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The thrust of this New York Times piece on the gigantic (6'8") Economic Recovery Advisory Board head Paul Volcker is that the president and his economic team see him as a nuisance they don't know what to do with. What's interesting, though, is why they consider his advice -- and giving them advice is his stated role -- useless: because he's coming from too far to the left.

Paul Volcker has always been a very independent-minded economist. That quality helped him achieve his greatest accomplishment, which was when, as Fed chairman under Reagan, he defeated the pernicious inflation that had plagued the country through the '70s. In fact, his management of the money supply was one of the greatest domestic economic policy accomplishments of the past century, and was only possible because he and Reagan were impossibly steadfast in their commitment to curing inflation.

That same obstinance, however, is now making him an outsider and a forgotten man. The Times article highlights his advocacy of a modern-day Glass-Steagall bank regulation, enforcing the split between commercial and investment banks. Such a provision, he is arguing, would prevent too-big-to-fail insitutions from taking on risks that could potentially lead to bailouts.

Volcker's plan, the article clearly shows, is falling on deaf ears: "So Mr. Volcker scoffs at the reports that he is losing clout. 'I did not have influence to start with,' he said."

His plans conflict with the rest of the Obama team's ideas for two reasons. The first is that they are too far to the left. The article notes that one of the very few major economists to side publicly with Volcker is the Nobel laureate Joe Stiglitz, who is well to the left of Obama team members like Larry Summers or Austan Goolsbee. Although the regulations Volcker is proposing are probably well within mainstream left-wing political ideas, most economists see technical problems with placing American bank-holding companies at a disadvantage.

The second problem is that Volcker's plan is decidedly anti-bank. To enforce a modern-day Glass-Steagall, the Feds would have to break up Goldman Sachs, which is now a bank holding company, and spin off the investment banks that were snatched up by bank holding companies at the height of the financial crisis. Needless to say, these measures would be hard to sneak by the banks.

These two problems illustrate two corresponding facts about the administration's philosophy. The first is that they are not so much left-wing as they are technocratic, as seen by the fact that a lefty stalwart's words are falling on deaf ears. The second is that the administration is thoroughly pro-big business and pro-the banks.

View all comments (6) | Leave a comment

Liberal Reader| 10.21.09 @ 3:08PM

A giant problem for the Obama economic team?

Hmmm. Let's see.

The Bush economic team?

The Iraq War (2 trillion dollars, unpaid for)?

Medicare Part D (hundreds of billions, unpaid for)?

The Bush tax cut (a trillion dollars to the wealthiest 2%, unpaid for)?

Decades of stalled attempts to reign in health care spending?

Decades in declining investment in education?

Decades of declining investment in infrastructure?

No, it's none of these things. It's that Obama is a "communist" and an "illegal alien." That's what conservatives would now have us believe.

Tim| 10.21.09 @ 3:47PM

Lets have some publicly funded thorzine to make it all better.

http://listen.grooveshark.com/.....te/2572580

Martin| 10.21.09 @ 4:15PM

Actually Volcker's the true conservative. Most of Wall Street's current profits are traders' rent-seeking, which needs to be shut down, preferably by a Tobin tax. And interest rates need to be much higher, or we'll have oil at $300 a barrel within a year. I wouldn't expect the Obama people to understand this, but let's at least be clar among ourselves what conservative economics is. And Volcker's as close as you're going to get right now.

He's purely there as decoration, to give the administration intellectual credibility it doesn't deserve. Obama is a true economic illiterate, but then so by and large was Bush.

Liberal Reader| 10.21.09 @ 4:46PM

Martin --

You wouldn't expect Obama's people to understand?

Yeah, that Summers guy is a real idiot. I wonder why more world leaders aren't calling you for advice.

Martin| 10.21.09 @ 5:27PM

Summers is intelligent, sure, but his arrogance makes him pretty closed off to new ideas -- or would your Harvard chums disagree with that?

Liberal Reader| 10.21.09 @ 7:37PM

Look, Martin --

In the end, Summers may be shown to have been a disaster. All of these guys Obama picked were Wall St. insiders -- on the theory that if you want to defuse a bomb, you call a bomb maker.

My annoyance was with your assumption that these people are just STUPID. That I just don't accept. Summers is a brillian mathematician and economist.

In the end, the economic mess comes down to one thing: employment, employment, employment.

I don't think Obama's going to pull off a recovery with substantial increases in employment, and that's a real shame and a real failure.

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More Blog Posts by Joseph Lawler

http://spectator.org/blog/2009/10/21/a-giant-problem-for-the-obama

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