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Paul Volcker on good governance, Abenomics and why he won’t serve on any more commissions

Paul Volcker has spent a lifetime as a public servant, helping guide U.S. economic policy during the Kennedy and Obama administrations and quite a few in between. Now he wants to make public administration in the United States stronger, with a new group aimed at strengthening the quality of American governance called the Volcker Alliance. The former Federal Reserve chairman discussed his new project, and talked a bit of economics, on Wednesday afternoon. Here is a transcript, lightly edited for length and clarity.

Neil Irwin: What do you see as the hole that you’re trying to fill with the new group? Lots of public administration schools and think tanks pay attention to governance.

Paul Volcker: In a way that is part of the problem. Those schools are not as strong as one would like to see them. Public administration has not been in fashion for decades.  Many schools have turned to what they call policy. Everybody likes to talk about big issues of war and peace and how we take care of poor people and what we do about other social problems in the United States or elsewhere.

They do all this talking but they too seldom know how to implement what they’re talking about. I ran into a wonderful quotation from Thomas Edison. He said vision without execution is a hallucination. We have too many hallucinations and not enough execution.

The pattern in the big universities and the prestigious universities is this: They start with good intentions, but they don’t have priority within the universities. They end up — I’ll say politely that they don’t get the attention they should get, nor do they have the confidence to know what they’re teaching. This is a profession that needs shaking by the neck. One of the things some of the schools may not like what I’m about to say is that there’s no real consensus on what a degree in public administration means. What is the content of the curriculum you have been taught? Is it rigorous enough? I think the answer often is that it is not rigorous enough. They do not have statistics analysis, how statistics should be used and abused. What insights can other management techniques of quality control or other matters relevant to CEOs have for public administration? Should there be more on-the-job training, more internships? These are issues that should be explored.

That’s the kind of thing that runs across the gamut. In the bank regulatory area, we have five or six agencies bumping into each other not very constructively. There are similar problems elsewhere. There are big issues of recruitment and management. The federal government is really bad at recruitment. We’re talking about state and local administrations too. One reason I want the thing to be in New York and not Washington is I don’t want it to just be federal. Everybody wants to talk about infrastructure, but do we know how to spend money efficiently and effectively?

We’re going to be a small organization, not a think tank with 30 or 40 people. We will try to be a catalyst. We’ll try to get schools and other organizations together to work together to find solutions

Do you think the idea of public service is viewed differently today than when you were coming of age?

There is no doubt that since around the end of the 19th century, when there were similar problems of big business and corruption in state and local government, into World War I and the 1920s, and even into the '30s, good government was a thing to talk about. That’s when all these schools of public administration were created. There was a feeling that this can’t be hit or miss. We’ve got to get education about public administration, get reforms made. And reforms were made. It culminated in reform of the federal government in the 1930s. The current administrative structure of government was set in the 1930s, and since then it’s been been hit or miss.

Presidents used to have reorganization authority. He doesn’t have it any more. Should he have it, what should it contain, what should be the limits? We will bring people together to explore those types of questions.

You mention as an area of priority state and municipal government, particularly around budgeting and transparency. What is going wrong in those areas now that you hope to affect?

You get very frustrated when you look at state budgets and state financial reports. They’re not very uniform to say the least. They’re presented in a way that’s not always enlightening. They use special funds, general funds, semi-public agencies that have some moral obligation of the state. A special subdivision of this is pension accounting. Shouldn’t there be consistent accounting by state agencies? Should that be regulated by the SEC? Should you get a bad mark if you don’t follow some systematic agreed approach toward accounting?

Another of your areas of focus is the presidential appointments process. What is your view of what is broken in the current system?

That’s obviously broken. A lot of people have been working on that. Part of it is the logjams of the Congress and also the vetting process takes forever. We ought to have many, many fewer positions that require presidential appointment and Senate approval. There are thousands of them. We ought to reduce that to a few hundred. Everybody would be better off. There’s a whole question of the interface between civil servants and the political appointees. You’re not going to settle it for all time. But since I was coming up, the number of political appointments has multiplied, the civil servants have all been overlaid with political appointees.

You mentioned infrastructure earlier. What specifically do you want to do there?

Everybody talks about infrastructure. And I agree. But do we have the administrative apparatus in place to give any degree of confidence that the money will be spent efficiently? That’s what we’re going to find out. Everybody has a sympathetic feeling toward infrastructure spending, but we have got to have more confidence that we know how to spend the money.  The idea of an infrastructure bank often arises. We can look at that; is that a good idea or a bad idea? If it’s a good idea, my own hunch is it’s a good idea only if it can make a real contribution to a more dispassionate, less-corrupted allocation of resources.

 Turning to the economy, do you see rising equity prices and home prices as sound and desirable, or as bubbles being stoked by the Fed that we should be worried about?

It’s an interesting environment. It bears watching, there’s no doubt about that. I kind of think it’s a good thing that we hear these comments about some considerable debate within the Federal Reserve. I think they should be alert to possible excesses and the excesses getting to the point where they undermine what they’re trying to achieve, which is stronger growth. I’m not going to opine on what the Fed might do or when, but it’s a healthy debate.

 Do you think the Abe government in Japan has a viable strategy for recovery, or will this end in tears?

Japan may fall in the area of expecting the central bank to do too much. They’re doing a lot of fiscal pushing. So it’s a question of the central bank working with the government. I’m a little bit worried about the feeling that the central bank can push a few buttons and everything is going to be okay. I’ve got an idiosyncratic point of view I guess that Japan has not been doing as badly in my view as common opinion would hold. They have avoided a high level of unemployment. They’ve been on the plus side on growth, though at very small levels. I understand why they feel sluggish and demoralized. They’re in a situation other countries are going to be in of a declining population and declining workforce. Our productivity isn’t doing very well, theirs isn’t doing very well.

A common thread in your career, apart from a focus on monetary affairs, has been a devotion to public service. How do you see this new effort fitting into your own legacy?

I grew up at the tail end of a time when public administration was still an honored profession. That’s the truth. I chaired one big commission and one smaller commission on reform of the federal government. One of them was quite an elaborate affair, well financed, a lot of research. We had retired presidents. One of these great big commissions. We had, I like to think, impressive reports, but it didn’t’ have much impact. I didn’t want to head another commission that didn’t have much impact. I’m finished with commissions.

I hope there’s an opportunity here for lighting a candle. That’s grandiose, but I think we can be an important catalyst.