In light of recent comments made by both living former Federal Reserve Chairmen, I thought it appropriate to look back 22 years to the succession from Volcker to Greenspan. What follows is a blurb from a New York Times article circa 1987, which highlights the appointment of Alan Greenspan as Chairman of the Federal Reserve Board of Governors and the failure to re-appoint Paul Volcker.
I have bolded the key points and follow the blurb with comments and links to the rest of the article as well as to Volcker and Greenspan’s recent remarks:
President Reagan brought to a close today Paul A. Volcker’s stewardship as one of the most powerful economic policymakers in the nation’s history, nominating Alan Greenspan to succeed him as chairman of the Federal Reserve Board.
Economists and other analysts said Mr. Greenspan, in taking a job that is sometimes described as the second most influential in the nation, was unlikely to pursue a policy markedly different from Mr. Volcker’s.
Mr. Greenspan shares the free-market views of the White House and has long been an important presence both in Washington and the Wall Street community. Still, the news stunned the financial markets, which had come to regard a third term for Mr. Volcker as highly probable. Bonds finished with one of the biggest losses on record, and the dollar tumbled.
Efforts Seen as Minimal
The President’s selection of Mr. Greenspan followed a letter from Mr. Volcker saying he did not wish to be reappointed after eight years in the job. But it appeared that White House efforts to persuade Mr. Volcker to remain were minimal.
It is understood that Mr. Volcker would have accepted a reappointment to the post if the President himself had urged him to do so. But no such effort was made.
It was also understood that Mr. Volcker felt that the Administration was looking for a way to avoid an outright rejection and that it asked him to meet with Howard H. Baker Jr., the President’s chief of staff, who was said to have made no serious attempt to urge him to remain.
‘Reluctance and Regret’
President Reagan, in a short appearance at the White House briefing room, said he had accepted Mr. Volcker’s decision ”with great reluctance and regret” and Treasury Secretary James A. Baker 3d said later that someone ”at my level” had urged Mr. Volcker to ”give some reconsideration” to his inclination to leave.
”After eight years as chairman, a natural time has now come for me to return to private life as soon as reasonably convenient and consistent with an orderly transition,” Mr. Volcker said in a letter he carried to the White House Monday afternoon for a meeting with the President. ”Consequently I do not desire reappointment.”
Mr. Volcker, who recently denied reports that he had turned down the presidency of Princeton University, said today he had ”not the vaguest idea” about his future employment.
The main philosophical difference between Mr. Volcker, a Democrat, and Mr. Greenspan, a Republican, appears to be in their views of the structure and regulation of the banking system. Mr. Volcker has tended to resist deregulation of banks while Mr. Greenspan is more favorably disposed to it.
Analysts noted that Mr. Volcker was considered almost a national hero for chopping inflation from an average rate of 12.8 percent in 1979 and 1980 to less than one-third that level for each of the past five years, while Mr. Greenspan’s anti-inflation credentials have not been tested in practice.
Seeking to reassure skeptics, the President said Mr. Volcker had ”indicated his strong support” for Mr. Greenspan and added that his own ”dedication to the fight to hold down the forces of inflation remains as strong as ever.”
Looking back at this article today, what is abundantly clear is that Greenspan’s appointment ushered in a period of ‘free market’ ideology, which had been gaining strength in academic and policy circles. This belief in market forces as efficient and unerring was a rejection of so-called ‘fine-tuning’ that gained sway in the 1960s and 1970s. and The rift between Saltwater and Freshwater economists was won by Freshwater economists.
Below are video clips of both Alan Greenspan and Paul Volcker putting their spin on recent economic events. Notice how Greenspan points to asset prices and liquidity i.e. the Asset Based economy, while Volcker focuses on government support.