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Assuming Direct Control: The Beguiling Allure of Incomes Policies in Postwar America

Published online by Cambridge University Press:  30 November 2018

Samuel Milner*
Affiliation:
Yale University

Abstract:

Histories of American economic policymaking after World War II often describe a “Fiscal Revolution,” in which Keynesian macroeconomic tools replaced the microeconomic regulations and reforms of the New Deal. This article challenges that narrative by demonstrating how the Keynesian economists responsible for the Fiscal Revolution relied upon incomes policies to ensure that inflation would not sabotage efforts to achieve full employment. In the 1960s, the White House Council of Economic Advisers pressed the Kennedy and Johnson administrations to enforce “wage-price guideposts” in order to realize the potential of the Fiscal Revolution. Yet incomes policies also encouraged policymakers to deflect responsibility for inflation onto the private sector’s behavior as an alternative to adopting the painful but necessary fiscal and monetary restraint. As a reliance on the microeconomic control of inflation persisted into the late 1970s, this approach ultimately undercut the Keynesians’ macroeconomic promises and prolonged the misery of stagflation.

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Article
Copyright
Copyright © Donald Critchlow and Cambridge University Press 2018 

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References

NOTES

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40. Economic Report 1962, 16–17, 185; Memo, Heller to the President, 14 February 1962, re: The British White Paper on Wage Policy, Memos to JFK 2/62, Box 5, Heller Papers, Kennedy Library.

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62. Memo, Joseph Califano to Bill Moyers, 3 September 1965; Memo, Ackley to the President, 8 September 1965, re: The Steel Settlement and the Guideposts, EX LA 6/ Steel, 8/27/65–9/8/65, WHCF, Box 29, Johnson Library.

63. Letter, George E Reedy to the President, 3 January 1966, EX BE 4/Steel 1/3/66 [2 of 2], Box 13, WHCF, Johnson Library.

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84. U.S. Congress, Senate, Committee on Banking and Currency, Subcommittee on Production and Stabilization, Inflation: The Need for a More Balanced Policy Mix, 91st Cong., 2nd sess. (Washington, D.C., 1970), 22–30; U.S. Congress, House of Representatives, Committee on Banking and Currency, To Extend the Defense Production Act of 1950, as Amended, 91st Cong., 2nd sess. (Washington, D.C., 1970), 7–12; Arthur M. Okun, “Political Economy: Some Lessons of Recent Experience,” Journal of Money, Credit and Banking 4, no. 1, part 1 (February 1972): 35–36.

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87. See, for instance, Letter, Henry Ford II to the President, 31 December 1969, EX BE 5/69 National Economy [37 of 42], 4 December 1969; Letter, Thomas Patton to the President, 24 November 1969, EX BE 5/69 National Economy [40 of 42], 11–15 December; Letter, Edwin Gott to the President, 31 October 1969, EX BE 5/69 National Economy [41 of 42], 18–24 December 1969, Box 58, WHCF, Nixon Library.

88. The Haldeman Diaries: Inside the Nixon White House: The Complete Multimedia Edition (1996), 27 June 1971. I am grateful to Ryan Pettigrew of the Nixon Library for making the files on this outdated CD-ROM accessible.

89. Nixon, RN, 1:641.

90. Although it is often charged that Nixon threatened and cajoled Burns into adopting too expansionary of a monetary policy, the Federal Reserve’s own erroneous beliefs in cost-push inflation and the value of full employment likely would have brought it to this policy conclusion in the absence of presidential manipulation: Thomas Mayer, Monetary Policy and the Great Inflation in the United States: The Federal Reserve and the Failure of Macroeconomic Policy, 1965–1979 (Cheltenham, UK, 1999); Athanasios Orphanides and John C. Williams, “Monetary Policy Mistakes and the Evolution of Inflationary Expectations,” in The Great Inflation: The Rebirth of Modern Central Banking, ed. Michael D. Bordo and Athanasios Orphanides (Chicago, 2013).

91. Arthur M. Okun, “Efficient Disinflationary Policies,” American Economic Review 68, no. 2 (May 1978): 348–52; Memo, Charles Schultze to the President, 29 March 1977, re: Elements of a Comprehensive Anti-Inflation Strategy, Memo, Anti-Inflation [O/A 6338] [7], Box 144, Stuart Eizenstat Files, Domestic Policy Staff, Carter Library; Memo, Schultze to the President, 14 March 1978, re: Background on Inflation, BE 4-2 Confidential 1/20/77–8/16/78, Box BE-16, WHCF, Jimmy Carter Presidential Library, Atlanta.

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Assuming Direct Control: The Beguiling Allure of Incomes Policies in Postwar America
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Assuming Direct Control: The Beguiling Allure of Incomes Policies in Postwar America
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Assuming Direct Control: The Beguiling Allure of Incomes Policies in Postwar America
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