Volcker at the Fed

Megan McArdle has a smart post on her choice for the most underrated and overrated presidents of the 20th century. She says that Jimmy Carter’s economic policies are underrated and she cites his appointment of Paul Volcker to head the Federal Reserve as an example.
I agree that Volcker was a good choice and Carter deserves credit for it, however I’m not willing to give him much credit. According to William Grieder’s wonderful book, Secrets of the Temple, Jimmy Carter was almost comically illiterate on monetary policy. Plus, the Volcker selection hardly signaled any policy shift from the Carter administration, and if Carter had realized what he was doing, he probably would have had second thoughts.
Carter’s selection of Bill Miller for Fed Chairman was disastrous, and it made Volcker’s job that much harder. When it came to replace Miller, Volcker was actually Carter’s second choice. His first choice was Tom Clausen, who was the president of Bank of America (he later became head of the World Bank). Also, Volcker was already an important voice on the Fed. He was president of the Federal Reserve Bank of New York, which in the Federal Reserve system, is first among equals. The president of the New York Fed also has a permanent seat on the interest-rate-setting Federal Open Market Committee. The other bank presidents have to rotate. In fact, at the time of his appointment, Volcker was serving as vice-chair of the FOMC.
So Carter’s choice was a natural elevation more than taking a major gamble, or boldly separating himself from a previous path. Still, he did make the right choice and that’s worthy of praise. The point that I find interesting is how often we give credit to people for doing something that really had no intention of doing. Instead, circumstances came to them, and they made the best of it. Perhaps, that’s a good definition of leadership.

Posted by on April 29th, 2008 at 12:47 pm


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