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Q: When we spoke to Dr. Laffer yesterday, he credited you and the policies that he was involved with during the Reagan years as laying the groundwork for those 20 years of economic expansion. Do you agree? He also credits Clinton and then even George Bush with responding to crises in the 1990s and early 2000s. Since you believe we may be heading down that path again, how do you feel about this comment?

Paul Volcker: The period beginning in the mid - early 1990s has been one of remarkable succession and leadership in the world economy by the United States. But a lot of things have contributed to it. As mentioned earlier, price stability, which has been characterized with higher stock prices or lower interest rates, is one factor that has contributed to that success. Following a period c12.indd 165

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Interviews

of low - productivity growth in the United States, the explosion of high - tech industries and high productivity in the 1990s also led to broader economic policies. One crucial occurrence was during the Clinton administration. The movement toward a balanced budget was something that this country had not seen for a long time, and there was this worry that we would be so successful in running budget surpluses that the national debt would disappear in a few years. I thought the political system would make sure that that didn ’ t happen, but it was an indication of a sense of fi nancial discipline that hadn ’ t existed earlier.

Now that has been eroded. In recent years, we had a small recession, which grew out of the excesses of the high - tech era and the extremely high stock prices for Silicon Valley – type fi rms. I ’ m afraid budget defi cits, which to some degree are certainly tolerable and manageable in the light of the economic situation, will get us back in the habit of running defi cits as a matter of course. And of course the big problem for this country fi scally is a need for more spending — an inherent need for more spending in Social Security, Medicare, and other areas. That spending presents a very large fi scal challenge in coming years. It ’ s not here right now, but we ’ ll see whether a democracy can deal with an obvious problem that ’ s going to be present in not too many years; and the earlier we take action to deal with it, the better. But are we going to take action or not? That ’ s the crucial issue.

Q: I know that you ’ re a part of the Concord Coalition. Can you please comment on the work that they ’ re doing? Also, can you comment on the work that David Walker is doing as the comptroller general?

Paul Volcker: With respect to the fi scal crisis looming out there in the future, the Paul Revere of America these days is David Walker, the comptroller general. He is absolutely dedicated to bringing the idea of the looming fi scal crisis to the attention of Congress and the American people. Maybe we have two Paul Reveres. We also have Pete Peterson pushing the Concord Coalition with a group of private individuals. This group was c12.indd 166

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started by Paul Tsongas, Pete Peterson, and Warren Rudman, a Republican. Paul was a Democratic senator who once ran for president some years ago. Unfortunately, he died some years after he started the Concord Coalition. So I look at these men as the two minutemen in alerting the American public to the threat that ’ s out there.

Q: Why is it important for Americans or people who are not involved in the fi nancial industry and/or economics to understand these issues?

Paul Volcker: It is always diffi cult to answer that question because it seems that these issues are small and abstract in comparison to people ’ s day - to - day problems of making a living and going to work. Well, they no longer seem abstract when it comes down to people maintaining fi scal discipline and paying for Social Security and Medicare. But the greatest challenge for democracy is to be able to effectively cope with problems