John B. Taylor
Economics Professor, Stanford University

How to Fix California’s Economy

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The Stanford economics professor suggests taking a three-pronged approach.

John B. Taylor

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution.  He formerly served as director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford’s Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics.  He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world.  He has an active interest in public policy.  Taylor is currently a member of the California Governor’s Council of Economic Advisors, where he also previously served from 1996 to 1998.  In the past, he served as senior economist on the President’s Council of Economic Advisers from 1976 to 1977, as a member of the President’s Council of Economic Advisers from 1989 to 1991.  He was also a member of the Congressional Budget Office’s Panel of Economic Advisers from 1995 to 2001.  For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank.  He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a Member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury. 

His recent book Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis was one of the first on the financial crisis, and he has since followed up with two books on preventing future crises, co-editing The Road ahead for the Fed and Ending Government Bailouts As We Know Them in which leading experts examine and debate proposals for financial reform and exit strategies.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in
international finance at the U.S. Treasury.  He was also awarded the Treasury
Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis.  In 2005, he was awarded the George P. Shultz Distinguished Public Service Award.  Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford’s introductory economics course.  He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions of professor of
economics at Princeton University and Columbia University.  Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Question: What are three things California should do to fix the economy? (Dan Indiviglio, The Atlantic Business Channel)

John Taylor: Three things California should do to fix its economy. I think first you've got to recognize, California has enormous potential. It has -- it's a great environment, it's very open to new ideas; Silicon Valley. It's got great universities; both the University of California and the private universities. So, the potential is tremendous.

What we really need to do in California is to deal with the serious budget problem, which means spending grows too much, and then taxes rise and that tends to drive out businesses and ultimately is harmful to the state. So, I'd say number one in terms of the question is put some limit on the growth of spending; population growth plus inflation is one way to do it. That would prevent the ups and downs, and the deficit spending usually rises when the tax revenues rise and then tax revenues fall off and you've got this huge deficit. So, control the growth of spending is number one.

Number two, put in some tax reforms that prevent the ups and downs in revenues to be so great. And here we've got a huge cyclical performance in tax revenues. So, I would adopt some of the proposals of the recent California Tax Commission that Governor Schwarzenegger introduced.

And third, education; K-12 it’s slipping in California. I think it's not a matter of spending; a lot is spent in California. It's really demanding more accountability. I'd like to see a program where there's more for teachers and less for administration. I think that would do a lot of good.

Recorded on December 21, 2009