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Paul Volcker

From Alfawiki
Paul Volcker
Born
Paul Adolph Volcker Jr.

(1927-09-05) 5 September 1927 (age 99)
Cape May, New Jersey, U.S.
Died8 December 2019(2019-12-08) (aged 92)
OccupationEconomist
Years active1952–2011
Known forChairman of the Federal Reserve (1979–1987), Volcker shock, President of the Federal Reserve Bank of New York (1975–1979), Chair of President Obama's Economic Recovery Advisory Board (2009–2011)

Paul Adolph Volcker Jr. (September 5, 1927 – December 8, 2019) was a prominent American economist who held the position of the 12th chairman of the Federal Reserve from 1979 until 1987. He is largely recognized for his decisive role in curbing the rampant inflation of the late 1970s and early 1980s through stringent monetary measures collectively referred to as the Volcker shock. Before ascending to the chairmanship, he led the Federal Reserve Bank of New York as its president from 1975 to 1979.

Initially appointed by President Jimmy Carter and later reappointed by President Ronald Reagan, Volcker opted not to pursue a third term, with Alan Greenspan succeeding him. Following his Federal Reserve tenure, he chaired President Barack Obama’s Economic Recovery Advisory Board between 2009 and 2011, offering strategic advice amid the challenges posed by the subprime mortgage crisis.

Early life and education

Born in Cape May, New Jersey, Volcker was the son of Alma Louise (née Klippel) and Paul Adolph Volcker, descending from German ancestry. He was raised in Teaneck, New Jersey, where his father served as the township’s inaugural municipal manager for two decades, contributing significantly to local economic growth and administrative efficiency. Growing up alongside four older sisters, Volcker attended his mother’s Lutheran congregation while his father participated in an Episcopal church. He completed his secondary education at Teaneck High School in 1945, where he was noted for his keen interest in politics.

Volcker graduated with highest honors from Princeton University’s Woodrow Wilson School of Public and International Affairs in 1949. His senior thesis, titled "The Problems of Federal Reserve Policy since World War II", critiqued the post-war Federal Reserve’s inability to adequately manage inflationary trends, emphasizing the necessity of controlling the money supply to prevent sharp price escalations. After spending a summer as a research assistant at the Federal Reserve Bank of New York, he earned a Master’s degree in political economy from Harvard University by 1951, during which he again worked at the New York Fed over a summer. Subsequently, he studied at the London School of Economics between 1951 and 1952 under a Rotary Foundation Ambassadorial Fellowship.

Career

Volcker began his professional journey in 1952 as a full-time economist at the Federal Reserve Bank of New York. In 1957, he transitioned to become a financial economist at Chase Manhattan Bank. His mentor, Robert Roosa, brought him into the Treasury Department in 1962 as director of financial analysis. By 1963, Volcker advanced to deputy under secretary for monetary affairs. Returning to Chase Manhattan Bank in 1965, he assumed the roles of vice president and director of planning.

Under the administration of President Richard Nixon, Volcker served as under secretary of the Treasury for international monetary affairs from 1969 until 1974. He was instrumental in President Nixon’s decision on August 15, 1971, to halt gold convertibility—a move that effectively dismantled the Bretton Woods system. Volcker described this event as "the single most important event" in his professional life. During this period, he also held board memberships at both the OPIC and Fannie Mae. Known for championing international monetary cooperation, he frequently engaged with global policymakers to negotiate financial matters. After departing from Treasury service, Volcker spent a year as a senior fellow at Princeton’s Woodrow Wilson School before assuming leadership as president of the Federal Reserve Bank of New York in 1975—a position he maintained until becoming Federal Reserve Chairman in August 1979.

Chairman of the Federal Reserve

In response to market turmoil following the confirmations of Treasury Secretary G. William Miller and Acting Fed Chairman Frederick H. Schultz, President Jimmy Carter nominated Paul Volcker on July 25, 1979, aiming to restore trust and aggressively confront inflation. The Senate confirmed Volcker on August 2, 1979, and he officially assumed office on August 6. Later, President Ronald Reagan appointed him for a second term in 1983.

Amid the inflation crisis of the 1970s, Volcker’s leadership at the Federal Reserve is credited with bringing inflation down from its peak of 14.8% in March 1980 to under 3% by 1983. The Fed increased the federal funds rate from an average of 11.2% in 1979 to a high of 20% in June 1981, with the prime rate hitting 21.5%. These policies contributed to the recession in the early 1980s, during which unemployment rose above 10%. This period, often referred to as the "Volcker shock," combined elevated interest rates with monetarist-influenced strategies targeting money supply, although monetarism was not unanimously supported within the FOMC.

Volcker’s approach provoked significant political opposition and widespread protests not seen since 1922. Elevated interest rates severely affected construction, agriculture, and manufacturing industries; farmers demonstrated by blocking access to the Federal Reserve building in Washington, D.C., while homebuilders sent lumber as a form of protest. The policy also unsettled the European Monetary System and drew criticism abroad. By 1982, monetary policy eased in the U.S., aiding economic recovery.

In July 1984, Volcker met with President Reagan and White House Chief of Staff James Baker, who requested a pause on rate hikes before the presidential election; Volcker complied discreetly without public statements.

During the 1990s, ongoing U.S. current account deficits led Volcker to back the Plaza Accord in 1986, which encouraged Germany and Japan to appreciate their currencies relative to the U.S. dollar.

The combination of restrictive Fed policies alongside expansive fiscal measures under Reagan—including substantial tax cuts and increased defense spending—resulted in large federal budget deficits and macroeconomic imbalances. Rising federal debt coupled with high interest rates significantly increased government interest expenses, prompting Congressional efforts toward fiscal discipline.

Nobel Prize winner Joseph Stiglitz observed that Volcker was dismissed partly because the Reagan administration perceived him as insufficiently supportive of deregulation.

Congressman Ron Paul, known for his criticism of Federal Reserve policies, commended Volcker’s intellect and methodology compared to other Fed chairs.

In recognition of his contributions to public service, Volcker was awarded the U.S. Senator John Heinz Award for Greatest Public Service by an Elected or Appointed Official in 1983.

Post–Federal Reserve

After stepping down from the Federal Reserve in 1987, Volcker took on the role of chairman at Wolfensohn & Co., a New York investment bank led by James D. Wolfensohn, who later served as President of the World Bank.

Volcker was elected to both the American Academy of Arts and Sciences and the American Philosophical Society in 1992. In 1993, he chaired the Group of Thirty’s report on derivatives markets titled "Derivatives: Practices and Principles," serving as Chairman emeritus for this influential advisory body on international economic and monetary issues.

In 1996, he led the Independent Committee of Eminent Persons (known as the Volcker Commission) that investigated dormant accounts belonging to Jewish Holocaust victims held by Swiss banks. This effort culminated in a $1.25 billion settlement agreement after complex negotiations involving Swiss financial institutions and Jewish representatives.

Volcker became Chairman of the IFRS Trustees in 2000, overseeing efforts by the International Accounting Standards Board to establish a global accounting framework adopted internationally on a country-by-country basis.

Joining The Conference Board as a senior advisor in 2001, Volcker concentrated on corporate governance, economic cycle analysis, and policy development while engaging business leaders worldwide to promote free markets coupled with responsible corporate practices.

In 2004, he was appointed by the United Nations to investigate corruption allegations within the Iraqi Oil-for-Food program. His report highlighted conflicts of interest but found no evidence implicating UN Secretary-General Kofi Annan in improper influence regarding contract awards. Prior to this assignment, Volcker had served as director of the United Nations Association of the USA.

By 2006, Volcker chaired the Group of Thirty’s board and held membership in the Trilateral Commission. He maintained longstanding connections with the Rockefeller family through roles at Chase Bank, participation on Rockefeller Group’s trust committee managing Rockefeller Center, and involvement with International House New York. He was also among the founding members of both the Trilateral Commission and affiliated with the Bilderberg Group.

In January 2008, Volcker publicly endorsed Democratic presidential candidate Barack Obama. That April he addressed The Economic Club of New York, providing analysis on U.S. capital markets and Federal Reserve policies amid ongoing financial instability. He appeared in Charles Ferguson’s documentary Inside Job (2010), where he criticized excessive compensation practices among Wall Street executives.

Serving as an economic advisor to President Obama, Volcker chaired the President's Economic Recovery Advisory Board. Although considered for Treasury Secretary by Obama initially, his advanced age prevented appointment. During the financial crisis, Volcker criticized banks’ insufficient responses and advocated for stronger regulatory measures. He proposed dismantling large banking institutions and restricting deposit-taking entities from engaging in risky activities such as proprietary trading or investments in private equity and hedge funds—recommendations that formed what became known as the Volcker Rule.

Volcker stepped down from his advisory board role when its charter expired in February 2011 without participating in its renewal. In January 2010, President Obama announced new banking regulations branded as "The Volcker Rule," which limit banks’ ownership stakes in hedge funds and private equity firms while curbing proprietary trading activities. SEC Commissioner Luis A. Aguilar emphasized that effective enforcement would be crucial for successful implementation.

Known for questioning prevailing Wall Street practices, Volcker famously remarked that "the only useful banking innovation was the invention of the ATM." In April 2010, he proposed considering a national sales tax akin to Europe's Value Added Tax (VAT) as a means to address fiscal challenges.

In 2011, Volcker co-authored an article with former Secretary of State George Shultz published in The Wall Street Journal, contending that America’s War on Drugs had failed and calling for a reevaluation of drug prohibition costs without advocating legalization.

Volcker entrusted his public service archives to Princeton University’s Seeley G. Mudd Manuscript Library in 2015.

World Justice Project

Volcker held the position of honorary co-chair for the World Justice Project, an organization dedicated to advancing the rule of law globally and fostering fair community development.

Volcker Alliance

In 2013, Volcker established the nonprofit entity known as the Volcker Alliance, aimed at enhancing the implementation of public policies and restoring confidence in government institutions. This nonpartisan group collaborates with academic institutions, businesses, and government bodies to improve education in public service, conduct research on governmental effectiveness, and strengthen accountability across federal, state, and local governments.

Committee for a Responsible Federal Budget

Volcker served on the board of the Committee for a Responsible Federal Budget, a nonpartisan organization committed to informing the public on issues related to fiscal policy.

Personal life

In 1954, Volcker wed Barbara Bahnson; together they had two children: Janice, a nurse who graduated from Georgetown University, and James, a research assistant with cerebral palsy who earned his degree from New York University. Their family also included four grandchildren. Barbara passed away in 1998 after a prolonged struggle with diabetes and rheumatoid arthritis. In 2009, Volcker became engaged to his longtime assistant Anke Dening, marrying her the following year.

Nicknamed "Tall Paul" due to his height of , Volcker was passionate about fly-fishing. He had siblings, including one sister who experienced marriage and divorce and had five children.

Death

Volcker passed away in New York City on December 8, 2019, at the age of 92. He had been undergoing treatment for prostate cancer since being diagnosed the year before.

Honorary degrees

Throughout his life, Volcker was awarded honorary degrees from a wide range of institutions such as Hamilton College (1980), University of Notre Dame, Princeton University, Dartmouth College, New York University, University of Delaware, Fairleigh Dickinson University, Bryant College, Adelphi University, Lamar University, Bates College (1989), Fairfield University (1994), York University (2001), Williams College (2003), Northwestern University (2004), Rensselaer Polytechnic Institute (2005), Brown University (2006), Georgetown University (2007), Syracuse University (2008), Queen's University (2009), Amherst College (2011), and the University of Toronto (2015).

The "Paul Volcker Chair" in Behavioral economics was created in 2011 by the Maxwell School of Citizenship and Public Affairs at Syracuse University, where Volcker contributed as an advisory board member from 2001 until his passing.

Works

  • Changing Fortunes, authored by Paul Volcker and Toyoo Gyohten; Crown, published May 26, 1992, ISBN 978-1-58648-752-2
  • Forbes Great Minds Of Business, featuring contributions from Fred Smith, Peter Lynch, Andrew Grove, Paul Volcker, Pleasant Rowland; John Wiley and Paul A. Volcker; Simon and Schuster Audio release on October 1, 1997, ISBN 978-0-671-57722-3
  • Good Intentions Corrupted: The Oil for Food Scandal And the Threat to the U.N., by Paul Volcker, Jeffrey A. Meyer, and Mark G. Califano; Public Affairs Gorgias Press edition dated August 28, 2006, ISBN 978-1-58648-472-9
  • Keeping at it: The Quest for Sound Money and Good Government (Memoir); published by Public Affairs in 2018, ISBN 978-1541788312

In popular culture

Originating from Portland, Oregon, the politically charged rock group Volcker adopted its name in tribute to him and came together in early 2015. Their self-titled album was launched on January 27, 2016. The band gained exposure through a feature on BBC Radio 4's Economics with Subtitles broadcast on August 28, 2016.

See also

Sources

  • Morris, Charles R. (2009). The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets. PublicAffairs. ISBN 978-1-58648-752-2.
  • Silber, William L. (2013). Volcker: The Triumph of Persistence. Bloomsbury Press. ISBN 978-1-620-40292-4.
  • Treaster, Joseph (2004). Paul Volcker: The Making of a Financial Legend. John Wiley Sons. ISBN 978-0-471-42812-1.
  • Meltzer, Allan H. (2009). A History of the Federal Reserve – Volume 2, Book 2: 1970–1986. University of Chicago Press. ISBN 978-0226213514.

External links

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