Hoover Institution Hosts Discussion on Emerging Technology and the Economy
The Hoover Institution recently hosted a conversation featuring Mary C. Daly, President and CEO of the Federal Reserve Bank of San Francisco, and Hoover Institution Senior Fellow John H. Cochrane. The discussion, held on Friday, December 6th, in the Shultz Auditorium, George P. Shultz Building, centered on the evolving landscape of emerging technologies and their impact on the economy.
John H. Cochrane opened the discussion by welcoming Mary C. Daly, highlighting her role as a key figure in monetary policy decisions through her position on the Federal Open Market Committee (FOMC). He noted her background as a labor and public policy economist and her work as a visiting professor and advisor to various governmental and academic institutions.
Labor Markets, Monetary Policy, and Emerging Technology
The conversation began with an exploration of the interplay between labor markets, monetary policy, and emerging technologies, particularly artificial intelligence (AI). Daly acknowledged the strong position of the current labor market, characterized by job expansion and a balance between job openings and unemployed workers. She noted a trend of firms leveraging technology to augment their workforce, citing examples such as Honeywell. “They haven’t let a single person go as they brought AI and generative AI in,” Daly stated.
Cochrane framed a central debate: Will AI replace workers and cause mass unemployment, or will it enhance productivity and create new opportunities? Daly positioned herself as optimistic, referencing historical trends where technology has not reduced net employment, but has always led to a restructuring of jobs and a shift in opportunities. She emphasized the importance of making choices about the application of technology and its role in driving innovation. To foster research, the San Francisco Fed opened an “Emerging Tech Economic Research Network” and it is engaging with experts to understand how current and emerging technology will reshape the labor market.
Regional Optimism and Economic Challenges
Discussing regional economic prospects, Cochrane raised the question of California’s economic outlook, particularly in light of the Bay Area’s technological focus. Daly, while acknowledging ongoing challenges, expressed optimism about the region’s potential, highlighting the presence of well-educated, entrepreneurial, and innovative individuals.
A vital piece of this economic potential hinges on addressing issues like housing shortages. The conversation transitioned to the importance of easing restrictions to allow more building, especially in California. Daly emphasized that this is no longer just a California problem. Across the country, from Boise, Idaho, to the coastal states, communities are talking about housing shortages and the hurdles presented by local regulations.
The Role of the Fed and Structural Challenges
Addressing the role of the Federal Reserve, the conversation touched on the challenges regarding structural issues in the labor market. Cochrane noted that the Fed primarily has levers to impact cyclical aspects of the economy. Daly acknowledged the limitations of the Fed’s tools, emphasizing its dual mandate of achieving full employment and price stability. She highlighted the importance of getting the cyclical part right. The discussion covered a broad range of issues from labor force participation to its intersection with structural impediments, and how a strong economy can bring more people into the labor market.
Inflation and the Outlook
Cochrane prompted Daly for her thoughts on the causes behind earlier inflation and the Fed’s response. Daly acknowledged the institution’s slow initial response to the supply shocks during the pandemic. She highlighted the need to learn from that experience and resist the tendency to dismiss supply shocks quickly.
Looking ahead, they spoke on the risks of geopolitical events, like trade wars and the war in Ukraine. Daly stated that the Fed is mindful of geopolitical events and weather-related occurrences, and analyzes their effects on the global supply chain. She also stated that the Fed must consider how it will respond to these issues when faced with the possibility of increasing inflation.
Review of Monetary Policy Strategy
Daly discussed the upcoming framework review, stating that it is healthy to periodically revisit and update its strategy, while remaining committed to their dual mandate. She outlined three principles, including the importance to fight future battles, maintain a dual mandate for price stability and full employment and create a broad paradigm to deal with what could happen.
Discussing the potential for a shift in policy, Daly talked about the current challenge of how to battle inflation from above, but also the importance of expectations.
Regional Banks and the Aggregation of Information
In her final remarks, Daly discussed the significance of regional banks, like the San Francisco Fed. She said they are essential for understanding the lived experiences of people across the nation, which informs monetary policy. That regional banks are an aggregator of information. She gave the example that when making policy decisions, it’s as important to speak with local CEOs, as it is to look over the data.
