“No one wants to see 9 percent official unemployment and the extensive underemployment,” Fisher said. Businesses are “in a defensive crouch,” he said. “We are in a stasis.”

“We need to completely reboot our fiscal policy,” Fisher said. “We have to compete in terms of our tax regimes and the incentives we provide for business.”

I hope that I have convinced you of three main points. First, the financial system meltdown of 2007-09 was caused by the unexpectedly large decline in U.S. residential land prices. Second, higher amounts of household and financial institution leverage leave the financial system more vulnerable to these kinds of shocks. Finally, the U.S. tax system encourages leverage by providing incentives for households to take on more mortgage debt and financial institutions to finance through debt.

I would say that the experience of the past few years has demonstrated how challenging it is to safeguard the financial system against systemic risk and how costly it can be if we fail to do so. Given this fresh experience, and my earlier remarks, I would assess the costs of providing tax incentives for leverage to be higher today than such an assessment in, say, 2006.

Well, I'm a little bit more sympathetic to central bankers now than I was 10 years ago.

I think it's very important to understand that my comments, both in my comment in the -- published comment a decade ago, as well as in my speech in 2002 about deflation, my main point was that a determined central bank can always do something about deflation. After all, inflation is a monetary phenomenon, the central bank can always create money, and so on.

In response to a question from Yomiuri Shimbun about his earlier criticism of the BOJ.

Given [the current] constraint on monetary policy, I believe it is important to ask if it is possible to synthesize the effects of a one-year interest rate cut of, say, 100 basis points using fiscal policy tools. In his current and past work, Minneapolis Fed staff researcher Juan Pablo Nicolini and his co-authors have answered this question in the affirmative. Their key insight is that there is a broad equivalence between monetary and fiscal policy. They argue that the essence of an FOMC interest rate cut is that it makes current consumption cheaper relative to future consumption. With that in mind, the fiscal authorities can use the time path of consumption taxes to accomplish this same change in relative prices.

Fundamental to our economic strength has been the pro-growth policies the President has championed. Lower tax rates for all taxpayers put money back in the hands of consumers. An increase in expensing for capital investment gave a boost to small businesses. It's important to continue this growth that we make the tax cuts permanent.  It is also important that we exercise fiscal discipline. The increased spending required for hurricane recovery efforts make this all the more important. We are currently on the path to cut the federal deficit in half by 2009, and while economic growth has helped the growth of Treasury receipts quite a bit, spending restraint is the necessary other-half to the deficit-cutting process.

The U.S. economy is the world's most dynamic and flexible, and the federal government's system for raising revenue must not hinder the processes generating that economic success. However...the tax code has drifted back to be overly complicated and burdened by higher marginal rates and by many special provisions that have undesirably narrowed the tax base.

I believe that, as the baby boom generation begins to retire in a few years, it will become increasingly important for the nation to boost resources available in the future through greater national saving and enhanced incentives for participation in the labor force. The tax system has the potential to contribute importantly to those goals, and, at a minimum, tax reform should not hinder the achievement of those objectives.

Tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but, in my judgment, they are sufficiently worrisome to warrant aiming, if at all possible, to close the fiscal gap primarily, if not wholly, from the outlay side.

I believe that our current tax system is overly complex, burdensome, and inefficient.  It creates larger disincentives for work, saving, and investment than need be to raise the revenue required to finance government operations.  Moreover, the complexity leads to substantial commitment of resources on the part of the private sector for the sole purpose of complying with the tax code.  The nation would be well served by moving to a more straightforward structure that would engender greater economic flexibility and efficiency and lower the compliance burden.  A successful round of tax reform, particularly with regard to the taxation of capital income, could significantly improve the working of our economy.

I support the elimination of double taxation of dividends because it is good long-term policy that reduces distortions and adds to the flexibility of the economy in responding to shocks that otherwise might result in recession.  While I do not suport elimination of double taxation because of short-term stimulus, it likely would provide some near-term boost to the economy.  This is primarily because the plan would likely boost the level of stock prices that, in turn, would generate a positive wealth effect; there also could be some small income effects owing to short-run multiplier effects on aggregate demand.