Plan B Forum

Paul A. Volcker, the cross-legged giant who died Sunday at age 92, had been raised by a fiercely ethical town manager in a small New Jersey suburb: “Do not suffer your good nature . . . to say yes when you ought to say no,” ran a quotation from George Washington on the wall of his father’s office. As a student at Princeton, Volcker had imbibed the writings of the austere Austrian economist, Friedrich Hayek, who taught that inflation could only boost employment by disguising cuts in real wages. “Hayek’s words forever linked inflation and deception deep inside my head,” Volcker told his biographer William L. Silber.

The Saturday Night Special became a celebrated moment in Fed history. Over the following three years, the Fed drove inflation down from around 12 percent to around 6 percent. It was a grueling battle: At one point, Volcker’s monetary straitjacket caused the short-term interest rate to rise to 20 percent, prompting a congressman to accuse him of “legalized usury beyond any kind of conscionable limit.” The economy endured two recessions, and unemployment hit double digits; furious farmers drove their tractors to Washington and encircled the Fed’s headquarters. But by dint of iron-willed persistence, Volcker turned the inflationary 1970s into the disinflationary 1980s.

For the rest of his Fed tenure, extending to 1987, Volcker personified the cause of responsible economic policy. Lawmakers threatened to impeach him, but he sat stoically through congressional hearings in his cheap suits, puffing on Churchillian cigars and occasionally shaking his domed head as if to say he pitied the simpletons who abused him. When Sen. Lawton Chiles (D-Fla.) threatened to “cut the head off the Federal Reserve,” Volcker retorted that “even when the Federal Reserve is running around headless you will have exactly the same problem you started with.”

But whatever those failings, Volcker’s status was forever cemented by that bold Saturday Night Special, a rare moment of courage in the dog days of the Jimmy Carter era. Inflation was raging; the dollar was in free-fall; in August 1979, Gallup had reported that fully 84 percent of Americans thought the country was on the wrong track. That summer, the president himself had warned the nation of “a crisis of confidence . . . a crisis that strikes at the very heart and soul and spirit of our national will.”

Paul Volcker’s achievement was to remind Americans of their better selves by demonstrating that he lacked neither confidence nor will nor spirit.