The nation’s mood was dark in the late 1970s. In the words of President Carter, Americans faced a “crisis of confidence.” Inflation reached double digits. An OPEC price increase led to an energy crisis. And there was the Iran hostage fiasco of 1979.
In the middle of this most difficult year, Mr. Carter made an appointment that would leave a lasting mark on history, but not after a painful, years-long battle to tame inflation. In August 1979, the president picked Paul Volcker to lead the Federal Reserve.
Volcker took up his new post by taking a sledgehammer to the problem. By tightening the money supply, interest rates soared past 20%, tipping the economy into recession in the election year of 1980. The economic downturn may have helped Ronald Reagan defeat the incumbent Mr. Carter, but soon Reagan would receive his own helping of Volcker’s medicine. The Fed chairman tightened the money supply in 1981 after a slight uptick in economic growth, deliberately causing a severe recession in the effort to defeat inflation for good. It worked. Inflation fell by more than half to 6.2% between 1980 and 1982.
Volcker’s legacy looms large today as Federal Reserve Chairman Jerome Powell struggles to curb the worst inflation since the early 1980s. In this episode of History As It Happens, economist and Volcker biographer William Silber says Mr. Powell ignored Volcker’s lessons as he began moving belatedly to curb inflation in early 2022.
“Until now [Powell] has done a very poor job. I think he almost puts himself in the same grouping as Arthur Burns, who was responsible for the ‘Great Inflation’ of the 1970s,” said Mr. Silber, the author of “Volcker: The Triumph of Persistence.”
Volcker held sway when Americans were “sick and tired of inflation,” said Mr. Silber, and were willing to tolerate the economic pain caused by the central bank’s policies because they produced results. Volcker slew the inflation dragon.
Listen to Mr. Silber talk about Volcker’s battle against inflation by downloading this episode of History As It Happens.
