Published September 1, 1995 | September 1995 issue
In the Federal Reserve's 82-year history, 74 people have had the privilege of serving on the Board of Governors. This group has played an important role in fostering the nation's economic growth. We invited former Board members to reflect on their experience and share their thoughts on current monetary policy direction as well as career highlights after leaving the Board. We posed the following questions:
What have been some of the highlights of your career since leaving the Board?
What are your views on the Fed's strong emphasis on price stability in recent years?
As you reflect on your tenure as a Federal Reserve governor, what was your most memorable experience?
With Chairman Greenspan's term expiring next March, what advice would you give to the new chairman, whether it is Greenspan or someone else?
An economist and educator, Maisel spent most of his career at the University of California, Berkeley. He was part of a team established by the Social Science Research Council that constructed the first large-scale econometric model of the U.S. economy to make use of the ability of computers to solve a large number of equations simultaneously.
I have taught, performed research and administered research organizations. I ran a consulting business and helped clean up some of the savings and loan mess. I was professor of economics and finance at the University of California, Berkeley; officer of the National Bureau of Economic Research; president of Sherman J. Maisel Associates; and chairman of the board of directors (representing FSLIC) of two S&Ls. I have published five books and numerous articles since leaving the Board.
Price changes result from imbalances of the supply of and demand for output and from expectations. The Fed must aim its policies at helping to correct or offset imbalances. It must keep in mind uncertain lags, changing parameters and lack of knowledge. It must weigh costs of losses from current output and of potential output in the future.
My most memorable experience was the ability of the Fed to halt a potential financial crisis following the failure of the Penn-Central Railroad. From inside observations, the potential for a crisis appeared to be great, but decisive Fed action brought normality back rapidly.
It is much easier for monetary policy to slow down national output than to get it started again. A drop in current output hits hardest at capital investment and future output capacity. Given our uncertain knowledge of the economy and variables, the Fed should seek to avoid overdoing the magnitude or length of any policy.
Bucher, a banker-lawyer, spent the majority of his career prior to the Federal Reserve with United California Bank. At 39, he was the youngest appointee to the Board in its 58-year history.
Since leaving the Board in 1976, I have practiced law as a partner of several large law firms, primarily in the area of financial institution regulations. I serve on several boards of directors and teach banking law at George Mason School of Law.
Overseeing the resolution of the Franklin National Bank failure. Also, serving with Arthur Burns.
Make the Fed's continued independence his (or her) top priority.
An economist by trade, Holland began his career with the Federal Reserve Bank of Chicago and later joined the staff of the Board of Governors in Washington.
After I left the Board, I served for 14 challenging but gratifying years as president of the Committee for Economic Development (CED), studying practical solutions for the nation's most serious economic problems. (It was a pleasant surprise, incidentally, to discover how many of CED's trustees and economic advisers were also directors or advisers at the Federal Reserve banks or the Board at some stage.)
The highlight of those CED years for me was what we achieved (through publications, meetings and speeches) in convincing many business, education and government leaders that improving our preprimary, primary and secondary education in this country was an investment that was badly needed and, if well directed, would produce a handsome rate of return to our society over the longer run.
After I retired from CED, my old alma mater, the Wharton School, asked me to join their faculty as a part-time senior fellow and co-director of their research and outreach in business ethics. That is a subject which had interested me, and it turns out now is a fascinating time to be working in that field. A variety of factors at work are now making business ethics no longer an oxymoron.
I think the Fed has been wise to move toward stronger (though not exclusive) emphasis on price stability in recent years. I take it as a lesson well learned from the earlier decadesespecially the '60s and '70swhen Fed veterans like me thought we were doing about all society would put up with in fighting inflation, while also giving weight to employment and production goals. With 20-20 hindsight, however, we can see that we were "too little and too late" in our anti-inflation actions. It took harsh measures at the end of the '70s and in the early '80s for the Fed finally to bring inflation to heel, and for the public to learn the wisdom of that course. That has enabled the Fed to enjoy a large measure of support for its greater emphasis on price stability recently, without the need for harsh actions to approach that goal. Those lessons were hard-learned, and I hope both the Fed and the public keep them in mind.
It was my swearing-in as a governor. At that moment, I was very aware of the fact that I was the first Board staff member ever elevated directly to the Board and so was then-Chairman Arthur Burns. He told me that while he was head of the national Bureau of Economic Research and later the President's Council of Economic Advisers, he had acquired a great deal of admiration for the quality of the top Board staff (particularly Win Reifler), and was astonished to learn that no Board staff member had ever been moved up to the Board. He thought that was a shame, and resolved if he ever had the chance to break that "glass ceiling," he would do so. He persuaded President Nixon to do that with me. Happily, it worked out well enough so that he was able to do it again with Chuck Partee, and then Lyle Gramley. The fact that all three of us were "children of the System," with tours of duty at a Reserve bank as well as on the Board staff, made it easier to get our appointments approved.
That new chairman will undoubtedly get plenty of advice, some of it good, as he or she steps into that role. I would focus on one point. In the increasingly global economy, in which both the United States and the dollar will play a less dominant role, monetary policy decisions will need to give relatively more weight to international factors. This is not a particularly popular approach to take or advocate; in fact, a great many people inside and outside the Federal Reserve and the federal government will not even understand how that could be in this nation's interest.
Therefore, I would encourage the new chairman to use a little goodwill in striving to educate the Fed family, the president, the key members of Congress and key opinion-shapers around the country on this point. But if before that educational effort has succeeded, global events call for a significant modification in what would otherwise seem a good approach domestically, I would urge the chairman to urge that modification upon FOMC colleagues, with a stiff upper lip as the criticism piles up, comforted by the knowledge that such action can be in the long-run interest of both the United States and the world.
At the time of his appointment to the Board, Lilly was chairman and chief executive officer of Toro Co. in Minneapolis. He had served as chairman of the Minneapolis Fed's board of directors.
I left the Board in 1978 and became dean of the School of Management at the University of Minnesota until 1983, when I tried to retire. But instead, I spent five years as vice president of finance and operations. After retiring in 1988, I remain involved in several university committees. I'm also currently chairman of the executive committee for the Riverfront Development Corp. in St. Paul.
I don't want you to cast me in the role of someone who has all the answers, because in an evolving world economy, it's easier to look back than forward. But I think the Fed has been perhaps too vigorous in its defense against inflation. There are some indications that the Fed is assuming too high a NAIRU (non-accelerating inflation rate of unemployment). The world economy on the supply side has expanded at a much faster rate than we imagined, and the international fluidity in labor markets might allow us to consider a lower NAIRU. I think the Fed is overreacting and paying too much attention to the capacity utilization rate, again because there's an expanding international economy. Anecdotally, take a look at counters in stores and see how many items were made in China and Taiwan. And all this is happening with a very weak dollar.
My greatest accomplishments as governor were two: To hire Oehme and VanSmall, the landscape architects who restored the gardens at the Federal Reserve Board's Martin Annex building; and the changing of the shape of the Board table. When the main Board building was undergoing restoration and redecorating, we met at the Annex and sat at an oval table. Formerly, in the board room the chairman and vice chairman sat on one side of the narrow rectangular table and the rest of the governors on the other side where they could not see each other. There was no sense of collegiality. With an oval table, the chairman sat at the head and the other governors grouped around him creating a group dynamic.
The Fed's biggest concern should not be inflation, particularly if you think of the competitive pressures in the world market and the reduction of the federal deficit. The Fed should be more concerned with a healthy economy and lower unemployment rate than inflation. I don't think inflation is the real concern for the next decade; however, we need to gainfully employ as many people as possible in this country.
Partee joined the Board with more than 25 years of financial services industry experience in both the public and private sector, having spent time at the Chicago Fed, a commercial bank in Chicago and on the staff of the Board of Governors in Washington.
Since retiring in 1986 after more than 30 years with the Federal Reserve
System, I have spent a lot of time boating and wintering in the Florida
Keys. Professional activities have been strictly
limited membership on the Board of State Farm Insurance and as trustee (for a time) for a family of mutual funds.
We must continue to strive for adequate economic growth (2-1/2 percent to 3 percent), of course, but the long-run threat, in my opinion, continues to be inflation. There are still important inflationary biases in the economy, and the Federal Reserve continues to be the only agency committed to keeping these forces under control.
As a staff member and governor during the high inflationary period (1962-86), I think the effort to bring it under control in the 1979-81 period was the hardest and most challenging in my career. There were many costsunemployment, bankruptcies and a long period of financial instabilitybut I think on balance that it was necessary and successful.
The chairman, and all Federal Reserve officials, should continue to resist efforts at politicization. This, as always, is the major threat to the Fed and should it gather force, the loss over time would be incalculable in terms of potential economic and financial instability.
Teeters was the first woman to become governor of the 65-year-old Federal Reserve Board. She had previously been an economist at the Board and was chief economist for the Budget Committee of the U.S. House of Representatives at the time of her appointment.
I became a vice president and the chief economist of the IBM Corp. I thought that I understood computers because my involvement with them dated back to the Board's original IBM 650. I did not have a comprehensive knowledge of computers. So at the age of 54, I not only had a new job, but a great deal to learn. It was very exciting. I also became a director/trustee of a family of mutual funds, which kept me in touch with the markets. And I am a director of Inland Steel Industries.
I think the Fed is utilizing the concept of potential GDP (gross domestic product) as one of the guides to evaluating the need for monetary policy action. I am fairly sure that they don't use any one guide exclusively. I have to assume that there has been extensive research between the relationship of potential GDP and actual GDP and increasing inflationary pressures. If this is what they are doing, I am pleased because they are focusing on the desired end rather than the means (instruments). I think they have been very successful in containing inflation, although the current wage restraint may be just luck. I would like to see a more explicit discussion of the potential GDP concept and the productivity assumptions in the 2.5 percent goal for growth.
I was very concerned over the very aggressive move to fight inflation in October 1979 and the slowness in the willingness to back off as the recession deepened and dragged on into the middle of 1982. While the formulation of monetary policy receives the most public attention, the duties of a governor are surprisingly diverse. I never expected to be so deeply involved in shaping the structure of the banking system that is the result of the bank holding companies applications or in the formulation of equal and civil rights that resulted from the consumer credit duties.
My advice is to be very careful in the exercise of the monetary authority. It is a very powerful tool of economic policy. Misuse can harm a great many people.
Prior to joining the Board, Schultz operated an investment firm in Florida. He also served in the Florida House of Representatives.
Since leaving the Fed I have spent about half my time as an economic consultant and corporate director. The other half has been in public service, primarily in education. I have served as chairman of the Florida Institute of Education and am currently chairman of the Jobs and Education Partnership for Florida, which has responsibility for workforce development in the state.
I am in favor. The Fed has been doing an excellent job.
In monetary policy the famous October meeting of 1979 where we made a dramatic change in our methods and began targeting the money supply. In addition, after credit controls were invoked, Chairman Volcker gave me primary responsibility overseeing that program. It was not pleasant, but certainly memorable.
Keep up the good work.
The December 1995 issue of The
Region includes comments from the governors listed below:
Lyle E. Gramley
H. Robert Heller
Manuel H. Johnson, Jr.
Wayne D. Angell
John P. LaWare