In ‘Keeping at It,’ Paul Volcker Pulls No Punches

October 30, 2018, 9:00 AM UTC
Paul Volcker Testifies Before Banking Committee
American economist and Chair of the Federal Reserve Paul Volcker testifies before the House Banking Committee, Washington DC, February 19, 1986. He holds a cigar in one hand. (Photo by Mark Reinstein/Corbis via Getty Images)
Mark Reinstein—Corbis/Getty Images

As a young reporter, I spent a good bit of time covering—or attempting to cover—U.S. Federal Reserve chairman Paul Volcker. It was a task he skillfully thwarted by either refusing to speak, mumbling, or concocting incomprehensible responses.

On one occasion near the end of his second term, Volcker was testifying before Congress on a day when rumors were rife that the Fed had intervened in foreign exchange markets. At the end of his testimony, a scrum of reporters, myself included, chased him down the hallway, shouting questions at his head—which towered above us—about whether the Fed had intervened. He walked on, saying nothing.

But at the last minute, just before getting into his limousine, Volcker turned and began to speak. We all put our pens to paper. “We did what we did,” he said. “We didn’t do what we didn’t do. And the result was what happened.”

Then he left.

Only later did I fully appreciate that such obfuscation was tactical. Once freed from the Fed, Volcker morphed into one of the world’s most blunt-spoken truth-tellers, describing the world exactly as he saw it. He became a leading crusader against global corruption—including the legal/lobbying kind practiced in Washington—and a tireless advocate of better-training for public servants as a path to better government. And now at age 91, with his health declining, Volcker continues the good fight by promoting from his sick bed a new book: Keeping At It: The Quest for Sound Money and Good Governance, written with Christine Harper and published Tuesday by PublicAffairs.

Shortly after the financial crisis, I invited Volcker to join a Wall Street Journal conference on the future of finance, held at a getaway south of London. He agreed and sat quietly through panel after panel of financiers who worried that, in the wake of the crisis, increased regulation would squash financial innovation.

Finally, Volcker erupted, arguing that he could think of no socially valuable financial innovation since the ATM. “I mean, wake up, gentlemen. I can only say your response is wholly inadequate. I wish that somebody could give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy—just one shred of information.”

That’s the Paul Volcker of Keeping at It. (“I received no evidence,” he says after recounting his conference outburst.) It’s a book that deserves to be read, if only because pure public servants like Paul Volcker have become all too rare, if not nonexistent, in today’s America.

Economic historians will want to start at chapter eight, where he recounts the actions that earned him his place in their books. Inflation was raging; President Carter blamed it on public malaise. As newly installed Fed chief, Volcker started raising interest rates to combat inflation, but popular resistance quickly mounted. Even his fellow Fed officials started to balk. Volcker pushed through a key discount rate hike on a narrow 4-3 vote, leading markets to question his freedom to do more.

And so, in a moment of governing brilliance, Volcker decided to change the Fed’s operating directions. Instead of setting interest rates, the central bank would target the money supply—something economist Milton Friedman had long advocated, but more practical economists, Volcker included, rejected as overly simplistic. For Volcker, the change was less a theoretical breakthrough than a political one. By targeting the money supply, the Fed would no longer have to take direct responsibility for setting interest rates. The prime lending rate eventually peaked at an unprecedented 21.5% and precipitated a recession, but Volcker held firm, broke the back of inflation, and saved the American economy.

In the book, Volcker explains that the simplicity of monetarism “helped provide a basis for presenting the new approach to the American public. At the same time, that approach enforced upon the Federal Reserve an internal discipline that had been lacking: we could not back away from our newfound emphasis on restraining the growth in the money supply without risking a damaging loss of credibility that, once lost, would be hard to restore. To overdramatize a bit, we were doomed to follow through. We were ‘lashed to the mast’ in pursuit of price stability.”

Volcker continues: “Did I realize at the time how high interest ages might go before we could claim success? No. From today’s vantage point, was there a better path? Not to my knowledge—not then or now.”

Exactly right. And proof positive that great men do make history.

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