Thank you, President Buffenbarger. I appreciate the opportunity to be here.

It takes a unique and nervy union to bring somebody on stage at the beginning of its convention to talk about the Federal Reserve. After all, this is the institution that makes people roll their eyes and reach for the remote whenever they hear it mentioned. The Fed is sort of the castor oil of public policy discussion.

But like it or not, the central bank does demand attention. It's the single most important part of our government in terms of steering the economy. Its decisions about interest rates and financial markets mean the difference between economic growth or recession, a job or a pink slip, manageable debts or crushing burdens, more economic security or less.

As people in this union know, Fed officials even play a direct role in government decisions that have nothing to do with interest rates or overseeing banks. For example, Governor Gramlich chairs the ATSB, which makes life or death decisions for carriers and their workers.

That's the all-purpose reason for focusing on the Fed. But there's a particular reason to sit up and take notice too. When the central bank's Open Market Committee meets in Washington tomorrow, it's probably going to raise interest rates for the third time since June.

According to Fed officials, this isn't a typical campaign to tighten monetary policy in order to keep prices stable. In fact, they say they're not worried about the current level of inflation. After driving their target interest rate to the lowest level in almost 50 years they just want to bring it back to a neutral point where it won't stimulate growth but won't get in the way either.

The catch, of course, is that job creation and consumer spending have turned down in recent months. There might be a reasonable argument for raising rates a modest amount now in order to gain some flexibility to cut later. But when they meet behind closed doors and tighten again tomorrow, Fed officials have to know they're gambling on the near-term health of business investment, labor markets and income growth. And that bet could turn out to be painfully wrong.

Finally, this is an institution we ought to care about because it's a sacred cow that occupies so much political space in our society.

For many years, people assumed the Fed would never adjust interest rates at the height of a presidential campaign because it wouldn't want to be seen as affecting the outcome. Obviously that's not the case now.

In fact, the political response has been remarkably muted. You can pick up most any business publication and read sober Wall Street economists questioning the wisdom of raising interest rates in the middle of an economic "soft patch." But what Americans are hearing from their elected leaders on this subject is a deafening bipartisan silence.

What, exactly, has the central bank done to earn all this deference?

Some analysts would say the Greenspan Fed has played a big part in producing greater economic stability. And it's hard to argue with the record. Over the past 20 years, recessions have occurred much less frequently than they did in the first four decades following World War II – including the so-called golden age of U.S. economic growth in the '50s and '60s. And although it doesn't seem that way in big patches of Ohio, West Virginia and other states, recessions also have become shorter and shallower.

At the same time, inflation and national unemployment have both dropped far below the levels people became accustomed to in the '70s and '80s. That happened in no small part because the Greenspan Fed was willing to challenge the idea that allowing unemployment to fall beneath a certain threshold will always trigger uncontrollable inflation. Because Alan Greenspan had the guts to question this consensus in the economics profession, Americans were able to enjoy the huge benefits of sustained full employment for the last few years of the 1990s.

Mr. Greenspan's Fed also had the backbone to deal with deflationary pressures that threatened the economy in recent years. Unlike their counterparts in Japan, U.S. central bankers understood that a general free-fall in prices would pose a much bigger threat to the economy than inflation does. The Fed responded by moving monetary policy to an uncommonly easy stance and keeping it there for 41 months – the second longest easing campaign in modern Federal Reserve history. Among other things, that campaign produced the mortgage refinancing boom that kept the U.S. economy afloat in 2002 and 2003.

All these achievements are real. But there's another side to the ledger.

Recessions may have become shorter and shallower. But instead of snapping back quickly as they did in previous downturns, labor markets experienced long periods of stagnation after the two most recent recessions officially ended in 2001 and 1991. You don't have to be a pessimist to wonder if jobless recovery and job-loss recovery are now permanent features of the U.S. business cycle.

While the real economy may have become more stable, the financial economy has become more volatile. In the space of less than seven years, we saw the banking, S&L and insurance industry meltdowns of the early 1990s give way to the biggest stock market bubble in U.S. history. When the bubble burst, nearly $7 trillion of wealth evaporated, helping set the stage for a crisis in defined-benefit pension funds today.

In addition, both the stock market boom of the 1990s and the housing bubble that followed were fueled by a debt bubble of unprecedented proportions. In the first 13 quarters of George W. Bush's presidency, household debt grew faster in relation to GDP than it did during the comparable period for any presidential administration on record. As a result of that credit expansion, American households are now stuck with $1.12 of indebtedness for every dollar of disposable income.

Some of that debt is a product of the refi boom that allowed borrowers to lower their interest payments. But a lot of it has been run up on extremely harsh terms – from the 20-plus percent rates that credit-card users routinely pay to the 500 percent APR rates that payday lenders squeeze from their customers. (1)

In fact, an epidemic of financial industry abuses – from predatory consumer lending to self-dealing on Wall Street – is integral to the boom-bust cycles we're experiencing today. And despite all the revelations about those abuses, the fastest growth in the financial sector is still taking place in unregulated areas like hedge funds and derivatives markets.

Finally, the global economy continues to be dogged by deep imbalances – especially its excessive dependence on the U.S. as a buyer of last resort and borrower of first choice. After moving from creditor to borrower status in 1989, America has steadily piled up an external debt that now equals more than a quarter its GDP. Every year, we rely more and more on foreign investors to finance our household and government debt. And because of this reliance, U.S. growth and global stability are both vulnerable. Not just to a nightmare scenario involving a run on the dollar but also to a steady, non-dramatic slowdown of foreign inflows into U.S. markets.

How has the Greenspan Fed responded to this side of the ledger?

Well, a few weeks ago, Roger Ferguson, the vice chairman of the central bank, told an audience in Washington that the jobless recoveries following the last two recessions were difficult to explain and probably a coincidence. He concluded, "monetary policymaking probably does not need to be altered in a systematic way to accommodate a new sort of business-cycle dynamics." Loosely translated that means: "the status quo is fine with us."

Asset bubbles? Time and again, Chairman Greenspan has said central banks can't do anything about them. Over and over, in speeches and testimony, he has claimed the best the Fed can do in the face of an inflating bubble is "to mitigate the fallout when it occurs and, hopefully, ease the transition to the next expansion." In other words, clean up the mess after the inevitable disaster.

America's huge foreign debt? The chairman says we can't go on like this but he thinks the situation will probably self-correct as "market forces incrementally defuse a worrisome buildup in [the] current account deficit and net external debt" – just as long as globalization is allowed to "create an ever more flexible international financial system." In any event, there's nothing central banks can do about the imbalance.

Financial industry abuses? For the past decade the Fed has been telling anyone who'd listen that financial transactions have become too sophisticated and financial institutions too complex to supervise the old way. As an alternative, it has preached the new doctrine of market discipline, banks policing themselves, and – for consumers – self-defense courses in the form of financial literacy training.

Above all, the Fed has preached the gospel of hands-off. Back in 1999, the chief of the Fed's supervision and regulation division said, "we must take special care to avoid the appearance or reality of the kind of government intrusion or oversight that could undermine market discipline…or result in excessive burden" for banks. In retrospect, we know those words were spoken at the peak of one of the biggest financial industry crime sprees in history. Five years later, they still reflect the Fed's view of its supervisory duties.

The problem here isn't misjudgment. We all make mistakes. And in this era, central bankers all over the world are making more than their fair share as they wrestle with the realization that managing growth in periods of stable prices can be trickier than the conventional pursuit of low inflation.

What's worse than making mistakes is being complacent. And I think the evidence shows that Alan Greenspan's central bank has been guilty of gross complacency.

This is an institution with hundreds of smart economists and public-spirited supervisors in its ranks. But instead of encouraging these folks to figure out how central bank tools could be used or expanded to serve the society,(2) the Fed's leadership has selectively chosen to take a pass on the challenges of bubbles, jobless recovery, market misconduct and global disorder.

It's not that the economic policy gods have granted them the serenity to accept the things they cannot change. And it's not that the Fed is saying one thing in public and doing another in practice, as sometimes happens in central banking. Rather Mr. Greenspan and his colleagues have made a conscious decision to abandon their economic stewardship responsibilities and let the market sort things out. And they've allowed the spirit of resignation to reign. That's the big problem as I see it.

I could go on and on about the smaller but still important offenses. About Chairman Greenspan's bait-and-switch record on Social Security. About his extracurricular opining on everything from trade policy to natural gas prices. About his praising the firing of 12,500 air traffic controllers as "perhaps the single most important domestic initiative" in President Reagan's two terms.

To be honest, criticizing Alan Greenspan in front of a trade union audience is like shooting fish in a teacup. It's too easy. And as we all know, talk is cheap – even at a convention. Nobody ever changed the central bank just by denouncing it.

So I want to conclude by suggesting a few concrete ways for you and the broader labor movement to help the Fed shake its complacency.

First, there's the opportunity to influence who leads the central bank. I've talked a lot today about the chairman. But 16 months from now when his term expires, we won't have Alan Greenspan to kick around anymore.

Who do you want to be his replacement? Martin Feldstein? Glenn Hubbard? Robert Rubin? None of the above? What qualities would you insist on in a Fed chairman?

Those questions, I want to suggest, are at least as important to working people as the ones you'd ask about a potential Labor Secretary or Supreme Court justice. For better or worse the Clinton years were full of lessons about promoting and opposing Fed nominations – and about dealing with appointees once they've joined the Fed.(3) Labor would be doing the country a service if it went to school on those lessons and made its mark on the Greenspan replacement process.

Second, there ought to be more trade unionists on the boards of directors at Federal Reserve Banks. Most people think of the Fed as Alan Greenspan and a big marble building in Washington. But 90 percent of the central bank's employees work at the 12 regional Reserve Banks and their branches around the country. Each of those Banks has significant say about policy decisions, each has its own board of directors and the Federal Reserve Act makes provision for labor representation on those boards. Seizing that opportunity should be a labor movement priority.

Finally, trade unionists need to make their money talk on the largest issues of macroeconomic policy and financial regulation. Strategic pension fund investing and activism has already done a lot to influence the practices of individual firms and shape the ground rules for corporate governance. There's every reason to think those same strategies could be adapted to give working people more voice in the overall management of the economy. Goldman Sachs and Morgan Chase do it on behalf of themselves and their clients. Why shouldn't Taft-Hartley funds or the folks at CALPERS?

As far as I know, the IAM already does more on this subject than any other labor organization. You've educated members about the Fed through your Journal and videos. The head of your international department chairs the board of a Reserve Bank branch and other IAM leaders have served on Reserve Bank advisory councils. You even invited some guy from rural Virginia to talk about the Fed at your convention. That's all to the good.

But my message is that much more remains to be done. And because of what IAM has already accomplished, nobody is in a better position to lead the rest of the labor movement in this area. I hope you'll consider stepping up to the challenge. Thank you.

(1) Despite the Fed's easing campaign, household debt service levels have hovered near a historical peak since 2001.

(2) Asset-based reserve requirements are one type of new/expanded central bank tool that plausibly could help the Fed conduct more effective countercyclical policy.

(3) A list of such lessons would include but not be limited to: a) President Clinton's appointment of the Fed's most stubborn adherent to the now-discredited NAIRU doctrine (Laurence Meyer); b) financial industry interests scuttling the nominations of investment banker Felix Rohatyn and economist Alicia Munnell to the Board of Governors; c) an internal Board effort to stigmatize former Vice Chairman Alan Blinder as "soft" on inflation (inspired by this effort, one Washington Post columnist accused Blinder of moral deficiencies for publicly endorsing the Fed's statutory mandate to promote maximum employment); and d) former Senator Phil Gramm blocking the confirmation of all Clinton nominees to the Board nearly two years.