A Tongue Lashing from a Former Federal Reserve Chairman

Paul Volcker, head of the Federal Reserve from 1979-1987, gives a tongue lashing to the financial markets in a speech in New York.



Volcker, Part 2

Volcker, Part 3

Volcker, Part 4

Volcker, Part 5

While I enjoy the tongue lashing by Volcker, this reeks to much of Andrew Mellon's famous rant:

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate."

This "feel good" rant against excesses sounds wonderful, but it makes the broader society pay a very heavy burden to achieve the supposedly "moral" goal of making sure the miscreants aren't rewarded for their excesses. Keynes didn't favour this moralistic approach:

Keynes argued very strongly during the Great Depression against "Liquidationism" ... "Liquidationism" was a very powerful current of thought arguing against any government action to alleviate the Great Depression in the early 1930s. ...

It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924-1929] should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it; a nemesis on man's speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again.

I do not take this view. I find the explanation of the current business losses, of the reduction in output, and of the unemployment which necessarily ensues on this not in the high level of investment which was proceeding up to the spring of 1929, but in the subsequent cessation of this investment. I see no hope of a recovery except in a revival of the high level of investment. And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity... [p. 349].

While some part of the investment which was going on in the world at large was doubtless ill judged and unfruitful, there can, I think, be no doubt that the world was enormously enriched by the constructions of the quinquennium from 1925 to 1929; its wealth increased in these five years by as much as in any other ten or twenty years of its history... [p. 347].

Doubtless, as was inevitable in a period of such rapid changes, the rate of growth of some individual commodities [over 1924-1929] could not always be in just the appropriate relation to that of others. But, on the whole, I see little sign of any serious want of balance such as is alleged by some authorities. The rates of growth [of different sectors]seem to me, looking back, to have been in as good a balance as one could have expected them to be. A few more quinquennia of equal activity might, indeed, have brought us near to the economic Eldorado where all our reasonable economic needs would be satisfied... [pp. 347-48].

(from the UC Berkeley Keynes website)