Poor Richard's Nixonomics
GLASS, ANDREW J.
Washingtog-USA POOR RICHARD'S NIXONOMICS BY ANDREW J. GLASS WASHINGTON IN FURNISHING his new economic mansion, Richard Nixon would have us forget the squalid quarters he left behind. Who can...
...Implicit in the decision to hire a machine-tool maker is a decision to lay off many steelworkers...
...This was pure folderol, since the "speculators" who allegedly caused all the trouble are faring better than those friendly to the dollar, who got caught by his surprise move...
...Industry becomes more productive these days by replacing workers with machines, and that is precisely where the investment tax credit fits in...
...Still, some measure of accommodation will be required on both sides in the balancing of economic realities against political desires...
...Of course, in Nixon's world the cherry in the confection, in this instance a delectable 10 per cent tax credit, is always saved for business friends...
...Nixon also spoke of a decrease in government spending, including a reduction in the number of Federal workers and a postponement of welfare reform and revenue sharing...
...he understands that any substantial drop in spending would merely check the intended economic stimulus...
...Although the President cannot afford to abandon his incomes policy before the election, the Democratic candidates cannot afford to give the appearance of playing partisan politics with the economy...
...Obviously, Nixon intends to swap the tariff wall for devaluation, since it would be impossible for most exporters to compete against both...
...IRONICALLY, it was neither the bleak economic outlook nor even the more dismal political landscape that finally caused Nixon to act...
...Shortly before he vacated for good, the cost of repairs had risen so cruelly that the President's political capital, a modest stake in the best of times, was virtually liquidated...
...When a move to an incomes policy could no longer be put off, Nixon acted with an audacity few would have thought him capable of...
...Again, nobody listened...
...Last May, Treasury Secretary John Connally—the strongman of the Administration—flew to Munich to tell the big-time finance ministers, in his plain Texan way, that the United States wouldn't play dollar-craps much longer unless the house odds were evened up...
...The end to Nixon's patience came after three successive months of unfavorable trade balances totaling $782.6 million...
...to bring in computers is to take out clerks...
...By then, the dollar was already looking seedy and being sold at hefty discounts by the European central bankers...
...Nixon knows that in the crunch labor will go with the Democrats, yet until now he has not been at all sure where business would go...
...But White House economists, watching the dollar being broken on the money racks of Europe while the domestic economy was weak, figured a strong economy would once again allow the dollar an untortured life abroad...
...But the underlying weakness in Nixonomics could not be masked forever...
...In international finance, as in Presidential politics, it usually pays to have a bit of a jump on the next fellow...
...He appropriated practically all of the opposition team's economic game plan, leaving his White House rivals too dazed to recognize that they had been philosophically dispossessed...
...Nixon suspended convertibility, put up a tariff wall and told the Europeans and Japanese that if they still wanted to do business in the American market, they would have to agree to a new arrangement...
...Nixon's chief bargaining chip in the coming negotiations is the 10 per cent import surcharge that today surrounds the nation's frontiers...
...This is a highly volatile brew, particularly in a campaign season...
...Despite their sudden application, the President's new economic policies are as logical as a Bach fugue: each theme fits into the others...
...The real mystery, though, is how Nixon was able to switch sides without being called to account...
...A Democratic-controlled Congress will think twice before handing Nixon another economic blank check, especially after he has cashed the first one for everything in the account...
...If Nixon can put some zip in the economy, he could get through the campaign with inflation running at an annual rate of 3-4 per cent...
...But the first approach strains Nixon's abilities and the second strains his beliefs...
...Senator George McGovern immediately denounced the President's August 15 speech as "sheer bunk, irrelevancy and mystery...
...It could easily explode in a round of fall strikes aimed at forcing the Administration's hand...
...Nixon's effective choice may lie between trying to undermine the union leadership (by going over their heads and bidding for worker support of his policies) or trying to co-opt the leadership (for example, by adopting a freeze on corporate profits...
...After all, had he not included a price freeze, a tax cut and an import surcharge for the benefit of the workers...
...Rather, it was the assault on the dollar abroad...
...The President might have waited until a panic sale of the dollar forced his hand in the midst of an international money crisis...
...Its long-term aim, however, is to force wealthy nations to subscribe to a money-exchange system no longer pegged to the dollar and therefore unable to bring it down...
...Many were Americans, operating the overseas outposts of their multinational corporations...
...Its immediate purpose is to prop up American producers, punchy from the battering imports have administered...
...Cynics might suggest that the President froze wages and prices to divert attention from a backdoor devaluation of the dollar...
...The other motifs are a tax cut, which is supposed to stimulate the economy and reduce unemployment, and a wage-price freeze, which is supposed to halt, or at least slow, the inflationary spiral...
...Poor Richard may be remembered for, "Frankly, if I had any money I'd be buying stocks right now...
...Who can blame him...
...So the likelihood is that labor pressures for a new round of wage increases will collide with political pressures against a new round of inflation...
...But here the President was merely blowing incense at pre-Keynesian idols still in the congressional pantheon of economic gods...
...But he cannot return to the 7 and 8 per cent rates of the summer, which Arthur Burns called "unacceptable" and "dangerous" before the President's aides told him to be quiet...
...But Connally's predecessors in office, going back to Douglas Dillon in 1961, had been saying the same thing to little effect...
...The American market is still the richest prize in the world, and other countries are not about to let it go...
...From London to Hong Kong, they were in fact precisely the kind of men that Nixon would meet and dine with during his travels as a Wall Street lawyer...
...In announcing his new policies, Nixon made them out to be "international speculators" who held the dollar "in hostage" and had to be punished...
...The political factors here are no less compelling than the economic...
...Meany recognizes that any future thaw in the freeze is likely to be tied to increased productivity...
...The key is a hefty devaluation of the dollar—an unthinkable thought for Presidents from Roosevelt to Johnson...
...Having orchestrated his moves with care, the President was shocked at Big Labor's discordant reaction...
...Assuming the economic front now begins to advance for a while, the favorable statistics Nixon needs to bolster his chances of reelection will start to trickle in by mid-November, when the freeze is due to expire...
...Credibility, so much the issue in the politics of the Vietnam war, went unquestioned as Nixon declared war on the Gnomes of Zurich and other mythological enemies of the dollar...
...George Meany and his AFL-CIO associates rebelled because they deeply distrust Nixon, an endemic situation that is merely fueled by the tax credit...
...At the time of his 180?policy switch (overcoming a monumental bureaucratic block acquired as an Office of Price Administration lawyer more than 30 years ago), his support among businessmen had just about dried up...
...His actual deadline for stabilizing the economy falls in April, when the legislative mandate for the freeze is due to expire...
...they expected, at worst, another set of makeshift maneuvers...
...Indeed, the nation's economic engine revolves so slowly that a pattern of revival, if one is there, may not be indicated before December or even January...
...The President will weigh these facts as he decides in what form to extend the wage-price freeze—the only genuine issue confronting him...
...The old place was a mess—its walls crumbling under the combined weight of inflation and recession, its only decoration the woolly samplers the President had spun with pious expressions of official optimism...
...To his credit, instead of moving at one minute to midnight, as the foreign exchange markets closed down around the world, he moved at 10 minutes to midnight, with the foreign exchange markets still open —that is, until he closed them down...
...Under another set of circumstances, Nixon might have referred to his antagonists as prudent businessmen eager to protect their trading positions...
Vol. 54 • September 1971 • No. 17
