Elsewhere in this issue of The Region, my
speech at the Federal Reserve Bank of Chicago's May Conference
on Bank Structure and Competition is reprinted. One of the themes
of that speech is that as a matter of sound public policy we need
to bring more market discipline to bear on our largest commercial
banks. This step is desirable to offset effectively the underpricing
of risk taking arising from the safety netprincipally deposit
insurance and the discount windowunderpinning banking. The problem
is particularly acute for large institutions because of "too-big-to-fail"
precedents that especially distort market signals in their case.
More recently, I have been thinking about economic growth and,
specifically, about those factors that account for the sustained
positive performance of our economy over the past several years.
To be sure, I have not arrived at a fully satisfactory explanation
for growth in the United States, but at this stage the analysis
emphasizes the value and significance of market forces in contributing
to the expansion. In particular, openness to foreign trade, deregulation
and acceptance of major industrial reorganizationsfactors
that have promoted competition and specialization and hastened the
adoption of new technologyappear critical to the growth process.
Emphasis on the role and value of market forcesin this case on
competition and specializationis consistent with some of the earliest
writings in economics and with the recommendations in my Chicago Conference
remarks. It is, I suspect, no accident that confidence in market signals
and outcomes increases as we continue to gain experience in both macro
and banking policy. In any event, I plan in a forthcoming speech and in
a subsequent issue of this publication to discuss the role of the market
in promoting growth and prosperity.