Former Federal Reserve Chairman Paul Volcker came to Cooper Union yesterday to argue that members of Congress put aside partisan differences and work to reduce the deficit and reform the banking system, as well as encourage Americans to focus on investment instead of consumption.

In order to reduce the largest peacetime deficit in history, Volcker said the government needs to invest in more domestic spending like infrastructure even though it would prove more difficult in a time of high unemployment.

“Can we not agree on basic points of departure? Government is, after all, necessary,” Volcker said.

The former chairman argued that Congress and President Barack Obama tackle corporate and personal income tax reform to increase revenues and reduce entitlements, defense spending and civilian expenditures by hundreds of billions of dollars to lower federal spending as percentage of GDP to 21 percent from 25 percent.

“We need a large framework instead of inadequate bits and pieces. The Obama administration looked at this and said it might be possible to get it down to 21 percent by 2035,” Volcker said with a chuckle.

He argued that the federal government’s instability is worsened by a slow confirmation process, leaving the president without the key advisors needed to help him make decisions about further economic reforms. Volcker suggested Congress stop examining the personal lives of nominees and encouraged the executive branch to cut down the number of its appointees.

Volcker said the important first steps have been taken to reform the banking system but emphasized that the process of instituting better oversight has a long way to go.

“Financial reform has barely started and the whole world knows it. Money market mutual funds are holding trillions of assets. There are new system risks,” Volcker said.

Volcker stressed that Americans need to increase their personal savings instead of spending, as consumers did before the economic meltdown.

“The economic report card says promising but definitely incomplete,” Volcker said.¬†“We can’t restore a healthy economy by relying on increased consumption and restocking inventory.”

Volcker said the economy can’t grow if Americans’ incomes remain relatively stagnant and consumption grows to pre-financial meltdown levels.

“Real income for the average American rose little if at all. That’s not supposed to happen for a growing healthy economy. It’s still a hard slog, even well beyond the crisis,” Volcker said.

 

 

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