Members of the Shadow Open Market Committee, directors and staff of E-21, and guests:
Since its founding in 1973, the Shadow Open Market Committee has been the leading intellectual forum for the evaluation of the Federal Reserve’s monetary policy. As a member of Congress, I’m honored to speak in this forum.
Like many of you, I’ve been fortunate in that the question of “what drives our economy” has been a major part of my life. Prior to Congress, as a local chamber of commerce executive, I spent 18 years helping to start new businesses, recruit new industries, and create a sound business climate in three communities – one in the Midwest and two in Texas. The economies were diverse and challenging: agriculture, international tourism, and military in the Black Hills of South Dakota, the exciting boom-and-bust “Spindletop” economy of southeast Texas that included oil refining, a strong union influence, and back then a national reputation as a hotbed for excessive litigation. During the early 1980’s unemployment neared 30 percent in some parts of the Golden Triangle of southeast Texas.
In the Houston region, our economy is driven by trade, energy, the largest medical center in the world as well as a marvelous entrepreneurial spirit. In my congressional district, add to that paper mills, steel mills, timber, and biotechnology firms.
When I arrived in Congress, I continued to seek ways to create more jobs in America. The Ways & Means Committee and the Joint Economic Committee have been perfect fits for my interests. I’m a free trader—all the way. I believe 110% in the economic freedom to buy, sell, and compete around the world with as little government interference as possible.
In Congress, I’ve had the opportunity to be involved in the successful passage of twelve of the fourteen trade agreements the U.S. has in place, as well as moving China into the World Trade Organization. These actions have opened new markets and found new customers for America’s companies and farmers in the global marketplace. We need to lead much more aggressively on trade, because America continues to fall behind our global competitors.
When it comes to the global economy, some have characterized the 1800’s as the British century, the 1900’s as the American century and the current one as China’s century. I reject that prediction.
It’s clear though, that to ensure the 21st century is another American century we must renew our commitment to what works well—our free market system—and reform what does not—our inefficient federal government.
Looking to our economic future, our goal should be clear: ensuring that America has the world’s strongest economy throughout the 21st century. To do that, we have to get our monetary policy right and our fiscal policy right so that our free market system can flourish.
Not far from here on West 141st Street stands the Grange, the recently restored home of Alexander Hamilton, our first Secretary of the Treasury. After careful consideration, Hamilton devised a monetary system that revived a moribund American economy and fostered rapid economic growth. As Hamilton did in his day, we must thoughtfully and clearly define the role of the Federal Reserve going forward.
A sound dollar is the sure and strong foundation for long-term economic growth. A sound dollar creates certainty and facilitates new business investment and long-term job creation. I believe the focused role of the Federal Reserve should be to protect the purchasing power of the dollar by maintaining long-term price stability.
Are there many other actions that Congress and the President must take to retain America's economic preeminence for the next 100 years? Of course. We must:
- Make our tax system simpler and more internationally competitive by lowering marginal tax rates and eliminating distortions that pick winners and losers.
- Reform important entitlement programs—including Social Security, Medicare, and Medicaid—to make them sustainably solvent so that they can continue to serve those Americans dependent upon them;
- Transform our regulatory system so that we can achieve our common goals—including a clean environment and safe workplaces—in more efficient, balanced, and less destructive ways; and
- Aggressively pursue trade agreements to open foreign markets to sell more American goods and services to the 95 percent of the world’s population that lives outside of our borders.
However, these reforms by themselves will be insufficient if the Federal Reserve fails to maintain the purchasing power of the dollar over time. You only need look to the Great Depression of the 1930's and the Great Inflation of the 1970's to see that both price deflation and price inflation are twin evils that reduce real output and employment.
Learning from the past and looking to the future, Congress must select the right monetary policy mandate, maintain a Fed independent of political pressure, and hold the Fed accountable for the results.
So let us examine what monetary policy should be going forward.
See. JEC Vice Chairman Kevin Brady's entire speech in pdf format attached below: