I attended a conference in Beijing in 2003 sponsored by the Chinese government. While in China, I also met with several Chinese officials, including the new Premier, Wen Jiabao, officials of the central bank, and the agency in charge of maintaining the exchange rate of the Yuan, or Renminbi.

In several television interviews I was asked about the dollar/yuan peg and whether it was appropriate. I tiptoed through the tulips on the delicate aspects of that question, focusing instead on the basic dilemma.

The dilemma was that China was pegging its currency to the dollar, which was sinking. While a depreciating dollar might help offset economic weakness in the United States, the sinking yuan tied to it certainly seemed inappropriate for the booming Chinese economy.

Diplomacy became trickier when I was leaving the exchange pegging agency and was asked to sign their guest book. The book was huge and they opened up an entire blank page for me. About all I was sure of was that a large handwriting font was called for. I have (or had) a photograph of that scene that I’ve looked for unsuccessfully for months. It shows exactly what I wrote. The best I can remember, it was something like this:

Now that I’ve guessed at it, I’ll probably find the picture tomorrow.

A highlight of that visit was the audience some of us had with the Premier in the Great Hall of the People. He went around the circle and asked some of us for any advice we had to give him. A distinguished scholar sitting next to me, a Harvard professor I believe, shared his concern about so many single male Chinese coming off the farm into the cities to work without the stability offered by family. He urged the Premier to allow wives to come too lest the husbands succumb to the temptations of the city.

I was called on next. My contribution was that I thought the professor had been watching too many episodes of “Sex in the City.”

On that visit, I reached the conclusion all over again that we don’t want a land war with China. While I was walking up a long stretch of the Great Wall, what seemed like millions of Chinese soldiers in ill-fitting green uniforms were walking down. I felt like a salmon swimming upstream. The soldiers were apparently on holiday. While they did not look menacing, they did look infinite in their numbers. They just kept coming and coming. I thought of what it must have been like during the Korean War when the Chinese poured across the 38^th parallel.

On a lighter note, there were two mysteries I never was able to solve during that trip. One was, when do you use Yuan and when do you use Renminbi for the Chinese currency. I had it explained to me several times, but the explanations were all different. I never got it.

The other, greater, mystery was this: Why did they change the name of the city from Peking to Beijing but didn’t change the Peking duck to Beijing duck?

Either way, they are highly overrated.

Amity showed great restraint in writing her book. A scholar with her expertise could have driven the ideological lessons home and saved those of us on a practical mission some time. Instead, she patiently let the characters and the circumstances speak for themselves letting the nuance show through for us to savor.

While I wasn’t totally clueless about the depression, not having lived through it, you see, I must admit that my knowledge of many of the details was limited.

Here’s what I thought I knew going in:

* There was still debate over whether the October 1929 stock market crash caused it, just preceded it, or how big a role it played.

There was general agreement that:

* The Smoot-Hawley tariff was a terrible mistake that made it much worse, and may have made the difference between recession and depression.

* The Fed made it worse by allowing the money supply to shrink.

* Things got better in the mid-thirties, but then worsened again, probably because of policy mistakes.

* Hoover was totally ineffective and did next to nothing to help, while

* Roosevelt was an activist who experimented with cures and generated public hope and was generally successful.

* The depression really didn’t end until WWII.

* The most important change made to prevent future depressions was the FDIC’s deposit insurance.

* The semi-socialist measures of the Roosevelt administration saved capitalism from something far worse.

Here’s what I thought of a couple of things mentioned above:

* I couldn’t really deny the Friedman and Swartz charge that the Fed erred by allowing the money supply to shrink.

* However, I thought insufficient attention had been paid by the economics community to the following factors:

- The shrinkage of the money supply was primarily a by-product of bank failures.

- The world was still on a gold-standard and policymakers were presumably supposed to follow the “rules” of the gold standard game.

- There was no consensus within the economics community on what to do to get out of a depression.

- This consensus would await the publication of Keynes’ General Theory in 1936 and its subsequent popularization and incorporation into economics textbooks.

Here are some of the things I learned by reading the book:

Much of what Roosevelt did on a large scale was begun or done first on a smaller scale by Hoover. Hoover was not sitting on his hands waiting for better times.

Hoover came off better in the book than I expected. Roosevelt came off badly, as expected, based on his economic policies and actions. What I didn’t expect to learn was that Roosevelt was rather petty and vindictive.

The Smoot-Hawley tariff, arguably Hoover’s biggest mistake (expected), came very early (1930) in the first year of his administration without a lot of thought given to it. Protectionism was apparently accepted Republican dogma at the time; so Hoover accepted it almost routinely. (He would try to improve it; not oppose it.)

Hoover’s “economic philosophy” was really an engineer’s view of the world where planning was useful and where problems can be fixed. He was willing to tamper with the machinery up to a point, but he respected the constitution, including the constitution of the gold standard, as limitations on government action.

Roosevelt, on the other hand, had no philosophy to speak of, he cared little about the constitution, and he broke the gold standard with his prolonged devaluation of the dollar. (I had known about the devaluation of the dollar, of course, but I had missed that it wasn’t an immediate thing. Instead, Roosevelt enjoyed setting the price of golf every morning from his bedroom. Different strokes for different folks.)

Roosevelt’s lack of a “North Star” to guide his way made him particularly vulnerable to being pulled in different directions by his staff and “brain trust.” During his administration, policy shifted back and forth between stimulus measures (job creating) and a desire to get back to fiscal rectitude by balancing the budget with large tax increases.

Large and untimely tax increases in the middle of the depression—probably not considered that way then—killed off an incipient recovery.

This should be a huge lesson for us today. Among other potential tax increases implied by various programs under consideration today, we have the pending reversal of the Bush tax-rate cuts looming next year. Could we possibly repeat that mistake?

As for other lessons, for now, I think Chairman Bernanke was very much influenced by this last factor and has resolved to avoid premature “fiscal rectitude.” He considers declaring victory prematurely a bigger danger than waiting too long.

He has already avoided the mistake of allowing the money supply to shrink and have deflation psychology take hold. His critics on that, however, are getting louder and louder, calling for an “end game” sooner rather than later.

One issue involving monetary policy is very much relevant for today: the excess reserves on banks’ (and the Fed’s) balance sheets. As in the 1930s, the banks have more reserves than the law or regulations require them to have—hence the term “excess” reserves. However, also as in the 1930s, banks have good reason to be cautious and remain even more liquid than the law requires. Attempts to “mop up” those excess reserves before they are used in ways that might contribute to inflation could have disastrous results. The fact that banks are holding them voluntarily is proof enough for me that they are “required” reserves in the minds of the bankers and that banks would try to restore them if they were removed by the Fed prematurely.

One final note:  I didn’t realize that our current mob-rule attitude toward successful people that has us cutting executive pay and hauling executives before congressional committees to be humiliated had a counterpart in the 1930s, but, apparently there is nothing new under the sun. Amity has an entire chapter on “Prosecutions” that amounted to political payback. It’s like our leaders are bent on taking the worst lessons from the past.

I had wondered whether Keynes had had much influence on administration policies during the depression since The General Theory came too late. Even though he had earlier influential books, I gather not. My favorite part of Amity’s book was when she describes a meeting that Keynes had with President Roosevelt on May 28, 1934, lasting fifty-eight minutes, about the time of a class-room lecture. Both Keynes and Roosevelt indicated that the meeting did not go well.

The President indicated that “Keynes had left him, disappointingly, with a ‘rigmarole of figures.’ He must be a mathematician rather than a political economist.”

Don’t you just love “rigmarole of figures?”

P.S. I worry that I have done Amity Shlaes, The Forgotten Man, a disservice by my inadequacy in describing it. Even if I haven’t conveyed its merits sufficiently, trust me, it’s great, and well worth your time.

I just learned of the death of our beloved Rose Friedman.

This picture of me with Rose and Milton Friedman was taken at a Dallas Fed conference celebrating the twenty-fifth anniversary of their Free To Choose. Both of them graciously flew to Dallas and participated fully.

A few years earlier I had the honor of visiting the Friedman's in their San Francisco home. I had taken my two Dallas Fed board members who were the founders of the Fair Tax movement-then just called a national consumption tax-to discuss their proposal with the Friedman's, who were generally supportive.

Except for the spectacular view of the San Francisco Bay, their high rise home was predictably modest. Even the Nobel Prize hanging on the wall seemed unpretentious. Rose participated fully in the conversation, but also found time to serve milk and cookies.

Years later, at the Dallas Fed conference, I reminded Rose of that visit and asked her if the cookies were homemade. She said, "If I served them, I made them."

We will miss you too Rose.

No special, formal consultation was necessary and the idea of having one, charged for and reimbursed by public or private insurance, is distasteful to me. Some things just go with the territory.  “I’ll talk to you about pulling grandma’s plug if you make an appointment with my receptionist. You do have insurance for that, don’t you?”

My wife and I have living wills, and she is my designated plug puller. She accepted that responsibility readily, which I found a bit disconcerting. It doesn’t help that she’s always cleaning out the closets and giving perfectly good clothes to Goodwill. I, on the other hand, never throw anything out.

I don’t know what might or might not be in any final medical “reform” bill, but I’ve seen and heard many references to waste, to the need for research to determine which procedures are effective and which are not, whether some are worth the cost, especially for older clunkers, and cutting the Medicare plan to pay for another government program. Regardless of current intentions, all this makes me very nervous. Especially, since many assurances are given when we don’t even have a final bill. It reminds me of the selling of the details of the stimulus package before there was a stimulus package. The sellers apparently forgot to tell the writers of the bill what promises they were making.

I know grandmas become a burden at some point; grandpas reach that point less often, unfortunately. I have two elderly aunts in assisted living quarters. When I visit-which is not often enough-there’s not usually a man in sight. Maybe that inequality is a cause government should take up. I fear, though, that leveling that playing field might be approached from the wrong end.

If government is going to make these types of decisions or put pressure on us to make them “in a cost effective manner,” at least they should kill the death tax to remove that conflict of interest.

Candace Elizabeth McTeer

High School Graduation

And Admission to the Honors Program

George Mason University

"Way to Go Girl"

Advice Follows

Advice for Candace

Regarding college, don't be in a hurry. I rushed through and later wondered why. Relax, explore, and savor.

Don't commit to a major before you have to. One great thing about being young and a freshman is the number of options that are still open. Try different fields, test different waters. Go as wide as possible before going deep.

Follow your "likes" rather than your "ought to's" as far as you can without jeopardizing your scholarship.

Don't think about work and a career too soon, but, when you do, follow your passion rather than the money. The money will follow you if you are doing what you love.

Know when to hold ‘em and know when to fold ‘em. (This advice is useless, of course, but it made a nice song.)

Remember the butterfly flapping its wings and affecting outcomes around the world.

Remember that each decision you make affects your future options and decisions far beyond what people usually consider. Your choice of universities, for example, has already determined a large pool from which your future friends will come and excluded alternative pools of future friends. Your choice has also ruled out many unlucky potential future husbands that you will never meet and increased the odds for other lucky candidates that you will meet. Of course, the same fork in the road affects who your children will be, what they will look like, and whether they are potential winners of a basketball scholarship.

Not that I want to hear of any talk about husbands for a long, long time.

As you have noted by now, there is a huge random element involved in these decision chains and you really can't know what's in your alternative futures. All you can do is shift the probabilities slightly in your favor by doing what you've been doing-working hard, studying hard, and not spending much time with those in the shallow end of the gene pool. I suspect you can do this, even while working and studying a little less hard and playing more, which I recommend.

As you have your ups and downs, remember that we don't always know which is which at the time. So, don't take either your wins or your losses too seriously-especially your losses. My favorite example of not knowing which is which is when Waylon Jennings "lost" his seat on Buddy Holly's chartered airplane the night the music stopped. Richie Valens and the Big Bopper thought they had "won" that night. You never know, so enjoy your apparent successes and don't take the losses too hard. And stay out of small airplanes in bad weather.

I suspect you don't even know who those guys in the plane crash were. You came along after the roll left rock and roll. What a shame. But that's what You Tube is for. Humor me, and spend some time on You Tube lost in the fifties and early sixties. Start with the boogie woogie piano trio featuring Ray Charles, Jerry Lee Lewis, and Fats Domino. Then go to Linda Ronstadt, especially Blue Bayou. Some day I'll lend you my DVD of Elvis's 1968 Comeback Special if you ask me to.

Do you remember the night several years ago that we took you and your family to Billy Joe Shaver's 60^th Birthday Party concert in Austin? Come to Texas occasionally and we'll do something like that again.

Do you suppose The Republic of Texas would qualify in your study-abroad program? Don't rule it out.

Don't rule anything out.

A recurring one happened again the other day. This time I had just finished making flight and hotel arrangements to attend our granddaughter's high school graduation in May. She's 17 years old and has already been accepted into the honors program of some fine universities. (Forgive me.)

This forthcoming milestone was making me feel my age as Suzanne (Big Mama) and I went out for Tex-Mex. Since she was my designated driver, I ordered a margarita. The waiter asked for my driver's license as proof of age.  I said, "Don't be ridiculous. You are kidding, aren't you?" He said with a straight face, "No, I have to do it." He swiped my license in some sort of machine attached to the cash register. I guess it's now part of my permanent record.

I've been through this routine before.  One day I was carded on the same day that I was given a senior citizens discount to a movie without asking for it. The state calls it "zero tolerance." Zero tolerance requires adult waiters, who have good vision and a brain, to card the Big Daddies of granddaughters about to set the college world on fire.

I don't know about you, but a government that requires its citizens to "be ridiculous" scares me. Laws that override common sense and good judgment scare me.

The waiters, of course, are victimized more than I am. It is they who are required to be ridiculous. What scares me the most is that the law apparently requires them to be ridiculous with a straight face and without snickering. And they obey. Not so much as a twinkle in the eye.

A government exercising that level of power and intrusion is too big for me. Put me down as a Small Government Guy.

My Thanksgiving would be complete if Mr. Obama demonstrates similar wisdom by asking Robert Gates to remain Defense Secretary through the end game in Iraq. He too is ideally qualified, doing an excellent job, and appears to be well along the way to peace with honor, which I define as victory.

During my two years as Chancellor of the Texas A&M University System (November 2004-November 2006), Bob Gates was President of its flagship university, Texas A&M. Bob came to A&M after retiring as Director of the  Central Intelligence Agency, the only Director to have worked his way up through the ranks. In the C.I.A., He served his country under both Republican and Democratic presidents.

At Texas A&M, Bob was devoted to the students. He turned down more than one high-level government job to stay with his kids. He didn't seek the job of Defense Secretary, and its offer caused him much anguish. But, bottom line, Bob Gates is a patriot, and a patriot does what he has to do when his country needs him, especially in wartime. So, off he went with tears in his eyes, leaving behind the university and the kids he loved.

Incidentally, to him, he also had to give up substantial speaking fees and board memberships-he had recently been made Chairman of one of those boards, Fidelity Investments. But the regrets were only for the Aggies.

I've joked that dealing with university faculty was good training for dealing with generals. It was a true joke. I've watched Bob as he methodically thought out plans of action and then had the patience to achieve the necessary buy-in from the stakeholders. He readily allowed the credit for his ideas to be hijacked by others as their own. The goal was always more important than the credit.

They say that university politics is so vicious because the stakes are so low. While university politics swirled around him, he never played that game. I learned not to listen to rumors or innuendo concerning Bob, nor to play the lets-you-and-him-fight game, because he always played it straight.

During a search for a new university president, a wise member of our search committee said that the ideal candidate wouldn't be seeking the job. The ideal candidate is happily doing a good job somewhere else, and we'll have to find and persuade him to come.  

That was how Bob was drafted back into service. He wasn't looking. That may also be true now if the President-elect asks him to stay a while longer. If so, that's just one more reason he's the man for the job.

Let's give thanks this Thanksgiving for patriots like Bob Gates.

"Hey Dad, Look at Me"

Me with my sons circa mid-1960s

"Hey Dad, look at me."  That's what dads are for.  You go to dad when you're right proud of yourself.  "Look, Dad, no hands."  "Hey Dad, I made the team."  "We won the game, Dad."

Recently, on an international trip, I had two firsts.  I sent e-mails from the airport in Zurich, and I plugged my laptop into a power outlet on the airplane.  Even though I was a few years late and way behind the curve in such matters, I felt the urge to tell my dad what I had done.  He is long gone, but he couldn't have related to my accomplishments anyway.  He never would have been part of the New Economy, and he never would have owned a laptop or any of its other toys.  But I could have told him it was a big deal, and he would have believed me.  And he would have been proud of me.  Dads are proud of their sons.  It's part of their job description, and it's what sons strive for.

There are no good substitutes for dads.  All my friends with laptops would not have been impressed.  They've all been there and done that, years ago.  My other friends would have not been impressed either — for opposite reasons.

My dad attended some of my high school basketball games.  He didn't know much about basketball and cared less.  But he was proud of me.  Mostly, he was proud that the bigger guys didn't knock me off my feet.  I wasn't that good, but I held my ground — on my feet.  Dads like that.

Until he died, my biggest dread was that he would die.  I used to dream about it.  They were nightmares.  Now that he's gone, I still dream about him.  In my dreams, he still lives.  And I'm still trying to make him proud.

In wavering back and forth on the question of whether to blog or not to blog, I finally decided to give it a try.  Maybe an informal blog will be a good place for some of those paragraphs. Or, maybe not.  We'll see.

Where I've Been

I'm new to the National Center for Policy Analysis, having joined NCPA in January 2007. Prior to that, I had a 36-year career in the Federal Reserve System, including 14 as President of the Federal Reserve Bank of Dallas. As Dallas Fed President, I served all 14 years on the FOMC with Chairman Greenspan and almost 3 years with Chairman Bernanke when he was a Fed Governor. In November 2004, I retired from the Fed to become Chancellor of The Texas A&M University System. I retired from that position a little over two years later.

More biographical information is available on http://www.ncpa.org/, or on my personal web site, http://www.bobmcteer.com/. The latter contains some old speeches, articles, etc. from my past. I assume most of the serious and semi-serious new stuff will go here or elsewhere on the NCPA site. Extreme foolishness will continue to be directed to my personal site.

Where I'm Coming From

NCPA is a natural fit for me at this stage of my career. I've known NCPA's founders, John and Jeanette Goodman, since the early 1990's when the NCPA and the Dallas Fed worked together on joint conferences and seminars. NCPA had good ideas and speakers and we had a good auditorium and food service. We understand comparative advantage. I share NCPA's classical liberal viewpoint on most economic issues, although John assures me there's no litmus test for NCPA fellows. In addition to wanting to play economist again and comment on and influence economic policy, I'm following the lead of  Kinky Friedman when he said he wanted a career that didn't require his actual presence. He found it as an author of mystery books; maybe I'll find it as an author of mysterious paragraphs. As Kinky's spiritual advisor, Billy Joe Shaver, put it in a song: He has it down to one moving part and that moving part is him.  Billy Joe played at my Dallas Fed farewell party. (See photos on http://www.bobmcteer.com/.) Like Billy Joe, I've been to Georgia on a Fast Train; I wasn't born no yesterday.

NCPA is best known for its work on social security and medical issues–John is considered the father of medical savings accounts. I plan to focus on macroeconomic issues–monetary policy, fiscal policy, taxes–and, to some extent, education, especially school choice.  Milton Friedman was my North Star as an economist, and school choice is his great unfinished business.

Anglo-Saxon, or, as I prefer, Cowboy Capitalism, is not perfect, but it serves us pretty well in this new global information economy.  It can be improved by tweaking, however.  Our great vulnerability, however, is our education system, especially below the college level. I became an advocate for school choice as an economist and policymaker.  As Chancellor of a large state university system, I learned just how great the need is, especially in our beloved state of Texas. We have work to do. We have a long way to go and a short time to get there.