Last week, I questioned
whether former Federal Reserve Chairman Paul Volcker is the right
person to lead the economy out of its doldrums. The post prompted some
debate in the comments section of Dealscape. In response to one
comment, let me say that I never meant to argue that Volcker's actions
to stem inflation were wrong. I simply highlighted that the actions
produced a deep recession. However, I did make it clear that Volcker's
efforts eventually broke years of stagflation the U.S. economy had
suffered through in the 1970s. In fact, I may not have been clear in my
post, but I think that Volcker may in fact be the best person for a
job as either a Cabinet member or simply as a close presidential
adviser.
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Unlike Larry Summers and Tim Geithner, the leading candidates
for treasury secretary, Volcker's decades of public service and
experience give him a historical acumen that neither man can offer
President-elect Barack Obama. This acumen may be the exact reason
Volcker sat directly to Obama's left on Friday. Volcker is nearly
legendary figure, with tremendous credibility and integrity. To suggest
Volcker's tenure as an inflation hawk Federal Reserve chairman is the
end-all-be-all of his career does a grave disservice to the man, whose
career spans 57 years at the Fed, Treasury and Chase Manhattan Bank
(now J.P. Morgan Chase & Co.). In that time he's witnessed a great
deal of structural changes in our financial system and real economy,
and he even had a direct hand in some of them.
For example, in 1971, he helped oversee the end of gold
convertibility of U.S. dollars, which essentially completed the
transition from the gold standard to a fiat system for the U.S. dollar
-- and with it the collapse of the Bretton Woods system thereby
creating today's free-floating currencies. For decades, he's been
deeply involved in cross-border regulatory matters. Now leaders such as
France's Nicholas Sarkozy are calling for a new Bretton Woods-like
agreement. Volcker's involvement with the Obama camp will certainly
help the president-elect when he meets with Sarkozy and other
proponents of a Bretton Woods II.
As for the dangers of inflation, while it may seem remote in a
period of cratering asset prices and vaporizing capital, it remains a
real threat given the sheer amount of state capital flooding economies
around the globe. Volcker, of course, knows a few things about taming
inflation, some of which requires an iron gut and an asbestos hide to
withstand the heat.
In the end, however, it's probably up
to Volcker himself as to what role he plays in an Obama administration.
At 81, he may choose to opt for adviser rather than member of the Cabinet, allowing Obama to call on him when the storm clouds gather. - Matthew Wurtzel
See earlier story from DealscapeMatthew Wurtzel is the editor of Dealscape
