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A Need for Innovative Fiscal Policy
(With a Nod to John Stemmons, Ronald Reagan
and Paddy McCoy)

Remarks before the Stemmons Corridor Business Association

Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas
Dallas, Texas
February 8, 2011

The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.

A Need for Innovative Fiscal Policy
(With a Nod to John Stemmons, Ronald Reagan and Paddy McCoy)
Richard W. Fisher
It is a great pleasure to speak to the Stemmons Corridor Business Association. I had the good
fortune of knowing John Stemmons. He was one of my father-in-law’s closest friends, and his
son, Johnny, who was taken from us way too early in life, was a cherished friend of mine. Mr.
Stemmons looked like John Wayne and had the business acumen of Trammell Crow, who, as
many of you know, was an early business partner of John’s. Without John Stemmons, Trammell
Crow could never have developed the Trade Mart and all of his other innovative concepts that
helped the Stemmons Corridor and Dallas become vital economic hubs.
Only John Stemmons would have had the foresight to donate 100 acres of recovered flood plain
to the people of Texas, saving the state the cost of acquisition of a vital transportation artery and
allowing him to develop this corridor into the great property it became. He was a giant of a man
and an exemplary proponent of the free-market capitalism that made our city and our state and
our country great.
It is somehow fitting that you asked me to speak here today, just two days after the 100th
celebration of Ronald Reagan’s birthday. Old John Stemmons loved President Reagan. In 1984,
the Republican convention was held here in Dallas. My father-in-law, Congressman Jim Collins,
was also a good friend of the president. During the convention, Mr. Collins invited me to join
Mr. Stemmons and a handful of their friends to visit with Mr. Reagan. The president was in
remarkable form and, great raconteur that he was, told this story:
Paddy McCoy, an elderly Irish farmer, received a letter from the Department for Works and
Pensions stating that he was suspected of not paying his employees the statutory minimum wages
and that an inspector would be sent to the farm.
On the appointed day, the inspector turned up. “Tell me about your staff,” he asked of Paddy.
“Well,” said Paddy, “there is the farmhand. I pay him 240 a week and he has use of a free
cottage.”
“That’s good,” said the inspector.
“Then there’s the housekeeper. She gets 190 a week, along with free board and lodging.”
“That sounds fine,” said the inspector.
Paddy went on. “There’s also the half-wit. He works a 16-hour day, does 90 percent of the work,
nets about 25 pounds a week when all is said and done, but takes down a bottle of whiskey and,
as a special treat, occasionally gets to sleep with my wife.”
“That’s disgraceful, Paddy,” said the inspector. “I need to interview the half-wit.”
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“Well,” said Paddy, “you’re looking at him.”
John Stemmons laughed so hard he cried. As rich and as prominent as he was, he identified with
the Paddy McCoys of the world. He took delight in doing things as independently as possible; he
was a great example of individual initiative in a world that has become increasingly dependent
on government intervention and what we have come to know as an “inside the Beltway”
mentality―a mentality that too often fails to grasp the essence and magic of Stemmons-like
entrepreneurship that is the hallmark of American success.
I am going to take advantage of this platform to remind you that the Federal Reserve System is
uniquely structured to balance “inside the Beltway” influences with “outside the Beltway”
thinking. The governors of the Fed in Washington are appointed by the president of the United
States and confirmed by the Senate. The 12 bank presidents, like me, who operate the System in
the field and also sit on the Federal Open Market Committee (FOMC) with the Fed governors,
are not. Instead, we are selected by, and serve at the pleasure of, boards of directors drawn from
the citizenry of our districts. Herb Kelleher, the founder of Southwest Airlines, is the current
chairman of the Dallas Fed board, which includes eight others ranging from Renu Khator, the
dynamic president of the University of Houston, to Joe Kim King, a goat rancher who is the
CEO of Brady National Bank, a rural bank with $80 million in footings.
As a Federal Reserve Bank president, I play a dual role under the watchful eye of my board of
directors. I am the CEO of a $100 billion Bank that lends and provides cash to and supervises
and regulates local banks. We provide myriad services to the 27 million people who populate
360,000 square miles of Texas, northern Louisiana and southern New Mexico—27 million hardy
citizens whose economic output exceeds the output of Australia and is only slightly less than that
of India.
On the policy front, my job is to bring a Main Street perspective to the table. When I was asked
by the Dallas Fed board six years ago to become president of the Bank, I met with Alan
Greenspan. I asked the Chairman how I could best serve the System. His answer was crisp: “Just
speak to the truth,” he said.
John Stemmons would have given me the same advice.
So today, I will speak to the truth as I see it. As I always do, I speak only for myself and my
colleagues at the Dallas Fed and not for anybody else on the FOMC or elsewhere in the System.
I suspect this will immediately become clear.
Only a month ago, a new Congress was sworn in. New leadership took office in the Lower
House, with the new speaker saying, “The American people have humbled us. … They have
reminded us that everything is on loan from them.”1 The Senate retained its leadership but
underwent a sea change in its composition.
At the other end of Pennsylvania Avenue, the White House revealed significant staff changes
while also announcing a new attitude toward the business community. The administration
pledged to clear the underbrush that hampers businesses’ job creation by rooting out laws and
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regulations that, in the words of the president, “are just plain dumb,” and by vowing to now bring
federal spending under control.2
The new Congress and the new staff in the White House have their work cut out for them. You
cannot overstate the gravity of their duty on the economic front. Over the years, their
predecessors―Republicans and Democrats together―have dug a fiscal sinkhole so deep and so
wide that, left unrepaired, it will swallow up the economic future of our children, our
grandchildren and their children. They must now engineer a way out of that frightful
predicament without thwarting the nascent economic recovery.
I have been outspoken about the limits of monetary policy as a salve for the nation’s fiscal
pathology.3 The Fed has done much, as I see it, to provide the bridge financing until the new
Congress gets to work restructuring the tax and regulatory incentives American businesses need
to confidently expand their payrolls and capital expenditures here at home.4
The Federal Reserve has held short-term interest rates to nil. We have expanded our balance
sheet to unprecedented levels, with the effect of holding down mortgage rates and the rate of
interest paid on Treasuries and the myriad financial instruments that are priced off of Treasuries,
including corporate debt. After much debate―which included strong concern expressed by one
member with a formal vote and others, like me, who did not have voting rights in 2010―the
FOMC collectively decided in November to temporarily undertake a program to purchase U.S.
Treasuries that, when added to previous policy initiatives, roughly means we will be purchasing
the equivalent of all newly issued Treasury debt through June.
By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal
nonfeasance. To avoid that perception, we must vigilantly protect the integrity of our delicate
franchise. There are limits to what we can do on the monetary front to provide the bridge
financing to fiscal sanity. The head of the European Central Bank, Jean-Claude Trichet, said it
best recently while speaking in Germany: “Monetary policy responsibility cannot substitute for
government irresponsibility.”5
The entire FOMC knows the history and the ruinous fate that is meted out to countries whose
central banks take to regularly monetizing government debt. Barring some unexpected shock to
the economy or financial system, I think we are pushing the envelope with the current round of
Treasury purchases. I would be very wary of expanding our balance sheet further; indeed, given
current economic and financial conditions, it is hard for me to envision a scenario where I would
not use my voting position this year to formally dissent should the FOMC recommend another
tranche of monetary accommodation. And I expect I will be at the forefront of the effort to trim
back our Treasury holdings and tighten policy at the earliest sign that inflationary pressures are
moving beyond the commodity markets and into the general price stream. I am a veteran of the
Carter administration and know how easily prices can spin out of control and how cruelly
markets can exact their revenge. I would not want to relive that experience.
But here is the essential fact I want to emphasize and have you think about today: The Fed could
not monetize the debt if the debt were not being created by Congress in the first place.
The Fed does not create government debt; Congress does. Deficits and the unfunded liabilities of
Medicare and Social Security are not created by the Federal Reserve; they are the legacy of
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Congress. The Fed does not earmark taxpayer money for pet projects in local communities that
taxpayers themselves would never countenance; only the Congress does that. The Congress and
administration play the dominant role in creating the regulatory environment that incentivizes or
discourages job creation.
It seems to me that those lawmakers who advocate “Ending the Fed” might better turn their
considerable talents toward ending the fiscal debacle that has for too long run amuck within their
own house.
A look within the United States makes clear the overriding influence of fiscal and regulatory
policy. Monetary policy is uniform across the 50 states; the base rate of interest paid on a
business or consumer loan or a mortgage in Michigan, California, Ohio or New York is the same
as that paid in Texas. Yet there is a reason that Michigan and California each lost more than
600,000 jobs over the past decade while Texas added more than 700,000 over the same period.
There is a reason that the population of Ohio grew by only 183,000 residents over the past 10
years, while Texas grows by that number every five and a half months. There is a reason that
with each passing census, the state of New York has been losing congressional seats and Texas
has been adding them; a reason that, in the recent census, California failed to gain any while
Texas gained four. There is a reason that, as documented in the Jan. 12 issue of the Wall Street
Journal, college graduates—the best and brightest of the successor generation—are leaving New
York and Cleveland and Detroit and moving to Austin, Texas.6 There is a reason no state in the
union houses more Fortune 500 headquarters than Texas. There is a reason for the disparate
employment growth that has taken place in the 12 Federal Reserve districts over the past two
decades, data that are documented in the graph at your place setting.

That reason has nothing to do with monetary policy. It has everything to do with the taxation and
fiscal and regulatory policies of the states. The cost of capital does not explain the different
economic performances of the states; the cost of doing business has everything to do with those
differences. However well-meaning tax and regulatory initiatives in the laggard states may have
been when they were conceived and levied, they have had unintended consequences that have
led to economic underperformance and job destruction.
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Similarly, the key to correcting the underperformance of the American economy and American
job creation does not presently rest with the Federal Reserve. It is in the hands of those who
make fiscal and regulatory policy.
The Fed has reduced the cost of business borrowing to the lowest levels in decades. It has seen to
it that liquidity is widely available to banks and businesses. It has kept the economy from
deflating and it has kept inflation under control. This has helped raise the economic tide. Recent
data make clear that the risks of a double-dip recession and deflation have ebbed and that
economic growth and job creation are beginning to flow. Yet the ships of job-creating
investment remain, with some exceptions, tied to the docks—or worse, are choosing to sail for
foreign ports where tax and regulatory conditions are more favorable, very much in the same
way that Ohio, Michigan, New York and California businesses and workers have navigated to
Texas.
U.S. nonfarm payrolls fell by 8.75 million jobs from their peak in January 2008 to their trough in
February 2010. Estimates are that the population of Americans of working age increased by 4.4
million during the same period, creating a shortfall of over 13 million jobs. Since February 2010,
the shortfall has only gotten worse: Although employers have added approximately 1 million
new jobs, the working-age population has increased by an additional 1.7 million. All in all, we
have approximately 6 million more people of working age than we did when the recession
began—and a net loss of 7.7 million jobs. Divining policies that will encourage the private sector
to increase hiring by enough to make up some of this lost ground is both an urgent and a
daunting task.
I don’t believe the Fed is constraining job creation. None of my business contacts, large or small,
publicly held or private, are complaining about the cost of borrowing, the lack of liquidity or the
availability of capital. Just this morning at 7:30, for example, the National Federation of
Independent Business released results from a survey of 2,144 randomly selected small
businesses. It said, “Ninety-two percent [of those surveyed] reported that all their credit needs
were met or that they were not interested in borrowing.”7
A recent Wells Fargo/Gallup Small Business Index survey reports that about 80 percent of those
who were reluctant to hire said they were afraid revenues wouldn’t increase enough to justify the
expense.8 The problem is not the availability of credit. The problem for businesses, small or
large, is generating enough final sales at a profit; the need is for revenue that exceeds the expense
of incurring that revenue.
You can’t have stronger sales if you don’t have stronger job creation. We will not have robust
job creation until businesses are confident they can earn a good return on the investment they
must make to add new workers. Employers live in a world in which they are free to invest their
monies in expanding operations and hiring workers anywhere in the world, in any place they
have the best opportunity to earn a superior return on investment. This is one of the legacies of
the Reagan era—of having won the Cold War and having the majority of previously closed or
dysfunctional governments choose prosperity as their goal rather than the economic suppression
of their people. To achieve that prosperity, they need job-creating investment. To attract that
investment, they provide incentives through tax and regulatory incentives and other means.
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Whereas before we lived in a world of mutually assured destruction, we now live in a world of
mutually assured competition. We have no choice but to create the conditions that incent
businesses that operate in the United States to compete using American workers. This requires
rethinking by Congress―the sole body with the power to shape our nation’s taxes and spending
and write regulatory laws to condition economic activity. Our lawmakers must do so in a manner
that both stimulates the desire of businesses to put Americans back to work at the earliest
opportunity and provides meaningful assurance that long-term fiscal imbalances they have
wrought will be brought under control, assuring the long-term viability of the U.S. economy.
Before the recent mid-term election, most all of my business contacts claimed that taxes,
regulatory burdens and the lack of understanding in Washington of what incentivizes privatesector job creation were inhibiting the expansion of their payrolls. They felt stymied by a
Congress and an executive branch that have appeared to them to be unaware of, if not outright
opposed to, what fires the entrepreneurial spirit. Many felt that opportunities for earning a better
and more secure return on investment are larger elsewhere than here at home.
Perhaps because I live so far outside the Beltway—among the Washington-skeptical,
independent-minded people of the Eleventh Federal Reserve District—I was therefore not
surprised by the outcome of the recent election. As I watched it unfold, I thought of one of the
better books I had read in the summer of 1998, at the recommendation of a friend, the eminent
historian David McCullough. It was titled Cod: A Biography of the Fish That Changed the
World, written by Mark Kurlansky, and was considered by the New York Public Library to be
“one of the 25 best books of the year.”9
Buried in the middle of that remarkable little book is a wonderful description of the causes of the
American Revolution. Kurlansky wrote that “Massachusetts radicals sought an economic, not a
social, revolution. They were not thinking of the hungry masses. … They were thinking of the
right of every man to be middle-class, to be an entrepreneur, to conduct commerce and make
money.” Referring to John Adams, John Hancock and John Rowe―everyone seemed to be
named John in New England in those days―he posited that the revolution “was about political
freedom.” “But,” he went on, “in the minds of its most hard-line revolutionaries, the New
England radicals, the central expression of that freedom was the ability to make their own
decisions about their own economy.” He concluded that “all revolutions are to some degree
about money,” reminding the reader that, reflecting upon France’s revolution, the Comte de
Mirabeau said, “In the last analysis the people will judge the Revolution by this fact alone [sic]
… Are they better off? Do they have more work? And is that work better paid?”10
We now have a new, younger and―in the sense depicted by Kurlansky―more radical Congress
working alongside a president as they seek to craft policies more responsive to the message
given by the electorate. The new Congress was elected to cast off the status quo of what many
have come to feel is excessive encroachment upon the people’s freedom to make their own
decisions about the economy. To do so successfully, this new, radical Congress and newly
inspired president had better bear in mind Count Mirabeau’s analysis. The people of the United
States will judge them not by their rhetoric, not by their declarations, proclamations and
statements of intent, but by whether their policies result in a people who are better off, have more
work and are better paid.
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The leaders of our government cannot attempt to talk their way out of the problem like their
predecessors did. Or string out needed remedies until after the next election. They must fix the
problem now. If they fail to do so, then the election, for all its hoopla, will prove to have been
nothing more than a case of putting old, rancid wine in new bottles.
Theirs is not an easy task. We have all become used to the false comfort of having government
coddle us, whether we are rich businesses receiving subsidies or poor citizens sustained by
government largesse. The election tapped into a foreboding sense that the cost of that comfort
now exceeds its benefits, as manifest in looming mega-deficits, deep if not unfathomable
unfunded liabilities, egregious abuse of fiscal powers symbolized by earmarks, and other
methods used by politicians to grease the skids of their reelection.
Tapping into that foreboding in the recent election was the easy part. Talk of reform is cheap.
Enacting reform will be painful.
A reader of Shakespeare will recall the dialogue between Glendower and Hotspur in Henry IV.
Glendower claims, “I can call spirits from the vasty deep.” And Hotspur replies, “Why, so can I,
or so can any man; But will they come when you do call for them?”11
We shall see if the new Congress will prove worthy of the power the American people have
“loaned” them, and, together with the president, actually draw the spirits of fiscal reform and
sanity from the “vasty deep” to at long last implement meaningful fiscal and regulatory policy
that incentivizes private-sector job creation here at home while arresting the hemorrhaging of our
Treasury. If they do, then more Americans will find work and be better off, better paid and freer
to make their own decisions about the economy.
If they don’t, then woe to our children, their children and the American Dream.
I am tempted to end this cheery talk by saying, “Have a nice day!” and walking off the stage.
However, I would hate to leave this podium with your having concluded that I am just another
central bank curmudgeon. I am professionally programmed to worry. Like John Stemmons, I am
also a red-blooded American, as are all my colleagues at the Fed. I draw on the wisdom of
Marcus Nadler, one of the great minds of the Federal Reserve from a period when our economy
endured an even more dire test. To counter the intellectual paralysis and down-in-the-mouth
pessimism that gripped the financial industry after the Great Depression, Nadler put forth four
simple propositions:
First, he said: “You’re right if you bet that the United States economy will continue to expand.”
Second: “You’re wrong if you bet that it is going to stand still or collapse.”
Third: “You’re wrong if you bet that any one element in our society is going to ruin or wreck the
country.”
And fourth: “You’re right if you bet that [leaders] in business, labor and government are sane,
reasonably well informed and decent people who can be counted on to find common ground
among all their conflicting interests and work out a compromise solution to the big issues that
confront them.”

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This became known as Old Doc Nadler’s Remedy, and for my part, it is spot on. Every one of us
preoccupied with what ails us should keep it in mind.
It may seem like the stuff of our wildest dreams to imagine getting ourselves out of the current
nightmarish predicament. But I believe we can and we will. We are Americans. When put to the
test, Americans rise to the occasion, no matter how great the challenge. We have done it time and
again. We have no choice but to do it once more.
Thank you.
Notes
1

See comments by John Boehner, speaker of the House of Representatives, in his speech to the opening session of
the 112th Congress, Jan. 5, 2011, http://boehner.house.gov/News/DocumentPrint.aspx?DocumentID=218986.
2
Lawyer and businessman William Daley, who was commerce secretary under President Clinton, was named White
House chief of staff on Jan. 6.
3
See “Storms on the Horizon,” speech by Richard W. Fisher, May 28, 2008,
www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm.
4
See “Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity?” speech by Richard W.
Fisher, Nov. 8, 2010, www.dallasfed.org/news/speeches/fisher/2010/fs101108.cfm.
5
See “Trichet Urges Budget-Cutting,” by Brian Blackstone, Wall Street Journal, Jan. 8, 2011,
http://online.wsj.com/article/SB10001424052748704739504576067352757709020.html.
6
See “College Graduates Flock to Sunbelt,” by Conor Dougherty, Wall Street Journal, Jan. 12, 2011,
http://online.wsj.com/article/SB20001424052748704515904576076254294271720.html.
7
See “NFIB Small Business Economic Trends,” by William C. Dunkelberg and Holly Wade, National Federation of
Independent Business, February 2011, www.nfib.com/Portals/0/PDF/sbet/sbet201102.pdf.
8
See “Many Small Businesses Hiring Fewer Workers Than Needed,” by Dennis Jacobe, Wells Fargo/Gallup Small
Business Index, Feb. 4, 2011, www.gallup.com/poll/145946/small-businesses-hiring-fewer-workers-needed.aspx.
9
Cod: A Biography of the Fish That Changed the World, by Mark Kurlansky, New York, N.Y.: Penguin Group,
1998.
10
See note 9, p. 93.
11
Henry IV, Part 1, by William Shakespeare, Act 3, Scene 1.

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