At the same time, we stated that we cannot specify an exact goal for employment because “the maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market” and that “change over time and may not be directly measurable.”7] In the aviary of monetary policy makers, I am considered a “hawk.” I respect the fact that the Congress of the United States has given the Federal Reserve a dual mandate of conducting monetary policy so as to have full employment and simultaneously maintain stable prices. I believe monetary policy is the principal determinant of long-term price stability. But I have long maintained that monetary policy is but one gear in the complicated gearbox that drives job creation. Education and other structural aspects of our economy condition the nation’s job-creating capacity; fiscal and regulatory policy, in turn, condition both the structure and dynamics of employment. I was delighted that the full committee recognized this and made it part of its official credo. In a world driven by rapid technological change and globalization, job-creating capital will flow not only to countries that conduct sound monetary policy but to places with the most welcoming, competitive tax and regulatory systems. This was underscored in a recent Harvard Business School (HBS) survey authored by Jan Rivkin and Michael Porter, two widely admired scholars on national competitiveness and economic development.
The citizens of Texas and the Eleventh Federal Reserve District operate under the same monetary policy as do the rest of our fellow Americans. We have the same mortgage rates, pay the same rate of interest on commercial and consumer loans, and earn returns and borrow at the same interest rates as do our brethren in the rest of the country. Which raises an important question: If monetary policy is the same here as everywhere else in the United States, why does Texas outperform the rest? The answer is no doubt complicated by the fact that we are blessed with a comparatively great amount of nature’s gifts, a high concentration of military installations and other “unfair” advantages. But one cannot avoid the conclusion that one of those “unfair” advantages is that we have a Legislature, based here in Austin, that under both Democrat and Republican governors has over time crafted laws and regulations that encourage business expansion and job creation. They have conducted the fiscal affairs of the state so as to maintain confidence in the future. One might draw two lessons here: first, that Germany’s finance minister, Wolfgang Schäuble, is right when he says, “If you want more private demand, you have to take people’s angst away” by having responsible and disciplined fiscal policy;4 and second, that fiscal policy either complements monetary policy or retards its effectiveness as a propellant for job creation.