Taking to Twitter late last month, President Trump made clear that when it comes to the economy, the real enemy is not in Beijing, but just down the street from the White House, in the headquarters of the Federal Reserve. The Fed’s chairman, Jerome Powell, had recently led his board in lowering interest rates by 25 basis points, a smaller increment than the president desired. “China is not our problem, the Federal Reserve is,” the president wrote.
Such audacity may feel uniquely Trumpian, but it isn’t. Though our modern political culture holds that the Federal Reserve is independent, other postwar presidents have bullied Fed chairmen just as egregiously. President Lyndon Johnson pushed Fed Chairman William McChesney Martin against a wall after Martin dared to raise the discount rate half a percentage point.
But the worst example is President Richard Nixon’s campaign to coerce “his” Fed chairman, Arthur Burns, into promulgating policy that guaranteed devastating inflation. Worst, because it worked — and demonstrated that this economically vital, supposedly apolitical agency is more vulnerable to presidential meddling than we’d like to believe.
If anyone seemed likely to withstand pressure from Richard Nixon, it was Arthur Frank Burns. At one point head of the prestigious National Bureau of Economic Research, Burns enjoyed a reputation as a star data cruncher and wizard forecaster: It was said that he predicted the strength of the 1955 recovery by the thickness of the cigarette smoke in the General Motors salesrooms. Burns’s work on inflation was hawkish and included a monograph, “Prosperity Without Inflation.”
In 1960, when Nixon ran for president the first time, it was the pipe-puffing Burns from whom Nixon took economic counsel. Burns warned Nixon that unless Congress and the Fed moved taxes and interest rates down substantially, voters would elect John F. Kennedy.
Taxes and interest rates did not come down dramatically, and Nixon did lose. But Burns had supplied Nixon with that gift most precious to politicians: a plausible explanation for why the politician’s defeat was not the politician’s fault. Nixon never forgot, and in turn gave Burns a gift just as precious, at least to an academic: his ear. Burns was so sure Nixon liked him, he wrote in his diary that he considered himself Nixon’s “best friend.”
When Nixon finally won the White House in 1968, he honored the friendship by bringing Burns on, first as counselor, then as Fed chairman.
Yet once ensconced at the Fed, Burns found his friend suddenly cooler. Nixon wanted lower interest rates. After a time Burns and his board did lower rates, but in increments of 25 basis points, too slow for Nixon’s liking. Burns believed he could convince the president of the merit of gradualism if he could get enough time with Nixon. But he could not. Instead Nixon dispatched emissaries such as John Ehrlichman with threats: “The president will take on the Fed publicly if its Open Market Committee retaliates.” Or: “Responsibility for a recession is directly on the Fed.”
By early 1971 Nixon was introducing yet another blocker, this time the new Treasury secretary, John Connally. Connally was a Democrat, unorthodox, but the appointment’s real sin was that Connally was not an economist, not even a banker — just, as Burns put it, “a most smooth politician.” Connally ordered all White House hands to follow White House policy — and included Burns as a “hand.”
The now hardening Nixon simply watched with amusement as Connally and the others tortured Burns. Burns’s vulnerability was his Jewish background. “The government is full of Jews,” Nixon told H.R. Haldeman, another aide. There was “a Jewish cabal” in government, he said, “and they all only talk to Jews.” But the person Burns wanted to talk to was Nixon.
As a concession to the bully, Burns goosed the money supply, but not enough to please the insatiable Nixon, and in the process irritating the free-market economist Milton Friedman. Later, Ehrlichman would record a typical scolding: “The President made you chairman of the Fed, Arthur,” Ehrlichman said. “You are deeply in his debt. He expects you to be loyal.” White House Sunday church services provided a chance for presidential access, but Nixon’s staff moved to block Burns’s attendance. “Keep him off of Church,” read a memo.
By June 1971 the Consumer Price Index, the proxy for inflation, was increasing at a 6 percent annual rate, and Burns was desperate. Burns believed inflation, or its appearance, would abate if Nixon and Congress placed some government restraints on wages and prices. If they didn’t, Burns would have to raise interest rates and further irritate his chief executive.
In July, Burns finally raised rates again. The president retaliated by allowing his aides to sneak a smear into The Wall Street Journal. The story suggested Burns was demanding his own salary be raised 50 percent. This was false. The story also announced that the “furious” president was considering legislation that would “bring the Federal Reserve into the executive branch.”
Nixon had indeed absorbed the lesson of 1960, better than Burns liked. His eye now firmly on the 1972 election, the president offered a preposterously incoherent stimulus plan: tariffs, a wage and price freeze, targeted tax cuts, a suspension of the gold standard and, in 1971, the closing of the gold window, which blocked foreign governments from selling dollars for gold — in effect killing off the gold standard entirely. The plan was economic anathema. Yet when Nixon invited Burns to join the economic team for a Camp David retreat to formalize the plan, Burns was so relieved to be included that after a pro forma protest against one move — the gold standard suspension — the Fed chairman simply caved.
What followed, many Americans still remember. For Burns, a momentary elation: The Fed chairman was back in his president’s good graces. For Nixon, a political victory — the measures masked the inflation and pumped growth enough to get Nixon a second term.
But great lows followed these short-term highs. Nixon’s imperiousness cost him the presidency and the United States its economy. A storm of inflation followed when the price controls ended; Burns’s interest rate increases proved far too modest. Burns, the prophet who had spent a career warning of inflation, had carried out policies that caused it.
The Nixon-Burns tragedy is the worst version of a political cycle common to nations the world over. Voters reward politicians who give them good times. Leaders want legislators to supply those good times through tax cuts or benefits. When legislatures won’t cooperate, leaders turn to central banks.
Yet the truth, as a scholar wrote six decades ago, is that in the case of the United States, “All that may be reasonably expected of the Federal Reserve System is that it will do everything, within its limited powers, to keep the price level from rising further.” That scholar’s name was Arthur Burns.
Amity Shlaes (@AmityShlaes) is the author, most recently, of “Great Society: A New History.”
The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.
Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.
"make" - Google News
November 17, 2019 at 02:30AM
https://ift.tt/2qjw891
Trump Isn’t the First President to Make War on the Federal Reserve - The New York Times
"make" - Google News
https://ift.tt/2WG7dIG
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
No comments:
Post a Comment