A generation ago, Paul A. Volcker was a household name, the Federal Reserve chief who waged a hard-nosed but successful battle against virulent inflation that clouded the nation's economic future. He did it by engineering a horrific recession, clamping on the financial brakes and sending the economy into a tailspin in 1981.
Nobody knew whether his strategy would work. It certainly caused widespread pain. But by 1986, double-digit inflation was gone and price increases had dropped to about 2% annually, setting the stage for the next two decades of economic stability.
Now Volcker is back, tapped by Barack Obama as a special economic advisor. And if the president-elect follows his advice on the current economic crisis, there could be pain again and no doubt many protests -- but also the possibility of long-term benefits.
In speeches, interviews, public policy reports and congressional testimony, Volcker, 81, has laid out a fairly clear outline of what he thinks is wrong with the present-day financial system and the government's management of the economy.
His concerns go to the very core of how America lives and how Wall Street operates. A child of the Great Depression and a man of legendary personal thrift, Volcker thinks Americans have been living above their means for too long.
"It is the United States as a whole that became addicted to spending and consuming beyond its capacity to produce," Volcker lectured the Economic Club of New York in April. "It all seemed so comfortable."
Bringing consumption back in line with income would not only crimp individuals and families, but also require major readjustments in the global economy, which has relied on the U.S. as consumer of last resort.
Volcker has become a skeptic of modern Wall Street, worried that the nation's entire financial system has evolved to a point that the government no longer has effective control over all of its important components. And the financial industry has become beholden to complex financial engineering that clouds the picture.
"The market was being run by mathematicians who didn't know financial markets," he said this year after the crisis struck.
Clearly, he wants tough new regulations on securities markets, including oversight of hedge funds, in order to avoid the need for a bailout effort by the Fed ever again. It seems likely that he will advise Obama that the growth of U.S. consumption -- everything from government spending to household outlays -- should not be financed by selling ever larger amounts of debt to foreign interests.
But he warns people not to expect an easy ride. "It's going to be a tough period," Volcker said in a speech at the Urban Land Institute in late October. "But when we dealt with inflation, it laid the groundwork for 20 years of growth. I'd like to see that happen this time."
In pressing his case, economists and policy experts say, Volcker will have a level of experience, credibility and integrity that should carry great weight in the new administration.
"It is less about his ideas but more about his stature, wisdom and integrity," said Princeton University economist Alan Blinder. "There is not another person on the planet who can match that combination."
"Paul has a very quiet but forceful way of expressing his views," said Princeton University economist Peter B. Kenen, who began working with Volcker during the Kennedy administration. "He can say, 'I look back on 50 years of public service and I can count the times that Idea A worked and Idea B didn't work.' "
Volcker will not occupy a position in the Obama administration that gives him any direct authority, a big change from the days when he ran the Fed with an iron grip. While the Treasury, Federal Reserve, Securities and Exchange Commission and other agencies all have turf to protect, Volcker has no turf.
He also will have to work with some outsized egos and giant intellects on Obama's economic team: Lawrence H. Summers, chairman-designate of the National Economic Council; Timothy F. Geithner, nominated to be Treasury secretary; and Christina Romer, chosen to lead the Council of Economic Advisors.
The group is generally not of one mind. Major differences exist in how they view regulation, monetary control and fiscal policy. Summers, for example, was among the Clinton administration officials who helped relax federal regulation on Wall Street, recalled David R. Henderson, a conservative economist at the Hoover Institution. Romer has questioned how well fiscal policy works at all, a central tenant of Democratic economic thinking.
Further complicating the picture, Volcker has an entirely new and untested organization to head.
The day before Thanksgiving, Obama named him chairman of the Economic Recovery Advisory Board, an entity seemingly created to bring Volcker, his experience, knowledge and credibility into the administration. The board is supposed to provide "fresh thinking and bold new ideas from the leading minds across America," Obama said.