Bring Back The Old Paul Volcker

Former Federal Reserve Bank Chairman Paul Volcker is an economic adviser to President Barack Obama.  President Jimmy Carter appointed Mr. Volcker toward the end of his one-term presidency in the late 1970s when inflation and unemployment were in double-digit figures.  This development should have spelled the end of Keynesian economic policy, which denied that such a thing could happen.  According to the Keynesians, inflation and unemployment were “tradeoffs,” not complementary events.  When prices rose to levels not acceptable to the public, the Fed could raise interest rates — slowing down the overheated economy and causing marginal businesses to fail.  Unemployment would rise but prices would fall.  When the public threatened to punish the political party in power for causing high unemployment, the Fed would pump up the money supply, which would drive down interest rates and spur another economic boom.