Why Volcker is wiser is than Greenspan

The present climate, Mr. Volcker told his audience, reminded him of nothing so much as the early 1970s. Then as now, certain commodity prices were rising fast – he cited oil and soybeans as two examples. Then as now too, these were explained away as speculative price run-ups and not as a harbinger of a broader inflationary trend.

We all know how that ended, and Mr. Volcker knows better than anyone. He was the one who, at the end of that decade, had to step in and raise interest rates to punitive levels to break the back of that bout of inflation. With commodity prices spiking again – soybeans are $12 a bushel today compared to $7 a year ago – Mr. Volcker is warning the Fed not to let inflationary expectations become embedded once again.

In recent days, another former Fed Chairman, Alan Greenspan, has been making the rounds defending his legacy. Mr. Volcker, with the benefit of some additional distance from his time at the Fed, offered something more useful: A diagnosis of our current predicament and some sound warnings about the dangers of a Fed that responds too easily to political pressure and fails to protect the value of the dollar.