Summary
PBS NewsHour column (reprinted from The Conversation) written shortly after Paul Volcker’s death, arguing that his most important legacy was establishing the principle of an independent Federal Reserve — not just breaking the 1970s inflation. Written when Trump I was attacking Powell; reads as prophetic given Trump II’s even more aggressive campaign.
Key Points
- Volcker became Fed chair in August 1979 when inflation was accelerating toward 13%.
- Burns (Fed 1970-78) ignited inflation by keeping rates low to help Nixon win 1972 — inflation rose from 3.2% (end of 1972) to 11% by 1975.
- Volcker raised rates to nearly 20% in 1980 — caused deepest recession since the 1930s.
- Politicians attacked Volcker; home builders sent unused 2x4s to the Fed; farmers drove tractors around HQ.
- In 1984, Reagan’s chief of staff secretly ordered Volcker not to raise rates before the election — Volcker complied that time.
- Inflation fell below 4% in 1983; recovery followed.
- Article argues: just as we want judges to decide on law not politics, central bankers must steer free of political pressures.
- Written when Trump I was “relentlessly and very publicly attacking” Powell — parallels to current situation are explicit.
Newsletter Angles
- The historical pattern is almost identical to the Trump II situation: president demands rate cuts, cites economic growth/debt concerns, attacks Fed chair personally.
- Volcker’s 1984 capitulation (not raising rates before election) shows that even the most independent Fed chairs have limits. Powell will face the same test.
- The Burns-Nixon story is the cautionary tale. Burns is “the worst Fed chair in history” precisely because he put political loyalty above economic responsibility. The lasting damage wasn’t just inflation — it was the 1970s stagflation that defined a generation.
Entities Mentioned
- Jerome Powell — the current parallel to Volcker’s position
- Donald Trump — explicit comparison to Nixon and Reagan in the article
- Federal Reserve — institution under threat
Concepts Mentioned
- Fed Independence — this is the definitive primary source for that concept
- War-Driven Inflation — the 1970s inflation context
Notes
Authored by an academic economist (Michael W Klein, Fletcher School, Tufts). Written in 2019 — before Trump II’s even more aggressive campaign. Reads as prescient. Excellent historical grounding for any piece on the Fed-White House conflict.