Paul Volcker

This is a time of testing — a testing not only of our capacity collectively to reach coherent and intelligent policies, but to stick with them.

Paul Adolph Volcker, Jr. (September 5, 1927 – December 8, 2019) was an American economist. He was Chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987.

Quotes

• This is a time of testing — a testing not only of our capacity collectively to reach coherent and intelligent policies, but to stick with them.
  • "A Time of Testing," speech to the American Bankers Association (October 9, 1979)

• Productivity growth in this country has actually been negative in a recent period. And, we have had higher oil prices; of course…. Under those conditions, the standard of living of the average American has declined.
  • Testimony to the Joint Economic Committee (October 17, 1979), as recorded in the Hearings, Reports and Prints of the Joint Economic Committee. Often quoted as "The standard of living of the average American must decline" or "The American standard of living must fall."

• In the 1950s and 1960s, a substantial number of economists taking on a role of social philosopher defended a "little" inflation as a kind of social solvent, helping to reconcile competing political and economic pressures.… It was a game of mirrors, but it seemed acceptable for a while, more acceptable than imposing the degree of fiscal, monetary and other restraints necessary to deal with inflation.
  • Alfred M. Landon lecture, "Dealing with Inflation: Obstacles and Opportunities" (April 15, 1981)

• It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. [I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with "free banking."
  • Foreword to The Central Banks by Marjorie Deane and Robert Pringle (1994)

The political economy of the dollar

extended version of the lecture given at the University of Warwick on Nov. 9, 1978

• Fred Hirsch's last dicta: "A controlled disintegration in the world economy is a legitimate objective for the 1980's"… The phrase captures what seems to me the prevailing attitudes and practices of most gov­ernments in this decade.
• We live in a world in which individuals and busi­nessmen… they want to do so unencumbered by national boundaries. At the same time, modern democracies, at least as much as other forms of government, long for autonomy; they want to control their own destinies in ways responsive to the needs of an electorate often concerned less with na­tional than with local or sectorial interests. Yet, theory and experience indicate we can’t have it both ways, full integration and full autonomy.
• The happy days of Bretton Woods, often viewed today with nostalgia, were a special case, workable because of a particular economic and political setting… the inherent contradictions in the system were too great. With the benefit of hindsight, it would seem that an erosion of the United States competitive position was implicit in the postwar arrangements.
• I start from the premise that the underlying pres­sures toward integration and interdependence are growing stronger, not weaker. We cannot reverse or stop the advancing technology that brings us fast and cheap communication and transportation, or the spread of knowledge.
• There does seem to me a latent danger— no part of the intention of present European leaders— implicit in the development [of the euro]. Regional monetary unity implies a greater degree of visible loss of autonomy for mem­ber countries; yet national econom ic problems will remain. The temptation could arise to solve some of these regional adjustment problems within Europe by direct subsidies to producers, by protection against the outside world, or by other means damaging to the trading opportunities of others.

Quotes about Volcker

• Federal Reserve chairman Paul Volcker essentially eliminated M1 as a target indicator. His successor, Alan Greenspan, eliminated M2. On the other hand, in the past year or two, Greenspan has said on various occasions that maybe we should reconsider using M2. The trouble is that all these measures of money cannot be relied on because the velocity of money changes. It is quite unstable.
  • Lawrence Klein, "Keynsianism Again: Interview with Lawrence Klein", Challenge (May-June 2001)

• The second liberal gripe against Carter is that he lost to Reagan. As the saying went, Carter was defeated by the three Ks — Khomeini, Kennedy and Koch. Ayatollah Ruhollah Khomeini’s Iranian revolution led to the hostage crisis that was a millstone round Carter’s neck. After 444 days in captivity, the US hostages were released a few minutes after Carter left office. It has not been proved that Reagan struck a back channel deal with Khomeini’s government to keep the hostages until after the 1980 election. But the evidence is very strong. Carter believes that William Casey, Reagan’s campaign manager, did strike a bargain. Such an unnatural Rolodex would also explain Reagan’s Iran-Contra shenanigans a few years later. Ted Kennedy’s primary challenge also damaged Carter. Though Kennedy infamously could not explain why he wanted to be president, Carter had his own theory: Kennedy saw it as his birthright. The gap between the rural Georgian farmer who grew up without shoes and the Boston aristocrat is a faultline that still hobbles the Democratic party. Biden is on Carter’s side of it. Ed Koch was New York’s Democratic mayor who thought Carter was biased against Israel. Carter’s Camp David deal neutralised Egypt — Israel’s most potent enemy — and thus did more for Israel’s security than any US president since. No good deed goes unpunished. Carter was the only Democratic president to get less than half of the Jewish vote. Paul Volcker’s last name does not start with a K. However, the then chair of the US Federal Reserve is probably the largest contributor to Carter’s defeat. With interest rates at 20 per cent, Carter stood little chance at the ballot box. It is worth noting that Carter picked Volcker in full knowledge of his anti-inflation credentials. On that, as so much else, Carter did the right thing but got no credit. The left hated him for it. The right pretended it was Reagan’s doing. Much the same can be said of how America won the cold war. The moral of Carter’s story is that virtue must be its own reward. History is a biased judge.
  • Edward Luce in Jimmy Carter has been wronged by history (22 February 2023)