May 20, 2010
Volcker receives first SIEPR Prize, says 'time is growing short' to act on financial and environmental issues
By Jess McNally
The last time he spoke at Stanford, in 2005, economist Paul A. Volcker warned that "growing imbalances, disequilibria and risks" were giving rise to "circumstances as dangerous and intractable" as any he could recall.
"It was not so much that the imbalances were hidden or unknown," he said this week at an event honoring his reception of the first-ever SIEPR Prize from the Stanford Institute for Economic Policy Research. But "there seemed to be so little willingness or capacity to do much about it."
"Little has happened to allay my concerns," he said.
Volcker warned that a sense of urgency is needed today to restore America's fiscal position, achieve energy independence and tackle climate change.
"Are we really prepared to meet those problems?" he said. "If not, today's concerns may soon become tomorrow's crises. Crises extending way beyond the world of finance."
Volcker, chairman of the Federal Reserve System from 1979 to 1987 and current chairman of the President's Economic Recovery Advisory Board, was awarded the first SIEPR Prize for his "outstanding lifetime contributions to improving the design and conduct of economic policy either in the U.S. or abroad." The prize will be given every other year and carries a $100,000 award.
The initial funding for the award came from George P. Shultz, former U.S. secretary of treasury, labor and state, and a fellow at Stanford's Hoover Institution. He worked with a group of five leaders in economic policy to determine the winner of the prize, and said at the ceremony that "selecting Paul was the easiest selection ever."
Volcker is best known for his work as chair of the Federal Reserve. The SIEPR Prize selection committee lauded him for breaking the cycle of inflation that plagued the economy through the late 1960s and 1970s by raising short-run interest rates to record levels. The action created a sharp economic recession, but resulted in stable inflation rates that have lasted to the present day.
Finding common purpose
Volcker said he was able to take action to stop inflation in the 1970s because there was a general agreement in the public that something needed to be done.
Meeting today's concerns "will require a greater sense of common purpose and political consensus than has been evident in Washington or the country at large," he said.
In terms of restoring fiscal balance, Volcker said in an interview that "the main problem with the economy is that we've been too reliant on consumption." According to him, the best action the United States can take to restore fiscal balance is to reduce consumption by 5 percent, and increase investment and development by the same amount.
Jess McNally is an intern at the Stanford News Service.