BY ANDREW MCCARTHY

Paul Volcker is perhaps best known for his controversial tenure as Federal Reserve Chairman during the Carter and Reagan Administrations. Since then he has served as Chairman of the investment banking firm Wolfensohn & Co. and headed an independent inquiry into the United Nations Oil-For-Food scandal. During a visit to Harvard’s Institute of Politics, Mr. Volcker spoke with the HPR about a variety of domestic and international economic issues.

HPR: How critical is it for the public to understand the effects and intentions of monetary policy?

Paul Volcker: When I was chairman, there was a big fight on inflation, as you know. At that time, I think it was recognized that inflation was a rather destructive force in the economy. A long time has passed since then, and by and large the economy has done well, but we should not lose sight of the importance of maintaining a sense of price stability. Actually, Chairman Bernanke referred to that in something I saw this morning. If the dollar is declining, it raises people’s anxieties and has some inflationary impact. It is very important in these circumstances that we don’t lose sight of the importance of maintaining price stability and the expectation of price stability.

HPR: Do you think that there is a certain way that the public could be educated about monetary policy?

PV: There’s no need to make a great mystery about it or to be educated in all the details. It is important that the Federal Reserve conduct itself in a way that inspires confidence, makes people believe that it knows what it’s doing, and clarifies its intention to maintain stability. Government institutions these days are not uniformly respected and admired, but when it comes to monetary policy, it’s important that the public has confidence in the institution. Therefore it is also important that the institution’s leadership and actions maintain that confidence. Yet I don’t think that is dependent upon everyone becoming an expert on the entire workings of the institution.

HPR: You chaired the Independent Inquiry Committee assigned to investigate corruption in the UN’s Oil-For-Food program in Iraq. What does the Oil-For Food scandal illuminate about the process of achieving international solutions to economic development?

PV: Oil-For Food represents a certain consensus on how to try to deal with the threat of development of weapons of mass destruction in Iraq without unduly harming all the Iraqis. It was strongly debated, but nonetheless represented a consensus of opinion. The organization was poorly administered. While it was a complicated program, it exposed the incapacity of the UN to conduct and administer a program that indeed was complex. It was the biggest financial program they have ever had to administer. The UN is a leading international institution, and we should be able to rely on it to conduct itself in a way that inspires some confidence in a complex administrative program. Where that is most relevant today is in peacekeeping, because that’s the most important component of the UN’s mission.

They’ve had a lot of practice, and they ought to be able to do it better than they do. I don’t think anyone can do it better than the UN, but there have been a lot of problems with peacekeeping programs in the UN, which reflects the fact that this institution by its nature does not have the capacity to administrate this difficult administrative program with discipline.

HPR: What are your thoughts on the influences of economic globalization? Is it just a positive fact of modern society or rather a normative good—a phenomenon that the international community should work to advance?

PV: It can be analyzed in gross terms of whether more people benefit and get richer than people who get hurt. I think the answer to that is clearly positive. But beyond that, it gets a little slippery. You can say that nine out of ten people were helped a little, but one person was hurt a lot. Yet ultimately we’re not going to be able to stop the tide of globalization. All that we can really do is try to minimize the drawbacks and maximize the upside. ]]>