Paul Volcker's Most Important Lesson: Echoes

It's difficult to recall now the seriousness of the U.S. economic slump at the end of the 1970s. Growth was weakening, the dollar was sinking and, even worse, inflation was accelerating rapidly. Confidence in U.S. economic leadership was plunging at home and abroad.

Then, on Aug. 6, 1979, Paul Volcker took over as chairman of the Federal Reserve Board. His appointment came as a relief to the markets because of his experience at the New York Fed and the Treasury, but more importantly because he questioned the common view that a higher inflation rate had favorable effects on employment. He was determined to bring price stability and better economic performance to the Fed.