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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
Samuel Milner*
Affiliation:
Yale University
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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.

Keywords

Fiscal Revolution of 1960–68Keynesian Economicsincomes policiesKennedy administrationinflationwage-price guideposts
Type
Article
Information
Journal of Policy History , Volume 31 , Issue 1 , January 2019 , pp. 42 - 71
Copyright
Copyright © Donald Critchlow and Cambridge University Press 2018 

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References

NOTES

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31. Memo, Heller to Arthur Goldberg, 29 December 1961, Council of Economic Advisers, December 1961, Box 73; Letter, Heller to S. L. Cate, 27 June 1962, Council of Economic Advisers, June 1962: 16–30, Box 74, President’s Office Files, Kennedy Library.

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37. Kermit Gordon and Walter W. Heller Oral History Interview, Conducted by Joseph Pechman, JFK #1, 7/20/1965, Kennedy Library; Lloyd Ulman, “Unions, Economists, Politicians, and Incomes Policy,” in Economics in the Public Service: Papers in Honor of Walter W. Heller, ed. Joseph A. Pechman and Walter W. Heller (New York, 1982), 112–44; Lloyd Ulman, An Oral History, Interview by Riyad Koya, (2011), Regional Oral History Office, Bancroft Library, UC Berkeley, 110.

38. “Economic Report of the President, Transmitted to the Congress, January 1963” (Washington, D.C., 1963), 185–90.

39. “The Wage-Price Guideposts,” Conference Board Business Management Record (May 1963), 22–31.

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.

41. Memo, Heller to Goldberg, 29 December 1961, Council of Economic Advisers, December 1961, President’s Office Files, Box 73, President’s Office Files, Kennedy Library.

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43. Memo, Heller to the President, 10 April 1962, Council of Economic Advisers, April 1962, Box 74, President’s Office Files, Kennedy Library.

44. “Exhibit D, Press Release, United States Steel Corporation, April 11, 1962,” in Blough, The Washington Embrace of Business, 128–29; Arthur Goldberg’s History of the Steel Crisis, c. 1963, Steel 4/31/62–6/28/62, Box 39, Theodore Sorensen Papers, Kennedy Library.

45. McDonald Oral History, 15.

46. Arthur Goldberg’s History of the Steel Crisis, c. 1963, Steel 4/31/62–6/28/62, Box 39, Soresen Papers; Memo, Robert F. Kennedy to John F. Kennedy, “Increase in the Price of Steel,” 12 April 1962, Justice, 1962: April–June, Box 80, President’s Office Files, Kennedy Library; United States, Congress, Senate, Committee on the Judiciary, Subcommittee on Antitrust and Monopoly, Refusal of Certain Steel Companies to Respond to Subpenas Issued April 12, 1961 (Washington, D.C., 1962).

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48. Memo, Evelyn Lincoln to James Tobin, 23 April 1962; Memo, Tobin to the President, 21 April 1962, re: Prices in Europe, Council of Economic Advisers, April 1962; Memo, Tobin to the President, 13 May 1962, re: French Planning and Our Growth Policy Committee,” Council of Economic Advisers, May 1962: 6–15, Box 74. President’s Office Files; Memo, Tobin to the President, 21 May 1962, Council of Economic Advisers, May 1962: 16–31, Box 74, President’s Office Files, Kennedy Library.

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61. Memo, Ackley to the President, 14 June 1965, re: The Steel Labor Negotiations; Memo, Ackley to the President, 15 June 1965, re: Steel Negotiations, Memos to the President, May–June 1965, Box 13, Ackley Papers, Bentley Library Memo.

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.

64. Telegram, Johnson to 7 Steel Executives, 2 January 1966; “Agenda,” January 1966, EX BE 4/Steel 8/27/65–1/2/66; “Government Policies of Special Interest to the Steel Industry,” 4 January 1966, EX BE 4/ Steel 1/4/66–3/23/66, Box 13, WHCF, Johnson Library.

65. See, for instance, J. H. Carmical, “Stocks Advance in Slow Session,” New York Times, 5 February 1966, 35; Vartanig G. Vartan, “Stocks Stumble to Low for Year,” New York Times, 22 February 1966, 41; Vartanig Vartan, “Stock Prices Sag as Pace Slackens” New York Times, 24 February 1966, 49.

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68. Memo, Ackley to the President, 25 April 1966, re: the Prospect for Prices, Memos to the President, April–May 1966, Box 13, Ackley Papers, Bentley Library.

69. Martin, Shifting the Burden, 81–106; Zelizer, Taxing America, 255–82.

70. Memo, Ackley to the President, 22 November 1965, re: CEA’s Meeting with Union Economists; Memo, Ackley to the President, 29 December 1965, re: Wage Guidepost for 1966, Memos to the President, November–December 1965, Box 13, Ackley Papers, Bentley Library.

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72. Memo, Ackley to the President, 25 February 1967, re: Reactions to your Economic Policy Program, Memos for President, February 1967, Box 14, Ackley Papers, Bentley Library; Memo, Ackley to Califano, 21 December 1967, re: A Possible Approach to the Guidepost Discussion in the 1968 CEA Report, CF BE 5-2 Cost of Living (1967), Box 3, WHCF, Johnson Library.

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75. Letter, William Martin to Johnson, EX FI 11–4 10/11/66–12/15/66, Box 60, WHCF, Johnson Library; Bremner, Robert P., Chairman of the Fed: William McChesney Martin, Jr., and the Creation of the Modern American Financial System (New Haven, 2004), 186–259;CrossRefGoogle Scholar Meltzer, Alan H., A History of the Federal Reserve, vol. 2 (Chicago, 2010), 538–47.Google Scholar

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81. H. Erich Heinemann, “Humphrey, Nixon Agree on Economic Ends, Differ on Means,” New York Times, 27 October 1968, 2; Janssen, Richard F., “Nixon’s Economics,” Wall Street Journal, 21 October 1968, 1.Google Scholar

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83. “Economic Report of the President: Transmitted to the Congress, February 1970” (Washington, D.C., 1970), 6, 33.

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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86. “Text of Burns Speech on Steps to Fight Inflation and to Extend U.S. Prosperity,” New York Times, 8 December 1970, 34.

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.

92. Richard Nixon, “Special Message to the Congress Proposing Establishment of a Cost-of-Living Task Force,” 2 August 1974, in The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=4316.

93. Carl Biven, W., Jimmy Carter’s Economy: Policy in an Age of Limits (Chapel Hill, 2002), 140–44, 202–4;Google Scholar Belden, Susan, “Policy Preferences of FOMC Members as Revealed by Dissenting Votes,” Journal of Money, Credit and Banking 21, no. 4 (November 1989): 432–41.CrossRefGoogle Scholar See also Woolley, “Exorcising Inflation-Mindedness.”

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95. Meltzer, A History of the Federal Reserve, 1008–1131; Marvin Goodfriend and Robert G. King, “The Incredible Volcker Disinflation,” Journal of Monetary Economics 52 (2005): 981–1015; Iwan Morgan, “Monetary Metamorphosis: The Volcker Fed and Inflation,” Journal of Policy History 24, no. 4 (2012): 545–71.

96. Draft, “Economic Issues, Wage and Price Controls”; Draft Position Statement, “Wage and Price Controls,” 11 December 1979, Wage and Price Controls, Box 5, Doug L. Bandow Files; Issues, 4c. Inflation Guidelines; COWPS; Vol. Pay Adv. Com., Box 240, Reagan Campaign Papers, Ronald Reagan Presidential Library, Simi Valley; Ronald Reagan: “The President’s News Conference,” 29 January 1981, in The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=44101. The wage-price regulatory program would be eliminated formally in Executive Order 12288 of the same date.

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