WEBVTT - Paul Volcker, Market Psychologist 0:00:13.800 --> 0:00:17.600 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.640 --> 0:00:19.880 My name is Mike Reagan. I'm a senior editor at 0:00:19.880 --> 0:00:24.400 Bloomberg and Umbaldonna Higher Across as reported with Bloomberg and 0:00:24.600 --> 0:00:27.480 this week on the show, Well, since vill Donna won't 0:00:27.480 --> 0:00:30.440 invite me to join any of her many, many book clubs, 0:00:30.680 --> 0:00:33.320 we're gonna have one right here on the podcast. So 0:00:33.479 --> 0:00:36.839 break out the Pinot Grigio and your coffy pants because 0:00:37.040 --> 0:00:39.080 we have a great guest this week to talk about 0:00:39.120 --> 0:00:42.600 a very important and timely book. Not only is she 0:00:42.640 --> 0:00:45.200 one of my favorite colleagues, but she also helped former 0:00:45.240 --> 0:00:49.879 Federal Reserve Chair Paul Volker write his memoirs and Taboot. 0:00:49.960 --> 0:00:52.400 She has a fascinating piece out in the latest issue 0:00:52.440 --> 0:00:56.040 of Business Week about Boker's reputation as an inflation fighting 0:00:56.040 --> 0:00:59.960 superhero and what lessons his experience holds for the current 0:01:00.080 --> 0:01:03.960 FED as it tries to play that same role. But first, 0:01:03.960 --> 0:01:09.520 Pill Donna, confess, have you read the whole book of 0:01:09.520 --> 0:01:12.880 the book? Yes, and I have proof. Well, you don't 0:01:12.920 --> 0:01:15.880 spoil the ending for me. This won't spoiled the the 0:01:16.000 --> 0:01:20.080 ending for you, but I know you'll know that I 0:01:20.120 --> 0:01:22.880 read all the way through because the acknowledgement section. I 0:01:22.959 --> 0:01:28.360 even read that, and Wolker in it talks about our 0:01:28.400 --> 0:01:31.120 guests so so nicely. And this is all at the 0:01:31.200 --> 0:01:34.080 end of the book. So this is my proof. All right, Well, 0:01:34.080 --> 0:01:38.280 you just spoiler. That was a spoiler of the acknowledgment. 0:01:39.280 --> 0:01:41.440 I'd never make it to the You didn't read the footnotes, 0:01:41.480 --> 0:01:44.440 did you? Of course I did? Are you kidding? My goodness? 0:01:44.440 --> 0:01:46.520 I was hoping to learn from them and learn I 0:01:46.560 --> 0:01:49.920 did well. I confess I've read most of the book. 0:01:50.040 --> 0:01:52.400 I had a very busy weekend. You know. It was 0:01:52.480 --> 0:01:56.040 parents weekend at my my daughter's college, so there was 0:01:56.320 --> 0:02:00.280 a football game and a tailgate, and that's lot of 0:02:00.280 --> 0:02:04.279 activity for a guy my name, guy my age. I 0:02:04.280 --> 0:02:06.240 I hardly even got a single map in all weekend. 0:02:06.280 --> 0:02:08.080 But I think I read most of it. If you 0:02:08.120 --> 0:02:10.880 count the pages in the middle with the pictures, then 0:02:10.960 --> 0:02:12.880 I read most of it. You read most of it, okay? 0:02:12.919 --> 0:02:15.280 Just to make it to make you feel even worse, 0:02:15.440 --> 0:02:18.640 the Bills were playing on Sunday, and I didn't watch 0:02:18.680 --> 0:02:21.239 the game because I sat around reading the book. Oh 0:02:21.240 --> 0:02:23.919 my goodness. Yeah, So I hope you feel really bad. 0:02:24.040 --> 0:02:26.880 That's that's commitment. I do feel bad, but it's what 0:02:26.960 --> 0:02:30.320 I read is excellent. So when you bring our guests 0:02:30.360 --> 0:02:32.760 in here we're speaking soon. Let's hear what she has 0:02:32.840 --> 0:02:35.800 to say about you not reading. It's Christine Harper. She's 0:02:35.919 --> 0:02:38.840 editor of Bloomberg Markets magazine. Christine, thanks so much for 0:02:38.880 --> 0:02:41.000 coming on the show. Thank you so much for having me. 0:02:41.720 --> 0:02:43.440 And to be fair, I don't even read all the 0:02:43.480 --> 0:02:48.799 stories I edit. Sometimes you know it's uh. But Christie, 0:02:48.800 --> 0:02:52.120 why don't you start and just tell us how um 0:02:52.160 --> 0:02:54.720 you got involved in this project and sort of what 0:02:54.840 --> 0:02:56.840 the division of labor is when you write a book 0:02:56.880 --> 0:03:00.080 with with such a legendary figure like that. Well, I 0:03:00.120 --> 0:03:03.519 can't speak for how this normally works, because I think 0:03:03.800 --> 0:03:06.920 this was a really exceptional sort of lightning bolt experience 0:03:06.960 --> 0:03:10.400 for me. I'd never written a book, and I just 0:03:10.480 --> 0:03:13.680 happened to know somebody who is in the publishing business 0:03:14.720 --> 0:03:17.400 and a friend, a mutual friend, came to me and 0:03:17.440 --> 0:03:21.320 said he suggested my my name to this friend and 0:03:21.360 --> 0:03:24.040 the publishing business as somebody who might be able to 0:03:24.080 --> 0:03:28.160 help Paul Vulcan write his memoir. So the guy in 0:03:28.200 --> 0:03:30.880 the publishing business, who name is Peter Ostos, calls me 0:03:31.000 --> 0:03:32.919 up and he says, would you'd be interested in doing this? 0:03:33.080 --> 0:03:36.000 Paul Wolker, he's getting quite old, he wants to write 0:03:36.000 --> 0:03:38.560 his memoir and uh, he just needs a little help. 0:03:38.760 --> 0:03:40.360 And I said, well, you know, I know nothing about 0:03:40.360 --> 0:03:43.200 writing books, so and I'm not really an expert economics, 0:03:43.280 --> 0:03:45.600 so I don't know why. And he was like, listen, 0:03:45.640 --> 0:03:47.960 just you know, go talk to him. It should be 0:03:47.960 --> 0:03:50.800 somebody in New York and and we want to make 0:03:50.800 --> 0:03:53.160 it his book and not bringing somebody who's going to 0:03:53.200 --> 0:03:55.120 make it their book. And I said, well, that's fine, 0:03:55.120 --> 0:03:57.880 I'll do that. So and I thought to myself, no 0:03:57.880 --> 0:04:00.920 matter what goes wrong, here, the worst case scenario as 0:04:00.960 --> 0:04:02.840 I get to spend a bunch of time with Paul Volker. 0:04:02.920 --> 0:04:06.520 How great is that? So so I had an introductory 0:04:06.560 --> 0:04:09.640 meeting with him in his Rockefeller Center office in a 0:04:09.920 --> 0:04:15.119 sort of late summer, and he was absolutely charming and 0:04:15.240 --> 0:04:19.440 absolutely you know, great, and clearly had no qualms about 0:04:19.480 --> 0:04:23.800 working with an untested person like me. And so we 0:04:23.880 --> 0:04:26.000 just started meeting on a very regular basis at his 0:04:26.120 --> 0:04:28.320 office at his home. He would tell me stories, I 0:04:28.320 --> 0:04:30.880 would record them, I would get them transcribed. We would talk. 0:04:30.960 --> 0:04:34.320 We would talking and then eventually he started writing and 0:04:34.480 --> 0:04:37.760 handing me pages and and handing his secretary pages his 0:04:37.880 --> 0:04:41.080 hype up and and I would give him feedback and 0:04:41.120 --> 0:04:44.200 we would talk about it, and so yeah, it was 0:04:44.240 --> 0:04:47.080 just it was great collaboration. He wrote a lot of 0:04:47.120 --> 0:04:51.320 it himself a longhand on a yellow legal pads. I 0:04:51.360 --> 0:04:54.560 had it typed up by his amazing secretariat, who uh, 0:04:55.120 --> 0:04:58.400 who could read his handwriting, which is not an easy 0:04:58.760 --> 0:05:02.000 not an easy thing, and then uh and then I 0:05:02.000 --> 0:05:05.240 would sort of edit it and and make notes and changes, 0:05:05.279 --> 0:05:07.039 and he would read it and then he in his 0:05:07.480 --> 0:05:10.560 allegible handwriting right all these notes on it. He was very, 0:05:10.680 --> 0:05:14.800 very involved. He would he had a great uh attention 0:05:14.839 --> 0:05:18.159 to detail, a great interest in making sure we always 0:05:18.440 --> 0:05:21.920 chose the exact right word. And I wasn't expecting that. 0:05:21.960 --> 0:05:24.920 But as I worked with him, and as I learned 0:05:24.960 --> 0:05:27.640 more about his career, it became clear to me that 0:05:27.800 --> 0:05:31.040 so much of being in the roles he had was 0:05:31.080 --> 0:05:34.159 about really perfect communication. If you read some of the 0:05:34.160 --> 0:05:37.240 FED minutes from his time as chairman, the discussions are 0:05:37.279 --> 0:05:40.920 all about how to convey exactly the right way in 0:05:40.960 --> 0:05:44.360 their you know, in their statements and in their communications. 0:05:44.400 --> 0:05:47.080 What they were trying to achieve because of course back 0:05:47.080 --> 0:05:49.840 then they didn't they didn't announce what the FED funds 0:05:49.960 --> 0:05:52.520 target was. You know, they just it's sort of they 0:05:52.520 --> 0:05:55.360 would do it the open markets of desk would uh 0:05:56.279 --> 0:05:59.680 would make it happen. They did announce the discount rate, 0:06:00.279 --> 0:06:01.760 but it was it was a lot of it was 0:06:01.800 --> 0:06:05.000 just communication. So, um, he's a he was a great 0:06:05.040 --> 0:06:07.919 word smith, a great communicator, really cared about how to 0:06:07.960 --> 0:06:10.279 tell the story, had a lot of stories to tell, 0:06:10.480 --> 0:06:14.120 didn't really want to focus mostly on the inflation episode. 0:06:14.120 --> 0:06:17.920 That was one chapter for him of a career that's 0:06:17.960 --> 0:06:22.359 full of amazing chapters. And uh, it was just delightful 0:06:22.520 --> 0:06:25.560 and uh he he and I worked on it really quickly, 0:06:25.640 --> 0:06:28.200 got it done in I guess less than a year, 0:06:28.600 --> 0:06:31.240 which is really impressive. Yeah, and um, but you know, 0:06:31.320 --> 0:06:34.120 he was a motivated guy who's very disciplined, so you know, 0:06:34.160 --> 0:06:36.360 and then unfortunately he got sick right towards the end 0:06:37.160 --> 0:06:40.599 um and and was died a year after he came out. 0:06:40.720 --> 0:06:43.720 So it's really sad because you know, he would he 0:06:43.760 --> 0:06:45.560 would have a lot to say today. But I think 0:06:46.080 --> 0:06:49.320 in a way he knew that his lessons would be 0:06:49.520 --> 0:06:52.559 a value to people in many ways going forward, and 0:06:53.480 --> 0:06:55.880 so he tries to he tries to impart them as 0:06:55.920 --> 0:07:02.839 as clearly and uh and impact as he can. And 0:07:03.120 --> 0:07:04.720 I want to get to all those things, but I 0:07:04.760 --> 0:07:07.320 want to ask you one more question about the actual process, 0:07:07.320 --> 0:07:10.960 because I really like the stories about his childhood right 0:07:11.000 --> 0:07:12.920 at the start of the book and how I think 0:07:12.920 --> 0:07:15.560 there was one story about how he had this allowance, 0:07:15.600 --> 0:07:18.360 that it was the same amount he was getting weekly 0:07:18.480 --> 0:07:21.679 or monthly that his sister's years beforehand had been getting, 0:07:21.720 --> 0:07:24.560 and what that taught him about inflation. Um. And then 0:07:24.600 --> 0:07:27.080 I think later on in the book he mentioned something 0:07:27.160 --> 0:07:30.400 like he had been pulling out files specifically for the book, 0:07:30.440 --> 0:07:33.200 and he was surprised by the things and that he 0:07:33.280 --> 0:07:36.080 found in the notes that he had scribbled in the margins. 0:07:36.120 --> 0:07:37.600 So maybe you can just talk a little bit more 0:07:37.600 --> 0:07:39.920 about the process and what it was like where he 0:07:40.160 --> 0:07:42.320 you know, for him to be digging out this these 0:07:42.360 --> 0:07:45.800 historical documents. Yeah, I mean it was great fun because 0:07:45.840 --> 0:07:48.560 not only did he have documents that either had been 0:07:48.600 --> 0:07:50.560 sent to him by people he had grown up with, 0:07:50.880 --> 0:07:54.920 or you know, he'd sort of come across at some point, um. 0:07:54.960 --> 0:07:58.280 But occasionally I would come up with something, uh that 0:07:58.440 --> 0:08:02.280 you know, he may have over booked and uh, and 0:08:02.360 --> 0:08:06.040 so he was always delighted when something came. And and 0:08:06.040 --> 0:08:07.840 there were also some stories he told me in our 0:08:07.880 --> 0:08:11.400 discussions that I recorded that when I said, oh, should 0:08:11.400 --> 0:08:13.160 we tell this story, he'd say, no, let let's leave 0:08:13.160 --> 0:08:18.520 that one. So uh yeah. And actually one of the 0:08:18.520 --> 0:08:22.360 funniest moments, um, right towards the very end of writing 0:08:22.400 --> 0:08:25.520 the book, Um, I think actually we'd already it was 0:08:25.560 --> 0:08:29.360 already in galleys, it was pretty far along. And uh. 0:08:29.440 --> 0:08:32.480 He I was in his study in his apartment and 0:08:32.520 --> 0:08:35.000 he said he had like a first edition of like 0:08:35.120 --> 0:08:38.000 Canes or something in his in his library there. And 0:08:38.000 --> 0:08:39.800 so I was looking around on the bookshelf trying to 0:08:39.840 --> 0:08:42.440 find it, and I couldn't find it. But I found 0:08:42.480 --> 0:08:46.560 this other slim volume which was an economics textbook from 0:08:46.720 --> 0:08:50.160 the nineteen twenties or maybe even before, I think maybe 0:08:50.200 --> 0:08:53.679 the nineteen tents that had been his his mother's textbook 0:08:53.720 --> 0:08:58.240 in college. And and it was filled with MARGINALI if 0:08:58.280 --> 0:09:01.559 they note she had written and he if you'd ever 0:09:01.640 --> 0:09:03.760 realized he had it, he had totally forgotten about it. 0:09:03.800 --> 0:09:06.319 So he was sort of you know, discovering this I 0:09:06.360 --> 0:09:07.960 had handed it to him. We were looking at it. It 0:09:07.880 --> 0:09:12.840 It was amazing and uh, from her time advassaor advassor exactly, 0:09:13.120 --> 0:09:16.000 and it was I think the FED had not been created. 0:09:16.280 --> 0:09:21.800 It was like really amazing and so um. So one 0:09:21.800 --> 0:09:24.440 of the notes she'd written to herself was about how 0:09:25.080 --> 0:09:29.720 psychology was the real key to so much of what 0:09:29.800 --> 0:09:33.560 was happening in what happened in economics and finance, and uh, 0:09:33.600 --> 0:09:37.480 and I think that really was kind of a eye 0:09:37.480 --> 0:09:40.360 opener because he credits his father a lot with his 0:09:40.440 --> 0:09:43.480 interests in public service, but he also credits his mother 0:09:43.559 --> 0:09:46.120 as having been quite interested in markets and quite smart 0:09:46.160 --> 0:09:48.080 about them, and he quotes her a few times in 0:09:48.080 --> 0:09:51.120 the book. But we ended up adding this little bit 0:09:51.240 --> 0:09:54.800 about his mother's economics textbook and her note to herself 0:09:54.840 --> 0:09:58.560 about how psychology was really important, because, of course, if 0:09:58.600 --> 0:10:00.960 you look at what Volker did during his career, he 0:10:01.040 --> 0:10:05.439 really understood the psychology of investors, the psychology of consumers 0:10:05.440 --> 0:10:07.400 and business people, and so much of what he did 0:10:07.400 --> 0:10:12.520 in the inflation fight was basically around changing the psychology. 0:10:12.600 --> 0:10:15.640 So it was cool to realize that his mother kind 0:10:15.640 --> 0:10:20.400 of knew that too. That's that's pretty amazing. Yeah, setting 0:10:20.440 --> 0:10:23.760 the expectations, I guess is so important for a central pak. 0:10:23.840 --> 0:10:26.840 But I became fascinated with his father a little bit too, 0:10:26.880 --> 0:10:29.040 because Christine, I think you and I both sort of 0:10:29.080 --> 0:10:32.560 cut our teeth in journalism covering you know, small towns, 0:10:32.840 --> 0:10:37.000 small municipalities in uh Pennsylvania and I was in Pennsylvania 0:10:37.000 --> 0:10:39.079 for a while. In New Jersey, I know, I think 0:10:39.080 --> 0:10:42.440 you were in good old Delco outside of Philly for 0:10:42.559 --> 0:10:45.840 a while. Yeah. And and so Paul's father was a 0:10:46.440 --> 0:10:49.040 like a town manager. And I'm not sure if if 0:10:49.120 --> 0:10:51.760 everyone appreciates in these small towns how that works. You 0:10:51.800 --> 0:10:55.479 have a sort of a part time, you know, unpaid 0:10:55.559 --> 0:10:58.800 or lowly paid counsel and a lowly paid mayor, and 0:10:58.800 --> 0:11:02.480 then you bring in a manager who was supposed to 0:11:02.520 --> 0:11:06.040 be non political at all, and that was that was 0:11:06.080 --> 0:11:08.920 fulkers father, I guess in what in Cape may and 0:11:09.040 --> 0:11:11.679 in te Neock, New Jersey, a few other towns. Actually. 0:11:12.280 --> 0:11:15.520 Vildanna might know this from having read the acknowledgements, because 0:11:15.559 --> 0:11:17.840 he he does say in that his very very kind 0:11:17.840 --> 0:11:19.679 of words about me at the end of the book 0:11:20.040 --> 0:11:23.400 that I actually thought his father was the real hero, 0:11:23.880 --> 0:11:27.920 because I did become fairly obsessed with his father. The 0:11:27.920 --> 0:11:29.760 more I learned about his father, his father was a 0:11:29.840 --> 0:11:35.360 huge deal in New Jersey. And it was because so 0:11:35.440 --> 0:11:40.040 his father was the son of German immigrants, grew up 0:11:40.040 --> 0:11:43.400 in Brooklyn studying engineering, became an engineer, worked on the 0:11:43.440 --> 0:11:47.160 Erie Canal, met Fulker's mother up in the town on 0:11:47.200 --> 0:11:51.360 the Erie Canal, but then ended up discovering that there 0:11:51.440 --> 0:11:54.640 was this interest in kind of city managers, right, like 0:11:54.679 --> 0:11:57.520 these professionalized city managers, because you know, that was the 0:11:57.600 --> 0:12:01.840 era of like total corrupt in I mean, American politics 0:12:01.840 --> 0:12:04.679 had gotten into the cess pool. I mean, you know, 0:12:05.000 --> 0:12:09.959 you can argue, but I mean it was all crony 0:12:10.080 --> 0:12:14.360 ism all and so somehow, like New Jersey had passed 0:12:14.360 --> 0:12:17.240 this law allowing these like city managers to be appointed 0:12:17.280 --> 0:12:19.720 to be kind of professionalized the way cities were run. 0:12:20.080 --> 0:12:23.440 And Paul Volker Sr. Was the first ever in New Jersey, 0:12:23.520 --> 0:12:27.040 first in Cape May and then eventually in Neck, and 0:12:27.320 --> 0:12:30.480 he had a remarkable effect on these communities. It was 0:12:30.600 --> 0:12:35.000 really an incredible turnaround stories. And so I was very 0:12:35.080 --> 0:12:38.240 keen on sort of opening the book because actually when 0:12:39.000 --> 0:12:41.200 Paul would talk to me about the book, one of 0:12:41.360 --> 0:12:43.800 the key points he wanted to make was about public service. 0:12:43.800 --> 0:12:45.600 This was his real mission at the end of his life, 0:12:45.640 --> 0:12:50.640 is trying to professionalize and better educate people for public administration. 0:12:50.720 --> 0:12:52.240 He cared a lot about it, and that's what the 0:12:52.280 --> 0:12:55.719 Vulgar Alliance he founded is dedicated to. And it was 0:12:55.760 --> 0:12:59.000 all really what his father had taught him. Yeah, well 0:12:59.080 --> 0:13:00.880 I was gonna, I was gonna. Does that? Do you 0:13:00.920 --> 0:13:03.600 think that influence of his father sort of having to 0:13:03.600 --> 0:13:07.640 be above the politics and you know, non non political 0:13:08.160 --> 0:13:11.280 played an influence on how he approached the FED being 0:13:11.400 --> 0:13:14.760 you know, the same thing basically outside of politics. Yes, 0:13:14.880 --> 0:13:17.000 I mean, I think in all ways, but you know, 0:13:17.160 --> 0:13:19.280 like I think when people think about Paul Volker, they 0:13:19.280 --> 0:13:21.480 think of him as somebody who could kind of, you know, 0:13:21.600 --> 0:13:24.719 see every side of the political argument and stay kind 0:13:24.760 --> 0:13:28.440 of above it um. But also in the way that 0:13:28.480 --> 0:13:31.840 he sort of believed in a certain humility and sort 0:13:31.840 --> 0:13:35.720 of not not seeing himself as above the people. Right Like, 0:13:35.760 --> 0:13:37.920 So his father, you know, gave himself a pay cut 0:13:38.000 --> 0:13:40.920 during the depression, you know, spent weekends going out and 0:13:40.960 --> 0:13:43.600 meeting with the families of all the city workers, whether 0:13:43.679 --> 0:13:47.640 they were the you know, uh, sanitation workers or whatever. 0:13:47.720 --> 0:13:49.520 It just like didn't matter. He was very you know, 0:13:49.559 --> 0:13:52.360 sort of engaged in in this sort of very you know, 0:13:53.280 --> 0:13:57.640 uh democratic with a with a small d way with 0:13:57.760 --> 0:14:00.240 the people. And I think that was also something that 0:14:00.440 --> 0:14:04.320 Paul Walker brought to, you know, the his belief in, 0:14:04.360 --> 0:14:06.440 like you know, being a certain basically kind of a 0:14:06.520 --> 0:14:09.920 servant to the to the people more than like a ruler, 0:14:10.080 --> 0:14:12.640 you know. I mean, so he was above politics, but 0:14:12.720 --> 0:14:16.480 he always you know, saw himself as sort of there 0:14:16.520 --> 0:14:26.200 to serve. And Mike mentioned that you have this piece 0:14:26.240 --> 0:14:28.760 out in Business Week that recaps a lot of what 0:14:28.760 --> 0:14:30.560 what we were just talking about and what's in the book, 0:14:30.880 --> 0:14:32.720 But maybe you can just lay out for us what 0:14:32.840 --> 0:14:36.080 the environment was like back then when he became FED 0:14:36.160 --> 0:14:39.280 chair and and what some of the comparisons are to 0:14:39.400 --> 0:14:41.920 what we're seeing today because we had high oil prices. 0:14:41.960 --> 0:14:43.360 I think it's one of the main things he had 0:14:43.360 --> 0:14:47.840 been talking about. So maybe just lay out the the environment. Yeah. Yeah, 0:14:47.880 --> 0:14:50.320 So he came he was appointed by Jimmy Carter to 0:14:50.360 --> 0:14:54.200 be FED chair at this period of horrible inflation in 0:14:54.280 --> 0:14:57.080 nineteen seventy nine. Really things have gotten out of control. 0:14:57.160 --> 0:15:01.920 You've had a huge energy um crisis with you know, 0:15:01.960 --> 0:15:05.160 there was a big issue with the Saudis and the 0:15:05.360 --> 0:15:11.200 other Arab states and uh, and so nobody had been 0:15:11.200 --> 0:15:13.000 able to deal with the inflation problem. There was also 0:15:13.280 --> 0:15:16.040 quite a lot of power in the labor unions back then, 0:15:16.560 --> 0:15:20.200 so um, uh, the negotiations for you know, wages were 0:15:20.400 --> 0:15:23.440 much different from I think they are today, So that 0:15:23.480 --> 0:15:27.000 I think is a difference. But um, but yeah, it was. 0:15:27.160 --> 0:15:29.760 I mean the inflation problem was much more entrenched back then. 0:15:30.240 --> 0:15:33.360 It had been going on through most of the seventies. Uh. 0:15:33.440 --> 0:15:36.000 It had people that sort of failed to recognize during 0:15:36.000 --> 0:15:38.880 the late sixties and early seventies how much the war 0:15:39.080 --> 0:15:43.760 spending had was contributing to inflation, the war, Big Vietnam, um. 0:15:44.000 --> 0:15:47.080 And there were just a lot of factors, you know, 0:15:47.200 --> 0:15:51.040 even the role that M. Vulker was involved in taking 0:15:51.080 --> 0:15:53.520 the dollar off the gold standard at the beginning of 0:15:53.560 --> 0:15:56.880 the seventies under Nixon, and that played a role. I mean, 0:15:56.920 --> 0:15:59.720 basically the dollar was no longer anchored to you know 0:16:00.040 --> 0:16:04.240 old Um. So there was this you know, decade long 0:16:04.360 --> 0:16:08.040 kind of you know creep in in prices, and it 0:16:08.120 --> 0:16:10.880 had gotten so that people just assumed prices were going 0:16:10.960 --> 0:16:14.560 to go up double digits every year, and his predecessors 0:16:14.560 --> 0:16:16.920 that FED chairman had basically kind of thrown up their hands. 0:16:16.920 --> 0:16:19.280 They didn't know how to do anything about it because 0:16:19.280 --> 0:16:21.840 every time they would try to start raising prices, you know, 0:16:21.880 --> 0:16:25.800 they'd get all this pushback, or try raising interest rates, 0:16:25.800 --> 0:16:28.720 they'd get a lot of pushback, so much political opposition 0:16:28.760 --> 0:16:33.360 for obvious reasons. There was you know, um law passed 0:16:33.360 --> 0:16:37.480 in Congress which known as uh, you know now the 0:16:37.520 --> 0:16:39.760 dual mandate. They talked about it, which was sort of 0:16:39.760 --> 0:16:43.640 required the Fed to make employment one of its goals 0:16:43.680 --> 0:16:49.000 as well as price stability. So um, you know, when 0:16:49.080 --> 0:16:52.480 Volker became FED chairman, he knew he'd been New York 0:16:52.520 --> 0:16:56.280 Fed President that the problem he needed to address was inflation. 0:16:56.320 --> 0:16:58.360 He told Jimmy Carter that when he went to meet 0:16:58.360 --> 0:17:00.960 with him, he thought maybe that prevent him from getting 0:17:00.960 --> 0:17:02.560 the job, because he said, I'm going to raise rates 0:17:02.560 --> 0:17:05.879 a lot, and Jimmy Carter appointed him anyway, and he 0:17:05.920 --> 0:17:08.960 really admired that Carter did that because it you know, 0:17:09.000 --> 0:17:11.280 he thinks it contributed to him only being a one 0:17:11.400 --> 0:17:15.280 term president. But um, but he he went, he came 0:17:15.280 --> 0:17:18.040 into the role saying, inflation is the job I have 0:17:18.160 --> 0:17:21.639 to focus on I'm going to ignore all the other factors. 0:17:21.760 --> 0:17:23.960 You know, he said, the Fed economists at the time, 0:17:23.960 --> 0:17:27.320 we're telling him they were the economy was about to 0:17:27.320 --> 0:17:31.520 go into recession, but he kind of just disregarded them, 0:17:31.560 --> 0:17:35.879 and uh, and he had to, you know, raise rates 0:17:36.119 --> 0:17:41.080 as as strongly as he could. One thing I think 0:17:41.200 --> 0:17:44.160 is underappreciated, Christine that I've I've really come to realize 0:17:44.200 --> 0:17:47.480 by by reading the book is that, um, so much 0:17:47.520 --> 0:17:52.080 focus was on that aggressive campaign to to raise rates. 0:17:52.080 --> 0:17:54.880 I mean sometimes would be a few rate hikes within 0:17:54.920 --> 0:17:57.240 a few weeks, right, I mean they were. They were 0:17:57.400 --> 0:18:01.479 very fast and aggressive about it. But there's also the 0:18:01.520 --> 0:18:04.919 notion of he sort of embraced to some extent the 0:18:04.960 --> 0:18:09.520 ideas of Milton Friedman and the so called monitorists, you know, uh, 0:18:09.800 --> 0:18:12.359 the idea that's to control inflation, you also had to 0:18:12.960 --> 0:18:16.880 sort of control growth of the of the monitor money supply. 0:18:17.720 --> 0:18:21.720 UM and he he referred to it as practical monitorism. 0:18:22.200 --> 0:18:23.760 So I wonder if you could talk a little bit 0:18:23.800 --> 0:18:27.119 about what that means. But also, you know, I I 0:18:27.200 --> 0:18:31.919 get there the impression that he maybe wasn't sure what 0:18:32.040 --> 0:18:36.639 exactly the role that played in taming in inflation. Compared 0:18:36.680 --> 0:18:39.679 to the interest rate increases. You know that from one thing, 0:18:39.760 --> 0:18:42.200 it's just so hard to measure the supply of money. 0:18:42.680 --> 0:18:45.120 He ran in some difficulties with that. But but talk 0:18:45.240 --> 0:18:47.719 us through what you think, you know, the legacy of 0:18:47.760 --> 0:18:51.359 that sort of part of his inflation fighting campaign is 0:18:51.400 --> 0:18:53.439 you know, was that was that an important part of it? 0:18:53.440 --> 0:18:56.000 Do you think? Yeah? Absolutely? But I think that goes 0:18:56.040 --> 0:18:58.359 back to the stuff we were talking about with his 0:18:58.359 --> 0:19:01.639 his mom and the whole psychology thing. Because when he 0:19:01.720 --> 0:19:04.240 was earlier in his career, when the idea of monetorism 0:19:04.359 --> 0:19:09.640 was first being introduced by Milton Friedman and other people, Um, 0:19:09.920 --> 0:19:12.560 the idea was much more mechanistic. It was sort of 0:19:13.119 --> 0:19:15.879 that the to the degree that there should be a 0:19:15.920 --> 0:19:18.320 fed at all, you know, and some people didn't even 0:19:18.320 --> 0:19:21.399 believe you needed a group of human beings. It should 0:19:21.440 --> 0:19:24.760 just be about figuring out what the optimal supply of 0:19:24.800 --> 0:19:28.400 money in the economy was to prevent inflation, but also 0:19:28.440 --> 0:19:33.159 to allow the economy to grow and just keep that supply, 0:19:33.560 --> 0:19:35.840 you know, steady, and make sure it didn't get you know, 0:19:35.920 --> 0:19:38.680 beyond that and and and nothing else. No other human 0:19:38.720 --> 0:19:41.520 judgment should be involved. It should be like automated basically. 0:19:42.119 --> 0:19:44.720 And obviously, you know, when he was early in his 0:19:44.760 --> 0:19:46.639 career at the New York Fed, nobody he worked with 0:19:46.680 --> 0:19:48.680 agreed with that, right, and there are a bunch of 0:19:48.920 --> 0:19:51.560 people were against central banks. So he was kind of 0:19:51.600 --> 0:19:54.600 raised with this, this is a foolish idea. Monitorism is 0:19:55.200 --> 0:19:58.800 kind of you know, crazy, and it won't work. When 0:19:58.880 --> 0:20:01.440 he got to be FED chair it's actually interesting looking 0:20:01.480 --> 0:20:03.560 at some of the correspondence. I have some of it 0:20:03.800 --> 0:20:08.480 where ah, he's writing to Milton Friedman actually after he 0:20:08.680 --> 0:20:12.679 was appointed FED chairman and sort of hinting that you know, 0:20:13.160 --> 0:20:17.080 he may, you know, he may do some things that 0:20:17.080 --> 0:20:19.399 that Freeman would agree with, but he was sure Freedman 0:20:19.480 --> 0:20:23.520 was still criticize him. I think what he knew going 0:20:23.560 --> 0:20:26.320 into the job was that what they were doing wasn't 0:20:26.320 --> 0:20:29.560 really working right. So just like setting interest rates higher 0:20:29.560 --> 0:20:32.040 and higher, because as long as you were able to, 0:20:32.280 --> 0:20:35.520 as long as politicians and everybody could see human beings 0:20:35.520 --> 0:20:37.600 were setting these interest rates, there was always going to 0:20:37.640 --> 0:20:39.399 be pushed back. They're always gonna be human beings who 0:20:39.440 --> 0:20:42.679 couldn't stomach it, right. So in the second time they 0:20:42.760 --> 0:20:44.720 raised rates when he was FED chairman, there was a 0:20:44.800 --> 0:20:47.480 split on the on the committee, and he he was 0:20:47.560 --> 0:20:50.359 confident that the four people who were voting for higher 0:20:50.400 --> 0:20:53.119 rates would keep doing it. But he realized the market 0:20:53.160 --> 0:20:56.160 wasn't convinced, so he had to do something different. So 0:20:56.880 --> 0:21:00.359 he basically used monitorism as kind of a tool. So 0:21:00.400 --> 0:21:02.600 he didn't employ it in the pure way that the 0:21:02.680 --> 0:21:06.480 real monitorism monitors would have wanted. He just basically used 0:21:06.480 --> 0:21:10.719 it as a psychological crutch. So he the Saturday Night 0:21:10.760 --> 0:21:16.160 Special October six ninety nine, called This Saturday Press Conference, 0:21:16.160 --> 0:21:18.840 announced a series of changes, including a rate increase and 0:21:19.560 --> 0:21:22.399 a whole bunch of, you know, different factors, but the 0:21:22.440 --> 0:21:24.600 main thing was from now on, we're gonna we're gonna 0:21:24.600 --> 0:21:27.840 target the money supply. And what that essentially did is 0:21:27.840 --> 0:21:29.600 it sort of tied their hands. It said to it 0:21:29.680 --> 0:21:32.119 said to the market. You know, it's not us human 0:21:32.160 --> 0:21:35.240 beings who are gonna be setting interest rates anymore. We're 0:21:35.280 --> 0:21:37.439 just gonna focus on the money supply, and the interest 0:21:37.520 --> 0:21:39.760 rates will do what they do. You know, we're gonna 0:21:39.840 --> 0:21:42.040 work up, but we're gonna focus on the quantity of money, 0:21:42.240 --> 0:21:44.720 not the price of money. The price of money, you 0:21:44.760 --> 0:21:46.880 know what it'll do, what it does, you know, interest 0:21:47.000 --> 0:21:49.960