Submitted by Nicholas Colas of DataTrek Research
With Paul Volcker’s passing on Sunday we would like to dedicate Story Time Thursday to some personal recollections and lesser-quoted wisdom from “Tall Paul”.
#1: I met Paul Volcker a few years ago, and since we share a birthday (September 5th) I used that to start a conversation with him. His observation was that he had benefited greatly from the timing of his birth. “In my day, you got to start school as soon as you turned 5. Since the school year started in early September, I got to go earlier than most kids.” Paul Volcker was, at heart, a true analyst and considered the role of something over which he had no control as important to his eventual success.
Since there were many other people waiting to talk to him, my only other question was why his only long-form press interview as Fed Chair was with Andy Warhol’s Interview magazine. “That was Ida’s doing… no one in DC ever said no to Ida.” It’s true, that. Ida Ginsburg was a famous 1970s socialite who hosted the most exclusive dinner parties in Washington. She was a huge Warhol fan, and the feeling was mutual enough that Andy made her Interview’s DC editor and head interviewer.
#2: That Interview magazine article (June 1987) is not available online, but I have a hard copy and it shows much about why Volcker was so successful in his time as Fed Chair:
On the Federal Reserve’s independence. Current Chair Powell is not the first Fed head to be threatened with firing. Then-Treasury Secretary Don Regan under President Reagan openly agitated for a change to the laws governing a Fed Chair’s tenure in order to remove Volcker. His policy of high interest rates to dampen inflation was not popular in the White House, of course. When asked if this scared him, Volcker’s reply was “No… what could I do about it?” White House pressure clearly played no role in Volcker’s thinking. He could not have cared less…
On how much the general population understands monetary and fiscal policy. Volcker had a great deal of confidence in the American people: “It’s basically common sense, and sometimes ordinary people know what you’re dealing with better than very sophisticated people.” “Is something the matter if you don’t save very much? Is something the matter if you don’t invest very much? Those aren’t very complicated concepts.”
#3: The other interview with Volcker that sticks in my mind was one he gave PBS back in 2000 for its excellent series “Commanding Heights”. As Chair Powell mentioned at the start of Wednesday’s press conference, it was Volcker’s success in taming inflation that paved the path for decades of prosperity thereafter. As it turns out, it wasn’t just economic theory that guided Volcker’s thinking about monetary policy.
Volcker saw the value of a country’s money as a national moral obligation. "The issue of money is a government responsibility predominantly, and to use that authority in a way that leads to inflation is a system that fools a lot of people, and to keep doing it you have to do it more and more."
He also saw a nation’s monetary system as central to its citizens’ confidence in all government: "It (bad monetary policy) corrodes trust, particularly trust in government. It is a governmental responsibility to maintain the value of the currency they issue. And when they fail to do that, it is something that undermines an essential trust in government."
The bottom line is that, yes, Paul Volcker was the right person holding the right job at the right time in history but his guiding principles apply more broadly. He understood at a deep and intuitive level that all government institutions – including the Fed - have to connect their actions to the needs of ordinary citizens. At times, that takes conviction and even some risk to personal reputation. Get it right, as Volcker did, and the resultant success will outlive the individual who made the tough calls for the right reasons.
Source: PBS Interview: https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_paulvolcker.html