Dallas Federal Reserve President Richard Fisher recently voted against monetary stimulus and explained why in a speech delivered earlier this week. The method is to first start with a long discussion of the relative strength of job growth in Texas, then offer a brief discussion that reveals Fisher doesn’t seem to understand how monetary policy works, and then conclude with a staggering analysis of the Texas labor market which appears to entirely neglect the fact that the unemployment rate in Texas is over 8 percent:
Now, how do you connect the dots between Texas’ record of economic growth and my dissenting vote?
Despite the fact that Texas has severely limited social services and an education system that faces great challenges, people and businesses have been picking up stakes and moving to Texas in significant numbers over a prolonged period. It should be noted that in the last census, Texas gained population and congressional seats, while California’s population growth and congressional representation was static and New York’s was diminished. Jobs have been created for American workers in Texas in several different sectors, not just in the oil and gas and mining sectors. People have taken those jobs of their own free will, even though the jobs may not measure up to the compensation levels everyone would like. And yet Texas, like all states, is subject to the same monetary policy as all the rest: We have the same interest rates and access to capital as the residents of any of the other 49 states, for the Federal Reserve conducts monetary policy and regulates financial institutions under its purview for the nation at large. From this, I draw the conclusion that private sector capital and jobs will go to where taxes and spending and regulatory policy are most conducive to growth.
Fisher seems to be badly confused here. Based on the fact that Texas is doing better than average, he seems to have concluded that there’s no recession in Texas. And since Texas is large and has the same monetary policy as the rest of the country, he’s concluded that the whole country could get out of recession if it only had public policy as good as Texas’ public policy. But Texas is experiencing the same severe labor market recession as the rest of the country. I promise! Look at the unemployment rate:
I think it would be seriously unfair to blame Rick Perry for this state of affairs. Rather, I would blame Richard Fisher and his colleagues on the FOMC. After all, as he notes “Texas, like all states, is subject to the same monetary policy as all the rest” a monetary policy that’s landed it in a severe recession. Rather than taking false comfort from the fact that Texas’ population growth rate remains high, Fisher should consider that in good times Texas adds jobs faster than people whereas in bad times it adds people faster than jobs:
Texas population growth is a constant. It says good things about the state of Texas. But Texas still experiences labor market variables because, as Fisher says, “Texas, like all states, is subject to the same monetary policy as all the rest.” Sometimes the labor market variables are pointing in a good direction, other times they’re pointing in a bad one. This is one of the bad times. But Fisher doesn’t seem to have noticed.