Harvard Kennedy School Dean Douglas Elmendorf welcomed Mary C. Daly, who gave the Seymour E. and Ruth B. Harris lecture on Wednesday night. The event was the first of the academic year hosted by the School’s Institute of Politics Forum. Daly became president of the San Francisco Federal Reserve in 2018. Dean Elmendorf, former director of the Congressional Budget Office, and Daly discussed forming inclusive economies, the burdens of shepherding the economy through a pandemic, and what role the Federal Reserve plays in the country’s economic recovery.
Read highlights from Daly’s lecture below or watch the event here.
An economy where everyone participates
Our goal is to form an inclusive economy, one where it's not just good luck whether you can participate, it's actually a commitment that we all make. And I think you will understand what I'm saying here, but I go back to when I was in first grade: I remember we did the pledge of allegiance every morning before we sat down to do our schoolwork. And I remember the phrase “justice for all.” It was something that I believed in. [Economics] needs to be more inviting and welcoming. In order for us to do that, we have to shift our mindset from “we're doing it for others” to “we're doing it for ourselves.” We are not the profession we could be. We're less than a profession we could be because we're not diverse enough. We're not inclusive enough and we don't have all a voice.
The role of fiscal policymakers during COVID-19
The role for fiscal policy makers has probably never been stronger than it is right now in my lifetime, because we can't do it alone at the Fed. The way out of so many of the issues that we're in right now is to build what I like to think of as opportunity infrastructure, basically ensuring that people have opportunities to participate in the economy, so that we can get every person here working on behalf of all of us. One of our contacts in my community said, "We all do better when we all do better." And I think that's really where the fiscal agents can help: making sure that we all do better.
What the Federal Reserve can do
One of the problems that we have is that we have the largest differences in economic circumstances right now. … We have one tool, and we already have two mandates. We have a full employment mandate, and we have a price stability mandate, and we have really one tool, which is interest rate policy.
We don't make allocated decisions. We simply make interest rate decisions that help ensure that the economy can achieve its full potential. But, we don't determine the potential of the economy at any one time. So, it becomes challenging. People ask the question all the time of me, "Does it mean we're going outside of our lanes to even speak about these settings?" But, I hold to this commitment as a policymaker, that we in the Fed—and this is true of anybody—but at the Fed, we have to work with the economy we have and we have to build towards the economy we want.
When you think about building towards the economy we want, take our full employment mandate. We have to manage full employment to the level it is today. I cannot, myself, make allocated decisions as a Federal Reserve policymaker to improve educational attainment. But, I can make sure that we run a robust economy so that everybody has a chance to get into the labor market. I do think it is our role, and you'll see many Federal Reserve officials speaking about the costs of not having educational attainment be more equally allocated across populations because we are leaving talent on the table. We can point out the cost of that.
Photo by David Paul Morris/Bloomberg