University of Wisconsin alumnus and Federal Reserve Bank of Richmond President Jeffrey Lacker visited campus Monday to deliver remarks on the post-2008 crisis economy.
Lacker opened his speech reminiscing on the years he spent at UW before focusing on the implications the current economic crisis has for the field of economics and the understanding of the Federal Reserve System.
Lacker graduated from UW in 1984 with a Ph.D. in economics and became the seventh chief executive of the Fifth District Reserve Bank in Richmond, Va., in 2004.
Lacker said he believed the common critique on economics not predicting the current financial crisis was too harsh, stating critics have gone “overboard.”
“In one sense, this is true. I stand guilty as charged, but this is sort of like criticizing seismologists for not having predicted the time and the place for the earthquake that struck Mineral, Va.,” Lacker said.
He maintained that economics is an important field of study.
Lacker also cleared up several misconceptions about the Federal Reserve. A large notion, Lacker said, was that the institution is not audited, which is not true, as at any given time, the reserves are being audited by multiple external companies.
He then mentioned that the reserves make reams of information available to the public, pointing out that every Thursday, the previous afternoon’s balance sheet is posted to the Federal Reserve website.
When asked what the Federal Reserve can do to gain back confidence in the institution and government as a whole, Lacker said there is a factual question over what monetary policy can do concerning the deficit.
He emphasized his belief that the Federal Reserve’s role in increasing growth is fairly limited.
“We’re a trusted source of insight and expertise, and to my mind, that’s our role in the debates that we, like you, are watching to some extent,” Lacker said. “I think we can use our office to impress on people [and remind them] of the importance of a sustainable trajectory for fiscal policy.”
Lacker added that he shared the citizens’ distress and dismay.
“We, like you, are limited to the role a lot of good citizens can play by telling our elected representatives what we would like to see,” Lacker said.
John MacArthur and Ragnar Frisch UW economics professor Kenneth West said this was a strong message to take away from Lacker’s speech.
“His views that there is a limited amount the Federal Reserve can do [is important],” West said. “There are some who think ‘Operation Twist’ and similar ideas are going to do great things for the economy. The crux of [Lacker’s] speech is that he’s a bit skeptical … and worried it may lead to inflation for the new growth of the economy.”
The maturity extension program – also known as “Operation Twist” – advocates the selling of $400 billion worth of short-term Treasury securities, according to the Federal Reserve website.
The website continued to say this will manifest in lowered longer-term interest rates while stimulating economic recovery.
The UW Department of Economics and the Economics Student Association sponsored Lacker’s visit.
“We’re very grateful [Lacker] came to campus to tell us his thoughts on the state of the economy and monetary policy,” West said. “We learned a lot from it.”
