Paul Volcker, who was chairman of the Federal Reserve under presidents Jimmy Carter and Ronald Reagan and is a top adviser to President Barack Obama, has earned a reputation as one of the rarest of creatures: a straight-talking economist.
Volcker was true to form Thursday, when he came to Kentucky to speak at the Shakertown Roundtable, a gathering of about 60 of the state’s most influential leaders in business, government, education and philanthropy.
The 82-year-old economist was blunt in his assessment of what caused this economic crisis and what’s needed to fix it. And he brought things back into focus when some executives tried to point fingers, shift blame and complain about recovery strategies.
“We spent, as a nation, more than we were producing,” Volcker said. Mix that with a real-estate bubble, reckless financial manipulation and too little government oversight, and it was a recipe for disaster.
“We were leveraging the economy … and then it all unraveled,” he said, adding that the recovery will be a “considerable slog” that could take years.
Volcker has advised Obama to restore legal restrictions, enacted after the Great Depression but repealed in the 1990s, that separated investment and commercial banking and prevented banks from becoming “too big to fail.”
The Obama administration has balked at Volcker’s suggestions amid industry opposition. But Volcker warned that without such reforms the nation could face a repeat of its current crisis in a few years.
After Volcker’s remarks, the 11 other panelists gave their views on the economy and the proper relationship between business and government. They included Gov. Steve Beshear, Louisville Mayor Jerry Abramson, the presidents of the universities of Kentucky and Louisville and several business leaders.
David Grissom, president of Mayfair Capital in Louisville, said he was depressed at the quality of national leadership. He complained about the huge amounts of money government is using to try to rescue the economy.
Julie Janson, president of Duke Energy in Kentucky and Ohio, lamented new government regulations on energy and utilities.
Churchill Downs Chief Executive Robert Evans warned this was a bad time to raise taxes and increase government regulation of business.
U of L President Jim Ramsey cited sobering statistics about Kentucky’s economic “blood bath,” such as the decline in manufacturing jobs in the past decade from 310,000 to 200,000 and the fact that Kentucky spends $9,000 a year on each public school student, $6,000 on each college student — and $19,000 on each prison inmate.
As each panelist took his or her turn, things turned gloomier. Then the last panelist, the governor, spoke.
Beshear said he thinks Kentucky is in better shape economically than many states and, with smart strategy and investment, the state could position itself to take advantage of future economic opportunities, such as advanced manufacturing.
“Until I heard from the governor, I was in a state of desperation,” Volcker deadpanned, adding that he agrees with Beshear’s optimism.
But, Volcker said, Kentucky and the nation must see the economic crisis as a “wake-up call” and make some fundamental changes.
Volcker also agreed with comments by UK President Lee Todd, who emphasized the need for more rigorous math and science education and more technology research that can be commercialized to create jobs.
Todd criticized the recent emphasis on the service economy: “We can’t create wealth by serving hamburgers to each other.”
In the best line of the day, Volcker said Americans need to shift away from “financial engineering” and focus once again on civil, mechanical and electrical engineering.
We need to regain our leadership in technology development and manufacturing, he said, rather than churning out so many business school graduates who are focused on making big, quick and easy profits by manipulating money.
If there’s one thing this year’s Shakertown Roundtable made clear, it is this: Economic recovery will require us to figure out how to prosper in a new and different global economy, rather than simply trying to get back what we have lost.
Centre College President John Roush, commenting from the audience, perhaps said it best: “I think we are going back to a place of well-being. But it’s a different place.”