Slaughter & Rees Report: Dear Santa

By Matthew J. Slaughter and Matthew Rees

Posted on December 23, 2014

In much of the world, the end of the year brings joyous holidays such as Christmas and Hanukkah. Here at Tuck, a few days ago kith and kin alike joined in our annual holiday celebration—a highlight of which is Santa Claus visiting from the North Pole to meet with wide-eyed children. That evening, our clean-up crew found beneath the Christmas tree a letter to Santa penned by a particularly precocious child (and, hopefully, future Tuck student).


Dear Santa,

Hello. I hope you and Mrs. Claus are doing well with all the holiday excitement. Please greet the elves and reindeer, too. Cookies and carrots again await your Christmas Eve arrival!

Santa, in years past you have kindly brought me some neat presents. I can now solve the Rubik’s Cube in less than five minutes. And, with Scratch I am now writing some funny programs. When I grow up, I want to be the CEO of Apple!

This year, however, I don’t want to ask for presents for just me. Rather I would like to ask for three presents for the world. This past year, more than usual I noticed Mom and Dad discussing the world with long faces. My friends report the same anxiety among their parents. In so many countries, the parents of us kids are worried about our economic future. A recent survey by the Pew Research Center found that across 10 advanced countries, “a median of 65 percent believe that when children in their country grow up, they will be financially worse off than their parents.”

The first present I would like for the world is help with money. Some central banks like the European Central Bank likely need to print more money, because of how close the EU is to outright deflation due in large part to stagnant aggregate demand. But ECB officials are publicly disagreeing about when and how this might happen. Other central banks like the U.S. Federal Reserve will be doing the opposite. The Fed last week announced that when it “decides to begin to remove policy accommodation, it will take a balanced approach”—and last week 15 of the 17 Federal Open Market Committee participants stated their expectation that the “appropriate timing of policy firming” will be 2015, not 2016. But Fed officials will have to try to raise market interest rates in a completely new way because the old tool of reducing the supply of banking-system reserves is broken due to the massive amount of excess reserves banks continue to hold with the Fed. Maybe you were so busy making your list and checking it twice, Santa, but as of last week the Fed’s balance sheet showed banks holding $2.739 trillion in deposits at the Fed—far, far above the legally mandated reserve holdings. Santa, I know how hard it is sometimes for Mommy and Daddy to balance their checkbook. What central bankers must do in 2015 looks a lot harder. Can you please give them the gift of help?

The second present I would like for the world is help with growth. Scholars, business leaders, and government officials alike are today predicting much slower economic growth than in the past for so many countries. Last week the chief economist of the People’s Bank of China forecast that 2015 growth in China’s Gross Domestic Product may be as low as 7.1 percent, the slowest rate of my lifetime. The 2014 uptick in U.S. GDP growth notwithstanding, some FOMC participants last week stated their expectation that in the “longer run” that growth may fall to just 1.8 percent. As you no doubt know, Santa, a large body of academic and policy research has found that the large majority of America’s growth in productivity and living standards over the 20th century was driven by innovation and the resulting technological advances of new products and processes. Growth in jobs, in incomes, and in hope for families like mine ultimately come from economic and productivity growth. In turn, government policies that tend to support productivity growth include investments in education and infrastructure; openness to globalization through channels such as high-skilled immigration and trade; and corporate tax systems with broad bases and low rates. Santa, in my home country of the United States, my government has recently done very little to support long-run economic growth. Can you please help leaders craft pro-growth policies like sound immigration and corporate-tax reform?

The third and most important present I would like for the world is peace for us children. Santa, December used to be such a time of joy and expectation for us children. But in recent years it has brought confusion, sadness, and fear because we children are being killed by grown-ups. Forgive my strong language, Santa, but last week despicable cowards murdered over 130 children in Pakistan. And at their school, no less, a place that should bring only joy and laughter to all. When depraved grown-ups slay us children, it only darkens the world’s future in ways knowable and unknowable—and in ways far more important than slower economic growth and greater financial anxiety.

I don’t know why I have had the good fortune to be born in such a safe place as Hanover, Santa. But if you can share that safety with children everywhere, that would be the greatest gift of all.


The preceding is republished on TAP with permission by its authors, Professor Matthew Slaughter and Matthew Rees, both with the Tuck School of Business, Dartmouth College. “Dear Santa” was originally published December 22, 2014 on the Slaughter & Rees Report blog.