :iii 11:ir:.s ul the\' .
t \"~t "::nw 1 ~\·1: r,• ·· r,111:soiy n'1n.-,ffll out :

Digit zed by



Cri- 1p:-;ce ,noex 11 overstated by some 0.5 :


1und:1menul th1n~s than wt- ever •, measures are 1nadtQu;ite. s:irs z ,.;
h:i•.-,•.lkhes. «onom:st ;it H:U"\·~ Cniverstt}'.
Tiu: 1_..ne11t.., oi the producu\-ity hnom . for u3mole. r.,ore :and mort superm;ir;in: ui-.t 1.. -_Plnmn'I: to 1W>OSt v,:nrk!'r in• i i<.ets have ,r.sulled h:ir cocie re:ioen 1n
.....nn. \\";bft..-,. ::md g;anes. ; ad.iust• 1 !.hetr cnecKout iines. matn't t."tem :~ r
!n·.: !or 1nl1:it1on. are r:sinc sm.irur 1nr I and more ac:c:t:nte. Yet tnese iains to
:!w iir.1 t um~ in :t~,·en years. And :1 i wnsumen rio not. sho"' c:, m the \COY•
Rl."14' -4.uo,· 1,y ~nrtn t.:;i:-trnment"s
••hn:.i :-: l;itt.• , , ·unarr. 1!l
With :mces 1:illinv: jO
'lt•\'t•n I ;, Allen ~nnws
:.h e ni2n- t ecn
::1.:1t ,Kilh·d ".,.,.,u,ra .n
nuui<~ :i:-,;c r.u.liiLy im•
pr'O\-sn• 10 !""J.01cilr, ~ne

I ,.·

'.~lah.t· :nurc• thiln ~i1 .. :r

uun1t-r11:1rt ..

111 it"l"'l'> ::-:.-

:-..,·;1l1>' 1• ui.llll:i-.



war. lnl:,, 111 :~... :,
u-.-. ·., .......... a !~~1;.,-~

:11 .. 1 n, ...


:;::ui1 .;r11"tr.

.\:111. :·-

.\\O ~· I.\Hl\(i Ql".\LJ.
·n· \la: \l.\f\l\(;

,11·s111,r THE l'l{(J.

:h~ !tt"t•:m·::·:i:·: nl ,·:m-

"'.,,· .. ,,,,-, •• , •t.111-:.,·:-

:'!••.1-i,r,· .• , .. n,111::

·!"1•:::.1n-.: ·.::,·::·

: ,·i· urut u1 '-'u:·i,;,,
· •·•::• :•. ••". • .:-, '" ,·::.! :::;::,• 11: 1:1,• :::an•
._ .. : .• :·:::~ ::1,;i,.;:·11 .... -.• : ·.,111'11
·• .... i"::i,·••.. •-1· :n111r:":':::::,,n 1t,·nno119',!'k~.


::~ :•..\\•·r · ·.
::u-tor ,.· '.•· ..... ,._. ::·.-..
-...... ,·,·n ·:,· .. :-• .n, :111 .. :1::~ .. ,1::;: , ,, .. ,_


1 :::

:na1nr ;,,ilecu\·e bart&inn1~ atrrff•


0: · . •

0 : ..

. ... ·.... ,•·• ''.:l\'I'

''ll-flt.\' OI t:'!.,:l."\;,;:~:,:,:;-:~.,:


:::-t1t·ian"" .... -.- :~:it :,-rn•

~1·:: ..... ·:m .. hu· .. :he T,1ienu•n:is~-~


,-.,-r.:.:;:,_•:·~ .:::1: ~\•i1.•·

11111:u~,·:1: , ... -.·"· :· ::::::",.

ot\'I'" '",\"

_. •• ,,.,...,m,•m

7ht uid :-:.:!d • ,:

•... ::,n .. ,,u •. ·aaac1l~,· uuii:.1:.:nr. '-="~--::-;::nt• .. ~11 11~::ou.11111 il.a.siloo;r.t, m:.·,
,,n-.:•.·· -.~ .. n •. 1·1rner. A lo:. ol L'. :!

...... :;·.- .. ~,,a,:. ',\'hl•n orjer :;Qw.c :a.;:-,
"i,.·. ::.-:·l·:1:-1,;". "·1,mi,an,~s \':1:: lin:::
;:::~:- to 11ianu ;:-; ~-•~x1:~
..... ,·.·- .....,. ,;::,t nlhc:r ~c....:?O~J. 7;.,.T

;1n1·•_•.... ;


Ii--~, .. - .,., :;::·.

it :

; · :-he II)(~ huldin« inflation tn ci,e,c,c:
I :i:e :ilso oowertul. L:tbor cosu ue weU ,
I c ~aer «,:i.trol and ,...,~, pressures :11 I ~ost com:>1utlv :absenL Unions h:we ·
4 ~~r. S10e:1~t:ti. t;..,_ The number ol \\ 'Of"K·
i 'C':"! C'O\'fn.~ hy l~~-livin't a~_iusunen~


· .. • .1:•":~, ··:1w:, •
::::- 11n•t111::·:::·.
··- .... ;,, ::·.,:·•. .. :· .:1:la~1nn·.11:,11 .. :-


:1:. :: :!.! ~, annual r:ate instead oi tht
:,onec '.!.!>"c .

I :-:-:!:-:tJ ,i- :-::u-· 1ower than u. an~· timt
ffl:lke : .:: :.,e O.l:ii: , tenUll"Y-n'Offl & nm::
musft 11! :nt r,:-nriucta\'• 1 ..: .;1•c ;'.'. :!•-;'ii tn ii low oi 24~ in lWl
::.~- numnwN.
7:·.t lff:'ff"\\'~ ~nice hr iS.000·
\\lt:li. ::- (:11:a:. ~UW• • •:e:-i ii.1:t-:,· 1ii1on11tttd th• ecoMHnr ;::
t!'Ver. ::,, :i,:n :,,lftC'II!' !l ' _"\:,~I. o,· :·•tlllr:IA. \\"ilen the T■:unste:""!
:..a.,ura •""n :'!'lun•,· tu .•;..,;: :-1.:-:.:~·,(, .n !'.1i9. u,e 10-C.i~· wnr,:
hu\· !~n~:- :irc,c1~ct.s. : <\iUla;nf~ ~-;1UR'fi w 1 r i ~ p:-OOucuo~

R c~s
!'.\LLl~li p ~[ t.


· :r.!,- ,.: ,·u;11.·,w (:"::;::..•·. I',•


;:erc:enu2.e point-"'-·hich would



_._. •.--;1:-:,c.

. ,_ ...

Digitized by







hr1n11nc 1n product
::-nm npcr.rnnn.s 1n 'iennuela and else,.
wn1'f"t•, Sc.ront' cp,W coeds spendint: lS
•!111n;i,· :rndinc to the ap,ul sLOCk and
:-.u:-1nv c-.1 pac1L!," levels. Comp1nies 1rt
!:wr,...a~1nirly :idroit at boosun~
'1\·1t ,· :and r:1.1s1nc- capacity, too. ·It
.. ,,,·m~ we 1(!l more: creauve ucn
~unth: s;ays Donald P. Hil ty, chief
l"4'11n11m1st 3t Chrysler
1::m in th0•e paru
"' 1he economv whe,e
11r1c~s are uP . they
: ~:i• ,·11mpiny •~


. .- . . . .


H~her t,;. S. producuvuy and




I loc-iaJ innov:iuon is a bir competitive
I :idvanu,e in overseas markeu t.oo.
I Sure. 1.he U. S still n.ins a merchandise
i t.nde deficit of some S13'.J btllion a year.
:and worries about internauonal com•
petitivenes.s run deep. Japan and Eu•
rope an devoting huge pnvate and
I public re3ouree:s to nunuring science


:~:;/ ;~:1~':~e:~
\l,:r~. whirr P"r ch ase

.. . .

. ·..

. ·. '

:Utered.· says Steinbffg of Memll



lndeed. in the U. S. there are fewer
impediments to ·creative destruction'"
than elsewhere.. ~ ~ens are
(ewer ar.d market competition more in•
tense. Amenca is tht only industrial
country to have dere~ated it.s airlines. linancial se't'Y'ices. u.lec::ommuni•
cations. t.rudriog. and
other industries. For
i11SW1ce. largely n,Oecting the competitive
lorces unltube<i o~

Trolfic in information oaoss borders hos soared, making
lhe U.S. economy more open then ever before

!e~~:ti~~- ,:~;"~::
.1n1l di str ibute nearly
shows the U.S. elec:om•
.ir.'.. 111 311 U. S.-made
municatioru industry is
--t.u steel. are ship-as mue.h u tw,ce u
p1n11 record \·olumes .
erodua1vc a.s its coun.~nti r3w-ste-el producer
ter,,art.s in tbe major
pla nu .ire runntn-r near
· • .·'i,: ~ : ·--::~:;...
Ew-opuo counaies. ac•
t·:.i11uc1ty. Over the put
cordinr to au ao.alysis
yt-ur. prices o( flat-rolled
by & Co.
--t <.'\.'I have '{One up trom
·What's important is
&;UII :i ton to SJSS. and
that competition eneri\ies ct'7t' ways of
...-rJp priee:s fro m
:1 n averac-e of S97 to
doing things.~ says DoniUi per ton. But pnces
aid McCloskey. eeono11
are lcveli n'{ off with ex•
11 ~
1J 1l '11 '11 'H '1t
mist at the University
of Iowa.
· t·css su ppl y :,,va1lable
lrnm overseas makers. ~ - - -- ~ - - -- -- - - - - - - ~ - - - - ~
Labor is highly OexThi: price of scrap. used in mmlm1lls. and technol~. And the fut-growing ible. LOO. And the nation's borders ue
h:1.~ ~u.n.ed c.o dedine. \I/hen U.S. JCnp econom ies of Ean Asia and Latin more open. development. and
11rn·L~ sursted, European buyen turned
Amenca are encoun.gmg foreign muJti- technol<>( innovauon are skills that
111 •·h~apt: r Russian Pllit iron. ·t don 't
nauona.l investment as a way of t ra.ns- are forged in the cn1cible of intemath mk or,ces Jre 1:01nu; to tto a lot hi1th• ierring manuiactu..,ng and mana.gement tion&l co mpetition. "1:ost import.ant..
:,ivi F. Kcnnel h Iverson. ch:Unnan
though. is Americ:i·s entrepreneurial
.incl I t:u 01 ~ucor ...:orp.
.u.~10 POsmoNs. Nonethe less. U.S.
tradition. From Andrew Ca.rn~e to
I lismtlauon tS becomtnst lhe norm companies are gio~lly com peutive in Bill Gates. lhe incandescent ligntbulb
111 lhl• nnce mOJuon -prone U. S. econo- 1 many luding•eo~e industries. The bi~
to spru.dsheeu. the U.S. has long been
m,·. l 1rnrtucer pnces ar!
technok>gy, for open to the tdeu of innovators. maver1!1n" :a nnly ;a U.2'- :ln•
example. wu near ly ricks. and 1mm1~t.S. And these entre,;11:11 rJtC. :.ind l'\'Cn mtMtA
nonexis tent two de
preneurs nave ~enerated tremendous
w;li-,·:1 r, 1nil;a ion h:ls
odes atto and now has bursts o( (T"OWlh 1n the past.. ·Wllat
dropp1... J lrnm an an
almost i OO 3cuve com- is our com parauve advantaiJ:e?"' asks


IOI---------------'°' ------------


,-r: .


~:~t~·, ~~;;~ht::~l~~uir~



~~:- ~!r~~~ ~~u~:



pernt'{hwa v are be in'{ innovate."
laid. despite l:'le 0reaxClearly. the u. s. economy is emergup of.the m~a-me~er in~ stron~er th:ln tt h~ been after two
Kl.\'E Of.?..EG[L\TED
hetwe-en Tcle-Com mu - dec:iaes 01 tu rmo1 i. The n3.UOn is more
n1cat1ons and Bell At· prooucu,·e Jnd mure compeutive than
l;i, ntic . Chin3. '5• :it :i nv point ~n nce the t3.rly 1960s. The
•: .. , .1 ri. • · :.,., \\ 1·••11 1:-i,o
tdon1t province rn:..i~ he J hi1ur:e5t tii,r e:::ll to the weils~nn'{1 of. f~t11: oi 1' '1 11. tl1',.• r:nc
\,\I} T!:I l ~l\(j
1.,'TOwin, 3.t lS'.. 4 \'t:lr. 1 ~r J: rO ...,•tn 1.·omes trom lne trouohn'{
,1 11; ,-r, ·: 1:-.1• rn :n,· 1·11n:tu•
..... . •• .. .... . . ..••..•. .. •.
hu l the lnterr:l!l ,Sex• I t.:omo1n:mon 01 1e:1lou.s restr:11nt by po1i- 1
·• ru· ,· ·:1,11•,i; \\'as
i,ana1nq h~• :5-..:. .J 1.·y m:ik~rs and the 1ni13t1on Ji lters oi
" .:·
.11111 11 w :L-. .:.:-•; 1..,•lw""n l!'f;o .1 n11
r.ionln . Cumt>ellll\'e n1izfl•tecn izooos :ire honn m:in(el 1n\'1?Stor-s. 3oth threuen I
i: '7 11 ' · •'.., :--1..i,111 ·" ., Hu:.i1.·n ..., ·on11m1;,,t
..i "t:" rL•:.1snn wny U. 5. export 'l:"Owth l to sq u3naer the \!L'Onom>··s potent13.I
.,: \l,.n::1n .,t.;r:1'-·\ ,·.. Co.: -w ilh 1nlL'TI"l' h:.i.s a\'cniz~ mor, th:in ~o/. 3 yur over I stren\Ctn ::.nd :iii the Jo bs Jnd we.a.1th it
,, ,r111<i•t 11 1,,• 1•rl•-.-.;ir.,:s ,1tll'nr:i.r 1nnusl:'\'
ti'IL' past '.'iiL'v en years-more t n:: n th ree I wnu1d proouce.
:;: : !,, 111 , ·~::.m , · :::,:!°L' 1s llUOCl rC':~,n 1..
l1 mL-s lhe ~a1ns u( 3no Ge:-~:in\·.
T!le LJ. S. do lieuer - but not t( t l 1
l::c:onom1su often
n1,1rrl'..:t1r.iatc h11w Inn,
•r, •,. 1n•n1is 1· \:1:,l. too.
11 ,,•i- :.. 111.: ,tn•1rnL•:t 1n
· 1,1.. n . :nrlauun has
•.,., ... ",.JI.J .. •n~\'M . fnr






\:r~-.~,\~:.:1~-.~~~1•0::~~.~~~t;~~I ~~~~K ;:~~· ~-;~.:d;~~~:~~~~~-~=,~~: I:~~:,~ :"~~:n~~n~;;;r~~;:i.
::1u-..• .. ,



wnl 0t.'n1st:


n:aLiun." iln4 inciustnes ~ ·

ue· tu..-:ncr

I .\tarui~, in

Digitized by


in&,\ ,\fidaaa

t;,,-1r. ,mci b•rtaa






-. __
....~--,---T - ..... ____
----·-- _. _. ____ _-·------____ --ry ----___ _
~-----......-·- of

wltb tbeoll _ fooll _
die 7'"L

By Lester C. Thurow

1nnat1aa _ . . . , . receded 1n die
N'L II tbe ell«tl
""'lln& hellth
Cllrt-arw-..ctedlromlnflatlanflpNI. l l l d f t r - mortll'1cel



Lani...... _ , . ..... -


.... rattled. Yet die Fed"•
- - • - dley caa't polnl Ill

-·-of-•..... _,_
'11117 .............. _
_,die ...... IIMly . . . . . -

.... - · the cu..-

-- 'Ille 19'1 1ar

••• -


,.._ta-• pay
ae - . .,., led 111 - , .
111& lallure 1a

..,._ ,,__ii,,.,.._.,_


l•illlle of T-......,,.



rFed'•.... - .._
- 11eca- or die
11117....., bettlnlan low
_ , _ , _ ....._ they had no

.... .......,...,_,__..,

""1el - The Fed's
- - t l l l l t l ttlk

_...., oo dley art •ctlna now
.., .,..._ , _ _ 1nnat1aa 1n INS. In
tbe Fed'a wtew, die _ , , II oo

_ , , . f , - die lfll-1"2 , _
- l percent lfVWlll In IIN J.I
percent in the lint -rter 11111 year



rcprelCIMI an o.erhealed - , .

The 90'1 bepa Willl a
crull In vai-: property pr1ml
In die United Sta. . docllned by up to
51 .,......_ 1'1111 l l - spread Ill Eal•
land. nanened Japan and II now rock·

inl a.-,. Wlllle die U.S. ---■ -(1111-r,.,.,.,.


- - - - _ . 11am .... had
julted laR • die J - aact mar•


declllle • . . A-., ,,_ 1121 - - ,m.


.... . , _ ...
,___ -;I-,,,..11tn&e1
. , . _ Spall! ...,..,. 24 percent

latbeU.S..K _ _

_...,.. ....




......... ...,.,..,

part-u.e Ja111 -



- , 11....- of the_. farce (II
mllllan) I I - . . lar-1'.

of U.S. . . . _ . . are

In& -


lts-tha&tlleyWID•- .. .._
up -

... -

Digitized by

for . . . . -



-t -

dffllnC .. prtca lul hi today'111o1>,
11 - ~
capacity, not U.S. capaclly. No Amerk:aa •ill have 1a ••K for I new car:
atnce auce ,nalr.en tn Japan and Europe lf"ffl"t producing at anywhere
near capacity, U.S. producen • ...,.,
1'Mn1 IO ralae pr1ca and Ilk by and
. . tell tlldr marut llhare e.-.
While America'■ - I C rec:ow,y
• -. .y, the rest a( the Industrial
-■ no lign ol a,mtng back:
unttl k cloes. JnRIUon wUI ftOl qu.cken.
TIie demlae a( the Soviet Union and


the eflectlw eollapse a( the Organlulion ol Petroleum Eaponlng Q,un.
"1el Ill 1M 1tterm1&.h al uw Pttl&an
Gulf War means there w111 be ftD

...,..Ilion o1 the eneru or IOGd
ol the 70'L Whal hal bo.'ffl
happen'"& WI aklm1num wtU be repeated In moaa raw fflllCfillS: 1.J -

mHHon metric tons were caported
lrom the lom,er Soviet Union In IIll,
caUIJnC I/le - . . real (adj-ed lor
11111,ition) prlcel In history.
Oil pnces are lower in real termt
than before the llnt OPEC oil from 1/W
Ill the early 18'1,
lormer Soviet Union haw, barely t .
to be brought
,.., and Iraq has
od marttetL When
back Into Ukraine .,.._ bade in10 procluc11oa
(tt ••• \he wortd"s largest exporter o(
&r&III 1ft Ille ltth CIOlltury), lood prlCet
The decUne III rul ••aa that t,e..
aan In 1/W U.S. and 11 1preadl11C
ac:rou the 6ndu11rtal world funher
undermtnes I.he Fed's C:OrMenhonL


AfflO"I American men. Ularia IN

lalllnc al ew,ry _ , _ lc-Yel - lor
Chose in I.he bottom 60 percent income

re■ I


are 20 percent

Raising interest
rates is killing
the recovery.


La. . - _ . ... ......,.-

. WOffleft wtlh I h11II
belo"I, Jl1l ~
school educluon or less have wen
UW:ir ••&H drop, and •1 looks like the
same will happen 10 conewe educated

era. For example. Olryller . , _ . , . _ o f auppllen, but II haa· ·
&IWllalrotof _ _
10 supply all of Kl po"", -lneen wtll &lw w.111 deslp inlor_.ien
matlml. In
wtll lower lhelr prlcel ew,ry year. In
IUCII _,,.rtoo, the ma""'actu,enwm tn tum pau thetr ...,.._. on 10
CUit_,. Ill Ille form of -


Al I~ ume 1,me• .,...
duatvrty 1s 1ncrcas1n1 ■ l the highHI
rates leeft since 1M IO's. Waaes
dowft. productivuy up - 1ha1 1amp1y
ts,n the rttipe for 1nn..uon.
Emnomm1 differ on lhe causes of
fallina w1ga. lmm1grauon and inno¥auon •re panly respons,ble,
!Jul some wortdw1de- Ire-nets •~ aflo
bet!.tnd iL Th,e Communi1t bkx: dMi not
n,n very &OOd c,conomtn but ii ran
ucencnt f'duc.auon sys1cm1. Ont'•lhtrd
of human11y. much ol II slut6cd . 1s JOI"·
1n,t IM cap,tallsl world. If some of 1hr
wortc1·s bcs1 r,hys1e111s can be hired 1n
Russia for SIOO per month. why shouk1



an~ p,ay a lhird-r•tt'

SS0.000 a

exdla.,._ ,.,.


pri<:a must fall 10 have zero inflauan.
s&nee some pricel w1n atwa)"S M nainl), the 1manesc move bi to ,.,..
pane purcl\aMS. Wltll pricn lower
lomorrow, only a lool btryo ioc:.y. So

Amerte■ n


In the so·s. only 60 million flC'OPlc ,n

Singapore. Soutn Korn, Hong Kong
an<I Ta, ...·an • ·ert' f!'xpon~r1entNI .


Include molt Americalll. TIie 7 Pffcent 1rawU1 rate 611 ,he tounh qua~r
of 1993

n addition, the laya(II at bl&.
U.S. eompena wilh high ..
••ta and Sood benefits are ·•


unrelonllft&. More lhan 109.000.
jobl were cue In January, a '
reconl GeU"'& rfflfl'M allcr ·
be:inc laki off "sually m4ean1 a an in



Since World War II, Amerlean ·
eompanles lllw •YP""•lly he~ pnccs•·
C011S1an1. or e"lfll raitea them. wtule ·
dlstnbuliftl the frutfs of productiv,cy ·
or prohls.'
In the form ot hiAhcr
But under lhc p~re ol intcmatw..n•
II npldly
al compe,illon.
erodln1, In the 911'1 pnlduclmty &••n• ..
WIii lead IO lower



r...., en-

0ena1ionliry omes are touatt rimes!·
Yet the Fed ts intent Oft kUlin& a
wry -ak recovery that 11aa ye< 10

O I - ) are P l 10 be t-li"G
lhern. 1nn.uon II pg 10 he hn-11ble In any eoun1ry wllb opea borden:
lower11"(led goods wtll no.o 1ft lrom


pay, and the competition lor these
lower-911ytna Jobi drtves -••II
Iha lnllalloa - lunher

lalll H _ .

trepreneurship to becorM NCtive
renhcrs. Money itl the mau ress t,c;.·
comes the only sman investmeftt:

Wuh the de-chne of SlllC soc1altsm 1ft
East Asia, hundrl'ds ol m1thons of
1h1rd-work:JC"rs (1 ...·n l\ilhon Indians

wases -


Al~---member ofcheF-.1
Ila• al.OIied lile ,,;,,..
•-of ...,.or_.,...,1nn.t1m 1. TIits
. _ a tenet of capit&llsM: It pr;ces ara
n't -11 w,ry well lalllft&. IVMn pnc:es lall ( - mao,y

•as heavily car.c:entnled ,;,.

houslnL automobiles and - -

equipment. Hlllfl lnlerest r&lfl wiif
hurt (hne teeton. And •lie Fedlt

lar1e ra,e increa,es have htt t.tle
economy at • lime when growch has
already sk,wed dramatically.


Since January, ineerest races on»rear Treap1ry bands have nsen ·--1:3
percent and those an JO-year tia:ed rlc•
mongages have risen 1..5 percPnt.
1bnc raCN did nuc soar bec'ause·1tf
worncs about inllatlOn. Rathc"r, th<")'
reflect the payoff that invcston
demand to protect 1ncmse-lvcs from ;a

FN Iha( thinks utflauon II about 10 rlH'
from lhe grave. T'hc Fed"s erratic ht-hav1or has also ~ 10 a currency .:nsu
1hal made ncc~ssarv WC!d""d•v·s b1l 1ton-doflar cffon 10 ·procec1 1hc douar.
Wtule nobody has ever brm hun ~gh0Sl5. 1nwstors are showing th:u •~·
have rtll reason 10 fear a ghost-bu-:• •
1n9t FNi.

Digitized by



GAO to Push for 'Derivatives Regulations
Report Will Recommend SF£ Set Standards, Monitor Activities



It also called for better reporting
By Brett D. l'romson
and accounting of derivatives by
The report is likely to be a politiNEW YORK. May S-The General Aa:ountiag Offioe will recom- cal and analytical touchstone in the
mend that Congress give securities coming battle on Capitol Hill about
regulators more control over vola- how best to protect the financial
tile and complex financial instru- system from possible dangers posed
ments known as derivatives, and ) by derivatives.
These instrnments derive their
limit derivatives tra~ ~
value from price movemaits in unacly ill-"'Uffl baoks
counts. accx,rding to sources who derlying markets such as stocks,
liavebeeo briefed on a forthc,oming bonds, currencies and commodities.
Wall Street sells them to speculaGAO report.
- The GAO dnft report calls for tors looking for highly-leveraged
- the Securities and Exchange Com- bets and to companies looking to
mission to supervise the derivatives hedge business risks.
The repon comes on the heels of
activities af. registered broker dealers, who now place most ol this recent derivative;-elated losses by
major U.S. corporations, banks,
business in unregulated affiliates
brokerages and investment firms.
beyond the reach of the SEC.
The GAO's draft recommends The losses have called into question
industry claims that derivatives are
that the SEC set standards for1iow
simply "risk management tools."
companies manage the risks associBanks and investment houses
ated with de.-ivatives.
It said corporate boards of direc- earn fees for designing and selling
tors should be required to monitor derivatives, and use derivatives ex-I
tensively in their proprietary trad7
and approve their companies' activi\
ties in derivatives.



Officials of some dealer firms say
regulation will b~ thei£ profits. ·
The report does not call foe dramatically expanded supervision ot
derivative activities at commercial
. banks.
The report does, however, reiterate ~ t statements by Comptroller of the uirrency Eugene Ludwig that questioned why banks
should be allowed to trade for their
own accounts-a risky businessusing federally insured deposits.
In a sepante development, Standard & Poor's Corp. announced today it bad lowered the rating on
Bankers Trust New York Corp. to

AA-minus tron, AA.
Bankers Trust recently announced tbat it lost $49 million
account in the
trading for its
first ~:i=.-----::t.
-s&P believ~ the increased in
volvement in proprietary tradin
... introduces an ~ement of volatpity that is not consistent" with tlle
higher rating, Standard & Poor!s



Digitized by