Date: 8.11.1997
"YOU'RE THE BOSS--you order," Paul Volcker booms across the table. Volcker's stature as the giant-killer who tamed inflation is matched by his physical dimensions--he is 6 foot 7.
I'd offered to take Paul Volcker, 69, to the celebrity-studded Four Seasons. Characteristically, he preferred a Japanese noodle joint in one of Manhattan's out-of-the-way, downtown neighborhoods.
Volcker still wages war against inflation: unpretentious restaurants; inexpensive, off-the-rack suits; taxis, not limousines; and--until he gave up smoking--cheap cigars. I order a combination noodle-and-tempura dish. Volcker frowns a veto. I may be the host, but Volcker is still accustomed to taking charge of things. We order together.
The day is gray and the air is heavy, good weather for seeking dark clouds in clear skies. I start the conversation by asking him whether we Americans aren't too smug about our economy. The stock market just keeps going up. Nobody is concerned much about the gaping trade deficit or the Himalayas of private debt. Inflation is all but forgotten. Volcker takes a bite of a sizzling chicken meatball and reaches for his iced green tea.
It's soon apparent he doesn't share in the general euphoria. "All you young people think this great boom in the stock market is normal, that you're entitled to 15% a year," he replies finally. "These expectations cannot be met over the next 15 years. The economy is growing 2% to 3% in real terms." He does some math in his head. "Let's see, 15% compounded doubles in 5 years. The stock market in 15 years would have to be 60,000!" He laughs.
"What are you going to do when you find out there's a big downswing in stocks? Or five years of no increases? What happens then? "There's an arrogance that's set in. It's a smugness in the U.S., which is seen outside the U.S. as arrogance."
Volcker recalls Japanese Prime Minister Ryutaro Hashimoto's June 23 statement that briefly unsettled the U.S. stock market. Hashimoto had wondered out loud what would happen if the Japanese ceased to buy and hold U.S. government bonds. Volcker: "If we understood what Hashimoto was saying about possible sale of Treasurys due to concerns over our deficit, it was a kind of reaction to arrogance. Of course, ten years ago it was the Japanese who were arrogant. Let's see who' s [regarded as] arrogant ten years from now."
Volcker makes it clear he doesn't really expect the Japanese to gang up on us. "The idea of having a concerted effort to pull the rug out from the U.S. by deliberately selling and not buying our securities seems so self-destructive. The real question is if something happens in economic circumstances so that [the Japanese] without any official guidance are not so happy about lending us the $200 billion a year or whatever they are doing now."
That brings him to another favorite topic: the low U.S. savings rate, about 5% of GDP here versus roughly 20% in Japan. "We seem to have very ingrained resistance to increasing the savings rate. We like to borrow. Increasingly the gains are going to the people who lent us the money. It's hard to keep getting worried, because nobody pays any attention." Nobody pays attention because everyone is swept away by the current optimism.
"I read my FORBES: capitalism, democracy, China, Latin America, Asia. Free-world opportunity, initiative and so forth." Well and good, he says, but he wonders whether the benefits are reaching enough people. "It [the spread of free enterprise] had better produce in terms of satisfaction, in levels of growth, low rates of unemployment and rising incomes for the lower part of the income spectrum.
"While things look pretty good in East Asia, Eastern Europe is taking a long time to get straightened out. Russia, Latin America are not doing brilliantly. The worldwide growth rate has been nothing to write home about for the past ten years. Europe is not doing well, and Japan is not doing well at the moment.
So in a 15-year time perspective there are going to be a lot of disappointed people. Even here, lower income levels are not doing well and the growth rate of the economy is slower than it used to be." A bowl of hot soba noodles arrives as Volcker lets off more steam.
He doesn't like what's happening in Washington, either. "There are special deals to help this sector, that sector. The consequence is a personal income tax that everyone is furious about." Two weeks earlier Volcker had testified on banking legislation. His message hadn't changed much from what he recommended six years earlier:
We need coherent banking legislation. But nothing happened. "I could have used the same testimony that I used in 1991. It's really sad. Everyone agrees we need change, yet nothing gets done." Why not? "You could argue the Administration should take leadership, " he replies. Take that, Clinton.
"Productivity growth is.there's a big question about the numbers. If you believe the numbers, it is 1% a year, when it used to be 2.5% a year. Figures show no growth in the service sector, which is the biggest sector of the economy. This suggests there's a lot of spinning of the wheels with all these computers. There are also a lot of nefficiencies in the economy. Lawsuits about environmental concerns, which may be justified but hard to measure. "We are all working harder. All the wives are working now."
He turns to me: "You could have been home in Ridgewood going to PTA meetings." That gives me a chance to lighten the mood. I present him with chocolate mints from an ice cream store in Teaneck, N.J., the town where he grew up. "What do you know about Teaneck?" he asks, smiling at last.
Teaneck means a lot to him. His father was the city manager who saved the town from financial ruin. His dad inspired him to enter public service. Young Volcker graduated with top honors from Princeton and the Harvard Graduate School of Public Administration. Not Wall Street or business but public service attracted him. He went to work for the Federal Reserve as an assistant in the domestic research division.
"When I grew up, there was belief that government work was a noble profession," Volcker reminisces. He served in five administrations, from Kennedy to Reagan, and resigned as chairman of the Federal Reserve in 1987. "Now, if you wanted to make a career in the Treasury Department, they would put you in the loony bin."
His smile is gone. His noodles finished, Volcker broods about career civil service. "I went to a conference at Harvard's Kennedy school, which explored 21 reasons why people don't go into government. Then they asked if others had anything else to add. After an hour, they were up to 43 reasons."
He laughs. Not a ha-ha laugh but a bitter comment. "It was a sad day for me in 1992 when President Bush yielded to the temptation to retract his support for keeping pay scales in line with the market. And President Clinton piled on with a salary freeze and--to further reinforce his bona fide as an economizer--eliminated our brand- new Advisory Council on the Public Service, which had not cost a cent."
Here is a man whose bold moves stopped inflation in its tracks and led to a boom that has created trillions of dollars in wealth. Kids who were in high school when Volcker was running the Fed are earning million-dollar bonuses on Wall Street as a consequence of what he accomplished. Yet Volcker himself is not a candidate for The Forbes Four Hundred. Not by a long shot. Getting rich? "It's never been a great ambition of mine."
Volcker resigned as chairman and chief executive of prestigious investment banking firm James D. Wolfensohn, Inc. when it was recently sold to Bankers Trust. He certainly came out of the deal with a few million and no longer has to worry--as he certainly did when he was in government service--about paying his bills.
"When I left the government, it [money] was a great concern. I was getting old. Security for my family was important. My wife has been ill for a long time, and it costs a lot of money [to take care of her]. If I had not been at Wolfensohn, she would have been in a nursing home long ago."
After chestnut ice cream, Volcker ostentatiously hands me the check, and soon we are at the curb hailing a yellow cab. "With government service and Wolfensohn behind you, you can now do exactly what you want, correct? "I ask. "Theoretically," he says crisply, meaning, of course not.
Chairing the international committee to investigate Holocaust victim accounts in Swiss banks has taken up a great deal of unpaid time. He would like to resign, but it "would be interpreted too many ways."
To answer my question about what he will do for a living, he shrugs that he will round up some consulting work. We wedge ourselves into a cab. Seeing Volcker's knees pressed up to his chin, I wonder why he doesn't use a car service, but I don' t ask. Still, he must have sensed what I was wondering. A few hours later I receive a note from him: "I am not really destitute!"
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