Paul Volcker on the late '90s tech bubble

The fate of the world economy is now totally dependent on the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported earnings.

~ Paul Volcker, May 14, 1999

Paul Volcker on Harvard University and Great Society elitism

INTERVIEWER: You said Keynesianism was almost a religion at Harvard when you were there?

PAUL VOLCKER: They did have other people there, you know. John Williams was the other macroeconomist there, certainly financial-side, and he was a very skeptical practitioner. He didn't spend all his time professing, and he advised the Federal Reserve back in New York at great lengths. I can't say everybody was Keynesian, but the younger school certainly was. It was Paul Samuelson, Jim Tobin, and all of them had grown up in the Keynesian climate. I didn't know them all, but they were all circulating. They were the bright young stars of Harvard at the time.

INTERVIEWER: When did you begin to have doubts? How early did you begin to become skeptical about things?

PAUL VOLCKER: I was already skeptical. I guess I'm skeptical about everything. I've gotten worse in my old age, but I was a little bit turned off by the precision and certainty that these people attached to the doctrine. The analytic framework was very convincing, but this feeling they had, that they could press the right buttons and manage the economy pretty exactly, for some reason it turned me off. I was very skeptical that they were not overselling the precision of this theory and the precision [with] which they could run policy.

INTERVIEWER: Was that a gut instinct, or was that something you picked up?

PAUL VOLCKER: It must have been a gut instinct. I don't know why, but I was just a little bit turned off by the sense of certainty that they had.

INTERVIEWER: You actually talked about the administrations of Kennedy and Johnson, and you used the word "hubris" in that context. Would you say that that kind of attitude reached a peak?

PAUL VOLCKER: Yes,. There's no question in terms of its policy application that that approach reached its peak in the Kennedy-Johnson years, when in the Harvard years it was still intellectual concept. It really hadn't permeated fully the political decision-making [process]. It hadn't reached its apogee, which it certainly reached in the Kennedy-Johnson days, and they felt they'd solved the problem in the business cycle. They'd solved a problem with macroeconomics; it was time to turn to other microeconomic things, [and] it was time to turn to welfare questions, because they'd solved the problem. I'm not exaggerating very much when I say that. They had a very long period of economic advancement, and things were going pretty smoothly. Productivity was high, and unemployment was low.

~ Paul Volcker, Commanding Heights interview (PBS), September 26, 2000

Paul Volcker on changing political winds on inflation

I was in the Federal Reserve, Treasury, a conservative guy who's always against inflation. The general tenor of the times was inflation was the least of evils, if it's an evil at all. What changed drastically in the 1980s and running through today is the presumption that inflation is bad [and that] the primary job of a central bank is to prevent inflation. That's taken for granted. The great ideology these days is that the central banks ought to be independent; they ought to have an inflation target, and an inflation target ought to be close to zero. That's a very different environment then the '50s and '60s and into the '70s.

~ Paul Volcker, Commanding Heights interview (PBS), September 26, 2000

Paul Volcker on the demerits of central banks buying mortgage bonds

A direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in times of crisis: lend freely at high rates against good collateral. It tests it to the point of no return.

~ Paul Volcker, speech before the Economic Club of New York, April 8, 2008

(Quote cited in "Trust in Central Banks Passes Point of No Return," Bloomberg, April 24, 2008, by Mark Gilbert)

Paul Volcker on Ben Bernanke's bind

I think Bernanke is in a very difficult situation. Too many bubbles have been going on for too long. The Fed is not really in control of the situation.

~ Paul Volcker, former Fed Chairman, "The Education of Ben Bernanke," The New York Times, January 20, 2008