Nixon's Economy: Booms, Busts, Dollars, and Votes
A Play-by-Play Description of Nixon's Top Priority
OCTOBER 01, 1999 by DAVID LITTMANN
Filed Under : Inflation, Interventionism
Allen Matusow’s book is a play-by-play description of Nixon’s overwhelming priority—get elected! Not that Nixon was uninterested in the economy. He fully understood the political punishments and rewards that are meted out by rising or falling unemployment and interest rates. Nixon’s feel for fiscal and monetary policies probably exceeded that of most, if not all, of his economic advisers, from whom he received a lot of dreadful advice.
But Nixon, the author observes, made economics subservient to politics. Economic policies were simply tools of political expedience. Matusow portrays a President Nixon bored to death and even irritated by economic advice or theories that were not clear catalysts to his political ambition. Conversely, when economic theories, such as the “full employment budget” concept or quotas on Japanese textiles, seemed to further his objectives, he was rapt in attention, participating actively in the ensuing policy debates and critiques.
Nixon’s Economy is well organized to take us through the economic turbulence of the Nixon years. Its chief strength is Matusow’s description of the duplicity of Nixon’s conduct of economic policy. He reveals the blatant contradictions between the so-called conservative philosophy that one might think would have led Nixon to advocate tax cuts, smaller government budgets, repeal of regulations, removal of trade barriers, and other laissez-faire policies. But no, precisely opposite policies prevailed, culminating in the 1971–74 wage and price controls.
Matusow’s commentary on the contradictions between theoretical Republican support for markets versus actual adoption by the administration of socialism is illuminating. Few politicians are long able to resist the temptation to wield governmental power for short-run political advantage. Professed limited-government principles are forgotten or deliberately cast aside when interventionism seems to offer better political rewards. (The author’s observations are also relevant to what has befallen the “Republican Revolution” since 1995.)
Sadly, Matusow, professor of history at Rice University, is himself weak on economics. While good at exposing the weaknesses and contradictions in Nixon’s economic policies, one sees little indication that he is familiar with serious free-market analysis. Especially as regards monetary policy and the origins of the lethal inflation generated by the Nixon programs of the late ’60s and early ’70s, the author confuses cause and effect. For example, in chapter three Matusow claims that “the main reason why prices kept rising through 1970 . . . was the big wage increases that workers were demanding and getting.” He compounds this confusion in later chapters, suggesting that currency devaluation and oil price hikes are causes of inflation.
Errors like this are not isolated. By chapter six, perhaps in an effort to make the book more readable, the author resorts to normative assertions, using “good” and “bad” with reference to Uncle Sam’s manipulation of the dollar vis-à-vis foreign currencies. Later, Matusow falls into the trap of stating that “controls deserved some credit for declining inflation.” Yet, he elsewhere credits Mil-ton Friedman’s monetarist warning that inflation is always and everywhere a monetary phenomenon.
This unevenness is forgivable for a non-economist. But some shortcomings cannot be excused. The story of the Nixon years would have been a considerably more valuable exposition for future generations of readers and economists had the author included fewer retrospective testimonies from apologists for the Keynesian school, and instead emphasized the disservice of “political economists” and power-hungry advisers, such as Paul Volcker, Arthur Burns, and John Connally. Also, contrary to the author’s gratuitous statement that “no one in or out of government [in 1973] foresaw the approach of the [inflation] cataclysm,” there were many non-political economists who foresaw and wrote about the futility of controls and catastrophes that awaited economies adopting these bankrupting policies.
Nixon’s Economy is worthwhile and germane reading, making clear the important point that the incentives of politicians tend to put them disastrously at odds with sensible economic policies. The author’s own lack of economic comprehension, unfortunately, renders the book less valuable than it might otherwise have been. Read the book for its good history and take the author’s economic pronouncements with a grain of salt.
David Littmann is senior vice president and chief economist with Comerica Bank in Detroit, Michigan.