Paul Volcker, at 91, Sees “a Hell of a Mess with the Fed”

The former Fed chairman, whose memoir will be published this month, had a feisty take on the state of politics and government during a recent interview.

By Andrew Ross Sorkin

·        Oct. 23, 2018

Paul Volcker, wearing a blue sweatsuit and black dress socks, stretched out on a recliner in the den of his Upper East Side apartment on a Sunday afternoon. His lanky 6-foot-7 frame extended beyond the end of the chair’s leg rest. He added an ottoman to rest his feet.

“I’m not good,” said Mr. Volcker, 91, the former Federal Reserve chairman, who came to prominence after he used shockingly high interest rates to help end the runaway inflation of the late 1970s and early ’80s. Long one of finance’s wise men, he has been sick for several months.

But he would rather not talk about himself. Instead, Mr. Volcker wants to talk about the country, the economy and the government. And if he had seemed lethargic when I arrived, he turned lively in his laments: “We’re in a hell of a mess in every direction,” he said.

Hundreds of books surrounded Mr. Volcker — filling shelves and piled high on virtually every flat surface — as did pink pages of The Financial Times, folded into origami. “Respect for government, respect for the Supreme Court, respect for the president, it’s all gone,” he said. “Even respect for the Federal Reserve.

 “And it’s really bad. At least the military still has all the respect. But I don’t know, how can you run a democracy when nobody believes in the leadership of the country?”

Before Mr. Volcker fell ill, he finished his memoir, “Keeping at It: The Quest for Sound Money and Good Government.” The book was supposed to be published in late November, but given Mr. Volcker’s health, its publisher, PublicAffairs, a unit of Hachette, moved its release up to Oct. 30.

 “I had no intention of writing a book, but there was something that kind of was irritating me,” he said. “I’m really worried about this governance thing.”

The book, which Mr. Volcker wrote with Christine Harper, editor in chief of Bloomberg Markets, is a telling memoir about a man who not only redefined the role of Fed chairman but, after the financial crisis, conceived of a namesake rule that eliminated some of the most blatant risk-taking by Wall Street banks. The Volcker Rule, which was part of the Dodd-Frank regulatory legislation.

 “There is no force on earth that can stand up effectively, year after year, against the thousands of individuals and hundreds of millions of dollars in the Washington swamp aimed at influencing the legislative and electoral process,” he wrote in the book.

The memoir is at times a dishy tale of Mr. Volcker’s years in Washington. For example, while President Trump has complained in recent months about the Fed’s plan to raise interest rates, he isn’t the first to try to influence the independent Federal Reserve. Mr. Volcker recounts being summoned to meet with President Ronald Reagan and his chief of staff, James Baker, in the president’s library next to the Oval Office in 1984.

Reagan “didn’t say a word,” Mr. Volcker wrote. “Instead Baker delivered a message: ‘The president is ordering you not to raise interest rates before the election.’” Mr. Volcker wasn’t planning to raise rates at the time.

“I was stunned,” he wrote. “I later surmised that the library location had been chosen because, unlike the Oval Office, it probably lacked a taping system.”

The book is not limited to tales of the past, however. It addresses current policy, like the 2 percent inflation target that has become the goal of the Federal Reserve.

“I puzzle at the rationale,” he wrote. “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”

With a laugh, he told me that he believed the policy was driven by fears of deflation. “And we haven’t had any deflation in this country for 90 years!”

But there is something more worrisome affecting policy than fear, he told me. Money.

Over the din of traffic outside an open window, Mr. Volcker hoarsely sounded an alarm on the power it has to shape our culture and our politics.

“The central issue is we’re developing into a plutocracy,” he told me. “We’ve got an enormous number of enormously rich people that have convinced themselves that they’re rich because they’re smart and constructive. And they don’t like government, and they don’t like to pay taxes.”

Washington, when he arrived, “was a city filled with bureaucrats,” he said. “It didn’t make them bad.” At the time, civil servants — like his father, the township manager of Teaneck, N.J. — were respected. “I grew up in a world in which good government was a good term,” he said. But things have changed. Today, he said, Washington is overrun by lobbyists and think tanks. Mr. Volcker, who started a nonprofit to improve education for public service, contends that our educational system has been perverted by money. Schools like the John F. Kennedy School of Government at Harvard and the Woodrow Wilson School of Public and International Affairs at Princeton, he said, have failed to educate a new generation of civil servants. He said they no longer taught governing but policy — a shift that he contended allowed them to hold forums and discussions with generals and under secretaries.

“Rich guys,” he said, “like to go.” He called it “hobnobbing wholesale.”

“They can argue war and peace and poverty and everything else,” he said. “But when you go to a school of public policy, you’re not learning how to run the goddamn government. You’re learning how to debate political issues.”

Unlike President Barack Obama, who invited Mr. Volcker to consult on economic and regulatory policy — and asked him if he would be willing to be Treasury secretary, he said — this White House hasn’t called him. Even so, he has met Mr. Trump twice, both times before he took office.

The first meeting was after Mr. Volcker left the Federal Reserve in 1987. “I was walking down the street, somebody calls out: ‘Hey, Paul! Hey, Paul!’ He comes running across the street and says, ‘Hi, I’m Donald Trump.’”

The other was an unsuccessful attempt by Mr. Volcker to get Mr. Trump to use “The Apprentice” to raise money for a charitable organization. “We had a very nice lunch, and he said, ‘Interesting idea,’ but put me off otherwise,” Mr. Volcker said.

Mr. Volcker is no great fan of the president, but he acknowledged that Mr. Trump had cannily recognized the economic worries of blue-collar workers. Mr. Trump “seized upon some issues that the elite had ignored,” he said. “I don’t think there’s any question about that, in kind of an erratic way, but there it is.”

He wondered how many lectures and presentations he had sat through with economists “telling us open markets are wonderful, everybody benefits from open markets.”

Eventually, Mr. Volcker said, someone in those lectures would always ask, “What about that poor manufacturer in my town?” But that concern was dismissed too easily, with talk of worker retraining or some other solution far easier said than done.

Today, Mr. Volcker is already starting to worry about the next financial crisis. Asked about the stability of the banks, he said, “They’re in a stronger position than they were, but the honest answer is I don’t know how much they’re manipulating.”

That, he said, is the real challenge facing economic policymakers. “Everybody talks about monetary policy,” he said, “but the lesson of all this is we need better, stronger supervisory powers.”

Even as our conversation came to an end, Mr. Volcker looked as if he could keep talking for hours. I told him that, rather than look sick or depressed about the state of the world, he appeared energized. Or, I told him, that was at least the impression he left.

“Leave it that way,” he said.