Chris Waller: The blue-collar governor
Chris Waller discusses his blue-collar roots, the evolution of monetary tools and the US Fed’s policy objectives, with UNSW Sydney's Richard Holden and Bruce Preston
When Chris Waller started university at a small state school in Minnesota, he didn’t dream of becoming a governor of the US Federal Reserve. Or doing a PhD. Or even practising economics.
“I went into accounting because I was thinking ‘I got to get a job’,” he tells us the day before a conference in his honour at UNSW Business School.
The summer after his first year at university, Waller worked a union job stacking shelves in a warehouse. He was offered the chance to stay on full-time.
He contemplated dropping out, but his father encouraged him to go back to college and try one more semester. “Is there anything you liked?” his father asked. “Well, I had this economics class,” Waller told him at the time.
He went back and took a second economics class, this time from a professor by the name of “Buzz” Johnson. He was an “ex-marine who was just the most dynamic kind of personality and he made economics sound like the most interesting stuff I had ever heard of.” Johnson took Waller under his wing.
“At one point, he started asking: ‘You know what are you going to do? What's your plan when you’re going to be 35 years old?’ I replied, ‘I don't know man, I'm trying. I'm hanging on to staying in college by my fingernails.’”
Waller thought some more and said, “‘I don’t know… get a job?’ He would swear at me because he was an ex-marine, but he said, ‘No, you idiot, I mean a career.’”
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This was a new concept for Waller. “That word did not exist in my family. You got a job – that's all. I know it sounds crazy, but it was just a word to me. I thought, ‘What do you mean by this?’ So, he started talking about economics and he said, ‘Did you ever think about going to grad school?’”
Johnson helped Waller map out a path to a PhD program, including a whole series of mathematics classes. “I was basically mathematically illiterate,” Waller recalled. “I said, ‘Dude, I don’t understand negative numbers.’” But Waller decided to follow the plan. “That guy laid out my life in one hour and I followed it for a large part of my career.”
That career included stints on the faculty at Indiana University and as an endowed chair in the economics department at Notre Dame. Then Waller joined the Federal Reserve Bank of St. Louis in 2009 as research director. In that role, Waller is credited with transforming the bank into a modern macroeconomics group, akin to those at top universities.
A decade later in 2019, President Donald Trump nominated Waller to serve on the Federal Reserve Board of Governors. He’s serving a 14-year term as one of the seven people in charge of the world’s most important central bank.
Yet he remains remarkably down to earth. “One day, Donald Trump opened a phonebook and said ‘call that guy’... It was like a lottery ticket. If you look at the history of Fed governors, it was academics from Harvard or Princeton. There weren’t guys like me. [Wisconsin Business School Professor] Dean Corbae always calls me ‘the blue-collar governor.’”
Having been an academic, and now serving as a policymaker, what does Waller make of the importance of expertise? Can Fed governors be pure generalists?
“If you're not an expert in some particular area that matters, say for the Fed, then you’re not going to have that much impact. If you don’t do monetary policy or you haven’t thought about this for a long time, you’re going to walk into the room with a bunch of PhD economists and PhD members of the board and you’re not able to do hand-to-hand combat.”
But that’s only half the puzzle. Or, as an economist might put it: expertise is a necessary but not sufficient condition. Communication is also critical.
“As you get deeper and deeper the tools you require may need to be more precise or technical, but then you want to be able to get back up to the surface and communicate this to people. Why is this important? Why is this valuable? You need the communication skills to be impactful,” Waller emphasises.
It all seems to come easily to him. Even in this discussion, we plumb the depths of game theoretical models of central banking and then resurface to grasp the practical implications.
For Waller, it’s important to remember that experts are educators – or at least they should be. And this connects closely to current US politics. “In the US, there’s a sense in which elites are trying to tell us how to live our lives, as opposed to just saying ‘hey, here are some ideas… you can take it or leave it.’ It’s become much more dictatorial,” he said.
Don’t make a tough job tougher
Like the Reserve Bank of Australia, the Fed has a so-called “dual mandate” to focus on both inflation and unemployment. And, like the RBA, the Fed has traditionally only had one tool – the short-term interest rate – with which to accomplish those objectives.
In the wake of the 2008 financial crisis, this approach arguably changed – with the advent of “quantitative easing” (buying government bonds and even private-sector securities.)
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Did this open Pandora’s macroeconomic box? “I only have one instrument, it’s very blunt,” said Waller. “The tax code has a billion instruments targeted at every narrow thing. That’s where this stuff should be dealt with. I only worry about aggregates. The more stuff you give me to do, the more I’m going to be unable to hit anything.
“One of the big drawbacks of Bernanke doing the first large-scale asset purchases was that it opened the door. The Fed’s got a lot of money, the Fed can buy all kinds of things. Why aren't you buying green bonds? Why aren’t you buying all this other stuff? By opening up the toolkit – which was, from a policy perspective, a good idea – it opened up a whole range of views about what to do with the Fed’s balance sheet.”
For Waller, it didn’t just make the job harder, it made it political. “It unnecessarily politicised central bank activities because there is a broader range of people who have an explicit stake in what you’re doing,” he said.
What about the distributional consequences of monetary policy? When central banks raise rates, it hurts borrowers (like people with a mortgage) and helps savers (like retirees). And when rates go down the opposite happens. There’s been a lot of discussion about this in Australia. Is it a big deal in the US?
The Fed kept official rates at literally zero from 2008 to 2015. People certainly noticed. As Waller puts it: “I used to get this from people when I’d go out and do public discussions, with people beating on me and saying ‘you're killing me, old people and savers.’
"If you don’t do monetary policy or you haven’t thought about this for a long time, you’re going to walk into the room with a bunch of PhD economists and PhD members of the board and you’re not able to do hand-to-hand combat"
Christopher Waller, Governor of the US Federal Reserve
“I used to tell people that it is normal in a business cycle. Sometimes the rates go up. Somebody gains, somebody loses. But then they go down, and then it reverses, and the hope is that, on average, it all evens out. But when you’re at the zero lower bound for seven years, it’s not averaging out.”
It’s an uncomfortable position for a central banker. Politicians are responsible for distributional objectives, but with interest rates being so low for so long, the implications of monetary policy became highly salient to the public.
Salient or not, Waller doesn’t want to make the job of central bankers harder by adding further objectives.
“If you think about rates going up and down to deal with business cycles, it’s more like an insurance thing. Our last framework said, ‘well, you know unemployment is born more by minorities and we should run the economy hotter because that way they get into the job market’.”
This may be a worthy objective, but for Waller, it’s not the role of a central banker. His reaction?
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“Wait a minute. Why is that monetary policy’s job, to worry about the distribution of job opportunities,” he queried. “It should be the Labor Department’s job, to figure out training programs or whatever else to help them more to get subsidised job search. That’s not my job to run the economy hot, so some particular group gets into the labour market. We don’t do that with anything else. I don’t target it for rich people to have high asset prices or homeowners to have cheap housing. That isn’t the point of what I’m doing, so why do we suddenly put this in there?”
Advice for young people
Given his remarkable journey, it’s natural to ask what advice Waller has for people just starting out on their own journey.
He has three crisp points.
“Take an econ class, even if it’s just one,” he said.
“There are lots of really good journalists. Read their stuff. They’re really good at explaining. So just keep reading and keep learning.”
And finally: “Capitalism works. Quit complaining about it.”
Richard Holden and Bruce Preston are Professors of Economics at UNSW Business School.