Burton Abrams, an economist known for his research on the Nixon tapes, dives deep into the alarming chapter of US monetary policy influenced by Richard Nixon's presidency. He discusses how Nixon pressured Fed Chair Arthur Burns to make short-term economic decisions for electoral gain, potentially igniting a decade of inflation. The conversation reveals the complex dynamics of Fed independence, offering a stark warning of the consequences of political meddling in economic affairs that resonate today.
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Nixon's First Fed Intervention
In 1960, VP Nixon got advice from Arthur Burns about a recession impacting his campaign against JFK.
Eisenhower refused to manipulate the economy for political gain, prioritizing Fed independence, upsetting Nixon.
insights INSIGHT
Importance of Fed Independence
Fed independence is crucial because what benefits politicians might harm the country long-term.
Short-term gains for elections often clash with long-term economic stability.
question_answer ANECDOTE
Nixon's Pressure on Burns
In a 1971 meeting, Nixon expressed concern about the economy and his re-election prospects to Burns.
In 'Prosperity Without Inflation,' Arthur F. Burns delivers lectures from 1957 where he argues that economic policies since the Employment Act of 1946 introduced an inflationary bias in the U.S. economy. Burns advocates for a policy emphasis on maintaining reasonable price stability, suggesting that full employment and stable prices are not incompatible. He proposes an amendment to the Employment Act to prioritize price stability, although this was never enacted. The book highlights Burns's concerns about the inflationary consequences of economic policies and his recommendations for achieving both full employment and price stability[3][5][4].
Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969-1974
Arthur Burns
Robert H. Ferrell
This book, edited by Robert H. Ferrell, presents the secret diary of Arthur F. Burns, who served as counselor to President Richard Nixon and later as Chairman of the Federal Reserve Board. The diary offers insights into Nixon's decision-making style, the personalities of key administration members, and the making of domestic and economic policies, particularly during the period of the New Economic Policy and the Watergate scandal. It also highlights Burns's growing disillusionment with Nixon and provides a unique perspective on the political and economic machinations of the Nixon White House[1][2][5].
You know Watergate, but do you know Fedgate? The more subtle scandal with more monetary policy and, arguably, much higher stakes.
In today's episode, we listen back through the Nixon White House tapes to search for evidence of an alarming chapter in American economic history: When the President of the United States seemingly flouted the norms of Fed Independence in order to pressure the Chair of the Federal Reserve Board into decisions that were economically bad in the long run but good for Nixon's upcoming election.
The tale of Nixon and his Fed Chair, Arthur Burns, has become the cautionary tale about why Fed Independence matters. That choice may have started a decade of catastrophic inflation. And Burns' story is now being invoked as President-elect Trump has explicitly said he'd like more control over the Federal Reserve.
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