11-15-2024
Government spending needs to be controlled. That was one of the key messages delivered by David Malpass, the Daniels School’s Distinguished Fellow of International Finance, during a fireside chat at the annual dinner and charterholder ceremony for the CFA Society Indianapolis. The session, held November 13 at the Hotel Carmichael in Carmel, was moderated by David Cooper, chief investment officer of the Purdue Research Foundation.
“Think of an entity that spends $7 trillion without any idea of where all that money goes,” said Malpass, who has served as president of the World Bank Group, undersecretary of the treasury for international affairs, deputy assistant secretary of state, deputy assistant treasury secretary, and senior analyst for taxes and trade at the U.S. Senate Budget Committee. “The government owns assets that could be better used by people in the private sector.”
He called for rationality of regulatory strategies that tend to dampen growth, citing a need for better bank administrative policies that would benefit small businesses. “You can imagine the excitement there would be in the business community if the bankers said, ‘I know I turned you down six months ago for a loan because you were too risky, but I’ve looked at my books, and I think I can pull this off,’” he said.
Malpass believes that the goal of an economy is to increase real median income, usually tied to an increase in wages. That’s why he disagrees with economists who link such increases to inflation as negative occurrences.
“The Fed’s inflation goal in the U.S. is 2%, but that doesn’t make sense all over the world, because if a country is coming from a low median income, in order for it to catch up, it’s going to record that as inflation when people’s wages go up,” he said.
“If you think on a global basis, you would want Africa to be reporting a 5% inflation or 6% inflation as it catches up, as long as that’s not inflation caused by monetary policy and is caused by real wages. That’s the important bottom line. We want real living standards to go up.
“The inflation that we saw over the last three years in the U.S. wasn’t that way. It was actually prices going up and wages not going up.”
Malpass said the U.S. dollar should be a stable value for the next 100 years. He told the CFA Society crowd that the proposed tariffs on foreign goods could cause inflation in the United States in the worst case, but also could likely lead to higher domestic production.
