The Wall Street Journal’s choice of a headline for my op-ed last Friday “A Two-Track Plan to Restore Growth,” was a great way to pair the proposed fiscal reform with the proposed monetary reform. The Congress and the President would lay out the fiscal track to reduce the exploding debt and then nail down the track with the golden spike of entitlement reform. In parallel the Fed would lay out the monetary track to reduce its exploding balance sheet and then nail down the track with the golden spike of reporting and accountability reform. In each case reform is needed: for fiscal policy entitlement reform is needed to provide incentives to control spending growth and improve the quality of services; for monetary policy, reform is needed to provide incentives to follow more rules-based policies.
Hearings at the House Financial Services Committee last Wednesday covered many of these same issues in detail with new members of Congress asking good questions. Witnesses were Don Kohn (former vice chair of the Fed) and I who focused on monetary policy, as well as Bill Poole and Hal Scott who focused on fiscal policy and regulatory policy, respectively. There was also a good second panel with witnesses from the private business sector.