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.
