Macroeconomic Policy Lessons Learned and Admonitions Offered? Experiments with Nixonomics

2013Cambridge Business & Economics ConferenceISBN : 9780974211428

Cambridge Business & Economics Conference 2013

Economics/Finance–History/Macroeconomic Policy

Macroeconomic Policy Lessons Learned and Admonitions Offered?--Experiments with Nixonomics and Reaganomics in Addressing Recessions

By Frederick J. Augustyn, Jr., Ph D

Library of Congress

Social Sciences Section

101 Independence Ave., S.E.

Washington, D.C.20540-4287

ABSTRACT

This paper is an analysis of some key aspects of economic policy initiatives attempted under the presidencies of Richard Nixon (1969-1974) and Ronald Reagan (1981-1989.) The goal is to generate discussion about two past macroeconomic policies in the United States and to suggest what lessons can be gleaned and applied to current economic needs. The “Global Financial Crisis, 2007-2008" (as a Library of Congress subject heading terms it), otherwise called the Great Recession, and deemed by many analysts the worst financial conundrum since the Great Depression, has brought into question in industrial countries many of the economic assumptions of the last few decades. The global financial crisis which was recognized in September 2008 with the failure, merger, and subsequent temporary government management of several large United States-based financial firms and spread with the insolvency of additional companies, actions by governments in Europe, and declining world-wide stock market prices, continues to challenge those who would seek its solution, with or without the benefit of historical reflection.Significantly, it has engendered a re-consideration of the economic ideas of John Maynard Keynes, which in various forms were put into effect during the economic crisis of the 1930s by the administration of Franklin Delano Roosevelt (1933-1945.) I am not aware of many comprehensive, comparative analyses made of these two contrasting macroeconomic policies, albeit within the same political party at the executive level (the Republican presidential administrations of Nixon and Reagan.) This study presumably will contribute to the literature on how (or how not) to manage the economy. In any case, governments must make economic decisions, especially when they face economic downturns, as almost inevitably they will, as did both of these administrations. Macroeconomic policy proposals figured in the 2012 U. S. election cycle, though perhaps not as much as many had predicted.

INTRODUCTION

Both supporters of a return to Keynesian influenced economic policy, such as Robert Sidles in Keynes: The Return of the Master (New York: PublicAffairs, 2009) and opponents, notably Hunter Lewis in Where Keynes Went Wrong And Why World Governments Keep Creating Inflation, Bubbles, and Busts (Mount Jackson, VA: Axios Press, 2009) agree that this economist’s ideas are once again palpable, even though he is physically not able to give advice.

July 2-3, 2013

Cambridge, UK1

2013Cambridge Business & Economics ConferenceISBN : 9780974211428

Nixon is said to have famously altered Bismarck’s ironic remark “We are all Socialists now” to his “We are all Keynesians now” (although surprisingly some attributed that statement to Milton Friedman, who would have stated it unhappily.) The 37th president’s New Economic Program was soon dubbed Nixonomics by the contemporary press especially; it appears, by columnists such as Rowland Evans and Robert Novak and Leonard Silk. Reagan stated that “only by reducing the growth of government can we increase the growth of the economy” and revenues did increase during his administration. In contrast to Nixon, he preferred more unadulterated free-market principles, called in his time supply-side, Laffer Curve style, disparaged as trickle down economics, or more simply, termed Reaganomics (as popularized by radio personality Paul Harvey.) His administration pursued privatization policies (with purportedly greater efficiency countering public accountability.) I used librarians’ tools: historical online databases such as those available for The Economist newspaper and ProQuest’s Historical Newspaper resource; World Cat; H. W. Wilson’s Readers’ Guide Retrospective, and footnote.com. I also utilized more traditional print archival sources on deposit at the Library of Congress in the attempt to extract economic policy lessons from the past. Among these are the Alice Rivlin Papers, Director of the Congressional Budget Office (1975-1983);the financial journalist Irving R. Levine Papers;the Jack Kemp Papers (recently processed and opened to the public); and those accessible portions of the Donald Rumsfeld Papers’ finding aids (notably when he served as head of the Cost of Living Council or the Economic Stabilization Program under Nixon.) I also sought off-site assistance from the Nixon and Reagan presidential libraries under the National Archives system.

METHODOLOGY

I used textual sources, both online and in print (in published and archival formats), to see how both Nixon’s and Reagan’s macroeconomic policies were formulated, enacted, and assessed both internally by participants and externally at the time by the public, the press, and other media and retrospectively by scholars. Some references made since the onset of the Great Recession to these earlier policies might indicate what lessons and warnings have been garnered.

OBJECTIVESAND TENTATIVE CONCLUSIONS

The popularity measured by frequency of appearance of the term Reaganomics over Nixonomics is revealing and can lead to some conclusions. The Economist database (as of late 2010 and my research continues) yielded 135 articles using Reaganomics and 7 using Nixonomics, although 527 articles used “Nixon and the economy.” Searching the Library of Congress Online Public Access Catalog (OPAC) by keywords yields only 3 published books bearing Nixonomics either in their titles or in their catalog records, but 55 with Reaganomics. One might guess that this in part reflects the popularity as well of one president, both in his time and subsequently, over the other. But it might also account for simply how popular, colloquial expressions are increasingly used both in the press and in scholarly literature. Arguably political discourse is becoming more colloquial. The three Nixonomics books were contemporary; the fifty-five (so far) Reaganomics books were both contemporary and retrospective. Expanding this to a World Cat search yields 2 more books using Nixonomics and 31 more utilizing Reaganomics plus a sound disc for Reaganomic Blues (called Hard Times National Anthem.) Searching the ProQuest Historical Newspaper database yields similar results. There were 219 documents found for Nixonomics and 8023 documents found for Reaganomics. Use of the Reagan term for a type of macroeconomic policy continued considerably after his administration, but not so for Nixon’s. I also searched H W. Wilson’s Readers’ Guide Retrospective online and found 17 records for Nixonomics and 92 for Reaganomics.

Although both achieved some successes, as many major economic programs do, generally speaking Nixonomics was regarded as a failure both at the time and in retrospect, while Reaganomics was much more successful. Paradoxically it appears that many current industrial country governmental polices have been more akin to Nixonomics’ embrace of Keynesian stimulus spending rather than to Reaganomics even though Reaganomics may have been the more successful. Spending vs. austerity are still key debating points in industrial policy. Reasons for these accomplishments and defeats, both perceived and real, should lead to a lively discussion among those interested in learning from the recent past.

FIGURE 1

THE NIXON ADMINISTRATION FROM A MACROECONOMIC POLICY PERSPECTIVE

CHALLENGES–Inherited in 1969 a 3.5 percent unemployment rate and a 5 percent inflation rate. By August 1971, the unemployment rate had risen to approximately 6 percent, while the inflation rate was 4.6 percent.

RESPONSES–Economic Stabilization Act of 1970–gave the president authority to stabilize prices, rents, wages, and salaries.

TIME LINE–Examples

Repeal of the investment tax credit in 1969 and removal of the poorest from the tax rolls.

Tripartite Committee (1971) established.

“Nixon Shocks”–Announced on August 15, 1971 (ushering in the New Economic Policy)–no more gold standard; wage and price freezes; cost-of-living council established.

Phase 1–August 15-November 13, 1971--90-day freeze on wages and prices administered by the Office of Emergency Preparedness.

Phase 2–November 14, 1971- January 10, 1973--allowed limited wage and price increases.

Phase 3–January 11-August 12, 1973--Mostly voluntary controls during 1973, but with a 60-day price freeze (June 13-August 12, 1973.)

Phase 4–August 13, 1973-April 30, 1974--A price freeze followed by gradual decontrol–Program ended in August 1974.

FIGURE 2

PARTICIPANTS–

Burns, Arthur

Connally, John

Heller, Walter

Friedman, Milton

McCracken, Paul

Nixon, Richard

Peterson, Peter

Rumsfeld, Donald

Shultz, George

Solomon, Ezra

Stein, Herbert

FIGURE 3

A SELECTED BIBLIOGRAPHY

Economic Stabilization Programs, 1971-1974 Records. RG 432. Richard M. Nixon Library, Yorba Linda, CA.

Joseph Alsop and Stewart Alsop Papers, Manuscript Division, Library of Congress, WashingtonDC

Jack Kemp Papers, Manuscript Division, Library of Congress, WashingtonDC.

Irving R. Levine Papers, Manuscript Division, Library of Congress, WashingtonDC.

Alice Rivlin Papers, Manuscript Division, Library of Congress, WashingtonDC.

Donald Rumsfeld Papers, Manuscript Division, Library of Congress, WashingtonDC.

Affolter, Oliver. Nixonomics: Okonomische und Politische Faktoren des Kurswechsels vom August 1971 (St. Gallen, 1974.)

Allen, Gary. Nixonomics: The Economy Under Attack (Belmont, Mass.: American Opinion, 1971.)

Alsop, Joseph. “Economy Is Critical Issue, But U.S. Mood Buoys Nixon,” The [Baltimore] Sun, May 25, 1970, p. A11.

------. “Democrats Pinning ‘70 Hopes On What They Call ‘Nixonomics,” The Washington Post, May 25, 1970, p. A23.

------. “Nixon’s National Backing,” Los Angeles Times, May 26, 1970, p. A9.

Carvlin, Thomas. “O’Brien Raps Nixon Policy on Inflation,” Chicago Tribune, May 22, 1970.

Dowd, D. F. “Nixonomics,” Ramparts Magazine, v. 10 (November 1971), p. 13-16.

Ferrell, Robert H., ed. Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969-1974 (Lawrence: University of Kansas, 2010.)

Fischer, J. “Nixonomics,” Harper’s Magazine, v. 243 (November 1971), p. 10+

Friedman, Milton, et al., “Three Views of Nixonomics and Where It Leads,” [Interview],

Newsweek, v. 79 (January 31, 1972), p. 74-5.

“Heller Says ‘Nixonomics’ Is Working,” The Washington Post, March 8, 1970, p. 26.

Jensen, Ralph. Let Me Say This About That: A Primer on Nixonomics (New York: Holt, Rinehart, and Winston, 1972.)

Krugman, Paul. “China Goes to Nixon,” The New York Times, January 20, 2011.

“Legacy of Nixonomics,” Newsweek, v. 84 (August 19, 1974), p. 67.

Lekachman, R. “Nixonomics,” The New York Times Magazine (December 2, 1973), p. 32-3+

Matusow, Allen J. Nixon’s Economy: Booms, Busts, Dollars, and Votes. (Lawrence: University Press of Kansas, 1998.)`

______. “Economics, Politics, and the Limits of Presidential Power: The Case of Richard Nixon.” New England Journal of History56, no. 2-3 (1999-2000): 90-100.

McCracken, Paul W. “Economic Policy in the Nixon Years,” Presidential Studies Quarterly 26, no. 1 (Winter 1996): 165-177.

“Nixonomics”: Heller Says U.S. is Peering into Gun Barrel of Recession, Christian Science Monitor Oct 22, 1969, p. 1.

“Nixonomics Spreads Gloom Among Traders,” Business Week (November 20, 1971),

p. 78-9.

Pfiffner, James P. The President, the Budget and Congress: Impoundment and the 1974 Budget Act (Boulder, Colo.: Westview, 1979.)

Porter, Frank C. “Economy to Rise–Nixon; Stocks Slump; ‘Recession’ Hit by Democrats Nixon, Exchange Head Talk; Stocks Again Hit 7-Year Low,” The Washington Post, May 22, 1970, p. A1.

Reuss, H. S. “Democrat’s Critique of Nixonomics,” The New York Times Magazine (July 7, 1974), p. 10-11+

Rowen, Hobart. “‘Jawboning Nixonomics’: :Gumming to Death” Team Held Competent,”

The Washington Post Oct 21, 1969, p. A4.

Seeger, Murray. “Nixon Meets Exchange Chief, Tells confidence in Economy; Market closing two Hours After Comment Is Off 11; Stocks Now Down 59 Since He Told of Good Time to Buy,” Los Angeles Times , May 12, 1970, p. 1.

Silk, Leonard. Nixonomics: How the Dismal Science of Free Enterprise Became the Black Art of Controls (New York: Praeger, 1972.)

------. Nixonomics 2nd edition (New York: Praeger, 1973.)

Shanahan, Eileen. “Nixon Says Budget Allows Easing of Monetary Policy; Nixon Feels a Small Deficit Lets Credit Expand,” The New York Times, May 22, 1970, p. 1.

Stein, Herbert. Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond. (New York: Simon and Schuster, 1984.)

Ulmer, M. J. “Non-Answer to Nixonomics,” The New Republic, v. 165 (December 11, 1971), p. 19-21.

Washington. American Enterprise Institute for Public Policy Research. The Economy and Phase IV: An AEI Round Table Held on 19 July 1973 at the American Enterprise Institute for Public Policy, Washington, DC, Paul W. McCracken, Moderator. (Washington, DC: 1973.)

Weber, Arnold R. In Pursuit of Price Stability: The Wage-Price Freeze of 1971 (Washington, DC: Brookings Institution, 1973.)

Wells, Wyatt C. Economist in an Uncertain World: Arthur F. Burns and the Federal Reserve (New York: Columbia University Press, 1994.)

FIGURE 4

THE REAGAN ADMINISTRATION FROM A MACROECONOMIC POLICY PERSPECTIVE

CHALLENGES–To decreasegovernment spending and lower taxes (in a perceived revenue-neutral, bipartisan plan); end stagflation (rising unemployment and inflation.)

In November 1980, the unemployment rate was approximately 7.5 percent, while the inflation rate was 12.6 percent.

RESPONSES--Created federal oil reserves to prevent short term crises from the rise in oil prices; lowered oil windfall profits tax. Enacted: a lower marginal tax rate (from 70 to 28 percent); a simplified tax code; more deregulation of industry; reduced inflation (from 13.5 in 1980 to 4.1 percent in 1988.) Unemployment dropped, but the minimum wage did not increase. Public spending increased, mostly for the Department of Defense; social spending decreased. Borrowing increased, both at home and abroad, and the national debt rose from $700 billion to $3 trillion. Income shifted toward higher brackets. Arguably, real median family income grew, but real wages declined; the personal savings rate decreased; the productivity rate increased. Immigrant workers were encouraged to come and stay.

TIME LINE–Examples

Economic Recovery Tax Act of 1981.

Tax Reform Act of 1986–broadened the tax base and reduced tax loopholes and exceptions. Had an arguably negative effect on the Alternative Minimum Tax (AMT.)

FIGURE 5

PARTICIPANTS –

Boskin, Michael

Feldstein, Martin

Greenspan, Alan

Kemp, Jack

Laffer, Arthur

Niskanen, William

Porter, Roger

Reagan, Ronald

Regan, Donald

Stockman, David

Volcker, Paul

FIGURE 6

A SELECTED BIBLIOGRAPHY

Jack Kemp Papers, Manuscript Division, Library of Congress, WashingtonDC.

Donald Regan Papers, Manuscript Division, Library of Congress, WashingtonDC.

Ackerman, Frank. Reaganomics: Rhetoric vs. Reality (Boston: South End Press, 1982.)

Bethell, T. “Reaganomics Equals Carternomics,” National Review, v. 34 (November 12, 1982), p. 1398.

Bienkowski, Wojciech, Josef C. Brada and Mariusz-Jan Radlo, ed. Reaganomics Goes Global: What Can the EU, Russia and Other Transition Counties Learn from the USA?

(Palgrave Macmillan, 2006.)

Boskin, Michael J. Reagan and the Economy: The Successes, Failures, and Unfinished Agenda. (San Francisco: Institute for Contemporary Studies, 1987.)

Buckley, W. F. “Reaganomics Viewed From China,” National Review, v. 34 (November 12, 1982), p. 1436.

Campagna, Anthony. The Economy in the Reagan Years: The Economic Consequences of the Reagan Administration. (Westport, Conn.: Greenwood Press, 1994.)

Friedman, Benjamin. Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After. (New York: Random House, 1988.)

Gist, John R. “The Reagan Budget: A Significant Departure from the Past.” PS: Political Science and Politics 14 (1981): 738-46.

Heller, Walter W. “Carteronomics versus Reaganomics,” Wall Street Journal, October 30, 1980, p. 30.

Hertzberg, H. W. “Reaganomics on the Reservation,” The New Republic, v. 187 (November 22, 1982), p. 15-17.

Hulten, Charles R. Sawhill, Isabel V. The Legacy of Reaganomics: Prospects for Long-Term Growth. (Washington, DC: Urban Institute Press, 1984.)

Kamlet, Mark S., David C. MowerySu, Tsai-Tsu . “Upsetting National Priorities? The Reagan Administration’s Budgetary Strategy.” American Political Science Review 82 (1988): 1293-1307.

Kirkland, L. “An Alternative to Reaganomics” [AFL-CIO Economic Plan]. USA Today, v. 110 (May 1982), p. 18-21.

Laffer, Arthur B. “Reaganomics: What We Learned,” The Wall Street Journal, February 10, 2011.

Lowery, David. “The Keynesian and Political Determinants of Unbalanced Budgets: U.S. Fiscal Policy from Eisenhower to Reagan.” American Journal of Political Science 29 (1985): 428-60.

Mills, Gregory B. Deficit Dilemma: Budget Policy in the Reagan Era. (Washington, DC: Urban Institute Press, 1983.)

Rattner, Steven. “Definition of Reaganomics Is Still Being Thrashed Out: The Team Is the Test andThen There’s Inflation,” New York Times, Nov 30, 1980.

“Reagan on Reaganomics: It’s Working,” U.S. News & World Report, v. 93 (October 11, 1982), p. 12.

Roberts, Paul Craig. “Reaganomics: A Change?” New York Times, Nov 9, 1980, p. E19.

Rohatyn, F. G. “Alternatives to Reaganomics,” The New York Times Magazine (December 5, 1982), p. 72+

Rowen, Hobart. “Reaganomics,” The Washington Post, July 17, 1980, p. A17.

Sloan, John W. The Reagan Effect: Economics and Presidential Leadership. (Lawrence: University Press of Kansas, 1999.)

Stockman, David. The Triumph of Politics: How the Reagan Revolution

Failed (New York: Harper & Row, 1986.)

______. The Great Deformation: The Corruption of Capitalism in America. (New York: Public Affairs, 2013.)

“Reaganomics,” The [Baltimore] Sun, Sept 11, 1980, p. A16.

Mehtabdin, Khalid R. Reaganomics: Success and Failures. 1986.

Rowen, Hobart. “Carter’s Reaganomics,” The Washington Post, Sept 11, 1980, p. A19.

United States. Congress. Joint Economic Committee. Subcommittee on Monetary and Fiscal Policy. “Is Reagonomics Working?” Hearing Before the Subcommittee on Monetary and Fiscal Policy of the Joint Economic Committee, Ninety-Seventh Congress, Second Session, June 9, 1982.”

University of NotreDameRooneyCenter for the Study of American Democracy and the Ronald Reagan Foundation. “Reagan Economic Policies Remembered,” Washington, D.C.November 11, 2011.

Weidenbaum, Murray L. Rendezvous with Reality: The American Economy After

Reagan. (New York: Basic Books, 1988.)

Wilber, Charles K. Beyond Reaganomics: A Further Inquiry Into the Poverty of Economics (Notre Dame: University of Notre Dame, 1990.)

Wilentz, Sean. The Age of Reagan: A History, 1974-2008. (New York: Harper, 2008.)

Yen, Paul T. K. Reaganomics, 1981-1988: A Chinese View (Flushing, N.Y.: Wah Keong Book Co., 1989.)

July 2-3, 2013

Cambridge, UK1