Paul Volcker, who helped tame runaway inflation in the 1980s during two terms as chairman of the Federal Reserve, has agreed to lead a new White House economic advisory committee, President-elect Barack Obama said Wednesday. He praised Mr. Volcker as one of the world’s foremost economic policy experts.
“Paul has served under both Republicans and Democrats and is held in the highest esteem for his sound and independent judgment,” Mr. Obama said, as the 6-foot 7-inch Mr. Volcker towered nearby. “He has a long and distinguished record of service to our nation, and I am pleased that he has answered the call to serve once again.”
Mr. Obama made the announcement at his third news conference in three days. The public appearances by the president-elect are intended to show Americans that his team is focusing on resolving the financial crisis, which Mr. Obama said Wednesday demands “fresh thinking and bold new ideas from the leading minds across America.”
Mr. Volcker, 81, has been providing Mr. Obama with advice on the economy for months. After briefly considering him for Treasury secretary, Mr. Obama instead asked Mr. Volcker to lead the President’s Economic Recovery Advisory Board, a new panel to be comprised of leading figures from a variety of business sectors. The group is supposed to advise Mr. Obama on how to jump-start the economy and stabilize the financial markets.
Austan Goolsbee, a University of Chicago economist who was a leading economic adviser to the Obama presidential campaign, will lead the staff of the advisory board, the president-elect said, calling him “one of America’s most promising economic minds, known for his path-breaking work on tax policy and industrial organization.”Volcker gained an infamous reputation during his tenure as chairman of the Fed. He assumed the position amid a five-year run of inflation caused by an upswing in oil prices when the Arabs cut off exports into the U.S. as retaliation for our support of Israel. Volcker immediately took steps to reduce the total money supply. More importantly he changed the long-time Fed policy of controlling interest rates, and simply let interest rates float to their natural levels. Businesses and farmers were paying over 20 percent interest on their debt when irate farmers stormed Washington and blockaded Fed headquarters with Volcker inside. Volcker's moves as Fed Chairman did break the back of inflation as they were intended to do. Inflation peaked at 13.5 percent in 1981 and dropped to 3.2 percent in 1983. The price was a sustained unemployment rate of over 11 percent nationally during that same period, the highest since the Great Depression. Volcker's policies were good for creditors, especially his friends in Manhattan who owned bonds. But they were harsh on the American middle class and on small business.
It is both these groups, the middle class and small business, that Barack Obama has promised not to forget with his economic recovery package. But Paul Volcker's history does not indicate a compassion for the little guy. The final Democratic economic recovery plan depends on how these two men reconcile their political and economic thoughts.
Why is Paul Volcker so important? In a speech he made in 2005, he already made some important points:
"Altogether, the circumstances seem as dangerous and intractable as I can remember."
"Boomers are spending like there is no tomorrow."
"Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."
"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."
p/s photos: Han Ye Seul