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Paul Volcker

Why Volcker Was Best Pick for Obama Economic Advisory Board


Paul Volcker

Paul Volcker being named Chair of the Council of Economic Advisors

Photo by Scott Olson/Getty Images

Who Is Paul Volcker?:

Most recently, Paul Volcker was President of Barack Obama's Economic Recovery Advisory Board (2009-2011). The Board's function is to advise President Obama on how to revive the economy. Volcker, who was 81 when he accepted the post, was active in Obama's campaign. At the time, he was also considered as a possible Treasury Secretary. That position went to Timothy Geithner, former Chairman of the Federal Reserve Bank of New York.

Why Volcker Is Important to the U.S. Economy:

Paul Volcker entered the public arena while Chairman of the Federal Reserve from 1979-1987. Volcker had to combat 10% annual inflation rates. He courageously raised the Fed funds to 20% and kept it high until he saw that inflation was in check. Volcker realized that he needed to take dramatic and consistent action to get everyone to believe that inflation could actually be tamed.

Thanks to Volcker, economists and central bankers now know that managing inflation expectations is critical to ending inflation itself. (The same holds true for deflation.) As long as people thought prices would keep going higher, they had the incentive to spend now. The added demand only drove inflation higher. When they realized Volcker's Fed was committed to aggressive action to stop inflation, they stopped spending. 

What Did the Advisory Board Do Under Volcker?:

Volcker blamed the 2008 financial crisis on poor regulation of the financial sector. He advocated tougher restrictions with the Volcker Rule. This rule prohibits large banks from taking the kinds of risks that could result in their failure, prompting a bail-out. It prohibits them from trading in commodities, stocks or currencies as a profit-making business. (They can trade moderately too offset currency risks or to trade for a client.) Although the Rule was under review for two years before being implemented in 2012, it had immediate results. For example, Goldman Sachs eliminated its proprietary stock and currency trading desks.

Volcker played a key role in shaping the new Advisory Board, which brought in leaders from business and academia to provide an independent perspective on how to handle the crisis. Austan Goolsbee, Obama's chief economics advisor during the campaign and a former member of Obama’s Council of Economic Advisers, was the top staff liaison. The Board was modeled on the President Eisenhower's Foreign Intelligence Advisory Board, which was set up to track Cold War spying activities.

Obama brought in GE's top executive, Jeffrey Immelt, to replace Volcker on the Board. In response to changing priorities, Obama morphed the Board into President' Council on Jobs and Competitiveness.

What Has Volcker Done Since Then?:

Volcker is currently the chairman of the Washington, D.C.-based economic advisory body, the Group of 30. After leaving the Fed, Volcker was chairman of J. Rothschild, Wolfensohn & Company, an investment banking firm. He has led investigations into the Enron scandals and corruption in the United Nations’ oil-for-food program in Iraq. He recently headed a panel that probed Swiss banks’ handling of Holocaust victim’s accounts and has been active in the Arthritis Foundation.

Forbes magazine also notes wryly that "Volcker is a giant (both literally—he’s 6’7”—and figuratively) in the sport of fly fishing." He's fished bonefish and tarpon in Florida his favorite, Atlantic salmon, in Quebec. Thanks to his love of fishing, Volcker became a director of the Atlantic Salmon Federation and active in the North Atlantic Salmon Fund. Both are devoted to conservation.

Volcker's Education and Background:

Mr. Volcker was born on September 1927 in Cape May, New Jersey. He earned a B.A. from Princeton in 1949, and an M.A. in political economy and government from the Harvard University Graduate School of Public Administration in 1951. From 1951 to 1952, he was Rotary Foundation Fellow at the London School of Economics.

Volcker started as a research assistant at the New York Fed in 1949 and 1950, and returned as an economist between 1952 and 1957, when he became an economist at Chase Manhattan Bank. He joined the Treasury Department in 1962, as Director of the Office of Financial Analysis, and was appointed Deputy Undersecretary for Monetary Affairs in 1963. In 1965, he went back to Chase Manhattan as vice president of Forward Planning.

From 1969 to 1974, he was Undersecretary of the Treasury for Monetary Affairs. He then became senior fellow at the Woodrow Wilson School of Public and International Affairs at Princeton University for the 1974-75 academic year. In 1979, he was appointed Chairman of the Federal Reserve by President Jimmy Carter.

After leaving the Fed, Volcker became the chair of the investment bank, J. Rothschild, Wolfensohn & Co. He has helped recover the Swiss bank accounts of Jewish Holocaust victims. He also helped find the corruption in the Iraqi Oil for Food program for the UN.

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