The Story of Paul Volcker

The Story of Paul Volcker

Many years ago, by chance, I shook hands with the great Paul Volcker. I learned firsthand why he was also called “Tall Paul”. Volcker was 6 feet 7 inches tall and I had to look almost straight up, to see his wry smile as I shook his hand.

In this era of humongous government debts along with pliant central bankers, who do exactly what politicians want them to do, it is worth knowing that there were independent minded central bankers in the past. Paul Volcker, the US Federal Reserve Chairman from 1979 to 1987, was not just physically tall, he stood head and shoulders above all past and present central bankers in terms of honesty, intellectual thought and guts to stand up to politicians, including Presidents of the USA.

Preparation for the Top Job – No “Plan” for his life

  • He was probably the best prepared Chairman ever, to preside over the Federal Reserve, in terms of Education, manner of thinking and practical experience. He was a master of both Wall Street and Washington.
  • Yet by Volcker’s own admission, he ambled through life without a career plan and had no greater goal than doing the best job he could in the public interest. He said that he never went looking for work and that work always came to him. This of course was due to his great expertise and capabilities.

Public Service

Due to his talents Volcker studied economics and public policy at the best universities in the US (Princeton University and Harvard University) and the UK (London School of Economics). He could have made millions working for investment banks on Wall Street. Instead Volckerspent years in the Federal Reserve, first as an economist in the Federal Reserve Bank of New York, in the US Government Treasury Department (the US’ Finance Ministry), in 1975 he became President of the Federal Reserve Bank of New York, and in August 1979 he became Chairman of the US Federal Reserve.

For his dedicated public service, Alain Binder, the famous Princeton University Economist, described Volcker as “an exemplar of the notion of public service”.

Fight Against Inflation

Soon after Volcker became Chairman of the Federal Reserve, US inflation peaked at 14.8% (March 1980). Volcker led and convinced the Federal Reserve board to raise the federal funds rate to as high as 20% (June 1981). There were immense pressure from politicians and business people to reduce rates, but Volcker stood firm.

Volcker said that “he was looking to the long term” and kept cutting back on the supply of money in the economy knowing that business failures would certainly occur and millions more would lose their jobs. He was doing this “for the long term good of the country”.Eventually, inflation fell below 3 percent by 1983, paving the way for decades of prosperity and healthy growth.

Arthur Levitt, a former Chairman of the US SEC, said “Without Volcker’s toughness and guts, the US might never have broken the grip of rising inflation and declining productivity that had plagued the US during the 1970s”.

Personal Characteristics

  • Thriftiness
  • Unpretentiousness
  • Did not let pride get in the way of doing good
  • Kept Active. Even in his old age he was “still charging around at a pace that would have winded most 50-year-olds”. In 2009, at the age of 82, he accepted becoming Chairman of the Economic Recovery Advisory Board under President Barack Obama. He held this position till January 2011.
  • Approached and solved even the most emotive problems with detachment. He had a “mechanical, intensely intellectual way” of approaching and solving problems

Volcker passed away on 8 December 2019. All of us should remember what Volcker stood for: always taking practical, principled and bold stands on key issues, honesty and public service.

© Kaikhushru Taraporevala

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