In Box

Epiphanies from Paul Volcker

The legendary central banker speaks with FP about family values, what went wrong with big finance, and why baseball is to blame.

My father was in public service most of his life. And he was vocal about responsibility; he had very strong opinions about what was right and what was wrong. If he found an employee or a policeman who was not living up to his position -- taking a bribe or taking tips -- out they went!

Our economy spent more than 10 years overconsuming, underinvesting, too heavily engaged in borrowing from abroad -- and it all contributed to the massive financial crisis we have today. This is not an ordinary recession where you may have a sharp decline, then when money eases, it snaps back. A massive amount of debt has us by the throat, so to speak. We're in for a long slog.

I think the financial markets became an enabler. There was a feeling that somehow we reached a kind of nirvana where well-developed financial markets were self-equilibrating and spreading debt around in a way that reduced or spread risks to the economy as a whole and to financial institutions. That all turned out to be an illusion.

People were making huge amounts of money in this financial transformation, but there's a real question about how beneficial it was for the economy generally. A lot of this is not how much money you got, but do you got more than the next guy. When I was at Chase Manhattan Bank, it was anathema to bank management to pay people bonuses, and the feeling was that this would corrupt their unbiased judgment and their fiduciary responsibilities.

I certainly would like to think ethics have a place in finance. That's something we may have forgotten. In a reasonably operating financial system, the lack of recognition of fiduciary responsibilities will bring your own destruction sooner or later.

It's all baseball's fault. It's when they began paying baseball players so much. I was a Brooklyn Dodgers fan, and my introduction to evil was when Walter O'Malley took the Dodgers out of Brooklyn. And just after they won the World Series! It's the Yankees' fault: perpetual victory, paying all that money. I don't blame O'Malley, but it was symptomatic of the erosion of values [laughter]. That was my epiphany -- that there was evil in the world. The Dodgers have fled.

Illustration by Joe Ciardiello for FP

In Box

Fat Race

Last year's jeans won't fit? Blame the free market.

Along with iPods and Hollywood blockbusters, another American trend is sweeping the world: corpulence. As countries grow wealthier, they're also growing fatter. In China, the obesity rate is increasing by about 40 percent every year, and in Nigeria health officials are worried that it's reaching epidemic proportions.

Economic historian Avner Offer of Oxford University argues that it may be liberal economies themselves that are to blame. In a recent study, he and two co-authors looked at obesity rates of 11 wealthy, developed countries and found striking disparities. Some 30 percent of U.S. citizens and 29 percent of Australians are obese, while fewer than 20 percent of carb-loving French and Italians are overweight.

Why? It's not McDonald's -- though Big Macs are nearly as ubiquitous in France as in California these days. The real culprit, Offer argues, is anxiety about money and jobs. In other words, citizens with more economic stress tend to supersize their fries. This squares with new research published by the American Medical Association on "recession obesity," the tendency of waistlines to grow along with unemployment numbers. Indeed, the U.S. Centers for Disease Control and Prevention found that about 2.4 million people became obese in the United States during the recession of 2007 to 2009, far higher than projected.

So could it be free market capitalism itself that is making us fat?

According to Offer's findings, countries with fewer labor protections and government benefits have an obesity rate 6 percentage points higher than those with more generous welfare states. He doesn't directly address whether Mediterranean diets and more walkable cities are factors in keeping Italians and French skinny, but his research implies that recent cuts in European welfare spending might do the opposite of belt-tightening.

If Offer is right, then government programs to trim fat from American diets could be missing the point entirely. Rather than encouraging children to exercise more and eat better, first lady Michelle Obama's time might be better spent advising her husband on how to create more secure jobs for their parents.

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