Paul Volcker came out in January in support of obama. And he’s just been rewarded with a position on Obama’s Transition Economic Advisory Board (TEAB) Along with Warren Buffet, literally the richest man in the world!!! I’d explain what the TEAB is supposed to do but well, its Obama’s board of economic advisors for his transition into office. A Transition Economic Advisory Board if you will.
Any way for those of you who don’t know who Volcker is check outthis article by, ahem, a very close comrade.
Or just read the relevant section below
Smashing the Unions, the ‘Volcker Shock’ and the Emergence of Neo-liberalism On August 6th, 1979, President Jimmy Carter appointed Paul Volcker as head of the Federal Reserve. Immediately Volcker made clear his intentions as head of the Fed: he would do whatever it took to bring inflation under control and stabilise the currency. (This commitment became associated in the popular mind with the monetarism of Milton Friedman, although this is slightly inaccurate.) Volcker pushed the short term interest rate up 5% to 15%, eventually bringing it above 20%. Persistent in his drive to bring down inflation, he kept interest rates at these astoundingly high levels until 1982. For Capital, these interest rate increases, known as the ‘Volcker Shock’ were like putting brakes on the economy as it began to spin out of control. In order to regain control, the Fed deliberately drove the economy into two successive recessions over this three year period. This raised unemployment to nearly 11%, drove down manufacturing output by 10% and drove down the median family income by an equal 10%.
This attack on working class living standards was secured in 1981 with Ronald Reagan’s electoral victory. In this election, the Professional Air Traffic Controllers Organisation (PATCO), along with the Teamsters and the Air Line Pilots Association, had departed from tradition and backed Reagan, a Republican, and not Carter, the incumbent Democratic candidate.
On August 3rd, 1981, PATCO went out on strike for higher pay, better working conditions and a 32 hour week. This strike was technically illegal as government unions are not allowed strike in the US, however, a number of government unions had struck before without repercussions. This time was different and Reagan ordered the PATCO workers back to work, threatening dismissal if they continued the strike. Few complied with these orders and on August 5th, President Reagan fired the 11,345 striking PATCO workers.
The PATCO strike and the ‘Volcker Shock’ marked the defeat of the working class in the long cycle of struggles that had begun in the mid 60s, turning the economy definitively in the interests of Capital. High interest rates massively increased the return on capital. Financial investors who previously could barely earn rates of return equal to the rate of inflation could now earn the highest profit rates in memory. With the end of inflation and the inspiration of the PATCO strike employers took a hard line when it came to wage increases. Workers, they held, could no longer demand wage rises in line with inflation so no more increases would be forthcoming. Between 1978 and 1983 real wages in America decreased by over 10%. This decline in real wages was continuous until 1993, by which time real wages were 15% below 1978 levels.
This transformation had international ramifications. Due to the creation of the global financial market through the growth of the Eurodollars market, other countries were forced to follow suit in raising interest rates. Otherwise, they risked the migration of capital to the higher interest rates of the US. Investors would not buy German government bonds at 7% interest if US government bonds had a rate of 15%.
The transformation was also matched by political shifts in Europe. Just prior to Volcker taking charge of the Fed, Thatcher had been elected Prime Minster of the UK. In Germany, for the first time since the mid-sixties, the Social Democrats lost the election in 1982 and the Christian Democrats came to power. In France, Mitterand’s Socialist Party had come to power in 1981 amidst much fanfare, but had to abandon their program for government within two years as Mitterand launched the ‘Franc Fort’ policy following the 1983 French macroeconomic crisis. As Jeffrey Sachs and Charles Wyplosz noted in 1986, “the government of the left has in the end introduced a tougher, more market oriented programme than anything considered by the previous centre-right administration.”
It would be cavalier not to mention here the impact that these interest rate increases had on the developing world, Latin America in particular. As mentioned above, billions of petrodollars were lent to Latin American states in the 70s through the newly global financial markets. When interest rates increased, Latin American countries had difficulty meeting their debt obligations and, one after another, defaulted, causing the 1982 Latin American Debt Crisis. Latin America has yet to recover fully from this crisis, as in the years following, investors were no longer willing to invest in the region. This prolonged recession is referred to as ‘the lost decade’. It was this debt crisis and the associated crisis of confidence in the Third World economy that caused and provided justification for the infamous IMF Structural Adjustment Programs of the 80s and 90s