Volker and Bernanke

In order to fully under stand Volker and to compare his policies to those of Bernanke, one must understand the political and economic backdrop that provides the canvas that propelled Volker to prominence as the best money man American has ever had. While Volker is best known for is tough action in controlling inflation from 1979 to 1982, his work during this period was his main contribution to the economic life of this country.

President Johnson (1963-69) & Congress launched a series of expensive domestic spending programs designed to alleviate poverty. Johnson has also increased military spending to pay for American involvement in the Vietnam War. These large government programs combined with strong consumer spending, pushed the demand for goods and services beyond what the economy could produce. Wages and prices started rising and began working together in a continuing cycle to create inflation.

President Johnson lost his re-election bid to Gerald Ford whose presidential leadership was a period of severe recession. High unemployment and inflation dogged him and he ended up being a one term President, losing the election to President Jimmy Carter in 1976.

President Carter came into office after winning a close election and was immediately tested by economic forces over which he had little control. He faced numerous economic woes. The severity of the economic problems prevented the application of any lasting solutions having inherited many of the complex economic problems of his term. While he attempted numerous solutions, none of them worked and in the end, he failed to conquer the problems due to his management style, political infighting and the overall limits forced by the dire economic times upon government policies.

Among other important issues that Carter faced, he was also hindered by three critical problems – the Iranian hostage crisis, division in the Democratic Party, and most importantly, the national economy. Double digit inflation, slow national growth, high unemployment, a decline in the rate of growth of output per worker, and serious international economic challenges from Japan and Germany remained just a few of the problems that he faced as the new President. Carter focused on inflation, on the microeconomic problems as opposed to macroeconomic. [Jimmy Carter’s Economy: Policy in an Age of Limits, Biven, W. Carl, 2002]

Initially Carter utilized traditional Democratic economists that remained firmly believed in Keynesian ideals. The problem, however, was that while these economic advisors focused on unemployment, the true threat to economic