The decade of living fiscally

January 6, 2020

GSFM’s Stephen Miller writes for the AFR:

Former Federal Reserve chairman Paul Volcker was probably the most influential and effective central banker in modern memory.

During his 1979-1987 tenure, he focused on vanquishing one of the most pernicious foes of western economic health in the post-World War II period and achieved that aim.

His December 8 death is symbolic of just how much central banking has changed since his heyday and how much more we now know of the limitations of monetary policy.

It was another Fed governor in William McChesney Martin, who intoned that it was the Fed’s job “to take away the punchbowl just as the party gets going”.

How things have changed. These days the role of central banks seems to be more akin to slipping something stronger into the fruit juice at a Temperance Union party. And supplies of the stronger stuff are running dangerously low.

By vanquishing inflation, Volcker laid the ground for the successful Reagan-Thatcher ‘supply-side’ revolution that followed and established monetary policy as the primary macroeconomic policy tool.

To read the full article, click here.

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