Volcker Dinner
Jude Wanniski
December 20, 1979


I spent several hours last night with Federal Reserve Chairman Paul Volcker, from 5:15 p.m. to 8 p.m. in a round-table discussion with 15 or so high-powered financial types at the Lehrman Institute in NYC. From 8 to 9:30 p.m. we dined at the Institute, and Volcker deliberately sat next to me, continuing the discussions of the roundtable and asking me dozens of questions about the supply-side model. I'd brought Art Laffer's recent paper "The Monetary Crisis: A Classical Perspective" and gave Volcker a copy, which he began to read over his coffee. We agreed to have dinner in Washington, in mid-January, when Laffer is in D.C., that he would read the paper carefully, and we would come armed to the teeth with our best arguments.

Overall impression: Discouraging. Volcker needs plenty of help, and I don't mean in terms of learning the supply-side model. He seemed unsure of what his role is as the nation's central banker, talked about "monetary restraint" a great deal, but seemed unfamiliar, even unconcerned, about the current position of the Fed's balance sheet, with an offhand remark that he hadn't looked at it in several weeks. One participant told me afterward he was shocked, that if a private banker had shown up to discuss the condition of his bank, and was as unfamiliar with it as Volcker seems about his bank, he would bolt for the telephones and short the bank's stock.

On the other hand: Volcker is an open guy, who is ready to listen to any ideas that might help him. There were a wide variety of views represented, brutal discussions during the roundtable, with participants hacking each other up as well as Volcker, and he seemed to relish it all. Larry Kudlow of Bear Stearns undertook the most hostile attack of Volcker policy, which was useful in that it opened discussion about a return to gold/dollar convertibility. This was the highlight of the evening. You could feel the excitement in the room, as if 15 boys decided to talk about a forbidden subject, i.e., gold. I discover this a.m. that George Melloan, deputy editor of The Wall Street Journal, sat smiling through this discussion knowing he had already written this morning's editorial, "The Perils of Paul," which flirts with gold. David Rockefeller did show up for the roundtable, listened attentively, but said not one word.

Volcker opened with a 15-minute rambling discussion about how he really is serious about controlling the monetary aggregates, and the new numbers are even a bit more restrained than the targets. Interest rates will come down when the inflationary psychology is broken; he won't bring them down. He worries about the rising price of gold, but says it doesn't dominate his concerns, and he thinks it mostly has to do with Iran. He talks about eventually having a "well constructed tax cut," but the time isn't right. First have to bring down inflationary expectations.