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Dec. 10, 2019, 10:25 a.m. EST

No one influenced the late 20th century economy more than Volcker

It wasn’t Reagan who turned around things around in the 1980s — it was Paul Volcker

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By Paul Brandus, MarketWatch

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Twin pillars

But Volcker provided two pillars that are absolutely essential to long-term economic growth: Low inflation and low interest rates. Low rates—the cost of capital—make it easier for companies to borrow and invest for growth; low inflation helps ensure that any return on invested capital isn’t eroded by higher prices.

These were Volcker’s great gifts to the U.S. economy, but they weren’t the only ones.

After a series of high-profile international jobs, such as sorting through dormant Swiss bank accounts that had once belonged to Holocaust victims, and helping the International Accounting Standards Committee (he was its chair) develop global accounting practices, he waded into the 2008 financial crisis. He led a crusade to break up big banks and ban commercial ones from using their own capital to engage in the kinds of investment activity that led to the 2008 meltdown.

Simply put, he wanted to protect bank customers by keeping their banks from investing in things which he considered high-risk, like hedge funds or private-equity firms. “Banks are not supposed to do that crap,” told the Wall Street Journal last year.

His stature was such that a law around this was named for him—the Volcker Rule, which became a key part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama in 2010.

But the rule was watered down by the Trump administration. Volcker, in the sunset of his life, presumably was not pleased. In his 2018 book “Keeping At It,” he said that the strongest defense against any future crisis should always be prudent and well-enforced regulations.

“It’s very hard to mind the store,” he wrote. “And my answer to the great concern about another financial crisis is you’d better have good, tough regulation. Of course, as soon as things are going better, people try to tear down the regulation.”

Public servant

Volcker left us with another gift, one that some Americans seem to have forgotten about today, namely that government service is an honorable calling, indeed a noble one. He could have made millions in the private sector but chose to sacrifice years of his career working on behalf of the American people.

Indeed, Jerome Powell, the current Fed chair, said in a statement Monday that Volcker “believed there was no higher calling than public service. His life exemplified the highest ideals —integrity, courage, and a commitment to do what was best for all Americans. His contributions to the nation left a lasting legacy.”

His decades of exemplary service to the nation led me to assume that at some point, Volcker had been awarded the Presidential Medal of Freedom. It turns out that this is not so. A posthumous righting of this wrong is in order.

Paul Brandus is the White House bureau chief for West Wing Reports. You can follow him on Twitter WestWingReport.

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