Walkin' Great selection Circuit. The whole '67 tour, especially the German leg, was a magnificent display of supreme talent. What a selection, what voices and hands-Shorter, Hancock, Williams was a babe at the time, and the out-standing (literally) Carter. Guy reminds me of Volcker. Obama should have had the savvy to choose like Miles. All my favorites-one of the top five combos in history and best repertoire in bebop and classical varia. You should have posted the whole concert Agit, Ftpts, G-Boy and I Fall..Inspiring Break.
Indeed an inspiring one. Yeah, the whole jam is great. I went with Walkin' because I think Williams carries it to marvel. Policymakers should take a lesson from these guys and realize that the whole is much more than the sum of its parts. Wouldn't mind hearing your take on Volcker. I thought his approach on regulations was spot on. Too bad it didn't all reach fruition. Any idea what his views are on the rest? I followed his commentaries but never read anything on the fiscal stuff. I suppose he's a true gentleman; the former Chairman doesn't want to overstep his bounds.
It’s difficult to put into words, especially as a short comment. As you know Volcker wrote the intro to Keynes’s Economic Consequences... What disappointed me when I first read it was the lack of substantive fiscal discernment,of sensibility towards Keynes’s economic analysis. Today, I realize how out of whack and mediocre I was in my reading and understanding of Volcker’s incredible insights into Keynes. Fiscal discussions on Keynes are the stuff for academia. Volcker is at a stage in his life where he values moral leadership, seeks it and supports it. Anecdote-Volcker was Wall Street’s poster boy back in the day; but then Wall Street was a different value than now. Volcker never adapted to the radical speculative turn that the Street took on at the turn of the century. @ Volcker, Keynes required that political economies harmonize their fiscal policies to the advantage of all, including defeated and underdeveloped nations. He required leadership to demonstrate moral authority rather than become swashbucklers in managing international relations. I think that’s why he supported Obama at a time when no one of any significance did early in the campaign-he felt that Obama had the moral requisites to propose and undertake normative structural changes to global economic relationships. Volcker brought respectability and credibility to Obama that no one else could or did-not even Oprah. History will tell. The Volcker Rule, his insistence on enhanced regulation, restrictive banking practices are the art of a Master, not a house painter, pied piper,or strummer, or some post modern central bankers. Reflexive thought demands a critical approach to financial policy and regulation, which in turn entails a clear appreciation of institutional governance, of segregation of responsibilities and of the incestuous role of economies in a global democratic system. Paul Volcker is a long-distance thinker, probably the last of an older generation and thankfully the first of a new generation. What I retain of Volcker is an article published back in 2005 by WP entitled ‘Economy on Thin Ice’ or the likes-which I filed along with misc from Keynes, Galbraith, Coase and Tobin. Worth a peek.
I assume that post-modern central bankers are the unsung heroes who let everything happen with least intervention (confessing it's not their job) and focus on illusions of inflation?
I like your view on things, Jorge. I forgot that Volker had authored the preface to Economic Consequences. It's an excellent read. I always thought it provided a good summary of Keynes's approach to public policy (notice how I don't limit Keynes's approach solely to "economic" policy). In my opinion, there's lots of stuff in there (and in Econ Consequences) that's relevant to the European situation today. Take this quote that Volcker emphasizes:
"A policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorent and detestable--abhorent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe...Nations are not authorized, by religion or by natural morals to visit on the children of their enemies the misdoings of parents or rulers"
I would add to the last section: "Nations 'and international or supranational organizations' are not authorized..." The quote could easily apply to those trying to instill austerity...
I agree with Volcker that much of what is called economic policy today builds far too much on assumptions that forget the interconnectedness and historical context of economic decisions and policies. That's why I find the circuitist and chartalist approaches to economics more appealing than the neoclassical variant, which, for all intents and purposes, focuses mainly on the sole "representative agent" rather than on the transactional dynamics between multiple economic parties, groups or sectors. Thanks very much for your comment.
Anon: That would be just about right...I like the use of the word "illusions" when referring to inflation these days.
Thanks to Circuit for being true to his Rule: Good music makes good policy. In this case, great music set up a lateral forum by Jorge to Volcker, and that is the greatest unsung hero (I disagree vehemently with your anonymous reader that considers post-modern central bankers as 'unsung heroes'-unless he is being ironic'-I hope.) Thanks to Jorge for having a mind-set that juxtaposes Carter and Volcker!!! I appreciate, as does Jorge certainly, that the analogy only goes so far: Miles /Volcker goes further but lacks the measurement. I had no idea that Mr. Volcker was so well acquainted with Keynes. My consolation is that most central bankers are also unacquainted with Keynes. Good to have you around Jorge. I only want to caution that Circuit's quote from Keynes, cited by Volcker 'Nations are not authorized...to visit on the children of their enemies the misdoings of parents or rulers' can be used by proponents of radical deficit reductions. The latter would charge that the excesses of their predecessors should not be transmitted and sustained by the children. Would such extension in meaning be a misgiving for the text.
I agree that Volcker's contribution recently has a been positive in terms in trying to bring forth effective and lasting financial reform. Also, he was brave enough to trash official monetarism back in the early 80s. However, it seems there's an argument to be made that his bold anti-inflation campaign of the 80s had disastrous consequences for the economies of the US and other countries under the USD. I know that hindsight is 20/20 but I can't believe there was no other way. Maybe I'm wrong... Now, I'm pretty sure (having followed his work in recent years) that, had Volcker known then what he knows now, he probably would have done things differently. Perhaps he was simply following orders like a good public servant. Still, the harsh interest rate hikes he instigated in the early 80s couldn't had been the only way.
The comments on Volcker suggest that Volcker' s two terms merit an assessment in yr blog.
I personally find contentious the insinuations that Volcker may have been a Keynesian. As far as I can remember, if anything, there is much to suggest the contrary, including some tough and colorful language with respect to Keynesian ambitions.
To those who suggest that Volcker may have erred during the Carter/Regan terms, I would suggest that he saved the world economy, and put the US back onto the most credible economic recovery in its history. His steadfast position in defiance of peer critics, Congress and the public has made Volcker's stance legendary.
Circuit I would like you to elaborate on how Volcker perceives his anti-inflation campaign during his term.
As to the appropriateness of the Miles/Volcker analogy, I perceive Miles more like Obama,(team leader) than as the most prominent central banker among good central bankers. I actually entertained as reasonable the analogy of Volcker/Carter.
Coming back from holidays to Miles Davis Quintet is another holiday, and pair that with a rating proposal on Volcker's terms at the Fed is like being on the Shuttle. I agree with your last commentator-Volcker certainly studied and knew Keynesians at Harvard. Those were the years with Samuelson. But I opt for Volcker as being pleasantly reserved, and maybe dismissive with Keynesians, especially during the 70-80 terms. I do agree with Circuit that Volcker may have indulged in some overkill as the 'Dragonslayer'
Welcome Marco and thanks for your comment! I'm not sure who said that Volcker was a Keynesian economist. As Goffredo mentions, it's more than likely he used the Samuelson or Tarshis book. However, most of the discussion above pertains to Volcker's admiration for Keynes's commitment to advancing the public interest rather than any particular special interest (including that of government) or ideology. Of course, the problem has always been (and always will be) defining what constitutes the public interest. Some claim that zero-inflation is a requisite. I disagree because I haven't yet seen the evidence. But there is no denying that the selfish and myopic positions of European leaders in Versailles in 1919 were wrong-headed. I see a similar thing unfolding in Europe today. Here you have nations under a monetary union without an effective fiscal union destroying whatever weak political union they have left. This thing started out as a blame game and probably will end as one too. Keynes would not be impressed.
Now, I take issue with the idea that a person can be responsible for "saving the world". The Great Man theory doesn't apply in modern politics and bureaucracy. The institutional and corporate limitations affecting decision-making in government are far too powerful for any one person to challenge or move beyond. And that goes for central bankers too. The threat to dismiss or not reappoint makes the notion of central bank independence moot. It takes more than one person at the helm to change things. All a senior official can do these days is to fight to get one's point across with tact, gusto and conviction, gain support, and hope for the balance of public and bureaucratic opinion to tip in one's favor.
So how does this fit into our discussion on Volcker? In a way, you said it best when you mention that he was remarkable in defending his positions in defiance of peers. His dismissal of the idea of a return to the gold standard, his courage in dropping monetary aggregates, his suspicions about deregulation in the 80s and, more recently, his street fight with Wall Street and the Administration on regulatory reform makes him one tough SOB.
Well circuit, you may take exception to the Great Man theory, but in Volcker's case, we have a fine instance demonstrated. Jorge thinks The Great Man almost wiped out the global economy. In the Volcker days, US and Fed clout were determinant factors in global economics and politics. It was not only the last recourse, but the only recourse- so let one transmute the Great Nation to the Great Man.
On Volcker and Keynes, let me add Volcker's colleague James Tobin to Samuelson, and probably Hansen, if memory compels, was there at the time.
On gold, the file had been buried long before by Burns, and nostalgic romantics were not a serious contender for the podium. Dropping monetary aggregates, I caution that statement: Volcker only dropped the aggregates after inflation had been reduced substantially. On deregulation, I grant you that he was always suspicious and today is Finance's gadfly, and in being so the ordinary Joe's Market best friend. My query was what else could he have done then beside the interest rate hikes which you seem to question?
Marco, the Fed went pretty hard on the rate hikes, basing their action on the application of untested and now considered unreliable theories. Sorry if I'm not impressed. I like Warren Mosler's take on this issue, which is that the deregulation of the natural gas industry beginning in the very late 70s (IMO, a positive form of dereg) planted the seeds of disinflation. The dereg enabled the price of natural gas to rise and wells to be uncapped. US electric utilities then switched from oil to still cheaper natural gas, resulting in excess oil. But maybe you're right: the recession brought on by the Fed killed inflation. The problem, of course, was the high unemployment that came with it.
On your last comment: True unemployment hit 10+% but then fell to around 5%-5.5%. When was the last time we've seen that in the US or North America? Mosler may be partially correct. Maybe we should be tapping into natural gas as the optimal sub. In fact, some pretty impressive figures are advocating the option, but with little success. Or are the wells now dry as some others say, and a bubble is in play. Thanks for the Mosler link on this
Keynespendulum, the US unemployment fell below 5 at least twice after that. As for the quickness of the recovery, that was the result of the massive federal deficits of the mid-80s. At the time, those deficits were the largest, as a percentage of US GDP, in the post-war. They peaked at approx 7%. In the 70s, the US federal deficit peaked at around 5%. Also, private sector savings were quite low during those years.
Circuit, you’re right that there were lower rates of unemployment than Keynespendulum (Kp) 5.5%, but I think he couldn’t have overlooked that statistic. Following that hunch, I checked the Quarterly improvements on the unemployment records from 1948 to 2011 and in those 53 years, IN FACT no Chair steered the Fed for a drop of 5.3% -more official is 4.8% improvement through 19 quarters. If Volcker had not been fired by Reagan & Co., as Stiglitz contends, for refusing to support the de-regulation of the financial sector, he would have probably steered the economy favorably through another hypothetically 4 quarters. The closest to Volcker’s record pitch was Tom McCabe’s from Oct 1949 (7.9%) to his retirement March 1951( 3.4%) for an overall drop of 4.5%. Bill Martin Jr. succeeding McCabe pushing the decrease to June 1953 (2.5%). As KP says, never seen before nor since.
Thanks very much Jorge for looking into the data and adding it to this exchange. That's indeed an impressive record for any central banker. I understand now why people give such reverence to Paul Volcker in that regard. However, I tend to see all this from a different angle. First, we have to consider that the Fed was partly responsible for the 10+ unemployment. This is fairly well documented and is a point to keep in mind when interpreting the recovery data from that period. Second, we can't disregard the importance of the large US budget deficits in the 80s. These were massive deficits that lasted nearly half the decade. The investment and purchasing power that those deficits sustained was enormous. The data you and KP bring forth would appear to suggest that Volcker was accommodating the fiscal stimulus stemming from the Treasury. This, I agree, is most praiseworthy. As a former under-secretary of the Treasury and as a loyal public servant, he understood what his role was during that period. Finally, I'm not quite sure the fact that Volcker's performance has never happened before (and hasn't happened since) means much. Someone who's critical of Volcker could point out that he headed the Fed the last time the US faced a double-dip recession. Also, it could also be pointed out that the current account balance first started to deteriorate significantly under his watch.
All that being said, I'm a firm believer that the proverbial fog of war makes any policy decision taken under less-than optimal conditions (such as with double-digit inflation) extremely difficult. Again, hindsight is 20/20. So I give him credit for that. Also, as I mentioned earlier, I'm completely in agreement with Volcker's stance on financial regulations. Similarly, I'm grateful for his push-back against the monetarists at the Fed during his chairmanship. But at the end of the day, I think we have to look beyond these things to gain a better sense of his overall contribution.
Finally, I'm glad you mention Stiglitz. If I recall correctly, Stiglitz is fairly critical of Volcker in "Globalization and Its Discontents" and "The Roaring 90s" for the same reasons I mentioned in an earlier comment. My general recollection is that Stiglitz sees the Fed's high interest rates as one of the main contributor to the Latin debt crisis. While I have not read anything by Stiglitz on financial regulation in which he refers to Volcker, I can see why Stiglitz would concur with Volcker on these matters.
Circuit Your exchange on Volcker covers 2 blogs-someone's got to link it- this is great stuff. Well the exchange on Volcker was due. MMT hasn't done its forensics on the man; the whole thing sounded like a conversation out of Plato's Dialogues-entitled Volcker. If I knew your postals i'd send you guys some Antonio y Cleopatra's. I'd like to add a Stiglitz comment which I presume praises Volcker highly: 'We can describe the benefit of what he did which was that he brought down inflation,...And we can describe the costs. But what we can't know for sure what would have happened if he had tried another approach.' Sounds like uniqueness to me...I'm no cultist, but Volcker is pretty close to a Mensch in my neighborhood, and there's no one close behind. The guy, not Greenspan, wrote the forward to Soros's book. No one like him in the Public Service, maybe Sheila Bair, but a couple of notches down. Roger and Out! Neil Young :)
Yeah, who knew that a music break would result in a such a fine conversation. That's a good quote by Stiglitz. I'm taking note of it. Interesting observation regarding the forensics...I guess we'll have to wait and see. All I know is that any analysis would have to take into account his fascination for Minsky's instability hypothesis. Mensch is indeed a good description of the man.
"I only want to caution that Circuit's quote from Keynes, cited by Volcker 'Nations are not authorized...to visit on the children of their enemies the misdoings of parents or rulers' can be used by proponents of radical deficit reductions. The latter would charge that the excesses of their predecessors should not be transmitted and sustained by the children."
Good point, Anon. Forgot to mention it when I first read it.
Walkin' Great selection Circuit. The whole '67 tour, especially the German leg, was a magnificent display of supreme talent. What a selection, what voices and hands-Shorter, Hancock, Williams was a babe at the time, and the out-standing (literally) Carter. Guy reminds me of Volcker. Obama should have had the savvy to choose like Miles. All my favorites-one of the top five combos in history and best repertoire in bebop and classical varia. You should have posted the whole concert Agit, Ftpts, G-Boy and I Fall..Inspiring Break.
ReplyDeleteIndeed an inspiring one. Yeah, the whole jam is great. I went with Walkin' because I think Williams carries it to marvel. Policymakers should take a lesson from these guys and realize that the whole is much more than the sum of its parts. Wouldn't mind hearing your take on Volcker. I thought his approach on regulations was spot on. Too bad it didn't all reach fruition. Any idea what his views are on the rest? I followed his commentaries but never read anything on the fiscal stuff. I suppose he's a true gentleman; the former Chairman doesn't want to overstep his bounds.
ReplyDeleteIt’s difficult to put into words, especially as a short comment. As you know Volcker wrote the intro to Keynes’s Economic Consequences... What disappointed me when I first read it was the lack of substantive fiscal discernment,of sensibility towards Keynes’s economic analysis. Today, I realize how out of whack and mediocre I was in my reading and understanding of Volcker’s incredible insights into Keynes. Fiscal discussions on Keynes are the stuff for academia. Volcker is at a stage in his life where he values moral leadership, seeks it and supports it. Anecdote-Volcker was Wall Street’s poster boy back in the day; but then Wall Street was a different value than now. Volcker never adapted to the radical speculative turn that the Street took on at the turn of the century.
ReplyDelete@ Volcker, Keynes required that political economies harmonize their fiscal policies to the advantage of all, including defeated and underdeveloped nations. He required leadership to demonstrate moral authority rather than become swashbucklers in managing international relations. I think that’s why he supported Obama at a time when no one of any significance did early in the campaign-he felt that Obama had the moral requisites to propose and undertake normative structural changes to global economic relationships. Volcker brought respectability and credibility to Obama that no one else could or did-not even Oprah. History will tell.
The Volcker Rule, his insistence on enhanced regulation, restrictive banking practices are the art of a Master, not a house painter, pied piper,or strummer, or some post modern central bankers.
Reflexive thought demands a critical approach to financial policy and regulation, which in turn entails a clear appreciation of institutional governance, of segregation of responsibilities and of the incestuous role of economies in a global democratic system. Paul Volcker is a long-distance thinker, probably the last of an older generation and thankfully the first of a new generation. What I retain of Volcker is an article published back in 2005 by WP entitled ‘Economy on Thin Ice’ or the likes-which I filed along with misc from Keynes, Galbraith, Coase and Tobin. Worth a peek.
I assume that post-modern central bankers are the unsung heroes who let everything happen with least intervention (confessing it's not their job) and focus on illusions of inflation?
ReplyDeleteI like your view on things, Jorge. I forgot that Volker had authored the preface to Economic Consequences. It's an excellent read. I always thought it provided a good summary of Keynes's approach to public policy (notice how I don't limit Keynes's approach solely to "economic" policy). In my opinion, there's lots of stuff in there (and in Econ Consequences) that's relevant to the European situation today. Take this quote that Volcker emphasizes:
ReplyDelete"A policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorent and detestable--abhorent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe...Nations are not authorized, by religion or by natural morals to visit on the children of their enemies the misdoings of parents or rulers"
I would add to the last section: "Nations 'and international or supranational organizations' are not authorized..." The quote could easily apply to those trying to instill austerity...
I agree with Volcker that much of what is called economic policy today builds far too much on assumptions that forget the interconnectedness and historical context of economic decisions and policies. That's why I find the circuitist and chartalist approaches to economics more appealing than the neoclassical variant, which, for all intents and purposes, focuses mainly on the sole "representative agent" rather than on the transactional dynamics between multiple economic parties, groups or sectors. Thanks very much for your comment.
Anon: That would be just about right...I like the use of the word "illusions" when referring to inflation these days.
Thanks to Circuit for being true to his Rule: Good music makes good policy. In this case, great music set up a lateral forum by Jorge to Volcker, and that is the greatest unsung hero (I disagree vehemently with your anonymous reader that considers post-modern central bankers as 'unsung heroes'-unless he is being ironic'-I hope.)
ReplyDeleteThanks to Jorge for having a mind-set that juxtaposes Carter and Volcker!!! I appreciate, as does Jorge certainly, that the analogy only goes so far: Miles /Volcker goes further but lacks the measurement.
I had no idea that Mr. Volcker was so well acquainted with Keynes. My consolation is that most central bankers are also unacquainted with Keynes. Good to have you around Jorge.
I only want to caution that Circuit's quote from Keynes, cited by Volcker 'Nations are not authorized...to visit on the children of their enemies the misdoings of parents or rulers' can be used by proponents of radical deficit reductions. The latter would charge that the excesses of their predecessors should not be transmitted and sustained by the children. Would such extension in meaning be a misgiving for the text.
I agree that Volcker's contribution recently has a been positive in terms in trying to bring forth effective and lasting financial reform. Also, he was brave enough to trash official monetarism back in the early 80s. However, it seems there's an argument to be made that his bold anti-inflation campaign of the 80s had disastrous consequences for the economies of the US and other countries under the USD. I know that hindsight is 20/20 but I can't believe there was no other way. Maybe I'm wrong... Now, I'm pretty sure (having followed his work in recent years) that, had Volcker known then what he knows now, he probably would have done things differently. Perhaps he was simply following orders like a good public servant. Still, the harsh interest rate hikes he instigated in the early 80s couldn't had been the only way.
ReplyDeleteGoodness to your Comment Section!
ReplyDeleteThe comments on Volcker suggest that Volcker' s two terms merit an assessment in yr blog.
I personally find contentious the insinuations that Volcker may have been a Keynesian. As far as I can remember, if anything, there is much to suggest the contrary, including some tough and colorful language with respect to Keynesian ambitions.
To those who suggest that Volcker may have erred during the Carter/Regan terms, I would suggest that he saved the world economy, and put the US back onto the most credible economic recovery in its history. His steadfast position in defiance of peer critics, Congress and the public has made Volcker's stance legendary.
Circuit I would like you to elaborate on how Volcker perceives his anti-inflation campaign during his term.
As to the appropriateness of the Miles/Volcker analogy, I perceive Miles more like Obama,(team leader) than as the most prominent central banker among good central bankers. I actually entertained as reasonable the analogy of Volcker/Carter.
Coming back from holidays to Miles Davis Quintet is another holiday, and pair that with a rating proposal on Volcker's terms at the Fed is like being on the Shuttle. I agree with your last commentator-Volcker certainly studied and knew Keynesians at Harvard. Those were the years with Samuelson. But I opt for Volcker as being pleasantly reserved, and maybe dismissive with Keynesians, especially during the 70-80 terms. I do agree with Circuit that Volcker may have indulged in some overkill as the 'Dragonslayer'
ReplyDeleteAlmost wiped out the global economy. All's well that ends well.
ReplyDeleteWelcome Marco and thanks for your comment! I'm not sure who said that Volcker was a Keynesian economist. As Goffredo mentions, it's more than likely he used the Samuelson or Tarshis book. However, most of the discussion above pertains to Volcker's admiration for Keynes's commitment to advancing the public interest rather than any particular special interest (including that of government) or ideology. Of course, the problem has always been (and always will be) defining what constitutes the public interest. Some claim that zero-inflation is a requisite. I disagree because I haven't yet seen the evidence. But there is no denying that the selfish and myopic positions of European leaders in Versailles in 1919 were wrong-headed. I see a similar thing unfolding in Europe today. Here you have nations under a monetary union without an effective fiscal union destroying whatever weak political union they have left. This thing started out as a blame game and probably will end as one too. Keynes would not be impressed.
ReplyDeleteNow, I take issue with the idea that a person can be responsible for "saving the world". The Great Man theory doesn't apply in modern politics and bureaucracy. The institutional and corporate limitations affecting decision-making in government are far too powerful for any one person to challenge or move beyond. And that goes for central bankers too. The threat to dismiss or not reappoint makes the notion of central bank independence moot. It takes more than one person at the helm to change things. All a senior official can do these days is to fight to get one's point across with tact, gusto and conviction, gain support, and hope for the balance of public and bureaucratic opinion to tip in one's favor.
So how does this fit into our discussion on Volcker? In a way, you said it best when you mention that he was remarkable in defending his positions in defiance of peers. His dismissal of the idea of a return to the gold standard, his courage in dropping monetary aggregates, his suspicions about deregulation in the 80s and, more recently, his street fight with Wall Street and the Administration on regulatory reform makes him one tough SOB.
Well circuit, you may take exception to the Great Man theory, but in Volcker's case, we have a fine instance demonstrated. Jorge thinks The Great Man almost wiped out the global economy.
ReplyDeleteIn the Volcker days, US and Fed clout were determinant factors in global economics and politics. It was not only the last recourse, but the only recourse- so let one transmute the Great Nation to the Great Man.
On Volcker and Keynes, let me add Volcker's colleague James Tobin to Samuelson, and probably Hansen, if memory compels, was there at the time.
On gold, the file had been buried long before by Burns, and nostalgic romantics were not a serious contender for the podium. Dropping monetary aggregates, I caution that statement: Volcker only dropped the aggregates after inflation had been reduced substantially. On deregulation, I grant you that he was always suspicious and today is Finance's gadfly, and in being so the ordinary Joe's Market best friend.
My query was what else could he have done then beside the interest rate hikes which you seem to question?
Marco, the Fed went pretty hard on the rate hikes, basing their action on the application of untested and now considered unreliable theories. Sorry if I'm not impressed. I like Warren Mosler's take on this issue, which is that the deregulation of the natural gas industry beginning in the very late 70s (IMO, a positive form of dereg) planted the seeds of disinflation. The dereg enabled the price of natural gas to rise and wells to be uncapped. US electric utilities then switched from oil to still cheaper natural gas, resulting in excess oil. But maybe you're right: the recession brought on by the Fed killed inflation. The problem, of course, was the high unemployment that came with it.
ReplyDeleteOn your last comment: True unemployment hit 10+% but then fell to around 5%-5.5%. When was the last time we've seen that in the US or North America? Mosler may be partially correct. Maybe we should be tapping into natural gas as the optimal sub. In fact, some pretty impressive figures are advocating the option, but with little success. Or are the wells now dry as some others say, and a bubble is in play.
ReplyDeleteThanks for the Mosler link on this
Keynespendulum, the US unemployment fell below 5 at least twice after that. As for the quickness of the recovery, that was the result of the massive federal deficits of the mid-80s. At the time, those deficits were the largest, as a percentage of US GDP, in the post-war. They peaked at approx 7%. In the 70s, the US federal deficit peaked at around 5%. Also, private sector savings were quite low during those years.
ReplyDeleteCircuit, you’re right that there were lower rates of unemployment than Keynespendulum (Kp) 5.5%, but I think he couldn’t have overlooked that statistic.
ReplyDeleteFollowing that hunch, I checked the Quarterly improvements on the unemployment records from 1948 to 2011 and in those 53 years, IN FACT no Chair steered the Fed for a drop of 5.3% -more official is 4.8% improvement through 19 quarters. If Volcker had not been fired by Reagan & Co., as Stiglitz contends, for refusing to support the de-regulation of the financial sector, he would have probably steered the economy favorably through another hypothetically 4 quarters. The closest to Volcker’s record pitch was Tom McCabe’s from Oct 1949 (7.9%) to his retirement March 1951( 3.4%) for an overall drop of 4.5%. Bill Martin Jr. succeeding McCabe pushing the decrease to June 1953 (2.5%). As KP says, never seen before nor since.
Thanks very much Jorge for looking into the data and adding it to this exchange. That's indeed an impressive record for any central banker. I understand now why people give such reverence to Paul Volcker in that regard. However, I tend to see all this from a different angle. First, we have to consider that the Fed was partly responsible for the 10+ unemployment. This is fairly well documented and is a point to keep in mind when interpreting the recovery data from that period. Second, we can't disregard the importance of the large US budget deficits in the 80s. These were massive deficits that lasted nearly half the decade. The investment and purchasing power that those deficits sustained was enormous. The data you and KP bring forth would appear to suggest that Volcker was accommodating the fiscal stimulus stemming from the Treasury. This, I agree, is most praiseworthy. As a former under-secretary of the Treasury and as a loyal public servant, he understood what his role was during that period. Finally, I'm not quite sure the fact that Volcker's performance has never happened before (and hasn't happened since) means much. Someone who's critical of Volcker could point out that he headed the Fed the last time the US faced a double-dip recession. Also, it could also be pointed out that the current account balance first started to deteriorate significantly under his watch.
ReplyDeleteAll that being said, I'm a firm believer that the proverbial fog of war makes any policy decision taken under less-than optimal conditions (such as with double-digit inflation) extremely difficult. Again, hindsight is 20/20. So I give him credit for that. Also, as I mentioned earlier, I'm completely in agreement with Volcker's stance on financial regulations. Similarly, I'm grateful for his push-back against the monetarists at the Fed during his chairmanship. But at the end of the day, I think we have to look beyond these things to gain a better sense of his overall contribution.
Finally, I'm glad you mention Stiglitz. If I recall correctly, Stiglitz is fairly critical of Volcker in "Globalization and Its Discontents" and "The Roaring 90s" for the same reasons I mentioned in an earlier comment. My general recollection is that Stiglitz sees the Fed's high interest rates as one of the main contributor to the Latin debt crisis. While I have not read anything by Stiglitz on financial regulation in which he refers to Volcker, I can see why Stiglitz would concur with Volcker on these matters.
Circuit Your exchange on Volcker covers 2 blogs-someone's got to link it- this is great stuff. Well the exchange on Volcker was due. MMT hasn't done its forensics on the man; the whole thing sounded like a conversation out of Plato's Dialogues-entitled Volcker. If I knew your postals i'd send you guys some Antonio y Cleopatra's. I'd like to add a Stiglitz comment which I presume praises Volcker highly: 'We can describe the benefit of what he did which was that he brought down inflation,...And we can describe the costs. But what we can't know for sure what would have happened if he had tried another approach.'
ReplyDeleteSounds like uniqueness to me...I'm no cultist, but Volcker is pretty close to a Mensch in my neighborhood, and there's no one close behind. The guy, not Greenspan, wrote the forward to Soros's book. No one like him in the Public Service, maybe Sheila Bair, but a couple of notches down.
Roger and Out! Neil Young :)
Yeah, who knew that a music break would result in a such a fine conversation. That's a good quote by Stiglitz. I'm taking note of it. Interesting observation regarding the forensics...I guess we'll have to wait and see. All I know is that any analysis would have to take into account his fascination for Minsky's instability hypothesis. Mensch is indeed a good description of the man.
ReplyDeleteAnon @ 16:13 wrote this:
ReplyDelete"I only want to caution that Circuit's quote from Keynes, cited by Volcker 'Nations are not authorized...to visit on the children of their enemies the misdoings of parents or rulers' can be used by proponents of radical deficit reductions. The latter would charge that the excesses of their predecessors should not be transmitted and sustained by the children."
Good point, Anon. Forgot to mention it when I first read it.