Dallas Fed President Fisher: Cost-Pull Disinflation from Globalization
This continues the discussion on gobalization in the posts based on columns by Krugman and Samuelson. Two members of the Federal Reserve's FOMC discussed globalization today, Dallas Fed president Richard Fisher and New York Fed president Timothy Geithner. Let's begin with Richard Fisher whose ability to spice up a Fed speech is quickly turning him into one of my favorites (background on Fisher from a Houston Chronicle story), and I'll follow up with Geithner in the next post. Fisher discusses how globalization will force governments towards less regulation, lower taxes, and more spending on investment rather than consumption goods, and its ability to produce cost-pull disinflation:
Globalization and Texas, by Richard W. Fisher, President, Dallas Fed: ...Speeches delivered by Federal Reserve Governors and Bank presidents are subject to interpretation in a manner akin to the ancient art of prophecy, which often divined the future by slicing open an animal and studying its entrails. It is interesting to be the “slice-ee” ... Philip Coggan ... [w]riting in the Financial Times last week, ... noted that when the great French statesman Talleyrand died, his archrival, Prince Metternich of Austria, was heard to muse, “I wonder what he meant by that?”...
[F]or the magic of free enterprise to work, fiscal authorities and central bankers must provide a healthy economic environment for the private-sector managers... in a challenging new global environment. [G]lobalization ... may well be the key development of our era; yet, we do not understand it very well. ... Globalization has intensified worldwide competition for investment capital. The consequences have included pushing governments to simplify or lower tax burdens to attract these funds... for legislatures and parliaments to maintain the rule of law, minimize obstacles to flexibility and maximize the ability to compete... The forces of international competition may be heralding a period when decisionmakers responsible for fiscal policy are forced to focus on investment rather than public-sector consumption. In ... today’s newly competitive world, governments’ purpose ... is to build an economic infrastructure that fosters private-sector production and growth, rather than transferring spending from one part of society to another. In an increasingly global economy, ... a dollar’s worth of government spending on consumption or entitlements has a higher opportunity cost today than it did yesterday. This will likely lead to a reconfiguring of government decisionmaking that in the past has short-changed infrastructure, research, education and other more productive public investments. ...
On the inflation-fighting front, globalization has been a positive factor. ... By lowering trade barriers ... we have benefited on the inflation front ... [as] competition from abroad acts as a check on price increases by our own producers. ... To be sure, the growth of Russia, India, China and other new economic entrants has created upside price pressures, too. ... [P]roducers have felt some upward pressure on non-energy commodity prices driven by new sources of global demand. Steel is a case in point—as are copper and so many other commodities. Even so, I feel that the net effect of new entrants like China into our markets ... has been a plus in exerting downward pressure on core inflation. I refer to this phenomenon internally at the Dallas Fed as “cost–pull disinflation.” As long as we keep our markets open and hold protectionists at bay, I expect this will continue...
Posted by Mark Thoma on Thursday, October 20, 2005 at 12:12 AM in Economics, Fed Speeches, International Trade, Monetary Policy |
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