Odd Lots - How Paul Volcker Views His Life

Episode Date: November 26, 2018

Paul Volcker is widely-regarded as single-handedly halting a period of severe inflation in the U.S. during the late 1970s and early 1980s. But the former chairmen of the Federal Reserve’s reputation wasn't always so secure. So how does he view his legacy? Christine Harper, the editor of Bloomberg Markets, spent two years working with Volcker to co-author his autobiography, “Keeping At It: The Quest for Sound Money and Good Government.” See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. And welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, who's your favorite central banker? Oh, wow. Good question. Right now or throughout history? Throughout history. You know what's funny? I'm kind of on an Ellen Green's bandcake these days. Oh, controversial choice?

Yeah. Why? Well, because he seems to have a lot of relevance right now. Like everybody in the late 90s was predicting inflation was going to happen. But he didn't believe it would happen. In fact, he got into some arguments with Janet Yellen. And the economy had this big boom because he let monetary policy run easy and unemployment dropped further than anyone thought.

Then there was this huge bubble and then there was this huge crash. So, you know, you kind of, there are some good aspects of his legacy, but also maybe some lessons to learn on the negative side, too. What about you? What's your favorite? Oh, God. I'm going to completely sidestep the question because I want to get to the point of the question that I just asked you, which you've summarized perfectly. And that's the notion that, you know, throughout central bankers working lives, their professional lives, they kind of fall in and out of favor with each. other and also with the general public. And it's really interesting to watch that happen. Absolutely. I mean, even like the very recent Fed shares, for example, I think that's the case. So I think people were very into Bernanke and Yellen for a while. And of course, Bernanke for the actions he took and stemming the financial crisis. But then you look now and you see that inflation is still cool and unemployment has dropped much further than they expected. And you're like,

oh, did they like tighten policy too quickly? So subsequent events, whether they're crashes or changing economic conditions, can really shade how we saw a banker, a central banker, even just one that was in office a few years ago. Exactly. And do you ever wonder what the central bankers themselves think of what they are doing when they're in office? I always do. Like, you know, does Jerome Powell stay up late at night worrying that he's making a policy mistake? What would be? was Yellen thinking over the past few years? What was Alan Greenspan thinking immediately after the financial crisis? These are all very interesting questions. And today we're going to explore all of those through the prism of one former Fed governor in particular. And that is Paul Volcker.

Yeah. I'm really excited about this episode. I think, you know, obviously right before Greenspan definitely a sort of legendary central banker and whose influence in terms of, expectations regarding inflation and Fed independence and making difficult choices in the face of political opposition still looms large today. So I think his life and career hold a lot of lessons for right now. Yep. And we are very lucky at Bloomberg because one of our colleagues, Christine Harper, she's the editor of Bloomberg Markets Magazine, has actually co-authored Paul Volker's autobiography. It's called Keeping Edit, The Quest for Sound Money and Good Government. It just came out. And so we're going to get to ask her all these things about what Paul Volcker was thinking and how he

actually was considering his legacy throughout the years. Can't wait. Christine, thanks so much for joining us. Delighted to be here. So I have to admit, when I first heard that you were co-authoring a book with Paul Volker, I had no idea what was going on. Can you please explain how you actually know him and how this project got started? Well, I really have to admit it was a pure luck. He has worked in the past with a publisher named Peter Osnos, who founded a publishing imprint called Public Affairs, which is now part of Hashet. And Paul and Peter had some discussions about how Paul maybe, after all these years,

might want to write a memoir. And so Peter wanted to make that happen. and wanted to find somebody to work with Paul on it. And he thought it was very important to be somebody in New York who knows a little bit about finance, but who wouldn't dominate the process and who would have the right kind of chemistry with him and could kind of regularly go and meet with Paul

and talk about, you know, basically interview him and then try to pull it all together into a book. So I was very surprised. I knew Peter a little bit, but I was really not, you know, expecting to be asked to do anything like this, and it was a big surprise. But obviously, I couldn't think of a book I'd rather work on what a legend. And I kept thinking throughout the process that no matter what happened, I'd get to spend a lot of time with Paul Volker. So it was a phenomenal experience.

I basically spent the last year and a half kind of almost daily and, you know, or, you know, a few times a week at least, seeing this great man listening to his story. getting to work with him, learning a great deal about not only the history of the economic story of America and the world, but just about sort of government and integrity and how to live a really good life over 90 years. How does that start? So you interviewed it, but like, did you have like a sort of mapped out idea of the interviews or do you just start and say, all right, Paul, start telling me your story and let's hear where this goes?

Yeah, I basically took that approach. I had no idea. First of all, I mean, you know, he's a pretty amazing man. You know, he's six foot seven. He's served under six presidents. You know, he is not easily sort of guided to do anything. He knows what he wants and he gets it. So there was no point really going there and trying to tell him what we wanted to talk about.

I would sort of go in and say, hey, let's, you know, where do you want to start? And he'd say, okay, let's start at the beginning. We'd talk. And also, I should say that what happened. And after we did a whole bunch of interviews, I got a lot of transcriptions of these interviews, which proved to be very helpful. But he also then started just writing himself. He started writing on yellow pads, which is his longtime practice.

He doesn't type. And he has an assistant who typed them all up and would email them to me. And I would just go through this and, you know, edit and say, hey, you told me this great story. Let's add it in. You didn't put it in. Or, you know, why don't we recast it a little bit? So I ended up becoming sort of more of an editor and a sort of a coach. And we would kind of send edits back and forth.

And he's great. I mean, he's also a natural copy editor. He loves to go through documents and make kind of tiny, you know, changes. But he's a lovely collaborator. And I kept worrying that at some point he might become really tough to deal with because obviously he has to have really, you know, strong will. And I thought at some point he might vehemently disagree with me on something. But actually, we had an amazing experience.

And, you know, I was very lucky that we got along so well. And so Peter Osnos was right. It was a good combination. So when you first met him to discuss this project, Paul, I mean, what did he tell you about what he was trying to do? What were his motivations for doing this at the age of, I think he's 91 or something like that now? Yeah, so when I first met him, he was 89, he turned 90 late last year, and then he just turned 91. He wanted to put down his story in his own words. There have been three biographies written of him, which was a little daunting when I realized that, you know, because...

Did you read them all? I did. And I read a book that he wrote with a former Japanese official named Toyu Goten, who they wrote together about 25 years ago, sort of a series of pieces about their involvement in international monetary system reform. which is really good. It's called Changing Fortunes. So a lot of his stories had been told, but it was really about getting to tell it his way and getting to tell things that maybe biographers hadn't thought were so important. He has a chapter in there, for instance, about the importance of accounting reform.

He has a chapter in there about his involvement with trying to reform the UN and the World Bank. So those weren't always the sexiest topics for his biographers. but he really cares about these things. So he wanted to write about all the ways in which he was involved, not only at the Fed, but throughout, you know, his career and about the importance of public service. So what is the overriding theme when it's accounting reform, when it's World Bank, whether that sort of global monetary reform?

What is the common thread with which he approaches these big topics? One of the overriding things about him and sort of a foundational element of his career was that he grew up during the Depression and World War II with a father who was part of a sort of good government reform movement in the United States. His father was the son of German immigrants, grew up in East New York, Brooklyn, ended up getting a great education, fortunately, and became an engineer, but also ended up going into. to city management at a time when there's sort of a big move towards ending the corruption of the political sort of Tammany Hall type of politics at the time. And so Paul Volcker Sr. became town manager of this of this New Jersey town, Teneck, New Jersey, where Paul Volker Jr. grew up and completely turned it around. I mean, he did an amazing job of making this town that was basically almost bankrupt into a town that was cited by the United

States Army in the occupied countries after the war as the model community that they should base their democracies on. It was touted in the Saturday Evening Post as the crime-free town. It was just a sort of amazing success. So Paul Volcker Jr. grew up believing there was no higher calling than helping to make your community and your government better. And he went to he went to Princeton at a time when the university was run, the president of the university was a professor of public administration. He went to the Littower Center, which is now the Kennedy School at Harvard, which was all about government. Everybody there wanted to go to government. All the economists, he was, who were his classmates, they all wanted to go into government.

That was kind of seen as the highest calling. And so everything he's done in his career has been informed by this idea that there's a really noble pursuit in helping make government work better. And he documents in the book all the ways in which he failed. Like he feels very depressed about how he wasn't able to save Bretton Woods. He tried really hard to create a new monetary system that would replace it and never was able to. And kind of writes a nice part of the book is where he sort of explains why he now, realizes it was never going to work. But he really wanted it to. He really believed in trying to, he's kind of almost the ultimate technocrat. And he's seen over the last few decades, and he sort

of traces it back to Reagan, this sort of belief that government is the problem, that, you know, government isn't worth investing in really sort of corrupt our system. And he's, he's been fighting against it since he left the Fed. But he has a you know, succeeded. And now I think he and a lot of people would agree we're at a point of almost crisis in this respect. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend.

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That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. So on that note, I'm curious, you're clearly painting a picture of a guy who cares very much about public service. How did he balance that care of public service with independence of the central bank? Because, of course, you know, when he came into the Fed, I think it was in 1979, inflation was running incredibly high, and Jimmy Carter was complaining a lot about it. So how did he make sure that he sort of paid attention to the needs of the

American population while simultaneously maintaining the independence of the central bank? Well, he was brought in, as he describes, at this time of such crisis, it was almost like being a general called in to help fight a war. I mean, there was nothing. that was more important to helping get the country back on its feet at that point than making sure we did something about inflation. So even though he recognizes that it caused a lot of pain for a lot of people to have interest rates go up so much and monetary policy get so tight, he also will assert, and he does over and over again, that there was no way to help people other than get the inflation rate down. If you didn't get the inflation rate down,

all was lost. So he had to do it. He had to do what he did. And a lot of it was psychological. He tells a story in there about after he'd been Fed chairman for just a little while, he was called to a meeting at the American Stock Exchange, I think hosted by Arthur Levitt. There were a whole bunch of businessmen. And he gave his spiel, Volker gave his spiel about how he was going to, it was going to be a tough fight, and he was going to get inflation down, and he promised that it was going to be good for the economy and down the road, everything would be fine. And one of the businessmen sitting next to him afterwards piped up and said, that's all very well and good, but I just finished my negotiations with my workforce and I'm giving them 13% raise a year for the next three years.

And he writes, you know, I wonder how that guy, how it worked out for that guy, you know, because people really didn't believe him. By the time Volcker got in there, people thought it was lost. I mean, Arthur Burns gave a speech in 1979 at the Pair Jacobson lecture, the anguish of central banking. Like it was, basically it was saying that politics were too difficult. It was impossible for central bankers to do anything about this. And at that very moment, Paul Volker was flying back from Belgrade, where the IMF meeting was, to the Fed to have these emergency meetings to come out with the Saturday night surprise, October 1979, where they announced that they were changing how they targeted, they were going to start targeting the money

supply instead of the interest rate. And that was a big psychological shift that he sort of engineered to, in a way, inoculate them from criticism that they were raising rates. Because up until then, the Fed always sort of shied away from the rate increases that were needed. So inflation was ahead of the interest rates. So in order to do something about it and sort of prevent the Fed from having to take the heat in a way from itself. He just, they just sort of, he describes it as being lashed to the mast. They were, they just said, we're all about the money supply. Rates are going to do what they are, are going to do.

It's not, it's not what we're doing. We're kind of like we're not responsible for rates. And that was kind of a great psychological instinct he had. I'm curious about the lessons for today, because if you hear central bankers now, they talk a lot about inflation and the importance of guarding against any sort of uplift in inflation or inflation expectations. They talk about the sort of hard-won credibility of the Federal Reserve, which I think definitely starts with Volcker. On the other hand, unemployment has been extremely high up until very recently, and arguably it's still elevated when you look at various

measures of inflation. And so to sort of have pushed back against Volcker's legacy a little bit. I'm wondering what you think of the argument that central bankers have become so focused on inflation that in the last decade, they sort of threw their hands up about unemployment, the other half of their mandate, and said, you know, just in the same way that Arthur Burns may have said, look, there's nothing, you know, central banks, we can't do anything about inflation anymore because of politics, whether in the post-crisis period, everyone was like, oh, a central banker is like, oh, unemployment is other people's problem or it's fiscal policy makers or it's the problem of a skills gap and sort of ignoring the fact

that maybe there was something they could have done about that. Well, I'm not an economist, so I'm not a good person to comment on that. I know what he would say, which is that he feels ultimately the number one almost moral requirement of the central bank is to make sure that the value of money isn't. isn't eroded. And that over history, you know, that's been the easiest way for governments to kind of try to, you know, appease the masses as to just, you know, cut the value of the currency. And so he strongly objects to, I mean, he has a section in there about how, and this was excerpted on Bloomberg opinion a few weeks ago, about what he considers the folly of the targeting

of the 2% inflation rate. I mean, it drives him absolutely insane to see people, as they were this summer, sort of agonizing over, you know, that we have inflation of only 1.7%. And how do we get it to 2%? And he's like, first of all, none of these measures are so precise. It's absurdity to try to act as though you can do that with such precision. Second of all, once you decide that 2% is your target, you're essentially agreeing to double prices every generation.

And you're also going to fall into a slippery slope of, oh, what if 2% doesn't get us the employment we want, then maybe let's just raise it to 3%. It just makes it too easy. He believes in a more principle-based idea of sort of, instead of targeting a number, just targeting, you know, when business and consumer decisions are not affected by inflation. Okay, here's what I really want to know.

in the course of all your meetings with Volker, did he ever tell you stuff that he didn't want to put into the book? Are there things that he would rather sort of keep out of his own story? I'm not asking for specifics. I'm just curious if there are certain controversial things that he wouldn't go into. He told me some stories that when I reminded him of them, he said, oh, let's not bother with that one. Yes.

I mean, in part because he didn't want the book to be so long. He's sort of a funny, you know, very self-deprecating, and he doesn't, he didn't want a book that was, you know, this gigantic tome. He didn't want something that sounded really pompous in terms of the title or anything. He, you know, wanted to keep it pretty short and to the point. And, yeah, there were some stories that are amusing. He loves, I mean, one of the things people don't know about him if they haven't spent time with him is that I certainly didn't know this, is that he's incredibly. funny. He loves to tell stories and he's really, really funny. And he's very rye and, you know, kind of he loves gossiping. I'm curious thinking about it, the book coming out now. And obviously

we live in an interesting time for central bankers. But you sort of said this earlier. The bigger picture is that we live in a very interesting time for governance. And I'm curious how much the very current government set up in the U.S., whether it's the attacks on the Federal Reserve's independence from President Trump, or just the sort of unconventional nature of the Trump presidency, or the various things we've seen in Congress in recent years, whether it's the dead sailing, things like that, of sort of naked attempts to get political advantage by sort of weakening governance in this country, how much that was on his mind with the book coming out right now. Well, I think it's, you know, it's definitely on his mind. He's very disturbed

about how, you know, Washington is being managed these days. And as he says sort of throughout the book, this lack of trust in government, which is really corrosive to a democracy, is sort of rooted in the fact that people have, over time, lost of faith that government can do what they expected to do. And in part, it's because the government is just kind of responsible for more and more. First of all, the population has gotten much bigger. There's many more things we expect government to do for us than when he was growing up. But also just this willingness to invest in government

has really been eroded over time, back to their sort of Reagan, sort of like, oh, we got to cut the government. So this idea that government's the problem, starve the government, and then complain that government is no good, so let's starve the government some more. It's sort of been going on for a long time.

And, you know, the consequences are obvious. He has this thing called Volker Alliance, is all about trying to train people for government, make government run more efficiently. And he really believes passionately in just making sure people in the government know how to do their jobs well. I mean, so much of government nowadays

is outsourcing. And if you aren't trained to deal with, you know, managing loads of people externally who are handling things for you, if you're not good at all that, if everybody who gets that kind of training goes into business and not into government, then, you know, you're going to end up

with a pretty bad system. So this is sort of his passion. And then in terms of the attacks on things like the Fed, obviously, you know, that disturbs him. But, you know, he's got this great sense of history. I mean, he's seen it. You know, he grew up when the Treasury was still controlling the Fed. You know, he remembers the great accord when Eccles was able to separate and make the Fed really separate from the Treasury after the war. And he wrote his thesis when he was at Princeton. on Federal Reserve and the need for it to be independent. So, you know, this is something he's cared about his whole life, but he also knows that sort of almost every president he's seen operate

has in some way tried to, you know, attack the Federal Reserve. And so keeping at it is sort of the title because this is not a new battle we're fighting. It kind of goes on and on throughout history and we'll continue. And you need, I guess, people like Paul Volker just sort of stand on the right side of things. Christine Harper, editor of Bloomberg Markets Magazine and the author, co-author, I should say, of keeping at it the quest for sound money and good government. Thank you so much. Thank you so much for having me. Great podcast you guys have.

So, Joe, I have to admit, I'm a little bit jealous after listening to that conversation because I just imagine, you know, Christine is sort of hanging out at Paul Volker's house and they're drinking wine and he's telling her all these really interesting stories about back when the financial system was sort of on the brink. I bet that would be a really great experience to have. Now I kind of want to do that. I know. I want to do that like just take a year and find some really fascinating historical figure and just talk to them forever and get their entire story. I have to say it sounds pretty great. Yeah. And of course, the interesting thing, which we alluded to in the intro is the way that central bankers own reputation and legacy sort of evolves along with

with, I guess, the economy, really. There are plenty of people who were sort of vilified by events that they arguably helped cause. And then there are other people that it seems to have worked out for. And of course, they're now celebrated as heroes. Yeah. And I think another really important aspect of Volker's legacy is beyond the specific monetary policy decisions that he made during the era of double-digit inflation, is this idea that he's sort of bigger than a, just a central banker and thinking about him working for the Obama administration during the drafting of the Dodd-Frank regulatory reform. Of course, the famous like Volker Rule, it's obvious,

and of course this was what we're talking about, but it's obvious that his reputation is as someone who could just sort of be trusted as someone of a person of integrity so that sort of, no matter what specifically the issue is his judgment is seen as a wise counsel, someone who can be trusted to make a sort of bring a big picture, good government perspective to whatever the problem is. Right. And on that note, I have one thing to say, which is Paul Volker for the Odd Lots accounting series. Yeah. Oh, I had that same thought. Like maybe we should do just, right, we have to, we still have to revisit our accounting series. I don't know when we'll get to that, but we should do one on Volcker's proposed reforms.

I need to, we need to read that book that he co-wrote with the Japanese economist. Yeah. All right. Well, this has been another edition of the Odd Lots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart.

And you should follow Christine Harper on Twitter at CR underscore Harper. And you should follow our producer on Twitter, Tofer Forehead. at Forrest T, as well as the Bloomberg head of podcast, Francesca Levy, at Francesca today. Thanks for listening. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories.

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