The Volcker Board
Throughout the campaign, Austan Goolsbee seemed destined for the CEA Chair job. But Obama wound up going in a different direction, and now we know where he’ll land:
Paul Volcker, the former Federal Reserve chairman who throttled the economy to crush inflation in the 1980s, will lead a new White House panel aimed at reviving growth, according transition team spokeswoman Stephanie Cutter.
President-elect Barack Obama will name the 81-year-old Volcker as chairman of the new President’s Economic Recovery Advisory Board today, she said. Austan Goolsbee, a University of Chicago economist, will be the top staff official on the board and a member of Obama’s Council of Economic Advisers.
In government, it’s not unusual to have an agency or department or commission structured such that the top guy is primarily there to serve as a public face you can trust while, while someone else does most of the heavy lifting. That would seem to be the case here given Volcker’s age and Goolsbee’s longstanding relationship with Obama. The choice of Volcker is interesting symbolism — his major policy achievement was deliberately provoking the country’s only major post-Depression economic downturn as an inflation-fighting tactic. The policy worked, albeit at a steep price, but presumably that’s not what we’re looking to do now.
But having someone with Volcker’s record — there’s really nobody on the planet with more solid inflation-fighting credentials — on hand to bless recovery efforts may help provide reassurance as Obama pursues a stimulus course that’s sure to lead to large deficits.
54 Responses to “The Volcker Board”
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November 26th, 2008 at 9:31 am
Yeah, the problem though isn’t that Volcker is to be the face and Goolsbee the actual muscle.
The problem is that this panel seems useless or overkill or bound to cause bureaucratic infighting; it’s there for one reason only; to give a place to the people who didn’t get the top jobs.
However, I would expect that the job of finding solutions in the growth dept. is right up the alley of the Council of Economic Advisers under Summers. What is Summers supposed to do other than brainstorm about the economy?
And of course, if Obama’s attitude towards disappointed rejects is to create new committees… well it could be harmless or it could be a bad way of running things.
November 26th, 2008 at 9:42 am
Nick, Summers is head of the Economic Policy Council or whatever it’s called. Christina Romer is head of CEA, and Goolsbee is also on CEA.
If Volcker is still inclined to monetarist type views, it might be good to have some contrast to Summers. As always, it depends on the implementation.
While Volcker did “wring out inflation” as they say, he was also Fed chair during the modest recovery that followed. Unfortunately, some of that was built on aggressive behavior in the S&L industry, which had been deregulated and “let loose” in response to some serious balance sheet damage caused by the interest rate mismatches that they and other depository institutions experienced during the wringing out of inflation (existing assets — mortgages for S&Ls (before days of MBS) — paid interest rates set pre-inflation, while deposits in the early 80s had very high interest rates, so institutions were funding 6% loans with 15-18% liabilities — you can’t do that for long!)
November 26th, 2008 at 9:44 am
Or it could actually be that the economy is such a gigantic clusterfuck, and unfucking it will be such a colossal job, that you really do need all those people working on it.
November 26th, 2008 at 9:47 am
Nick:
Or alternatively, it’s there to give the president an independent source of advice other than the Treasury and CEA which are strongly represented by Rubinites.
As Richard Neustadt pointed out, the difference between a good president and a bad president can often be seen in the president’s access to and use of many independent sources of information, to allow the president to triangulate on situations, and maintain independence of thought vis-a-vis the bureaucracy. I’m sure he would have approved.
November 26th, 2008 at 10:15 am
So we bring in Volcker because of his record fighting inflation during the Carter-Reagan years. But are we really worried about inflation? You are more likely to hear about deflation these days than inflation as CNN Money wrote:
I don’t know it seems like using a hammer to tighten a bolt, when you should use a wrench. Maybe Volcker is that good, but if you are going to focus on his skills at fighting inflation which seems to no longer (earlier in the year energy and food costs were way out of control) be a problem, it doesn’t instill confidence in his potential selection.
November 26th, 2008 at 10:42 am
Somebody beat me to it, but fighting deflation is an entirely different matter. Serious deflations can be fiendishly difficult to put down – for starters, the Fed can’t cut interest rates below zero, and they’re almost there already.
I think the Volcker appointment, and the board itself, serves to instill confidence in the market about the Obama administration’s competence and to give Obama access to alternative opinions – precisely the kinds of things the current administration would go to great lengths to avoid.
November 26th, 2008 at 10:48 am
That quote from Lakshman Acuthan (great name, btw) is wildly optimistic. The deflationary threat is real and imminent and probably completely unavoidable. The US has overconsumed and oversaved for decades. American consumers are drowning in debt. Americans can no longer use home equity to finance consumption and must rebuild real savings – both factors place strong downward pressure on demand. China has overinvested in production capacity, a major excess of supply.
November 26th, 2008 at 11:13 am
If we manage to come up with a way to prevent deflation (iffy, IMO) then it’s possible that we’ll end up overshooting and wandering into a region of painfully high inflation. Having Volker in the house might help by letting people know that the inflation would be dealt with, although in a painful manner.
I don’t think there’s a downside to having Volker on board.
November 26th, 2008 at 1:09 pm
It should be noted that it is at least controversial to say that Volcker’s disinflationary policy at the Fed worked. James Galbraith, for instance, has a few things to say about that and about the general monetarist inflation-fighting policy, which can be quite damaging. Needless to say, we’re not worried about inflation right now and we might even start to worry about deflation, so the Volcker appointment is largely symbolic.
November 26th, 2008 at 1:22 pm
OK. Summers is head of the National Economic Council.
According to Wikipedia the responsibility of the NCE is:
http://en.wikipedia.org/wiki/United_States_National_Security_Council
“its functions are to coordinate policy-making for domestic and international economic issues, coordinate economic policy advice for the President, ensure that policy decisions and programs are consistent with the President’s economic goals, and monitor implementation of the President’s economic policy agenda.”
The role of the Council of Economic Advisers is:
“The council was established by the Employment Act of 1946 to provide presidents with objective economic analysis and advice on the development and implementation of a wide range of domestic and international economic policy issues. In its first seven years the CEA made five technical advances in policy making, including the replacement of a “cyclical model” of the economy by a “growth model,” the setting of quantitative targets for the economy, use of the theories of fiscal drag and full-employment budget, recognition of the need for greater flexibility in taxation, and replacement of the notion of unemployment as a structural problem by a realization of a low aggregate demand. [2]”
Then of course there is the Treasury with the fresh presence of Geitner.
I dunno. Volcker and Goolsby are fine economists; I don’t think they re radically different in perspectives than the Rubinites. They are rather different shades of centrists. If Obama wanted a different perspective, he could have hired some of the people from this think thank who are the lefty critics of Rubinomics.
I will maintain that I am inherently distrustful of new committees and bureaucracies in order to fight a problem. There can be a problem of too many cooks. We ll see. Well, we probably won’t, if the Obama admin. inspires more loyalty and isn’t as much of a clusterfuck as the Bush admnin.
November 26th, 2008 at 1:30 pm
The role of these offices will be what Obama wants them to be, by and large. Bush didn’t want them to have much of a role, which is why NEC was full of hacks and CEA was exiled out of Ye Olde Executive Office Building to some funky digs a few blocks west.
Is Robert Reich going to have a post? He’s not a Rubinaut and won’t shut up, so he’d be an unceasing voice from elsewhere.
November 26th, 2008 at 1:32 pm
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November 26th, 2008 at 1:41 pm
Personally, I think this is a brilliant move by Obama because he is leveraging much need non-government expertise. Elected officials are not really experienced economists and as the past year has shown, they are quite ill-equipped to handle the scale and speed of the financial crisis that has unfolded. It will also give President-Elect Obama a head start on his first day in office, where he will have workable ideas to base his economic recovery policies and solutions on, thanks to the input of experts across a number of business areas. My only hope is that the ERAB does not become a political machine where the members are hired for their backing of Obama and his campaign policies, rather than for their expertise, independence and thinking.
November 26th, 2008 at 1:42 pm
The idea that “all these people” know what they’re doing with regard to the economy is kind of absurd. A bunch of them – the Rubinites for instance – got us where we are.
But pace Matt, there’s a TON of inflation that needs to be ringed out of this economy, and I’m happy that Volcker might be there to advise that. Carter is much maligned, but it was not his fault that we’d gone through the Vietnam war and the outrageous spending of both LBJ and Nixon, so that by the end of the 1970s, Volcker had to do what he did, setting us up for 25 years of decent enough growth, until George W. Bush wrecked it all.
November 26th, 2008 at 1:43 pm
Back in those days, Greenspan was the anti-Volcker. Nice that Mr Volcker has lived long enough to return the favor.
November 26th, 2008 at 1:57 pm
But having someone with Volcker’s record — there’s really nobody on the planet with more solid inflation-fighting credentials — on hand to bless recovery efforts may help provide reassurance as Obama pursues a stimulus course that’s sure to lead to large deficits.
Yup. And add to that Obama’s vow yesterday to cut wate — probably not very substantive in a era of trillion dollar deficits — but definitely sends the right signals. I know it’s early in the game, but this guy so far is proving to be the smartest American politician of my lifetime.
November 26th, 2008 at 6:55 pm
What is wrong with giving the American household a check for $13,000? The $13,000 would do much better in the people’s hands. The $13,000 is less than the government is spending on the original bailout and the new proposed $800 billion. If an economic advisory board cannot put the people before their selfish reasons something is very wrong. If the people had the money they would spend it and then jobs would be added, manufacturing would grow, and last but not least the states would gain money in the form of sales taxes not to mention the added income taxes from the extra workers.
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