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FEDERAL RESERVE BANK ECONOMIC POLICIES

TALK
by

Federal

Hugh D. Galusha, Jr.
President
Reserve Bank of M i nnea polis
at the

13th Annual Conference
of the
M i d -C ontine nt Research and Development

Curtis Hotel
September 27, 1966

Council

FEDERAL RESERVE BANK ECONOMIC POLICIES

My topic has been listed as "Federal Reserve Bank Economic Policies'* ,
and so has Dr.

Struble's.

national m o n e t a r y policy.

I have assumed

Now o b viou sly a full hour on this subject would

both your patience and y ou r credulity,
topic to Dr.

Struble.

this would have primary reference to

so I am relinquishing any claim on this

As a v i s i t o r to Minneapolis,

he is entitled to speak in

an area of his particular competence without having all
by a native of his host city - and as an audience,
of this absorbin g

tax

the good

lines preempted

you are entitled to a discus sion

subject by an informed and perceptive analyst instead of a b e ­

wilder ed and dispiri ted participant who has been lost in the forest so long he
is no longer aware of either the forest or the trees.
Instead

- and w i thou t consulting the program committee,

this forum to unburd en myself of

some thoughts about developing a pattern for

economic growth.

It seems to me that

an unusually good

laboratory.

the Ninth Federal

Reserve District affords

A lt hough the district is huge

both industry and population are

- 1800 miles by 450 -

scattered thinly enough to be fully exposed.

Skews w h i c h devel op in the appli cation of broad national
easily ob served

policies can be more

- needs and aspirat ions have a special dimension.

I am not unduly disturbed by the questions about Federal
district

lines.

I have chosen

These are as good as any,

I suspect.

Reserve Bank

Efforts to es tablish

g e o g r a p hicall y d escribed districts that will encompass any more than the roughest
kind of econo mic h o m o gene ity are not going to be successful.
District,

economic activities are

similarities

surprisingly diverse.

lose significance when specific areas,

under examination.

Even in the Ninth

Broad categories of

geographic or economic,

are

There are three EDA regions p resently in the discussion stage

for states and parts of states in the western half of the district, with c o n s i d ­
erable overlap geographically.




There

is one involving parts of three

states in

- 2 -

the eastern part of the District.
of the proponents

Political alliances and personal interests

seem to be stronger than economic parallels.

The p r o li ferati on of districts,
and wasteful,

for wh a t e v e r purpose,

seems inefficient

and especially so when economic intelligence is a prerequisite

decisi on making.

to

It was for this reason that the region of the Upp er Midwest

Research and Development Council was made coterminous with the Ninth Federal
Reserve District.

C hannels of communication,

even though not of the best perhaps,

have considerable j ustification from their existence and history.
p art icularly present very difficult patterns.
vivendi over the years,

Split states

We have worked out a certain modus

but to start again and again with additional fragmentation

is hardly calculated to make the proble m easier.
Then,
about.

too,

these patterns of economic activity have a habit of shifting

If Appalachia,

for example,

of its depressed condition,
average

presently has valid ity as a region because

then what happens to it w hen it is brought up to the

standards of the United States?

It,

therefore,

seems obvious that before

we complicate further the pattern of regional economic research,
what we have.

let's

The Federal Reserve Bank districts are in existence.

look at

They have

patterns of research built up over years - plain old numbe r gathering,

if you

will - that have great usefulness.
A great deal is known about this district - far more than is currently
being used,

and more

is being added all the time.

The problems uncovered have

piled up to awesome proportions - the pile is now seI f -generating - it is of
such proportions the zealous researcher can happily,

if not profitably,

spend

his time researching the research.
If sheer weight of research were
a model of economic growth and wisdom.
with national economic



sufficient,

But it is not.

this district

should be

We are about on a par

levels in the m a j o r indices - no better - and if we are

- 3 -

no worse,

credit is not due to consciou sly directed effort,

Viet Nam;

good weather,

demand.

crops,

and prices;

There is no reason to expect,

and the general

and not ouite

What is needed?

lagging the nation,

There are at

least these three courses of action:
Main Street has not

C o nce rn is generally found - usual ly of a simplistic order of

what we need is a n ew plant - prefe rably General Electric or U.
this concern,

going a little

so high on the upside.

Comprehending the other two is the first - communication.
been mobilized.

level of industrial

that absent a change in the neutral factors,

we will not revert to our historical pattern of
deeper into the troughs,

but to the w ar in

the individual is able to

outside his door.

Schools,

streets,

the

S.

Steel.

With

leapfrog over all the immediate problems
local regulatory climate,

can be c o m f o r t ­

ably forgotten in the assurance of success when the n e w plant comes in.

Money

that could much bette r be applied by the contributor himself is channeled into
a business d evelopment effort of the chamber and spent in u suall y fruitless
efforts to attract a maj o r industry.
utiliti es done,

Industrial parks w ith the grading and

credit and a favorable pattern of

local regulation,

an o rderly

plan for city expans ion and improvement geared to a realistic tax base.

These

take time - seeming eons of time - spent in community m eeting s where the c o m p r o ­
mises between the confl icting demands and desires of the community are beaten
out.

But it is hard going for an impatient people to go this route - yet is

there any other?
cated,

The best research effort,

the results of w hi ch are not c o m m u n i ­

is a useless academic exercise in this field,

at any rate.

It has become increasingly po pular to blame the inertia of the business
community,
effort.

the unwi lling ness of the farmer to participate in the total community

This c r itic ism may have some justification,

professional planner,
concern,

has the maj o r burden.

but the researcher,

There is a basic goodwill,

among the mem bers of the business and farming communities.




the
a basic

The m i s s i n g

- 4 -

bridge is the c o m m u nica tor - the person who makes the research intelligible to
the

layman,

in the process of whi ch it becomes useful to the

local

leaders who

can act eff ective ly on their own behalf.
The second area of effort is in the area of political organization.
Aft er the recent M i n n e s o t a primary this might

seem an obvious indiscretion -

like talking of a h a l t e r in the house of a man who has been hanged.

I am not

referring to political orga nizati on in a narr ow party sense,

but in the

larger sense of the body of ordinances,

regulation,

spawned the bewildering complex of state and

though,

and statutes which have

local political entities.

This

pattern, which in large measure is part of our Anglo - S a x o n inheritance, may have
been a useful one

somewhere,

sometime,

but has

little meri t today.

on the rate of industrial growth cannot be measured,
cannot be contested.
its

"Fiscal drag"

but that it is considerable

is a term of pop ular usage - "tdmg d r a g 1 is
’

local counterpart - the 1 tdmg1' standing for "too damn much government".
1
1
Instead of serving as the

become the glue.
m ore

Its impact

lubricant of society,

local government has

Zoning regulations and tax structures are just two of the

sticky areas.
Not only is the

but the valiant,

but the attitude

designed to minimi ze
the n novel,

legal pattern of regulation calculated to de ter all

social,

that accompanies their enforcement is not

their impact.

It is tragic that the d i s posi tion to make

and economic ex peri m e n t s 1 Judge Brandeis
1

spoke about as such

an important part of our political heritage has been surrendered along with a
substantial part of the national

tax base to the federal government.

The problem

wit h this surrender has been that broad innovative programs on a national basis
have a distress ing ph ilosophic resemblance to the bed of Procrustes when r e g i o n ­
ally or

locally applied.

Of more

than passing interest to me,

then, was the

clipping from the Seattle P o s t-Int ellige ncer of September 24, 1966,




sent me by

- 5 -

a friend.

It is concerned with a talk given by Norton Clapp,

Board of the W e y e r h a e u s e r Lum ber Compan y of Tacoma,

Ch airman of the

and I quote:

"One of W a s hingt on S t a t e ’s leading industrialists Friday night
called for formation of a new Puget Sound regional government as a
m oder n solution to a pres ent-da y ’horse and buggy' system that, in
effect, blocks smooth development.
"Clapp pulled few punches in d escribing the present
government:'

system of

'Governmental unit has been piled on top of governmental
unit and things have become ex tremely c omplicated and auite
u nco ordina ted - and often, very illogical.
'The problem today is, however, that we are still operating
u n d e r the old system, which has been repeatedly patched up in
attempts to meet changing needs.
"Change will not be easy, he warned,

adding:

'To begin with, we have a surprisingly large herd of sacred
cows.
The rigidity of muc h of our community and governmental
structure, by its very nature, tends seriously to limit both
the extent and the duality of our growth.
Out institutions
were designed to meet past n e e d s . ’"
Any discus s i o n of regional economic growth eith er starts or is stopped
(and sometimes both) with an expl orati on of financing.
to come from?

There are the two traditional

sources - private and public treasuries.

What does private investment require?
return,

and

climate.

security.

Where is the m o ney going

The obvious are opportunity,

Less obvious is the importance of econ omic/ emotio nal

Success begets

success - bigness begets bigness.

industrial park is the tough one.

Venture capital

u s ual ly timorous capital as well.

"Venture"

outset - and only

later find out just h ow venturesome

the risks at the

they really have been.

like the sight of another industrial

building with reassuring smoke coming from its chimneys.

N u mber 1 can be found

in one of two places - the business alrea dy in the community,




It is

capital o ften turns out that way

M ost investors think they have mini mized

jitters

1 in the new

is h unc h capital.

unintentionally.

N othing allays the pr e-commitment

N umber

and the outside

one

looking for a home.

than the
town.

latter.

Of the two,

the former is 92.3758% easier and cheaper

A bsolu t e l y essential is a receptive economic climate in the

It is axiomatic that business goes where it is wanted.

If there is a

single common den omi n a t o r of the successfully surviving communities in this
district,

it is the collective will of their business communities whi ch m a n i ­

fests itself across the whole spectrum of community structure.

M ost ly though

it appears as a quality of old-fashion ed enthusia sm for business,

an e n thusia sm

that is both innovative and realistic.
But what about the public assistance?
communities.

This m ust come first for most

Seed corn in the form of urban renewal and area red evelopment fund

must be secured from federal agencies in most instances.
say all,

is not a l a w y e r ’s conservatism,

The only reason I don'

but because I do k n o w of one community

in the district that was entirely financed from the private

sector.

The m o d e r n mayor' s office must include on its staff at

least one t e c h ­

nician familiar wit h the array of federal agencies op eratin g in this field.
may be unfortunate,

it may be an affront

Science in the economic field,
I think it is a good way,

It

to those who would practice C hristian

but it sure is the A m e r i c a n way.

As a pragmatist

because for most communities it is the only w ay and it

does work.
This brings me full circle to regionalism.
programs are being regionally administered.

Fortunately,

most of these

There is no practical workable

a lternative to a continued exp ansion of the regional platform.

Only by this

means can we a c c o mplish the nece ssary fitting of the p r ogr am to the individual
c ommunity and

still achieve a me asure of adm inistrative efficiency.

Only

w ay can talent and mon e y be pooled - and still be reasonably accessible

this

to the

local community.
On the private

side,

the same must be done.

The regional councils,

of which yours is one, are important in providing forums for the interchange of



- 7 -

ideas.
cial

It is difficult to find the same measure of progress in private f i n a n ­

structures.

Bank Holding companies have provided a measure of capital

interchange in this district.

Insurance companies do have regional contact

offices with outlets in the m a j o r communities,

usually through the banks.

There

are regional brokerage firms with branch offices through the district.
On the industrial

side, m ost of the regional u t ility companies are

making distinguished contributions to

local planning and are helping to find

ways to finance needed projects.
If we were to judge by the uni f o r m noise
is as easy or as di fficult one place as another.
bigness helps.

But is it really?

financing
Again

It is a lot easier to put a deal together in the Twin Cities

than in Blooming Prairie, Minnesota,
Mr.

level of protests,

Foley yesterday.

that mythical ev erytow n referred to by

You must have more

than a good idea - e ntrepreneural

skill,

and investment expertise are the differe nce between a successful be ginning and
none at all.

I suspect the man from Blooming Prairie m ay feel he has been

to languish u n f a irly - and

languish p ro bably so - but unfai r l y may be too hars h

for what is a normal market process.

The problem of pooling capital is i n e x t r i ­

cable from this one - and I think is ov ershadowed by it.
won't get it solved this morning.

I am ouite certain we

But some type of po oling of talents on a

regional basis must come about if Blooming Prairie is to be helped.
it was hoped,

would be such a vehicle,

than spectacular.

The S B I C ’s,

but their record has certainly been

It m ay be the regional council will be the answer.

wag e r that if this hurdle can be surmounted,
ecualized,

left

if not eliminated.

Here

the capital

less

I would

shortage will be truly

special credit ag ain must be paid the

u t ili ty companies.
It has been said that we need a m o r ato rium on solutions,
solution

leads to more problems.




for each

In a recent meet ing of the M i n n e sota Executive

Committee of the U p p e r Midwest R esearch and Development Council,
St. Cloud,

where an excellent record of industrial develop ment has been made,

discussed his community's progress.

As I recall,

jobs there than they had ten years ago.
in the political overlap of township,

they have nearly 2000 more

In the process,

city,

wit h a special dime nsion caused by its
these was

the M a y o r of

the problems inherent

and county have become exacerb ated

location in three counties.

long and I suspect could have been

The

longer had there been more

One of the committee members commented afterwards that the first mistake
made was to attract the n ew industry and
problems

seemed to come thereafter.

stantial truth.

start the growth pattern,

-

list of
time.
they

for all

their

In this facetious comment there was a s u b ­

Growth does bring n ew problems.

But

so does decay,

and which

group of problems would you rather have?
There is a drive - a desire to better our communities that m ust be
served.

While our knowledge of the process of economic growth is hardly c o m p r e ­

hensive,

there does exist the essential building block material.

It is the

res ponsibility of all of us who have expressed our concern for building economic
growth to first become involved in the design of a pa ttern of growth,
assist in the execut ion of the design,
m a i n te nance of continued growth.




then to

and finally to commit ourselves to the