Smoking At The Fed

Smoking At The Fed

This is about the now late Paul Volcker, but I shall come in from an odd and particular persprctive. Upfront, I did meet the late Paul Volcker several times, although never in an official situation.  Much of “inside” stuff I shall say comes from others.

I do not know the details of the Fed prior to the 1970s, but at least as of the Chairmanship of Milton Friedman’s major prof, Arthur Burns, who capitulated to the  demands of Nixon for his 1972 reelection,  But it was clear that Burns was carrying on a long established tradition in the Board of Govs of the Fed: they smoked their behinds off in their supersecret meetings in the old days (not the “openness” of now).

What really went on in the earlier days is myth, but then in the 1970s Fed Chairs came to be required to testify on a regular basis to various Congressional committees.  Burns was the Chair then and the first of them who had to do this, and he set the precedent: obfuscating smoking in public.  Burns smoked a pipe, and he became notorious s the Congressional reps pressed in with their generally populist questions pushing for lower interest rates, he smoked his pipe at length before answering inquiries, to the point of actually shrouding himself in actual smoke, something no longer allowed.

From my old inside info, this matter of smoking was a big deal in the late 1970s when Jimmy Carter appointe G. William Miller to be Fed Chair, a corporate CEO with zero experience with either banking or the Fed.  His was one of the worst and most disastrous Fed chairmanships ever, maybe the absolutely worst ever.  To really nail this down, I have been told by insiders of the day that Miller not only did not smoke, but he imposed a no-smoking ruole on Bd of Govs meetings (not sure about FOMC ones, but probably them too).  I have been told that this reallyt seriously ticked off various decades-long Bd members who had long been used to smoking during Board meetings.  As it was, inflation soared shortly after Miller arrived, who was viewed as not only incompetent, but a jerk.

It is frequently forgotten that Jimmy Carter put Volcker in 1979 as inflation accelerated and accepted that Volcker might engage in polices that would end his presidency.  There were other factors in Reagan’s victory over Carter, but the bad economy, not totally due to Volcker, and beyod the economy, that did Carter in.

So, to further the smoking story, which is very much about closedness vs openness at the Fed, a matter  of ongoing dispute, when Carter removed the blazingly incompetent Miller, the Board was most pleased when the then NY Fed prez Volcker came in, the biggest in all meaning smoker of them all ever. At 6’7 tall he was indeed a most imposing and formidable individual. He  also smoked the biggest cigars I have ever seen, reportedly from odd local sources (he lived in simple circumstances most of his professional time in DC, longtime base in NYC).  So his elevstion from NY Fed Prez was most welcomed by all reports I have reported.

The pubic smoking tradition continued with Volcker and beyond hin to his successor, Alan Greenspan, who was in for the next two decades, only with Bernanke coming in mid-noughties, after when the current PC no-smoking rule came in not only for pubiiic presentations but also in Board meetings. But the old system was in place for the Volcker regime, preceded ty Burns’s obscurantis  pipres, followed by t he massively pahllic cigsrs of Volcker, and then the long reign of  Greensapna with his cigarettes.  All of them used their smoking in Congresinoial appearances to help confuse all with their caefullyd-do-not-disturb-the-markets public testimony, which was simply supported by their caeefully obfuscatory remarks, with =an entire industry arising that  still exists, somewhat resembling the old “Kremnilolgy”of the old days. In the old days ,especially with Burns and Volcker, they literally would envelepe themselves in smoke while testifying to Cpngrsss, and Greenspan in bad moments did a passable imitation of what they could do more effectively with pipes and vthe large cigars of Volcker.

The big question on this meme is transparency at the Fed.  The smoking by Fed Chairs  in the old days symbolized the old secrecy of Fed discussions.  Now we have transparency, more or less coming in with Bernanke in the mid-noughtties, just ii time fot the big crash and the Great Recession.  I do not know if Fed secrecy is better than the current everry-Fed-official-shoots-off-his/her mouth or not. But that is where we are now: the Fed is  open, no more smoke-filled rooms.

As for Volcker himself, he had a long life and career..  Apparently he was the key person bringing the final end of the remnants of the gold standards under Nixon.  There was much more.

Clearly this is much debate over his inflation-crushing policy, 79-82, which helped end Carter’s presidency and brought the sharp and deep recessinon of 1982, when the uneployment rate got higher than in the latest Great Recession, both over 10 percent. Phillips Curve  was positive in much of the 70s with stagflation, and the ratex crowd said P’c vertical, although that was for expectations being fulfilled and that was a period of great upheaval.

A final more private report from old friends/Fed staffers is that when a staff person made a presentation to the Board in the Volcker era he usually said nothing, while sitting there with all his size and smoking huge cigars.  Fine. But if staff person messed up, he would arise and the speaker was in deep trouble with Volcker destroying the presenter as if he had burned his cigar into them.

But, the bottom line is that for his many flaws this man who lived for 92 years and had hug influence over the history of global monetary and economic developments, I ultimately have deep respect for him, despite his various flaws, although in the end this might get down to how incredibly impressive he was in person, so tall and bald and smoking a humongous cigar, all with a calm smile.

Barkley Rosser