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Lessons for today: The conflict between Reagan and Volcker

This is from the The New York Times on February 17 1982:

President Reagan and the chairman of the Federal Reserve Board, Paul A. Volcker, met Monday to discuss monetary and budget policy, Administration officals confirmed today…

… The official said that the meeting covered a broad range of economic issues, including monetary policy and budget deficits. But, the official said, the main reason for the session was to reinforce the ”personal relationship” between the two men. The two last met in December.

The meeting comes after recent tension between the Fed and the Administration, highlighted by the Administration’s contention that the Fed’s erratic management of the money supply was pushing up interest rates and Mr. Volcker’s response that it is the threat of large budget deficits that is affecting interest rates.

…Many economists outside the Government say that the Fed and the Administration are on a collision course on economic policy because the tight monetary policy promised by the Fed will not allow for the relatively strong economic growth the President has forecast will begin by the second half of this year.

Mr. Volcker in an interview Sunday said that he did not think the economy would come ”roaring” back, as Treasury Secretary Donald T. Regan predicted recently. In testimony last week before Congress, the Fed chairman also said he would not count on the Administration’s forecast of relatively strong economic growth for 1983.

…In response to questions about his meetings with the President, Mr. Volcker, in testimony last week, asserted his and the Fed’s independence over monetary policy. ”It is our responsibility to make up our minds about these things, and we do so. Forget about what the Administration says at the moment.”

Paul Volcker was no Arthur Burns and Reagan was no Nixon. In the case of Nixon/Burns Burns just did what Nixon demanded, while Volcker would not back down, but nonetheless avoided all out “war” between the Reagan administration and the Fed and Reagan understood that it was the right thing to do was to (mostly) respect the Federal Reserve’s independence. That said, the policy mix was very bad during Reagan’s two terms as president.

How will story play out between Yellen and Trump in 2017-18?

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