William C Dudley: New York City's return from the brink Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Lotos Club, New York City, 19 October 2016. * * * It is a great pleasure to have the opportunity to speak here this evening at the Lotos Club, one of America’s oldest and most distinguished literary clubs. I am, of course, very happy to participate in tonight’s public affairs dinner and to accept the Lotos Award of Distinction. Tonight I would like to take a moment to discuss some of New York City’s recent history and its return from the economic brink. Aside from being a story of historical interest, I believe there are lessons embedded in New York City’s experience that are relevant to other cities and municipalities that find themselves struggling today. As always, what I have to say reflects my own views and not necessarily the views of the Federal Open Market Committee or the Federal Reserve System.1 Given the historical relevance of today’s date, it seems appropriate to start by recalling what happened on this day 29 years ago. In what has come to be known as “Black Monday,” the U.S. equity market suffered one of its steepest one-day drops in history, with the Dow Jones Industrial Average falling 508 points—a decline of more than 20 percent. This capped one of the worst weeks ever for the U.S. stock market.
History has taught us that Malthus and its intellectual descendants have always been proven wrong. The whole process of economic growth was borne out of the ability of mankind to overcome scarcity through human inventiveness and technical progress. It won’t be different this time. I am also very optimistic in the long run on the fundamental rebalancing of the world economy. Income per capita levels in the emerging world will progressively converge to those of the advanced economies and this will present gigantic market opportunities for producers in those countries. At the same time, tensions and insecurity created by differences in income and productivity levels will abate and disappear. The transition process, however, may be bumpy. Unavoidably, advanced economies, especially in Europe, will have to adjust to the permanent shift in world comparative advantages. They will have to increase flexibility and, above all, develop and preserve their most precious resource – human capital – through education and excellence in research. Emerging economies will have to face the dual challenge of aging and reducing inequalities. During that transition period, which may last several decades, it is important that the whole process is not derailed by shocks and crisis borne out of imbalances in the world economy. This is where the twin questions – (1) of the level and distribution of global demand and (2) the level and allocation of world savings – may matter most. Inside the G20, there is broad agreement on the need to rebalance aggregate demand.