SM: And right now government agencies are expanding. The economist Friedrich Hayek warns of tyranny when the government controls economic decision making.Like Alan Greenspan, Volcker seems to be one of those who is "theoretically" anti-big government, but when the marching orders come from his controls (Hint: His office is in the very high rent Rockefeller Center in NYC), he stays in hop-skip with the rest of them.
PV: Obviously, government should get more involved in the regulatory side than we have been in the last two decades. The government has a role in health care—we just had a big political fight about it. I don’t think people are ready to give up Social Security, Medicare or defense.
SM: Weigh in on the debate.
PV: I’m not in favor of big government by and large. I picked up Hayek’s The Road to Serfdom the other day, and it seemed less relevant than in 1945 [when it was published]. He wrote at a time when communism was a prime threat and socialism an existential ideal. We still have too much government interference, but we don’t have the communist bear looming down on us.
It is stunning that he doesn't get the general principles that Hayek discussed in The Road to Serfdom and that he doesn't understand their importance relative to today's growing government.
He also established his Keynesian credentials during the interview:
SmartMoney: You aren’t overly concerned by deflation.Again in "theory" he is against "red ink", but not right now.
Paul Volcker: No, I am not. It’s a difficult balancing question now. We are way below full employment. The immediate outlook is for extremely sluggish growth. It’s not the time to take strongly restrictive measures. But we do have to do so over time, or eventually we will be up to our necks in red ink. That’s the lesson, not just for the federal government but for state governments as well.