The Limits of Monetary Policy and the Importance of Fiscal Policy

The Virginian ^ | 6/6/2012 | Moneyrunner

[moneyrunner]

Here is the rub. As mentioned, the FOMC sets monetary policy for the nation, for all 50 states—its influence is uniform across America. The same rate of interest is charged on bank loans to businesses and individuals in Texas as is charged New Yorkers or the good people of Illinois or Californians; Texans pay the same rates on mortgages and so on. Why is it that the Texas economy has radically outperformed the rest of the states? A cheap answer is to revert to the hackneyed argument that Texas has oil and gas. It is true that we produce as much oil as Norway and almost as much natural gas as Canada. And we have some 60 percent of the refineries of the United States.

But remember that the numbers I showed you are employment numbers. Only 2 percent of employment in Texas is directly generated by oil and gas and mining and related services. We are grateful that we are energy rich. But we are a diversified economy not unlike the United States, where business and financial services, health care, travel and leisure activities and education account for similar portions of our workforce. Why, then, do we outperform the rest of the United States?

To me, the answer is obvious: We have state and local governments whose tax, spending and regulatory policies are oriented toward job creation. ...

[thackney]

A cheap answer is to revert to the hackneyed argument that Texas has oil and gas.

Hey now, I'm easy, not cheap!

[Eaker]

Your Facebook page implies both!