CHAPTER 1

The Overall International Economic Policy Agenda

Good public policy management and leadership requires setting broad policy goals, or principles, and then sticking to those goals as each particular decision must be made. When leaving government last April my staff in International Affairs gave me a wonderful gift—a plaque that set out 10 such broad principles in the area of international finance and development. They called the 10 principles “The Taylor Rules,” because I had been espousing them during my four years as Under Secretary. For example, the first of the 10 is that economic policy should aim to increase economic growth and economic stability.

The speeches in this section represent my efforts to set out such broad policy principles in the area of international finance along with some of the specific action plans the Bush Administration was taking to achieve those goals. Item 1 is a speech I gave at Harvard in the first year of the Administration. It contains the two goals of economic growth and economic stability, but it also reassesses our overall policy agenda in light of 9/11. We had a big economic agenda before 9/11, but we had an even bigger agenda after 9/11, including combating terrorist financing and reconstructing Afghanistan.

Item 2 focused on another important principle that guided our work in international economics at the Treasury in the Bush Administration. That principle is to always be on the lookout for ways that international economic policy can provide support to our overall foreign policy. Economic issues frequently provide the essential third pillar, joining in with political issues and security issues, to give the overall foreign policy needed support. I used the economic component of our improved relation with Russia to illustrate the point and the two items on Russia in the Appendix to this chapter illustrate this even better . Item 3 lays out in more detail our principles for international development policy.

One year after my first speech (Item 1) on our overall agenda I thought it was time to review our progress, to answer the question “How are we doing?” The resulting speech was given before the National Association of Business Economists and is found here as Item4. I argued that the global recovery from the slump of 2000-2001 and the terrorist attacks was well underway and that we were making good progress on our reform agenda, but we still had more to do.

The New York speech in Item 5 gave more details about our progress in our policy toward emerging market economies. Item 6, also given in New York, endeavored to give information to foreign exchange traders about our policy toward exchange rates. (Because of our policy principle that we should comment very little about exchange rates, you may find this speech is more elliptical that the other speeches in this section.)

By late 2004, three years had passed since the first overall policy speech at Harvard, so it was time to again ask the question: “How are we doing?” By this time the answer was unequivocal, times were good, and I gave a bunch of speeches on this topic, with Items 7, 8, and 9 being three good examples. Global growth in 2004 was turning out to be the highest in three decades. There were no crises anywhere. There were no recessions anywhere. Interest rate spreads in emerging markets were very low. Volatility was down. The two goals of economic growth and economic stability were being achieved in most of the world, with Germany being one of the exceptions that proved the rule.

But good economic times do not call for complacency, and the current account deficit in the United States was an imbalance that attracted much attention and generated concern. Item 10 presented the Bush Administration’s strategy aimed at reducing the current account deficit. It is a three pronged strategy: reducing the federal deficit, increasing growth in countries that are growing slowly, and increasing exchange rate flexibility in large countries that lack flexibility. Finally, item 11 is an updated review of our policy agenda. I gave this at the G7 meeting of finance ministers and central bank governors, but that meeting may be best known for the widely reported dispute between the Americans and the British on how to resolve the poor country debt problem. I represented the United States in Secretary John Snow’s absence. The last G7 meeting I attended as Under Secretary was on April 15, 2005. The U.S. Delegation, consisting of Alan Greenspan, John Snow, and myself, is shown in the press photo in item 1 in the list of illustrations. The picture was taken as the meeting was getting started.

1. Strengthening the Global Economy After September 11, Harvard University, November 29, 2001

2. The Economic Component of Foreign Policy, Willard Hotel, Washington, February 25, 2002

3. New Policies for Economic Development, World Bank, Washington, April 30, 2002

4. Strengthening the Global Economy: A Report on the Bush Administration Agenda, Capital Hilton Hotel, Washington, September 30, 2002

5. Increasing Economic Stability in Emerging Markets, Waldorf Astoria Hotel, New York, October 17, 2002

6. Policy Perspective on Foreign Exchange, Foreign Exchange Committee, Federal Reserve Bank of New York, October 17, 2003

7. Good International Economic Stories You Don’t Read About, Carnegie Mellon University, Duquesne Club Pittsburgh, Pa., September 21, 2004

8. Bullish News about the World Economy, Annual Wharton Finance Conference, Philadelphia, Pennsylvania, October 12, 2004

9. Celebrating and Learning from a Winning International Economic Strategy, St. Louis Gateway Chapter of the National Association of Business Economists and the Weidenbaum Center Forum, St. Louis, MO, October 22, 2004

10. The U.S. Current Account: Recent Trends and Policies, American Enterprise Institute, Washington, November 4, 2004

11..Press Statement after Meeting of G7 Finance Ministers and Central Bank Governors, London, February 5, 2005

Appendix:

Illustration from our relations with Russia of issues raised in Item 2

Russia-Press Statement on the United States Russia Banking Dialogues, Moscow, Russia, April 10, 2002

The United States-Russia Banking Dialogue: Two Years Later, Waldorf Astoria Hotel, New York City, April 15, 2004

More detailed statement on free trade, as mentioned in Item 4, with focus on banking where Treasury has the lead in negotiations.

Trade in Financial Services, House Small Business Committee, October 24, 2001 (NC)