Staying the course with Volcker
ONE of the rules of the game in the American political experience is that a strong president does not change key players in the middle of a difficult period unless necessary. It took Lincoln months before finally removing his half-hearted generals during the Civil War. Franklin Roosevelt would keep adversaries on the public payroll for years; stability of leadership was considered crucial. Perhaps in no area of leadership is an impression of stability at the top more important than in economic policy. Nations, businesses, and private citizens need a sense of assurance that long-range plans will not be easily detoured in midstream.
For just such reasons, it is reassuring that the White House is now sending out signals that Paul Volcker may be asked to assume a third term as Federal Reserve Board chairman when his current term ends in August 1987. The source of the reports -- White House Chief of Staff Donald Regan, who has occasionally disagreed with Mr. Volcker -- shows just how seriously the Oval Office regards the Fed chairman's popularity within the financial community.
Financial community concerns about a possible Volcker departure arose recently when it was widely reported that a majority of the Fed's board of directors -- in a 4-to-3 vote -- voted against Mr. Volcker. The majority was made up of four members appointed by the White House. Mr. Volcker subsequently prevailed in that skirmish -- the board delayed its decision to lower the nation's discount rate, so as to coordinate its policy with that of the central banks of West Germany and Japan. And the Fed's vice-chairman, Reagan-appointee Preston Martin, has now announced his resignation.
As a symbol of steady and purposeful American financial-community resolve -- against inflation and massive federal deficits -- the towering, 6 foot 7 Mr. Volcker has been hard to overlook. Nor should his goals be overlooked. Inflation is down. But that is not to say it could not resurface should, say, oil prices scoot upward again later this year. And the war against federal deficits is far from resolved.
Volcker's importance is that he represents traditional financial community concerns, rather than dabbling in many of the more visionary economic ideas now circulating in some political circles -- from the radical tax cuts of supply-side economics to flirtation with the gold standard.
The Fed and, indeed, the federal government have their work cut out for them in keeping the recovery on track. The rise in the index of leading indicators for February, following a favorable revision in the January index, suggests that the economy is not momentarily heading into a downturn as some economists had warned. Interest rates continue to fall, and the stock market continues to rise. And the latest US trade figures, for February, show the trade deficit dropping somewhat, reflecting declines in oil imports and a weaker dollar, making US exports more competitive.
But there are still problems, including continuing high unemployment, weak consumer demand, and slower growth abroad, working against exports.
All this argues for continued stability in US economic policy -- and, as the White House is now indirectly acknowledging, in the leadership of that economic policy.