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BOSTON — Economists do not tend to be social activists. And that is especially true if they work for the Federal Reserve, let alone run one of its 12 regional banks.
But Eric S. Rosengren,
president of the Federal Reserve Bank of Boston, is not afraid to stand
out. In December, he was the only Fed policy maker to vote against the
central bank’s decision to begin tapering its stimulus efforts.
He
is also pushing his branch of the central bank to get more involved in
the New England economy, not just collecting data and hobnobbing with
Boston bankers and corporate executives but also spearheading an effort
to turn around some of Massachusetts’ most depressed cities.
Last
week, Mr. Rosengren and his team announced the winners of a
Fed-sponsored competition that will funnel $1.8 million into innovative
economic development projects in six medium-size cities, including
Lawrence, a onetime textile powerhouse that peaked a century ago and has
been in decline since the 1950s.
The amount to be doled out, which is being supplied by outside donors rather than by the Fed, is relatively modest, as Ben S. Bernanke, the chairman of the Fed, noted in a video presented at the awards ceremony here.
But
it represents a new, untested approach for the Fed, which has been
widely criticized for bailing out Wall Street in the wake of the
financial crisis, but leaving Main Street to fend for itself.
Having the Fed behind the effort, known as the Working Cities Challenge,
also lends it a business-friendly sheen, rather than making it seem
like another well-meaning, but ultimately futile, attempt at urban
renewal. “The Fed brings a gravitas aspect to this,” said Deval Patrick,
the governor of Massachusetts.
It
is a model that Mr. Rosengren hopes will be adopted by other regional
Federal Reserve Banks, which are watching the experiment now underway
here.
“It’s
a little out of the ordinary for the Federal Reserve,” Mr. Rosengren
said in an interview at his 32nd-floor office, which overlooks Boston
Harbor. “Monetary policy may not do the same as what this does in
Lawrence.”
Relying
on traditional Fed policy tools like lowering interest rates, as well
as more unconventional methods employed in recent years, like buying up
government bonds, has bolstered the housing sector and Wall Street and
helped revive the overall economy. But many areas of the country — and
many millions of Americans — have been largely left behind.
Advising depressed cities is also a lot to easier to explain to the public than the workings of quantitative easing, the strategy behind the unconventional bond-buying program. “This is not esoteric,” Mr. Rosengren said. “This is hands-on.”
At
the same time, growing economic inequality, after years of drawing
little attention from politicians and policy makers, has emerged as a
hot topic for President Obama, as well for Republicans and Democrats on
Capitol Hill. Mr. Rosengren is eager to weigh in on the issue, and
perhaps even help make a dent in the problem.
“If
we want to get to Main Street, we have to get out of Boston,” he said.
“If we want to help the economy, we can’t just help people from M.I.T.
and Harvard. The have-nots are in midsized cities, and they have the
opportunity to be haves.”
To
be sure, the 20 cities that competed for the grants face long odds, and
$1.8 million divided among six winners will hardly pay for local
renaissances.
In
Lawrence, which won $700,000, the largest single grant, unemployment
stands at 13.9 percent, double the state average; 28 percent of families
there were below the poverty line in 2011, up from 21 percent in 2000.
Aides to the former mayor of the historic mill town have been accused of
corruption, and state officials took over Lawrence’s schools in late
2011 after years of disastrously low test scores.
The
new program centers on Lawrence’s troubled school system, but it is
aimed at engaging parents, using the schools as a place to offer other
services like language training, health care and leads on jobs for
Spanish-speaking parents.
“Every
parent has to take their kids to school,” said Prabal Chakrabarti, vice
president for regional and community outreach at the Boston Fed. “Now
we can connect them, and kids will do better if their parent has a job.”
The
Fed has also encouraged the city to reach out to local employers like
the shoemaker New Balance, as well area hospitals and local banks, for
both funding and employment assistance for parents. Just as they did not
contribute the money — the Fed has the authority to support only
financial institutions — Fed officials relied on a panel of local
leaders, urban experts and donors to select the recipients.
“It’s hard to be a coach and a referee at the same time,” Mr. Chakrabarti said.
In
addition, Fed economists and community development specialists worked
with each town on its submission, providing advice on the best tools to
employ and bringing some of their statistical rigor to the Working
Cities Challenge. Experts like Mr. Chakrabarti will track data as
projects get underway and provide feedback to local officials in
Lawrence and the other winning cities (in order of largest to smallest
awards): Fitchburg, Holyoke, Chelsea, Somerville and Salem.
Mr.
Rosengren sees all of this as an example of the power of regional Fed
presidents to “convene” the various economic players in local areas,
from government officials to bankers, business officials and
philanthropies. “The money is not huge,” he said, “but it is enough to
get the cities engaged.”
The
Working Cities Challenge can be seen mostly as a public relations
exercise — and the Fed could certainly use better P.R. in the face of
withering attacks from conservative critics like Senator Rand Paul
of Kentucky. But it has found some allies in people like the newly
elected mayor of Lawrence, Daniel Rivera. “Business listens to them,”
Mr. Rivera said. “It’s important for us to be associated with them.”
And
although the central bank will always be defined primarily by
number-crunching, not community organizing, local officials say they
have been pleasantly surprised by Mr. Rosengren’s stance.
“I
was dubious about the Fed being able to do this,” said Daniel
O’Connell, a former state housing and economic development official and
current chief executive of the Massachusetts Competitive Partnership,
a nonprofit public policy group. “They put out great reports and not a
lot happens. But Eric is a sea change, he’s willing to take risks and
make the Fed a more activist organization.”
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