Paul Volcker & Ray Dalio | State of the US Economy & Government

Paul Volcker’s Principles of Good Governance

• Paul Volcker’s first principle is effective governance.
• He believes that good government is not just about high-level policies but also about the ability to administer those policies efficiently and economically.
• Volcker emphasizes the importance of making the government machinery work day after day.
• He is concerned about the declining faith of the American people in their government.

“The true test of good government is its ability to administer, not just great policy but can they carry out the policies effectively and economically?”

Paul Volcker’s Upbringing and Influence of His Father

• Volcker’s father, who was the city manager of a bankrupt town in 1930, had a significant impact on his principles of governance.
• His father was known for his fanaticism for disclosure and detailed budgeting, which resulted in a well-managed town with no crime.
• Volcker also inherited his family’s tendency to economize and spend money efficiently.

“He was a bug for not spending more than he had to spend but spend what was necessary for a professional operation.”

Paul Volcker’s Concerns and Worries

• Volcker reflects on the post-World War II era where the United States enjoyed assumed leadership and economic success.
• He acknowledges the rise of China as a clear competitor for world influence and recognizes that American leadership is no longer taken for granted.
• Volcker is concerned that recent events in Washington and the country have further sped up the decline of American leadership.

“We have to learn in a world in which leadership by America is not taken for granted anymore.”

Decline in Government Effectiveness

• The divisiveness in Congress and the country has made it impossible to take coherent and consistent approaches to domestic and foreign policy issues.
• The perception that the United States cannot effectively manage its own affairs at home undermines its credibility as a global leader.
• There is a need for effective government management to address the toughest challenges and emphasize the importance of effective government.

“Who is going to appreciate the United States as a leader if we don’t seem to be able to manage our own affairs at home?”

Challenges in Government Management

• There are two million federal employees, excluding the military, and this number has remained the same since the Kennedy administration, even though the government has outsourced many functions.
• The government’s outsourcing, particularly in the defense department, raises concerns about who is overseeing these contracts.
• The current staffing levels in the government may not be equipped to effectively manage the responsibilities entrusted to them.

“Who’s minding the store? And I’m not sure we’re well enough equipped for those two million people.”

Issues with the Civil Service

• The civil service faces difficulties in attracting and retaining the best talent due to bureaucratic hurdles and the lack of respect and career development opportunities.
• Many universities do not focus on teaching public administration, diminishing interest in government service.
• The curriculum and training for government workers need improvement to equip them with the necessary skills for effective management and decision-making.

“I have been struck by the number of businessmen who have been called into government… who, after two or three years in government, say I didn’t realize there were so many people in the government that knew what they were doing, and can do it effectively.”

The Importance of Professionalization of Government

• Paul Volcker has devoted significant efforts to professionalize and educate government managers through the Volcker Alliance.
• The lack of respect and career path for government workers hinders the effectiveness of the system.
• A strong commitment and effective civil servants are essential for successful governments.

“Whether you call them civil servants or whatever you call them, you have to have people running it. The true test to government is the ability to get something done efficiently.”

Principles of great government

• A strong leader at the top helps
• Questioning the effectiveness of democracies
• Need for expertise and leadership while respecting popular desire

“You need a strong leader at the top, that helps quite a lot.”

“Are democracies really able to do the kind of thing…or do they eventually, as Plato said, end up with some plutocracy?”

“How can you get the expertise that you need, and the leadership that you need, and still respect the popular desire?”

Challenges in maintaining democracy

• Divisiveness in the United States
• Gridlock in decision-making process
• Inability to reach consensus on programs and policies
• International challenges in maintaining progress

“You have a very divisive new administration…You have the kind of gridlock that we saw in the Obama administration.”

“An inability to reach some reasonable consensus on how to administer certain programs…and what the program ought to be.”

Leadership under challenging circumstances

• Volcker’s fight against inflation in the 1980s
• Importance of having a vision and determination

“I decided we had to change in approach and we’ve got to stop worrying about increasing unemployment…or it’s going to get worse and worse…I got plenty worried…But I felt that we were stuck, we couldn’t back off or all the effort we were making would be for naught.”

Paul Volcker’s Role in Addressing Inflation and Unpopularity

• Despite the unpopularity, Volcker believed that tackling inflation was necessary for the country’s well-being.
• The country as a whole understood the urgency of the inflation problem and was willing to tolerate the necessary measures.
• Volcker faced opposition from different groups, including farmers, community groups, and even a Congressman who called for his impeachment.
• However, when it came time for his reappointment, he had significant support with 84 votes in favor.

“Inflation was getting us by the throat, and they were willing to sit back and not be too aggressive because they thought I was attacking a problem that needed to be attacked.”

Ray Dalio’s Reflections on Volcker’s Challenging Time

• Dalio recalls the challenges of the time and how he calculated the impact of Volcker’s monetary policies.
• The economic conditions during that period were worse than the 2008 financial crisis, with rising unemployment rates and volatile interest rates.
• The crisis extended beyond the United States, with Latin American countries facing significant financial difficulties as well.
• The IMF played a crucial role in helping stall and manage the situation.

“You set the M1 target of 5.5%, and I did the calculations of velocity, and I thought, oh, my God, is that really going to be happening?”

Dalio and Volcker Discuss World Leaders

• Dalio asks Volcker for his insights on what makes a great world leader.
• Volcker mentions Angela Merkel, Lee Kuan Yew, and Zhu Rongji as examples of leaders he admires.
• The qualities Volcker highlights include having a clear vision, being willing to fight opposition, caring for the people being led, and leading effectively with a strong civil service.

“Well, he [Lee Kuan Yew] knew what he wanted to get done and he did it. And in a small, relative enclave, and he did a lot of things that we tutted about, in terms of democracy, he was a little too eager to put people in jail to quiet down opposition and worry about what the newspapers said about him and so forth.”

The challenges and resilience of the US economy

• During times of crisis, such as the Vietnam War and periods of civil unrest, the United States has faced threats and tensions but has managed to survive.
• The country’s history of democracy, which spans 200 years, provides a sense of comfort and resilience.

“We’ve gotten over worse than this before, go get back to work and do something.”

Future prospects of the United States and China

• The speaker expresses a more favorable response to the President of China’s statement about a harmonious relationship and the division of the world into different areas of influence.
• The President of China’s approach differs from that of the United States, which focuses more on threats and demands.

“It’s a different story being told.”

The impact of imports and current account deficit

• The United States has faced challenges related to accepting a high volume of imports, which has negatively affected certain sectors, especially small manufacturers.
• While the current account deficit is not solely attributed to China, it plays a role in the trade imbalance.

“We do have a big current account deficit… it’s not all China.”

Political challenges and the wealth gap

• The political problem in the United States involves finding agreement on immigration policies, considering economic and moral aspects.
• Balancing the economic divide between the middle part of the country and the coastal areas is crucial.

“What are we gonna do about the big issues of, from my point of view, climate change? So there are a lot of issues that, somehow, have been polarized to the extent, we’re having great difficulty in achieving the consensus that we need.”

Paul Volcker’s desired legacy

• Paul Volcker hopes for a more effective government that promotes a public service ethic, attracting individuals who want to contribute to the country and its people.
• He believes there is a need for a solid connection between universities and the government, specifically in the field of public administration.

“I would like to see that kind of spirit permeate in a wider population… back when Kennedy came in, it was overdone.”

The role of the Volcker Alliance

• The Volcker Alliance aims to enhance the cohesiveness and effectiveness of government administration and personnel.
• The organization seeks to improve the connection between the government and universities in terms of training and employing individuals for challenging roles in government.

“We’re trying to get some cohesiveness… about the needs of government for effective administration and effective people.”

Evaluating the performance of US states

• The Volcker Alliance conducted an assessment of all 50 states, evaluating their budgeting, emergency fund reserves, pension systems, and other factors.
• The rankings were published in a book, creating competition between the states, and sparking widespread attention.

“This attracted a lot of attention because it’s a competition between the states.”

Volcker Alliance’s Impact

• The Volcker Alliance released a report indicating that the US lacks good budgeting arrangements, prompting some organizations to change their budgeting procedures. This exemplifies the impact of the Volcker Alliance.
• By publicly grading the budgeting arrangements, the Volcker Alliance is able to changing behavior.

“By being able to put the grades on those for everybody to see, it changes behavior.”

Neglect of Infrastructure

• Infrastructure is often talked about, but little action is taken. For example, there is a pressing need for new rail tunnels under the Hudson, as the existing tunnels are old and unreliable.
• Despite urgent needs in infrastructure, efforts are wasted on smaller projects like the Second Avenue Subway and bringing a few Long Island trains into Grand Central Station.

“When big, obvious needs are going undone.”

Federal Government’s Role in Infrastructure

• Paul Volcker believes that federal government leadership is essential to address the most urgent infrastructure problems.
• He questions to what extent the federal government should finance and check the viability of infrastructure projects, working collaboratively with states and cities.
• The current approach to infrastructure is insufficient and leaves states financially strained.

“And it’s just not being done now in the way it should be done.”

Collaboration and Funding for Volcker Alliance

• The Volcker Alliance seeks support from people who can contribute financially and spread awareness.
• While the organization has enough funding currently, they will need additional financial resources to sustain their work in the future.
• Volcker Alliance aims to establish greater cooperation among universities, as they have the potential to provide more resources.
• The lack of funding in public administration compared to economics hampers progress in managing public institutions effectively.

“But we do have to get, and we’re gonna spend this year making another try of demanding more cooperation from the universities themselves.”

Corruption and Fiduciary Responsibility

• Volcker emphasizes the prevalence of corruption in the world, including conflicts of interest in banks and finance.
• He criticizes the fading fiduciary responsibility, as ethical standards often do not reach those doing the work.

“Enormous number of conflicts of interest that have developed in banks and elsewhere in finance.”

Government’s Efficacy and Challenges

• Volcker expresses concerns about the state of government, citing the presence of fake news, presidents’ personal behaviors, and Congress’s inability to function effectively.
• He highlights the rushed passage of a tax bill without sufficient debates and the diminished quality of appointments to cabinet offices.
• Volcker points out the need for constructive changes, better policy coherence, and improvement in government operations.

“I think that’s fair to say. We rammed through a massive tax bill, whatever you think about that tax bill, shouldn’t be rammed through the Congress without any debates, at midnight.” “What I think I said some time ago, of all the presidential appointments, far less than half anybody’s even been nominated, much less appointed.” “The quality of the people appointed to cabinet offices, and sub cabinet offices, I think by any estimation is not up to scratch.”

Decline of Government and Policy Consensus

• Volcker observes that there was once a general consensus on foreign policy after World War II, with both Republican and Democratic presidents leading efforts like NATO and the World Trade Organization.
• However, he believes that this consensus has eroded, and the government’s track record has declined.
• He expresses disappointment in the appointments to key positions and the lack of ambassador to Saudi Arabia despite ongoing issues with the country.

“That’s changed. And we’re not always gonna have happy harmony about what policies should be, but you’ve got to do a little better than we’ve been doing recently.” “We haven’t had an ambassador in Saudi Arabia. We have all these problems with Saudi Arabia, we haven’t even got an ambassador there until now, why not?”

Paul’s hope for his legacy

• Paul Volcker is discussing his hopes for his legacy and the achievements he wants to make over the next few years.
• Ray Dalio expresses his desire to help Paul achieve these goals.

“and also some of what you’re hoping will be achieved over the next few years, to make up your legacy. I hope that we can help you achieve that.”

Paul’s appreciation for the opportunity to express his thoughts

• Paul thanks Ray for inviting him and giving him the platform to express his opinions.
• He acknowledges the importance of having the opportunity to share his ideas and thoughts.
• He mentions his intention to express his concerns and grievances about the current state of the country.

“thank you for coming, I appreciate the opportunity to rant and rave a little bit because I think the country needs a little ranting and raving.”

Ray’s acknowledgment of Paul’s ability to express his concerns

• Ray acknowledges Paul’s talent for expressing his concerns and grievances.
• He highlights the effectiveness of Paul’s approach in raising important issues.
• Ray jokingly appreciates Paul’s ability to “rant and rave.”

“And you do that so well.”

“I don’t know about that.”