From Maxwell Perspective...

Economics, Broadly Defined

At a time when citizens are perhaps more aware of economic issues than ever, Syracuse University is establishing an endowed faculty chair at Maxwell to nurture an interdisciplinary understanding of economic forces in public affairs. The chair honors former Federal Reserve chairman Paul Volcker.

On September 19, in New York City, broadcast journalist Charlie Rose sat on a stage beside Paul Volcker, former chairman of the Federal Reserve, and quizzed Volcker (lightly) on the state of the nation’s economy. The occasion was not another episode of Rose’s popular PBS interview show. Rather, the two sat before a distinguished audience that had come to celebrate the creation of a new faculty chair at Maxwell, bearing Volcker’s name.

The occupant of the Volcker Chair will explore economics as the pivot point of much broader discussions of public affairs — bringing a multidisciplinary perspective to economics that is in every way typical of the Maxwell School. And, said Dean James B. Steinberg at the event, it is utterly fitting such a chair would honor Volcker.

“I can’t think of an individual who better personifies the full range of mission that we seek to pursue at the Maxwell School than Paul Volcker,” said Steinberg in New York. “Paul is, of course, a distinguished thinker whose work on finance and macroeconomic policy is nothing less than the point of departure for any serious debate today about national policy.”

“I can’t think of an individual who better personifies Maxwell’s full range of mission than Paul Volcker.”
— Dean James B. Steinberg Paul Volcker’s career includes eight years as chairman of the Federal Reserve under presidents Carter and Reagan, where he helped end the “stagflation” crisis. He also spent four years as president of the Federal Reserve Bank of New York.

In all, he has served almost 30 years in the federal government, under five presidents; recently, he chaired President Obama’s Economic Recovery Advisory Board. He has held several senior positions in the U.S. Treasury, including undersecretary for monetary affairs. In the private sector, he was chairman of the prominent New York investment banking firm J. Rothschild, Wolfensohn & Company.

His service in government and on several major panels and commissions has touched on a plethora of public issues. As chair of the National Commission on the Public Service, he focused on restoring vitality and credibility to public service. In other settings, he helped effect the disposition of funds of Holocaust victims placed with Swiss banks, investigated corruption in the United Nations’ Iraqi Oil-for-Food Program, and proposed new anti-corruption policies for World Bank programs.

He is, as well, a member of the Maxwell School’s Advisory Board.

Funding for the Volcker Chair — and, indeed, the idea for it — came from Robert Menschel, trustee emeritus at SU and a 1961 graduate of SU’s Whitman School of Management. Menschel, who is senior director at Goldman Sachs Group, says he is intrigued by the more human, and less mathematical, aspects of economics. He is the author of Markets, Mobs & Mayhem: How to Profit From the Madness of Crowds, a study of irrational investor behavior.

“I couldn’t be more pleased
. . . with Paul’s willingness to lend his prestige to a chair on this subject.”
— Robert Menschel, ?Volcker Chair donor“The subject of crowd behavior has deeply interested me from my earliest days at Syracuse and has played a key role in my thinking ever since,” he says. “I couldn’t be more pleased . . . with Paul’s willingness to lend his prestige to a chair on this subject.”

Steinberg said Volcker possesses a “deep understanding of how human expectations and perceptions can affect economic behavior, even at the macro level,” adding that the occupant of the Volcker Chair should reflect the profound, pervasive role that economics (broadly defined) plays in any far-ranging discussion of public affairs.

“This perspective — an interdisciplinary blending of theory and practice — is such a natural fit for the Maxwell School,” Steinberg said. “Whether it’s our work on public finance and administration, social policy, environment, health or aging, this core perspective permeates our work both in the academic disciplines and the professional programs. And this new chair will make it possible for us to attract to the Maxwell School and to Syracuse the kind of influential voice of scholarship and practice that will allow us to sustain our leadership role in the national/international conversation.”

— Dana Cooke

According to Volcker

Among many observations shared by Paul Volcker during the interview with Charlie Rose . . .

On September 19 in New York City, Syracuse University and the Maxwell School announced the creation of an endowed faculty chair honoring Paul Volcker, given by trustee emeritus Robert Menschel. The event featured a Q&A between PBS host Charlie Rose and Volcker (left and right).

Without taking account of the human dimensions of financial markets you are going to make some big mistakes, because financial markets are not going to follow mathematical algorithms all of the time. . . . You get aberrations which aren’t anticipated. I think that has been a problem. On the one side, enormous complexity in financial markets and, on the other side, exposing it to some unexpected phenomena and upsetting a delicate machine.

This country has lost a lot in the past 10 years, not just economically, but . . . in our ability to stand out and lead the world. I mean, I grew up in a world where the United States was in an automatic position of leadership for the world. We thought this was critical to development of the world economy, to peace and prosperity — that we were the exemplars of constructive policies.

We do not have that kind of authority. People don’t automatically look to us anymore. . . . It’s a different world. China is massively important, Europe’s upset, but I believe we still have a more constructive role to play than we are able to play at this point in time. That’s a sad story.

Many of our most talented young people with aptitudes for mathematics or physics may or may not go to engineering school, may or may not be mathematicians. They are attracted by the potential gains on Wall Street, which are a multiple of what they might get in a scientific laboratory or teaching or whatever. . . .

“People don’t automatically look to us anymore. It’s a different world.” [At Princeton,] somebody knocked on my door and he said, “Can I talk to you for a few minutes?” I said, “Sure. Come on in and what do you want?” He said, “I want some advice. I want to go to Wall Street and I am deciding what firm I want to go with.” I didn’t know what advice to give him, but I said, “What’s your background?” He said, “I just got a PhD in aeronautical engineering.” I said, “What do you want to go to Wall Street for?” 

He looked at me like I was a Neanderthal. He said, “Don’t you understand? I can go to Boeing” — this was 15 years ago — “and I can get a job at Boeing for $50,000 a year.  Twenty-five years there I will be making $90,000 a year and they will give me a gold watch.  If I go to Wall Street, I am going to make twice that in year number one. What are you asking me that question for?” 

That is just typical of what has happened with so many young people.

We have deficit problems that, as things stand, are not manageable. And we have to manage them. You are talking about Social Security, about Medicare, about defense spending. . . .  

I am really sorry, just personally, that I didn’t convince [Obama] to try to do something about Social Security last year. Because that was possible. It didn’t have anything to do with the deficit in the next few years, but has a lot to do with the deficit 10 years out.

We are not going to hell in a handbasket, but we are in a slog. A slog. . . . That’s my favorite word: slog. It applies to a lot of things.

Dana Cooke is Maxwell’s publications manager and editor of Maxwell Perspective. All event photos by Eric Weiss.

This article appeared in the fall 2011 print edition of Maxwell Perspective; © 2011 Maxwell School of Syracuse University.