Global Perspectives: Richard W. Fisher on the COVID-19 Recovery, the Fed’s Response and the Future of Globalization
Richard W. Fisher served as president of the Federal Reserve Bank of Dallas from 2005 to 2015. Before joining the Dallas Fed, Fisher had a distinguished career in business and public service, including terms as deputy U.S trade representative and vice chair of Kissinger McLarty Associates.
Since leaving the Dallas Fed, he has served on the boards of AT&T and PepsiCo and as a senior adviser to Barclays Bank. Last April, Fisher was named chair of Dallas Mayor Eric Johnson’s Task Force on COVID-19 Economic Recovery. He is also a member of Texas Gov. Greg Abbott’s Special Advisory Council on reopening.
The Federal Reserve Bank of Dallas recently hosted Fisher as part of the Bank’s Global Perspectives speaker series. This series was launched at the beginning of 2016 with the objective of bringing leaders from the worlds of business, academia and policymaking to the Dallas Fed to share their insights on global, national and regional developments.
Fisher and his successor, Dallas Fed President Robert S. Kaplan, discussed the COVID-19 pandemic, the Fed’s response and the future of globalization. The following are excerpts from their conversation, edited for clarity, and presented by topic.
On the COVID-19 Recovery Effort in Dallas:
Fisher: The obvious big challenge is that when you shut things down, you eliminate jobs, and when you eliminate jobs, you eliminate consumption, and when you eliminate consumption, that means bad news for restaurants, bars, retailers, etc. The real difficulty here has been to figure out what the trade-offs are because you want to deal with the fear and the threat of a virus that can kill people. At the same time, when you take people’s jobs away, you shut them out or shut them in. You have a rise in pernicious effects on mental health, abuse, opioid addiction and so on. So, figuring out this trade-off has been a difficult thing to do.
Mayor Johnson is an earnest, non-partisan individual. I think he is really very focused on doing what is necessary, which is to create jobs, and particularly for minorities, given the imbalance in who suffers the most in downturns—namely minorities. These are folks that were brought into the workforce along with every demographic group as the economy expanded. Then you pull the rug out from underneath them. When you lose your job, you lose your economic security, your ability to support your family, and you become desperate. So, the effort here has been to figure out how to open the economy and get it back, so that we can put people back to work and, in turn, drive our economy.
The advisory task force to the governor is a broad group of people. I’m there with [Dell Technologies CEO] Michael Dell, [fashion designer and entrepreneur] Kendra Scott and others from the business world trying to get the right balance here. We recently opened up more, 75 percent, not bars but restaurants and other venues. [Bars have since been allowed to open in many parts of the state.]
We had to claw back at one point because we had some spreading, particularly, as we went into the university graduation season and the holiday season. Now with better medicine, better controls, there’s an effort to put people back to work, so they can do what they do best, which is to consume. That’s the basic economics of it.
The Fed’s Response to the Pandemic:
We saw what happened in March, particularly the dysfunction in fixed-income markets. Part of that was the element of total fear. I was in Australia when this all broke out the first week of March, advising Barclays’ two big banks down there, their clients and the big mining companies in the west. It was immediately apparent two things were being hoarded: One was toilet paper, the other, U.S. Treasuries. The reason I mention this is that people look to us, to the U.S., particularly to the Federal Reserve and to our authorities in this country, when there is fear. You know better than I do that the dollar and dollar bonds are viewed as the most precious of things from a safety standpoint.
I would say that, presently, the Fed did a good job by stepping in and restoring market function in fixed-income markets in March. The equity markets, of course, went through a very rough patch as well. It is important to have financial stability. Most people don’t really get that. We went through this in ‘08, ‘09. That’s a job the Fed has to perform. You [Robert Kaplan] have been very good as I understand it in the policy meetings on this subject because you have the background.
The negative side is the presumption that there’s a “Fed put” [central bank intervention to specifically prevent certain asset price declines]. We struggled with this in ’08, ‘09. We were trying to figure out the limits of what we could do. We went through an experience in 2013 where Chairman [Ben] Bernanke basically said we’re going to start weaning from this accommodative policy, and the bond markets went berserk. As I liked to say then, the feral hogs took over the property at that point. So, we backed off.
Well, I think the trade-off here—by stepping in and preserving financial stability—is that you give rise to what I call an Irving Fisher plateau. Irving Fisher probably was the greatest U.S. economist ever. But if you remember, he made a statement before the crash of ’29 that we were on a permanently high-priced plateau and, of course, he lost all his money and went bankrupt in the process because he invested accordingly.
It’s a good sobering lesson for economists, but it is also something that I detect recently when you look at valuations in the marketplace. We have floated the equity markets here beyond a reasonable price compared to underlying value. Price is what you pay. Value is what you get, and the multiples being paid right now of almost any variable are very difficult to justify. You want to have a Fed that’s accommodative, but at the same time, you don’t want a system that becomes totally dependent on that accommodation. That’s the trade-off here.
The Future of Trade and Globalization:
I think you and I and people of our age and most of the academic community still are basing their approach to trade and international and global issues on the Bretton Woods’ institutional framework [of 1944]. I always have to remind people the World Bank is the International Bank for Reconstruction and Development of Europe. The last time I looked, Germany was pretty reconstructed. France was pretty well reconstructed. Yet, we still think of international issues in that analytical framework.
The reason I mention this is that working for and with [former U.S. Trade Representative] Charlene Barshefsky and for President Clinton, I did the protocols for China’s accession to the World Trade Organization (WTO). And it was all based on that framework that they’re going to become more like us. Well, I confess I was horribly naïve. We have been taken advantage of. They’ve cheated.
The WTO is the successor to the GATT [General Agreement on Tariffs and Trade]. It assumes certain working principles. The Chinese don’t play by those rules. The World Bank has been lending more money for the Belt and Road Initiative [China’s global infrastructure effort largely aimed at the Third World]. They’ve been smart taking advantage of it. We need to have a new framework entirely. I’m hoping that—either when this president is reelected or, if he gets replaced, his successor—the people who advise him will lead us into a new path of thinking about a world that’s not Atlantic-centric but is Pacific-centric. It should be one that deals with the radical difference between the way the Chinese approach things [and the way] we do.
Lenin had a great expression. He talked about controlling the commanding heights. Well, the commanding heights right now are technology; what the Chinese are doing, they don’t have the infrastructure that we inherit. They don’t have credit cards. They don’t have copper wires. They are able to lead an entire generation into 5G and probably 6G eventually. The real issue here is who will control the commanding heights of the digital universe? They don’t have to operate by profit. I’m on the board of AT&T. We have to make a profit or else we go out of business, but we’re developing 5G. Verizon is developing 5G.
And when you think of it in a way, they’re basically following the Amazon model. They’re buying market share. They don’t have to worry about making a profit. They just keep buying and buying and buying market share over time. There’s a great book out called Blitz Scaling [The Lightning-Fast Path to Building Massively Valuable Companies, by Chris Yeh and Reid Hoffman], and I think that’s their approach to doing things. It’s not just taking up the ports of Djibouti or buying into the ports of Greece.
The average state-owned enterprise in China has 15,000 subsidiaries, and that’s how the CCP—the Central Committee—operates: not by just owning those companies outright but also by directing the subsidiaries and sub-subsidiaries in terms of where they invest. They’re all over Silicon Valley. They’re all over Austin. They’re all over us, and we don’t even know that they’re basically directed by the Central Committee.
I would be doing the same thing if I could get away with it given their ideology. They’re trying to bring their people out of the middle-income trap (of getting stuck at a plateaued income level). Remember, their historic enemies are not us. Their historic enemies are Japan and South Korea. Those countries pulled themselves out of the middle-income trap. That’s the challenge. That’s what [Chinese President] Xi Jinping wants to do. In a way, we’ve given them the wherewithal by thinking in Bretton Woods terms. So, that’s a complicated argument. I feel very strongly about it.
Leadership and Creating More Civil Discourse:
Well, this will sound a bit soporific, but we have to stop arguing with each other and start listening to each other. We have become so harsh in our judgment of people who have different views. It's one thing to hear, another thing to actually listen. And I don't think we're listening to each other anymore. We've taken such extreme positions.
I think that would be a beginning. Secondly, just the idea of community service. As you know, my family and I have underwritten a lot of community service programs. This is important. You have to take some of your own profit and share it with the community, in whatever means, whatever income level you have. Voluntarism is critical.
But I really would like to see us stop shouting at each other; that would be a very, very, good beginning. And let me just add this, Rob. You know this because you recently dissented in a vote. It's a hard thing to do, to disagree after you listen to everybody. But the thing I loved about the Fed, and the [Federal] Open Market Committee is that even if you dissented and had a different view, and/or spoke about it, it's just an intellectual difference after hearing everybody else.
That's the model of the way I would like to see society conduct itself. And it was a great pleasure to be able to disagree with people, and yet, still have them like you in the end. At least, I hope they like us at the end. They admire the fact that, you're willing to stand on principle but do it in a polite and thoughtful way. That would be the best thing we could do as a country.
About the Author
Mark A. Wynne
Wynne is vice president and associate director of research in the Research Department at the Federal Reserve Bank of Dallas.
The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.