The greatest central banker in my professional lifetime was Paul Volcker. His signal achievement was bringing down the inflation rate from roughly 15 percent to about 3 percent more than three decades ago. The simplest way to look at the economic evils of runaway prices is to think of inflation as a tax hike — on consumers, savers, investors, corporate profits, capital gains, and so on. One humongous tax hike. And it was the myriad tax-hike effects of high inflation that wrecked the American economy in the 1970s.
But Volcker turned that around, and he did so using a rules-based approach to slaying price hikes. He was an old fashioned central banker who still believed the dollar should be as good as gold. And he carefully watched market-based signals like gold, commodities, and the exchange value of the dollar to let him know if he was going down the right road.
I reflect on this as Janet Yellen gets ready to take over at the Federal Reserve.
Read my full column here.