The Role of Reagan in Volcker's Inflation Battle: Samuelson Debunks Krugman's Claims

Introduction

The battle against inflation has been a central theme in economic history, particularly during the 1970s and 1980s. In his article in the Washington Post, Robert J. Samuelson explores the roles played by key figures in this struggle. He argues that while Paul Volcker is often credited for taming inflation, the political context and support, especially from President Ronald Reagan, were crucial for Volcker's success. This article delves into Samuelson's contention that Reagan's role is underappreciated in the narrative surrounding Volcker's achievements.

In this piece, we will examine Samuelson's arguments and contrast them with commonly held beliefs, supported by relevant historical context and political economy analysis.

Samuelson's Perspective

At the heart of Samuelson's argument is the assertion that Reagan provided crucial political support for Volcker's monetary policies. According to Samuelson, by 1982, consumer price inflation had been reduced to 3.8%, thanks to Volcker's measures. However, the narrative of Volcker's success overlooks Reagan's contribution.

Reagan is credited with offering political protection, ensuring that Volcker could maintain tough monetary policies without political interference. Samuelson emphasizes that the Fed's previous failures to control inflation stemmed from its reluctance to maintain tight monetary policies long enough to address inflationary psychology. In contrast, Reagan's administration recognized the need for a different approach, one that did not rely on wage and price controls, which were seen as ineffective.

The Political Context

The political landscape in the 1980s was complex, highlighting the need for both economic and political leverage. Reagan understood the social costs of Volcker's policies, including job losses and high unemployment rates the unemployment rate reached 10.8% at one point, a post-World War II high. Despite these challenges, Reagan continued to support Volcker, demonstrating political fortitude and patience.

Samuelson notes Reagan's public support for Volcker: "I have confidence in the announced policies of the Federal Reserve." This support was vital, as it prevented politicians and policymakers from pressuring the Fed to abandon its inflation-fighting stance. If Reagan had yielded to political pressure, the Fed might have backed down, undermining Volcker's efforts.

Contrasting Views

Paul Krugman's perspective, as presented in his articles and books, portrays the Fed as largely independent and solely focused on inflation control. Krugman argues that Volcker's policies were driven purely by economic necessity, without significant political interference. However, Samuelson maintains that political support was crucial for the success of Volcker's programs.

Krugman's narrative often critiques the claim that economic policies are influenced by political considerations, a viewpoint that Samuelson counters with historical evidence. While Krugman credits Volcker's independence, he downplays the importance of Reagan's support and the political environment of the time.

Historical Context and Implications

It is noteworthy that President Jimmy Carter, who appointed Volcker, might also deserve credit for bringing in someone who could effectively combat inflation. However, the political costs of supporting Volcker in an election year, as Carter faced in 1980, may have been less apparent compared to Reagan's later support.

Samuelson's perspective suggests that understanding the broader political and economic landscape is necessary to fully appreciate the success of Volcker's policies. His victory depended not only on economic measures but also on the political will of a sympathetic leader in the White House.

Conclusion

The taming of inflation during the 1980s was a result of a combination of economic policy and political courage. While Volcker's monetary policies were instrumental, the political support provided by Reagan was equally vital. Samuelson's analysis highlights the importance of political context in economic decision-making and undermines the simplified view often attributed to Krugman.

Understanding the interplay between economic policies and political support can provide valuable insights into past economic crises and inform future economic strategies.