Spotlight: Paul Volcker

Paul Volcker, former chairman of the Federal Reserve and recent adviser to President Obama, is a graduate of the Harvard Kennedy School and a longtime member of the Belfer Center’s International Council. In May, he received the School’s Richard E. Neustadt Award, presented annually to a person “who has created powerful solutions to public problems, drawing on research and intellectual ideas.”

Belfer Center Director Graham Allison has called him “the very model of a modern public servant.”

In one columnist’s view, he was “the man who helped save the free world” by crushing inflation. Newsweek’s 1986 cover named him “the second most powerful man in America.”

A generation later 6-foot-seven “Tall Paul” still towers over yet another generation of Americans.

Timothy Geithner, who followed Paul Volcker as president of the New York Federal Reserve before becoming President Obama’s Treasury secretary, worked closely with Volcker in his latest public service venture. Geithner described Volcker as: “Strong, modest, intrepid, no touch of arrogance, no presumptiveness in terms of what he understands.”

At the age of 83, Volcker has just completed a grueling two-year stint as chairman of Obama’s Economic Recovery Advisory Board. Volcker struggled to make himself heard in the early days of the administration.  One columnist groused that the White House whiz kids treated Volcker “like a crazy aunt in the attic. He’s around, wandering the halls – but no one in the administration cares what he thinks.”

But it wasn’t long before Volcker made himself heard so loud and clear that he ended up with a powerful rule named after him.  The “Volcker Rule” imposes restraints on speculative trading by commercial banks, the kind that fueled the bubble that burst in 2008. Obama endorsed the Volcker Rule in January 2010, in what MIT Sloan School Professor Simon Johnson declared “a complete change of policy.”

Volcker has devoted a lifetime of public service to confronting such seemingly unsolvable crises. A fishing friend and colleague, Graham Allison says Volcker “is irresistibly attracted to intractable problems.”

Certainly none was more daunting than combating the worst inflation in memory, combined with stagnating growth – or “stagflation.”  When President Jimmy Carter swore in Volcker as Federal Reserve chairman in 1979, inflation had soared to 13 percent. With a fierce regimen of tight monetary policy and painful interest rates, Volcker strangled it in just four years. He was reappointed by President Ronald Reagan, and by the time he stepped down in 1987, inflation had fallen to 1.1 percent.

Volcker is a serial public servant. His career began as a civil servant in the Treasury Department and thereafter, the Federal Reserve.  After 35 years, he could have gracefully retired and gone fishing. Instead after a short stint in investment banking, he returned to public assignments.

In 1996, at the age of 69, he led a panel that tracked accounts of Jewish Holocaust victims still held in Swiss banks. Against all odds, he persuaded the parties to agree on a settlement worth $1.25 billion.  After the Enron scandal, he led a public commission that integrated accounting practices and instigated major reforms in practice.  After the notorious corruption in the UN’s Iraq Oil for Food program was exposed, he led the international investigation that documented the abuses and initiated reforms to prevent a recurrence.

Volcker said the Oil for Food probe fascinated him. “I had never been in any big investigation like that, with a group of highly motivated investigators and attorneys. For many of them, it was the most satisfying thing they had ever done. They came from all over the world, and they had sky-high morale. They felt they were making a contribution.”

His service includes his continued support for the Harvard Kennedy School, where he earned a master’s degree in political economy in 1951 from what was then called the Graduate School of Public Administration. A long-time member of the Belfer Center’s International Council, he spoke at the opening dinner in April, cautioning that euphoria is “not what I specialize in.”

“There are lots of reasons to be critical of government,” he said, “but that’s why it’s important for Kennedy School students to get involved, and to deal with these important challenges.”

Just before that dinner, Volcker attended a Forum at which Ashton B. Carter, a Kennedy School professor on leave to serve as under secretary of defense for acquisition, technology and logistics, described the challenges of managing a $700 billion budget when the U.S. government is running a $2 trillion deficit.

Responding, Volcker observed “what resonates with me about Harvard and the Kennedy School and public service is the kind of impact people like Ash Carter can have. The satisfaction you can get out of handling the responsibilities and the organization that he has to oversee – he’s responsible for billions of dollars worth of materials, and for getting it to the right place, when it’s needed. There’s nothing better to me than what he’s trying to do. It turns me on.”

“There are lots of reasons to be critical of government,” he said, “but that’s why it’s important for Kennedy School students to get involved, and to deal with these important challenges.”

Volcker’s father, the township manager for Teaneck, N.J., taught him to fish – and that has been his avocation since then.  His favorite species is Atlantic salmon and he is director of the Atlantic Salmon Federation.

But his passion remains public service.  As George Soros observed at Volcker’s 80^th birthday celebration, Volcker “embodies that old idea of civic virtue.”