“I Do Get Paid to Worry”: Remembering Former Fed Chairman Paul Volcker

This past Sunday, Dec. 8, 2019, former Federal Reserve Chairman Paul A. Volcker died at age 92.

Taming Inflation in the 1980s

Those who were of working age during Volcker’s tenure as Fed chairman, spanning Aug. 6, 1979, to Aug. 11, 1987, may remember him for efforts to wrangle double-digit consumer price inflation, which was nearly 12% in August 1979.

Shortly after becoming chairman, he ushered in a major shift in monetary policy: placing less emphasis on federal funds rate targeting and more on targeting non-borrowed bank reserves to control the money supply. Two recessions followed, unemployment spiked, and the fed funds rate rose above 19%. But by the end of 1982, the CPI inflation rate had fallen below 4%. Volcker’s leadership set the stage for a long period of stable economic growth.

Banking Reform after the Financial Crisis

Those who were of working age during and after the financial crisis and Great Recession may remember him for the “Volcker Rule.” Pursuant to the Dodd-Frank Act of 2010, this prohibited banking entities from engaging in proprietary trading and from having certain interests in, or relationships with, hedge funds or private equity funds.

Volcker served as a chairman of President Obama’s Economic Recovery Advisory Board from 2009 to 2011. As the Obama White House characterized it, the rule “makes sure big banks can’t make risky bets with their customer’s deposits. The Volcker Rule will make it illegal for firms to use government-insured money to make speculative bets that threaten the entire financial system.”

Obituaries have covered these and other highlights of Volcker’s long career in banking, public service and academia. But for a glimpse at the 6-foot-7-inch policymaker in a different context, we turn to the St. Louis Fed’s digital library, FRASER.

Below is an excerpt of his remarks at University of Cincinnati commencement exercises in 1986, toward the end of his second term as Fed chairman.

Perhaps some of this may resonate with those of working age today.

Commencement Remarks, 1986, by Paul Volcker

… I must confess that, for me, a commencement address is a difficult art form. The image of a central banker is, I am afraid, a rather pompous one — grave men given to lengthy and opaque analyses of obscure economic relationships. It was quite in that vein that the New York Times commented the other day that the Federal Reserve is a fairly grim agency. The Wall Street Journal followed up with a column on its front page starting with the sentence, “Federal Reserve Board Chairman Paul Volcker is a cheerless fellow.”

… [I]n fact there is quite a lot to be cheerful about. The economic world is certainly in better shape than when most of you entered college, in the midst of recession. We've had 3½ years of business expansion, and in the process created 9½ million new jobs. Inflation is down, and so are interest rates.

… [T]he way we do business of finance, and medicine, and law is changing — changing faster than many of us can really comprehend. At the same time, those equipped with good minds, a solid education, and familiarity with new technologies — the kind of thing this University is all about — have perhaps more opportunity than ever before.

It's all pretty heady stuff, and it's easy to envy the young and vigorous, well prepared to launch upon new careers.

But I do get paid to worry — and I have to tell you I find no shortage of material on that score.

For one thing, history strongly suggests that — as a nation, as businesses, as individuals — we are borrowing too heavily, mortgaging our future, and risking financial trouble. Our already low savings rate has been declining. We import too much and export too little. The largest and richest economy in the world has also turned into the largest international debtor.

Closer to home, I worry that too many sectors of our economy — and some regions of the country — haven't shared in the expansion. We don't need statistics to know that unemployment, particularly among minorities, remains too high. And, when we look at the rest of the world, there are too many areas where growth is only a dream, and starvation a reality.

But I am not going to make this a lecture in economics. I have some broader concerns, maybe more directly relevant, to balance all those bright opportunities before you.

You are living in a world of accelerating change, not just in economics, but in the way we live our lives. A major force driving that change is that technology allows us to store, retrieve, and transmit information with a speed and economy that makes a mockery of what we thought was advanced a decade or two ago. We move about much more freely and cheaply, here and abroad. As a natural consequence, markets for goods and services, and the marketplace of ideas, have become more international than ever before.

That's all stimulating and exciting. The financial rewards for some can be enormous, and many more than an elite few should have the best opportunities ever for achieving personal and professional goals.

But there are risks in all this change and opportunity. When we move so easily, will we be able to retain a solid sense of really "belonging" anywhere? When things are changing so fast, do we really have time to fully absorb, assimilate, and consider the implications of what we do? Most dangerous of all, will we lose a sense of standards — of what is right, what is lasting, and what is necessary to maintain a harmonious community in which we all must live, and for personal satisfaction as well?

…

After all, in the end, the overriding question for your generation is not going to be how much money you make but whether you can keep the peace in a nuclear age — that accident at Chernobyl sent a shiver up all our spines, and just maybe will help remind us of what our priorities really are.

And there is no shortage of other threats to our collective and individual futures — from drugs on our streets to pollution in the atmosphere — both of which seem to go hand in hand with all that restless change.

…

There has been a strong movement in this country in recent years, under Democrats and Republicans alike, to reduce official supervision and regulation of financial institutions and other businesses. The reasoning is clear — to promote more efficient competitive markets. But there must be another assumption as well, seldom stated or discussed. The effective operation of a competitive market system must in the last analysis rest on a strong sense of business integrity and fiduciary responsibility.

That is not a new thought. All those new computers, all those new ways of doing business, all our technological wonders, are no substitute for a sense of mutual trust, in our business relationships, in our government, and in our personal lives.

I am also old enough to know that, decades down the road, your main satisfactions will be found primarily in the strength of your families, your ties with faithful friends, and in a sense of contribution to the community. It will be occasions like this — in about 2016 — that will symbolize those achievements.

Discover More History

Learn: The St. Louis Fed dedicated an issue of our economic journal, The Review, to the October 1979 monetary policy reform on its 25th anniversary.

Explore: Our digital library contains many statements and speeches of Chairman Volcker, including his first nomination hearing in the Senate in 1979.

Notes and References

• Federal Reserve History, “Paul A. Volcker.”
• “Oct. 6, 1979.” Federal Reserve Bank of San Francisco, Economic Letter, Dec. 3, 2004.
• “President's Message: Fed's Bold Actions Harken Back to Volcker Era,” Federal Reserve Bank of St. Louis, Regional Economist, April 1, 2009.
• “Reflections on Monetary Policy 25 Years after October 1979,” Federal Reserve Bank of Minneapolis, Book Review, Dec. 1, 2005.
• Effective Federal Funds Rate (FEDFUNDS), accessed in FRED.
• “Rules and Regulations: Volcker Rule among Several Recently Released Final Rules,” Federal Reserve Bank of St. Louis, Central Banker, Winter 2013.
• Statement by the President on the Volcker Rule, Obama White House, Office of the Press Secretary, Dec. 10, 2013.