On Fox Business Channel there was an interview with Paul Volcker, presently the chair of the Presidents Economic Recovery Advisory Panel. Volcker has a long and storied history and is generally well respected. Though personally, the only thing I really like about his history is that under Reagan he killed the horrific inflation rate inherited from the Carter years.
Particularly annoying to me was his actions in ending our use of a gold standard. The inflation we have had since then that has taken a loaf of bread from $0.10 to $3.50 in my life time comes directly from that change.
From the wiki:
In 1952 he joined the staff of the Federal Reserve Bank of New York as a full-time economist. He left that position in 1957 to become a financial economist with the Chase Manhattan Bank. In 1962 he joined the U.S. Treasury Department as director of financial analysis, and in 1963 he became deputy under-secretary for monetary affairs. He returned to Chase Manhattan Bank as vice president and director of planning in 1965.
From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system.
Which then let the “spend first think later” policies of Johnson, Nixon, Carter, and others drive inflation up to near 14%. Reagan kept him on and at least he got to deal with cleaning up some of the mess he helped to create in the first place.
(And yes, Johnson was before we dropped the gold standard, it was his excessive spending on the Vietnam War coming home to roost that started applying the pressures, but that took years to fully manifest and lead to the ‘problems’ later. Ending with Nixon dropping gold convertibility as the French started a run on the Gold Window.)
The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well.
Volcker’s Fed elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street NW and blockading the Eccles Building.
Nobel laureate Joseph Stiglitz said about him in an interview:
Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn’t believe he was an adequate de-regulator.
OK, “controversial” but also at least cleaned up some of the mess in the end.
Now this democrat is not working under a republican but rather under a more radical democrat. And what does he want to do?
The rationale is that we have to deal with the deficits. But where are the giant shortfalls coming from? From the excess spending that the administration is doing in the first place.
When asked what to tax, Volcker lead with the statement that we had ‘warming at least partly from human actions’ as a paraphrase. So he’s all for taxes on “warming” as I read those tea leaves. Second on the list? Fuel. He feels we need to get ‘energy independence’ via taxing rather than via making more fuel.
He sees no reason we can’t have the fuel prices for gasoline and Diesel be twice as high as now, since it doesn’t cause economic collapse in Europe or Canada (just more efficient transportation systems). Finally, he felt we need to ‘rely less on income tax and more on consumption taxes like a VAT’. Notice that does NOT say “no income tax”. It says “keep the income tax, but don’t rely on it. Add a VAT like sales tax for the deficit”.
Ok… THIS is the Shining Light of our presidential advisors?
Well, if we ALREADY HAD a national electrified rail system run on nuclear power raising the rates on gasoline and Diesel might not be all that bad. Given that we have a vehicle inventory that takes about 15 years to turn over: Is it really a Bright Idea to increase the cost of all Rail, Ship, Trucking, Aviation, and Automobile travel by double for a decade? (and who knows what after that…)
In a recession when folks are already unable to make their mortgage, is it really a Bright Idea to add a European like 10%-20% sales tax on all the things that folks can just barely buy today? That will really “stimulate” something, but economic growth is not it… And if we wait until recovery is underway, it will sure take the power out of it. (“Stop in its newly electrified tracks” comes to mind…)
Then, on top of those, penalizing our industrial base with a carbon tax is going to improve our business investment and growth environment exactly how?
We already have businesses not hiring or investing in new plant and equipment due to the expectation of higher taxes from the Bush Tax Cuts expiring. On TOP of that he wants to add a carbon tax, doubling fuel costs, and a VAT?
Would any sane business manager invest and hire in the face of that?
I’d be packing up any capital not already out of the country and heading to Hong Kong on the next flight, or Sao Paulo on the next cruise ship ;-)
I think Mr. Volcker ought to retire gracefully from the scene while he still has the sheen from whiping inflation as his reputation. Folks don’t look past that to the point when he destroyed the stability of the dollar. If he now adds to his list of ‘accomplishments’ the taxes he advocates, and the essential destruction of the whole economy with it, folks just might notice that the only really big good thing on his resume was following orders from Ronald Reagan to crush inflation and return to something like sound money.
I do find it interesting that we’re getting away from “Tax and Spend” (guess politicians got tired of being roasted on that one). Now we have a whole new way of thinking. Like the kid begging clemency for murdering his parents because now he’s an orphan. Now it’s “Spend first, then tax to reduce the deficit”…