From the comments — on Paul Volcker by Tyler Cowen December 11, 2019 at 1:00 am in Economics History Law I worked at the Fed in the Volcker years. I am not a fan. (1) He tightened far too much to get inflation down. A more moderate tightening and a more gradual reduction in inflation — which was the original agreement with the Reagan team — would have been better. The long 1980-82 recession was longer and deeper than it needed to be. (2) He got the support of Democrats by blaming large deficits for the high interest rates rather than blaming his own excessively tight monetary policy. Of course, high interest rates caused federal interest rates to surge and boost the deficit. (3) At the NY Fed and then as Chairman, what did he do to rein in reckless bank lending to Latin America? It is not like the banks had nothing to do with the Fed. (4) Latam debt was floating rate debt. Volcker blew up those countries’ debt service. But the super strong dollar and collapse of commodity prices, connected to tight Fed policy, also damaged Latam. (5) Volcker had modern leftists attitudes. The Fed has become quite transparent and communicates with the public and Congress. It may amaze younger readers that the Fed would adjourn FOMC meetings with no press statement or public policy announcement. Volcker figured you would find out what the Fed was up to when it did something. The Republican Greenspan and Bernanke started to let the sunshine into the Fed. The paranoid closeted quality of the old Fed generated resentment and conspiracy theories. (6) Volcker had an authoritarian streak. He suppressed dissent within the Fed system, going after researchers at Fed banks who contradicted Fed dogma. The St. Louis Fed was particularly attacked, but others also. (7) You might connect the death of Marvin Goodfriend with the death of Paul Volcker. Goodfriend was a critic of Volcker in the Fed. He said Volcker’s tight policy pushed inflation down, but Volcker would not deliver an inflation target. His Fed had no credibility, no one was wiling to believe that the Fed would keep inflation low. One result was a high long bond yield and a steep yield curve. It was fine that Volcker wanted to reduce inflation, but it was the Fed that needed credibility, not its temporary chairman. (8) I found the recent Volcker Rule worthless. Prop trading played no role in creating the crisis of 2008. The Volcker Rule has simply made markets less liquid. After 2008, as after 1932, the federal government imposes useless regulations just for fun. That is all from B.B.
That is all from B.B.