Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

Yellen Needs Rules


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.


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