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Council of Great Lakes Governors
17 Annual Leadership Summit
Federal Reserve Bank of Cleveland
October 15, 1999
Jerry L. Jordan
President and CEO
Federal Reserve Bank of Cleveland
Luncheon - Panel Discussion
12:40 p.m. to 2:00 p.m.
Main Lobby

Acknowledge introduction by Governor Tom Ridge.
Pleased to open FRBC for this meeting of the Council of Great
Lakes Governors.
Welcome everyone to FRBC:
Governor Bob Taft (Ohio)
Governor Tom Ridge (Pennsylvania) (Chairman of Council)
Governor John Engler (Michigan)
Governor Tommy Thompson (Wisconsin) (is he here?)
Premier Mike Harris (Province of Ontario)
Distinguished guests
Fellow Panelists: Moskow, Poole, Jenkins
Before making a few remarks about economic development and
growth, I want to take a minute to describe the importance of
regional input in the formulation of U. S. monetary policy.




2

• Everyone wants prosperity - but some countries and regions
within countries enjoy more than others. Why is that?
Adam Smith: Wealth of Nations (1776)
Karl Brunner: Poverty of Nations
like Russia and Brazil so poor?

Why are resource rich places

De Soto: El Otro Sandero - The Other Path Not European “third
way”
Klaus: “The third way is the fastest way to third world.”
Instead, we need well-functioning markets.

• In this decade, lots of experts from North America and other
prosperous countries have been giving advice to Eastern Europe
and former Soviet Union republics.
□ It turns out, the keys to sustainable growth and prosperity
are much the same for countries/regions/cities.
□ The economic infrastructure that promotes wealth creation
is well known.
• We know that “guiding” the economy doesn’t work. Failed
efforts at central planning is a convincing 20th century example.




3

• We can’t predict which industries or occupations will create
employment in the future.
□ A few years ago, who could have predicted today’s strong
demand for people to design home pages for web sites on
the Internet? Many of us would have asked: What is a
home page; what is a web site? What is the Internet?
• We do know that an economy - any economy - is not like a
machine or building, to be designed by engineers or architects.
• Instead, an economy is more like a garden. The plants grow
spontaneously when the conditions are right.




□ A garden - needs soil, moisture, warmth, sunlight, a fence
to keep the rabbits out. Then, its inherent potential is
reached naturally.
□ An economy —needs an infrastructure of institutions that
provide an environment in which economic growth can
occur:
> For example, laws, police, and courts to protect
private property are crucial.
> It needs protection against fraud, embezzlement and
other deceptions.
> Accounting rules and auditing procedures to ensure
accurate financial information are essential.
> And sound financial institutions are needed to
facilitate payments and mobilize savings.

> It is becoming conventional wisdom that stable,
understandable tax laws, with low marginal rates, are
essential.
> Finally, sound money. (Perhaps here talk about
FOMC process)
A major goal of public policy is to raise living standards. We
want to create widespread prosperity, not through redistribution
of wealth, but rather through widespread wealth creation.
Creating wealth and prosperity requires productivity. Individual
prosperity requires individual productivity. To be consumers,
we must also be producers.
> We all know that productivity requires physical capital, such
as buildings and equipment.
> Productivity also requires human capital, including things
such as education, skills, initiative, and health. When we
promote such attributes, we promote prosperity.
> To increase human capital, we need better schools, which
competition can help achieve, and we need both children and
adults to have access to positive ideas through exposure to
positive role models.
> U. S. higher education is the envy of the world. Tens of
thousands of foreign students come here for higher education.
But the pipeline of our primary and secondary schools is
dismal compared to other major industrialized nations.




5

> The situation in education is especially interesting. I recently
was at a conference where Milton Friedman said that he
probably could be hired by any college or university in the
U.S. (the world?), but he is not certified to teach in any
primary or secondary school.
• Some local initiatives to remove sand from the gears:
□ Residential mortgage credit project.
□ Access to capital project.
• In summary: Our role in central banks is much more like
gardeners than architects; we try to help foster an environment
where the creative nature of the human spirit can flourish.
• The 1990s has been a great decade for the Great Lakes region. I
am optimistic that the first decade of the next millennium will
be even better.
• Introduce next speaker.




1

Council of Great Lakes Governors
17 Annual Leadership Summit
Federal Reserve Bank of Cleveland
October 15, 1999
tVi

Jerry L. Jordan
President and CEO
Federal Reserve Bank of Cleveland
Luncheon - Panel Discussion
12:40 p.m. to 2:00 p.m.
Main Lobby

• Acknowledge introduction by Governor Ridge.
• Pleased to open FRBC for this meeting.
• Welcome everyone to FRBC:
Governor Taft
Governor Ridge
Governor Engler
Premier Harris
President Moskow
President Poole
Governor Jenkins
Admiral Hull
Mr. Vradenburg
Special Guests
Members of the press
• Everyone wants prosperity - but some areas/countries have
more than others. Why is that?




2

• Lots of experts giving advice to Eastern Europe and former
USSR.

□ The keys to sustainable growth and prosperity are much
the same for countries/regions/cities.
• We don’t know how to cause growth to occur.
• We do know that “guiding” the economy doesn’t work. Central
planning is a convincing 20th century example.
• We can’t predict which industries/cities/occupations will
flourish.
□ Pittsburgh in 1980 and Cleveland in early 1990s.
□ Five years ago, who could predict demand for
webmasters?
• We do know that an economy - any economy - is not like a
machine, to be designed by engineers (government officials)
and fueled by gasoline (government stimulus).
• An economy is more like a garden. It grows spontaneously
when the conditions are right.




□ Garden - needs soil, moisture, warmth, sunlight, a fence to
keep the rabbits out. Then its inherent potential is reached
automatically.
□ Economy —needs an infrastructure of institutions that
provide an environment in which economic growth can
occur:

3

> Laws, police, and courts to protect private property.
> Laws against fraud and deception.
> Accounting rules and auditing procedures to ensure
accurate financial information.
> Financial institutions to facilitate payments and
mobilize savings.
> Sound money.
> Stable, understandable tax laws with low marginal
rates.
• Governments can also remove sand from the gears. Some
examples of sand: [Note: Some o f these might be too blunt, with
the press being there and the governors being politicians.]




□ Minimum wage law.
□ Delays in granting business permits. (Requiring permits
in the first place.)
□ Requiring licenses for occupations where the
employer/customer can judge skill and qualifications.
> Hairdressers/barbers.
> Teachers.
K - 12 teachers need licenses.
College teachers don’t.
Which level of education is working better?

4

□ Regulations.
□ Restrictions on imports.
• Some local initiatives to remove sand from the gears: [Note:
You won’t have time to describe these projects, but mentioning
them might prompt a question from the audience that will give
you the opportunity to talk about them.]
□ Residential mortgage credit project.
□ Access to capital project.
• In summary: Be a gardener, not an architect, and let nature take
its course.
• Introduce next speaker.




1

Notes for Introducing Speakers

At the speakers’ table, you will be seated next to the lectern. On
your left will be Mike Moskow, then Bill Poole, then Paul Jenkins.

All speakers (except JLJ) were educated in the Great Lakes region.
(But Jenkins also has degree from London School of Economics)




2

Michael Moscow
President of FRB Chicago
Joined Fed in September 1994
Educated in Great Lakes region
B.A. Lafayette College, Easton, PA
Ph.D. University of Pennsylvania
Former Positions:
Assistant Secretary in Dept, of HUD.
Under Secretary of Labor.
President and CEO of Velsicol Chemical Corporation.
Deputy U.S. Trade Representative with rank of Ambassador.
Professor of Strategy and International Management at the
J.L. Kellogg Graduate School of Management at
Northwestern University.
Currently:
Member of Executive Committee of National Bureau of
Economic Research.
Author:
Seven books and numerous articles.




3

William Poole
President of FRB St. Louis
Became president in March 1998 (but at BOG from 1964 to
1974)

Educated in Great Lakes Region:
A.B. Swarthmore College in Pennsylvania
Ph.D. University of Chicago

Former Positions:
Economist at Board of Governors of FRS
Professor of Economics at Brown University
Council of Economic Advisors
Adjunct Scholar at Cato Institute
Member of Shadow Open Market Committee.
Consultant to Federal Reserve Banks of Boston, New York,
and San Francisco, the Reserve Bank of Australia, and the
Congressional Budget Office.
Author:
Money and the Economy: A Monetarist View (1978)




Principles of Economics (1991)
Numerous articles

4

Paul Jenkins
Deputy Governor of the Bank of Canada
Appointed in March 1992 (but joined the Bank in 1972)
Major responsibility is analysis of domestic and international
economic issues and their relationship to monetary policy.

Educated in Great Lakes Region (but not entirely):
B.A. University of Western Ontario
M.S. London School of Economics

Former Positions in the Bank of Canada:
Economist in Research Department




Deputy Chief of Department of Monetary and Financial
Analysis.
Chief of Research Department
Advisor to the Governor of the Bank