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Paul Volcker and Memories of a Different Economy

Paul Volcker and Memories of a Different Economy

December 10, 2019

Paul Volcker passed away yesterday.  Most folks younger than me who are not interested in economics could be forgiven for not knowing the name.  But Paul Volker was truly an American hero.  

It is funny how people who lived through the inflation era of 1975 to 1982 tend to remember with fondness the high interest rates one could earn back in those days.  That is a case of selective memory, for sure, because inflation was getting out of control.  Prices on nearly everything were increasing rapidly.  Wages were going up too - but retirees and those on fixed incomes were seeing their incomes erode at a rapid pace.  

The causes of inflation were many, but tied in large part to poor management of the nations money supply.  And once it got going, inflation was difficult to tame.  Well, the truth is, it wasn't complicated.  But everyone knew that the side effects of fixing inflation were going to be severe, and no one wanted to take the medicine.  Ford and Nixon tried to fix the problem by legislating price and wage controls, which failed miserably.  Jimmy Carter, not known for being one of our most successful presidents, brought in Paul Volcker to be Federal Reserve chairman, and gave him his marching orders.  

Volcker set about sopping up the excess money supply, which resulted in a rapid rise in interest rates.  Imagine mortgage rates near 20% - car loans similar.  As you can imagine, the economy came to a screeching halt for a few years.  Volcker drew the ire of a public focused on the short term impacts, but stood strong in the path he knew was right.  And he was ultimately vindicated.  Inflation was brought under control and the stage was set for the robust economic growth cycle that has helped my generation enjoy a standard of living that our grandparents could not have imagined.  

Here's to courage, civility, and doing what's right, even when public opinion turns against you.  The world needs more Paul Volckers.