Nixonflation – Econlib

In April 1971, President Nixon was worried. inflation It has fallen from 6.2% annually in February 1970 to 4.2%. unemploymentHis approval rating had been at 3.5% in December 1969 and hadn’t been below 5.9% since October 1970. Nixon’s approval rating was falling sharply. After the new year, it had fallen from 56% to 49%, and he had gone from a 43-40 lead to a 47-39 deficit against his presumed opponent in the 1972 presidential election. He needed to act.

An avid sports fan, Nixon pulled an old favorite play from his playbook: “One of the experiences (Nixon) remembers most vividly was, Theodore H. White Here’s what I wrote:

…the 1960 campaign against John F. Kennedy and the impact of the economy on that campaign. As early as 1959, then-Vice President Nixon recognized the political danger with the onset of Eisenhower’s second recession. He had appealed early to his cabinet for loose credit and stimulus to jump-start the economy before the 1960 elections. His only ally was economist Arthur Burns, but the Eisenhower administration waited until late spring to ease credit. By then it was too late, as stimulus measures required a long lead-time. Then, in the fall, unemployment rose across the country, forcing Nixon to campaign against Kennedy. He lost. He did not want to repeat the experience in 1972. Now time was running against him again.

“I never saw anyone get hit.fl…“I have seen the suffering of many people in the United States because of the problem of unemployment,” Nixon said.

One of them Nixon’s famous secretly recorded conversations, Arthur BurnsAppointed by President Nixon and now chairman of the Federal Reserve Board, he told the president in February 1971:

In my view, the Fed has laid the foundations for recovery….It’s not a lack of money that’s holding the economy back now, it’s a kind of lack of confidence. If we pump any more money into the banks, I think we could have some of the worst problems since 1972.

But with unemployment stagnating at nearly 6 percent, Nixon continued to press Burns. Monetary policy. “We really have to think about raising interest rates sometime in the late summer and fall of this year and into next year. You know, there’s a significant time lag,” Nixon told Burns in March, to which Burns replied, “Lowering interest rates would risk accelerating the international monetary crisis.”

In a change of direction, in July Nixon met with George Shultz, director of the Office of Management and Budget, about a possible vacancy on the Federal Reserve Board.

I told Secretary of the Treasury John Connally to find the easiest moneymaker he could find in the country, someone who would do what Connally wanted and give Burns a say…and Connally is scouring the mountains of Texas, California, and Ohio. We’re going to have a populist senator on that committee anyway…if you know of any crazy people like that, let me know…I want people on that committee that I can control. Really. Basically, I want people that Connally can control.

“To put more pressure on Barnes.” Burton A. Abrams “Nixon instructed his aides John Ehrlichman and H.R. Haldeman to leak, through Charles Colson, stories about the Federal Reserve’s recommended expansion,” Burns wrote. This “expansion” would weaken Burns’ authority. Haldeman was also to leak information about Nixon’s consideration of legislation to limit the independence of the Federal Reserve.

On November 10, Burns relented, telling Nixon, “Look, I just wanted to let you know today that we’re going to cut the interest rate.” In December, Schultz told Nixon, “I agree that[Burns]should increase the money supply.” Nixon then urged Burns, “The whole point is to increase[the money supply]. Right? Let’s do it!”

He did so. unemployment By election day, his approval rating had fallen to 5.3%. Nixon was re-elected by a landslide, in large part due to Democratic missteps.

Wage and price controls announced in August 1971 temporarily contained inflation, but by September Milton Friedman Nixon was warned Price Controls “We may be able to contain it at least until the election… then inflation will skyrocket.” This soon became a reality: Year-over-year inflation rose from 1.4% on Election Day to 4.9% in August 1974, the year the Watergate scandal forced Nixon to resign. Soybeans, wheat, and finally, one commodity after another soared against the dollar. oilThe latter is, result It is often misunderstood as a cause of inflation, Cause The same is true today. Unemployment rose again, reaching a peak of 9.0% in May 1975. “Stagflation” had arrived.

The American economy was experiencing the “terrible troubles” that Burns and Friedman had warned about. The Great Inflation of the 1970s did not subside until Paul Volcker reversed the policies that caused it.Its origins were not in the oil fields of Arabia, but in Richard Nixon’s White House.