That's the back of the head. Keep going.
There, just barely. Why am i zooming in on this guy?
This one, the one eating dinner with President Ronald Reagan?
It's no secret that even if we've hit a peak we are in a time of increased:
“Inflation.” “Inflation.”
“Inflation.” “Of course inflation
has just about everyone's attention right now.” And this this right here is the beautiful bald
head that beat it back in the 1970s and 80s. “We often lose sight of the long-term bite
inflation is putting on the american pocketbook.” I want to explain how the Fed beat stagflation
by looking at one interview. “Mr. Volcker, welcome.”
In the heart of the conflict. “Obviously you don't get perfectly
clean cut black and white answers to these things, you make a judgment.”
Because i think this represents one of the bigger turning points in 20th century history.
Why this interview in particular? Well, the background, duh.
Paul Volcker looks like he's in the temple of doom right here.
“Are you from your somewhat more independent position as hopeful as they?”
“We are going to die!” But more broadly than that,
I think that economic policy history should not be ghettoized in financial land and there's just
not enough videos about this really important change in how we approach monetary policy.
I mean different Fed banks do weird green screeny videos for some reason.
“The Fed's policies and practices are independent.”
“That independence is important.” Former chairman Ben Bernanke
has lectures on the Fed website. “During the 70s when the efforts of
bankers resulted not in the lower unemployment rate which was the original goal but instead
a higher and very sharp increase in inflation.” I don't know if he has patreon.
But i think you can use this particular interview as kind of a decoder ring
for what is going on historically. It happens in April 1980,
when things have kind of gone from bad to worse. Like inflation's still a big problem,
but interest rates are also super super high. Everyone is freaked out and Paul Volcker is
the guy who is at the center of the debate. “Tonight, Paul Volcker, chairman of the Federal
Reserve Board, a key official in guiding the economy, talks about how bad the coming economic
storms will be and how we will weather them.” Did i mention by the way
that he is six foot seven? Here he is with the other Fed chairs. Uh
this is like a Russian doll situation i think they can literally fit inside of his body.
So let's set the stage here: the 70s was really tough for a ton of reasons, um,
you can watch my recent video about gas rationing, that's just like the tip of the iceberg.
But this video is particularly about the Fed
and how the Fed was kind of changing how it worked in this period of time.
“Since the government has slammed on the economic brakes to fight inflation, will that make the
recession deeper? Conversely will the government soon accelerate again to fight the recession?”
Basically, the Fed has this tool of interest rates that can affect inflation in the economy.
Let's say it dumps a ton of money into the economy through low interest rates.
People can get more money, they spend it and hire people the economy booms.
Yay. But if you have more money,
then you also have inflation. And in the 70s, this was a disaster.
“10 years ago 89 cents would buy two dozen large oranges.
Nowadays 89 cents will only get you four.” Look at the peak of this chart. Inflation is
soaring, so for a complicated set of reasons, Jimmy Carter ends up appointing Paul Volcker
to lead the Federal Reserve, even though he knows that Volcker has ideas that will
probably temporarily tank the economy, with the goal of stalling inflation throughout the 1970s.
The Fed kept freaking out that they would ruin the economy if they crushed inflation
too hard with too high interest rates, so they kind of took this gradualist approach.
That never really got the job done. “Former chairman Paul Volcker put
it at the height of the great inflation in 1979, ‘inflation feeds in part on itself.’
So part of the job of returning to a more stable and more productive economy
must be to break the grip of inflationary expectations.”
But even though this problem had pretty much taken over the world,
look at this question again and notice the premise that's kind of embedded in it:
“Since the government has slammed on the economic brakes to fight inflation, will that make the
recession deeper? Conversely will the government soon accelerate again to fight the recession?”
Robert MacNeil has internalized this sort of gradualist do something/reverse it approach,
but then Paul Volcker comes in and he says no more half measures.
I uh I love this picture of Paul Volcker and Janet Yellen and Ben Bernanke.
This is like when Shaq stands next to somebody.
Okay, so where are we? Volcker comes in, he says no more half measures.
You know I've got to show this clip. “No more half measures, Walter.”
The Fed has been wimpy about all this,
and so he basically starts what is forever known as the Volcker shock.
Does that not sound like a professional wrestling name, by the way? The Fed lets rates soar.
“Measured by the so-called prime rate the interest rate a bank charges its
largest customers, the results have been dramatic. A 20 percent high.”
Right now, you're looking at around five and a half percent.
So imagine this from Paul Volcker's perspective. You are administering this really really
tough medicine to the american economy and it's hurting things.
“Are you willing to accept parenthood for this recession?”
“No, I’'ll claim no paternity, I don't even like the question being asked that way.”
Everyone hates you because inflation doesn't just poof away, but the jobs they kind of do. But for
the most part, Volcker does not back down. “But you know if it has a father any single
father, and it never does, I suspect inflation and the distortions that arise from inflation are the
other father.” That's despite the fact that he's getting put on
Time magazine like a movie villain and Carter and Reagan are both getting grilled on his policies.
“Mr. President, Paul Volcker, the chairman of the Federal Reserve Board,
has been implementing policies that are exactly opposite in basic thrust from what you recommend.
He has been squeezing the productive sector of the economy in favor of the speculative sector.”
He holds strong. “While people are concerned about a recession
right now, and that's understandable, we have had and still do have a problem of inflation.”
I would posit that this was a really new way to act.
At the time, people had thought about this. This was a big debate that was going on,
but the Fed hadn't really done it. They totally prioritized employment
over fighting inflation and Volcker said that you couldn't address one without addressing the other,
even if there was a lot of pain involved. “This has been a confusing difficult period
I suppose for everyone and I would suggest that what we can do in the Federal Reserve,
what the government can do generally, is maintain a steadiness of purpose.”
“Under the chairmanship of Paul Volcker, the Fed has used its monetary policy to
overcome the rapid inflation that had grown up during the late 1970s.
What we're aiming, for chairman Volcker once said, is a situation in which people
can proceed about their business without worrying about what prices are going to do.”
“What sign are you looking for that that what you want has bitten and is achieving its purpose?”
“Well, ultimately the proof of the pudding is in the eating, I suppose. That we will
see the inflation rate go down.” I want to emphasize that what happened here wasn't
necessarily a huge intellectual breakthrough. I think that makes it tougher to understand
it was a breakthrough in resolve, for Paul Volcker, for the Fed, ultimately for his bosses,
uh and even the American people to say that they would take this tough medicine
in the hopes that it would cure stagflation. “Inflation is changing the rules of the game.”
I think it's important to know that it is the pain that worked.
The recession was really hard but things got better.
You can see it in these charts: unemployment soared, but then it fell. Inflation was high,
but then it fell. Paul Volcker stood tall — really,
really, really, really tall — and broke the cycle. This is very mainstream stuff in financial circles
but it shouldn't be ghettoized in that world. This is stuff that has really affected politics
and, honestly, the standard of living for all of us.
But you know what? Let's get political. Just kidding i'm not gonna do that, it's…
i'm scared. “You must keep at it until the job is done.”
I mean this interview, they grilled him about this stuff for a half hour.
The paradigm shift is so fundamental that we forgot that it even happened.
“Central banks can and should take responsibility for delivering low and stable inflation. It may
seem strange now that central bankers and others once needed convincing on these two fronts,
but as former chairman Ben Bernanke has shown, both propositions were widely
questioned during the great inflation period.”
That condition starts with this guy — the one who has his head turned away from the camera.
All right that's it for this one. As long as I'm messing with the lights…now
i'm a cool gamer guy! Anyway, if you haven't been here before,
this is a personal channel where i post personal videos, history videos, stuff like that. I put
sources to some of the reading and background videos I watched in the description of this video.
I recommend you check them out, there's a ton of nuance here that I necessarily had to paper over
to kind of make a popular history of what paul volcker did to end the great stagflation.
What the Volcker shock was uh and it's it's pretty simple what it was, but it was such
a big shift in the way that we think about things that I found it interesting. But I'd love to know
some of the nuance that you find important or that people should know about in the comments. It also
really helps this channel if you like this video or if you subscribe for more stuff like this.
Occasionally, I'll do mainstream stuff like this, sometimes I’ll just go off the deep end and do
really weird history stories that I haven't seen anywhere else. So hopefully you'll be alone for
the ride for both of them. All right, that's it for this one. Thank you for watching. Bye.