American Experiment

by James Macgregor Burns

  Faced with such bewildering intellectual and moral dilemmas, scientists, like other Americans, turned to education as the chief hope—perhaps the only one. The launching of Sputnik by the Soviet Union in 1957 had shocked Americans out of their complacent assumption of being in the scientific lead. High schools across the country intensified their science and language teaching. The National Science Foundation’s budget for curriculum development jumped from half a million dollars in 1957 to ten times that two years later. Programs were expanded in “STS”—science, technology, and society—with emphasis on ideas, technology, and social institutions and on ethical values in science. Federally funded teaching materials were widely distributed as alternatives to commercial textbooks.

  But these were “quickie” programs and twenty-five years later assessments of the state of science education and literacy were still bleak. “By even the most elementary standards, instruction in the sciences in most schools for most Americans is minimal,” Stephen Graubard wrote. “Science is avoided—evaded—by the preponderant number of American schoolchildren. That evasion is permitted to continue in the universities.” Commercially produced texts still dominated the high school classrooms. An NSF report revealed that the number of American students enrolled for graduate study in chemistry, physics, and mathematics had remained almost stationary between 1979 and 1985, while the number of foreign nationals in these programs rose by half or more.

  More and more people were using modern technology, observed the chancellor of the State University of New York, while understanding it less. “Instead, we are content to be served by cadres of technicians and specialists and, thereby, to cede to them an inordinate, even ominous amount of control over our lives.” He wondered whether the great mass of people, including many college graduates, were in danger of becoming what had been called “techno-peasants”—“modern-day serfs, nominally free but disenfranchised by ignorance—and fear—of prevailing technologies.”

  The great mass of Americans were in far greater danger of becoming “econo-peasants.” Popular ignorance of economics surpassed that of science and technology. During the years when millions of Americans were becoming intimately familiar with their individual microeconomics—maintaining checking accounts, applying for mortgages, playing the market, itemizing tax returns, using desk calculators, buying foreign currency, monitoring their payroll deductions, taking out credit cards—their understanding of the macroeconomics that dominated their collective economy remained low. Even more paradoxical was the disarray in the economic theory and practice of the nation’s intellectual and political leadership in the face of the refractory problems of the post-Vietnam years.

  The Rich and the Poor

  Camp David, Friday, August 13, 1971. The limousines pulled in during the afternoon, disgorging presidential advisers. Although this summit meeting on top of the low Catoctin Mountain had been announced as a conference on defense spending, only civilians were present. Whisked away to their quarters, where they were offered food, drink, and a variety of recreations, they found themselves totally cut off from communication with the world below. The President wanted no leaks as he prepared to announce what he would describe as the “most comprehensive new economic policy” since Roosevelt’s New Deal.

  A participant remembered the weekend more for its atmosphere than for its decision-making. The mountaintop retreat seemed to isolate the group from the realities of economic life. “They acquired the attitudes of a group of script-writers preparing a TV special to be broadcast on Sunday evening,” economic adviser Herbert Stein recalled. “The announcement—the performance—was everything.” It was not viewed, he noted wryly, as part of the regular process of government. After the TV special, regular programming would be resumed. The President and Haldeman concentrated on the mechanics of the television speech. At first Nixon balked at speaking Sunday night because he feared preempting Bonanza, an immensely popular program, but he was advised that he had to speak before the markets opened Monday. Manfully he bumped Bonanza.

  Nixon had inherited a booming but dangerously heated-up economy when he entered the White House two and a half years before. John Kennedy had proposed a tax cut, only to see it languish on Capitol Hill. Johnson drove it through Congress hardly three months after he took office. The biggest tax cut in American history, adopted even though the budget was running heavily into red ink, this reduction in both personal and corporate income-tax rates, along with the rising outlay for both welfare and war, helped fuel a huge expansion in both employment and the gross national product by the mid-sixties. Soon the economy showed signs of overheating, but LBJ, reluctant to change a winning game and eager to push his urban welfare programs in the face of rioting in Watts and elsewhere, fended off his economic advisers’ urgings that he now ask for a tax increase. Finally, in 1967, as inflation threatened, Johnson during the height of the Vietnam effort urged a tax boost on Congress. In a classic example of institutional friction and delay, Congress failed to enact the revenue increase for another year and a half. That came too late to cool the broiling economy.

  It came too late for the new President as well. Inflation was running at about 5 percent a year when Nixon took office. In accord with sound Republican doctrine, the new Administration must throttle down the social spending and the budget deficits for which they had castigated Humphrey and his fellow Democrats in the 1968 election campaign. But Nixon was wary. He still felt the scars of his defeat by Kennedy in 1960, when he had been beaten in part by the Eisenhower recession, or so he believed. Herbert Stein had encountered Nixon’s ambivalence when he first met the President-elect on the day his appointment as economic adviser was announced. When his new boss asked Stein what he thought would be the nation’s main economic problem, Stein answered with the conventional wisdom: inflation. To his surprise Nixon showed equal concern about unemployment.

  For over two years Nixon, teetering between his two fears, tried to fine-tune the economy with a mix of monetary and budgetary policies, along with exhortation from the White House. It was hard going every inch of the way. Fine-tuning would have been difficult even for a united government. The President had to share economic policy-making with the very independent Federal Reserve Board under its imperious chairman and with the Democratic-controlled Congress. By spring 1970 both prices and unemployment were rising sharply—a remarkable combination. The federal deficit was soaring, interest rates climbed, and then the stock market took its steepest plunge since depression days. In June 1970 came the collapse of the Penn Central Railroad, called by Leonard Silk the greatest business failure in history. For some Americans that failure sounded the tocsin for the slow death of passenger railroading, one of the ineradicable and glorious memories of countless older Americans.

  By 1971the nation was beset by economic storms from abroad as well. The great edifice of Western monetary cooperation, founded during Lend-Lease days, dedicated at Bretton Woods, expanded during the era of the Marshall Plan, and buttressed by hundreds of international postwar agreements, appeared in peril. For years that edifice had stood on the firm base of the dependable, all-powerful dollar, which in turn had been stabilized by a fixed gold price. American financial dominance had been under growing threat for years as the nation spent billions abroad for foreign goods and military operations, until the mountain of foreign-held dollars had become far larger than the value of the United States gold stock. What if foreign treasury ministers began to line up at the Washington “gold window” of the financial edifice and tried to draw out more of the bullion than was now available? Britain’s request, in early August 1971, for $3 billion in gold was merely the triggering device for powerful economic forces that had been building up for years, including a strong German mark and rising Japanese competition.

  Now Nixon had to act, but he faced a painful dilemma. The American economy had become linked firmly with the Western and Japanese economies. He would have to move on both the domestic and the global front, in particular because
ending convertibility of paper into gold and allowing the dollar to depreciate would stimulate price rises at home as the dollar price of imports mounted. Hence it would be necessary to establish mandatory price and wage controls. But if there was any man who had, year in and year out, vociferously denounced controls, it was Richard Nixon. His aversion was based in part on conventional Republican doctrine but even more on his brief working experience with price controls in the Office of Price Administration during World War II. This proved, said some, that a little experience was a dangerous thing.

  But on the evening of August 15, 1971, at the culmination of the secret Camp David meeting, the President bit both bullets—indeed, several bullets. He imposed a ninety-day freeze on prices, wages, and rents, suspended the convertibility of dollars into gold, and placed a 10 percent surcharge on imports. He asked Congress to repeal the 7 percent excise tax on cars, to speed up personal income-tax exemptions, to put off welfare reform for a year, to postpone revenue-sharing programs with the states for three months, to pass a 10 percent “job development credit”—a tax credit to business for investment in new plants and equipment—that would drop to 5 percent after one year.

  The President had acted. The country seemed thrilled, as it so often had been by forthright leadership after a period of doubt and disarray. Wall Street appeared to be elated, as the Dow Jones rose 32.9 points on the Monday after the presidential speech—the biggest one-day jump to that point. Three months later the President instituted Phase II, a comprehensive and mandatory system of controls. The Fed, now under the chairmanship of Arthur Burns, helpfully expanded the money supply. Then, in a series of steps and phases, the controls were gradually loosened, until June when, with food prices climbing and the Administration bleeding from Watergate, Nixon reimposed the freeze. But this time the freeze proved “a total disaster,” as livestock was destroyed or kept from market and food was hoarded. Again the controls were slowly lifted and, by April 1974, eliminated.

  Though economically the program had mixed results, politically Nixon’s “New Economic Policy,” as he called it, was a splendid success. Just as his trip to China and détente with Russia took the wind out of McGovern’s peace strategy of 1972, so the President’s dexterous juggling of economic policy from crisis to crisis deflated the Democrats’ domestic challenge. True-blue conservatives were dismayed by the President’s opportunistic interventionism. The tide was not running toward freedom, Stein concluded morosely. Thoughtful conservatives were further dismayed when Nixon tapes publicized by the Watergate inquiry shone a spotlight on Nixon as Economist-in-Chief. Late in June 1972, Haldeman had asked his boss whether he had gotten the report that London had decided to float the pound.

  NIXON: That’s devaluation?

  HALDEMAN: Yeah.…

  NIXON: I don’t care about it. Nothing we can do about it.

  Haldeman tried to arouse the President’s interest by mentioning a staffer’s report that the British action showed the wisdom of the President’s policy. The President would not be tempted.

  NIXON: Good. I think he’s right. It’s too complicated for me to get into.

  Then Haldeman noted that Burns expected a 5 to 8 percent devaluation of the pound against the dollar.

  NIXON (impatiently): Yeah. O.K. Fine.

  HALDEMAN: Burns is concerned about speculation about the lira.

  NIXON: I don’t give a shit about the lira.

  Undiscouraged, Haldeman mentioned a good reaction in the House of Representatives.

  NIXON: There ain’t a vote in it.…

  Thus ended the morning’s economic policy making.

  From the resigned President, Gerald Ford inherited a festering case of what had come to be called stagflation. He faced a perplexing combination of high inflation and rising unemployment, complicated by a slowdown in economic output, a big trade deficit, and a falling stock market. Ford reacted to these conditions like the stalwart Republican he had always been, but with a public relations twist. He adopted a Madison Avenue-style slogan—Whip Inflation Now! or WIN!—and jawboned General Motors into trimming a planned price increase from almost 10 percent to 8.6. He cut government spending, sought to balance the budget, and with Congress reduced personal and corporate taxes. Harried by the Democratic-controlled Congress, outflanked on the right by Reagan Republicans, bedeviled by the aggressive efforts of the Arab-dominated Organization of Petroleum Exporting Countries to boost oil prices, Ford resorted to ad hoc, step-by-step economic policies.

  He had no national constituency of his own. He could not forget that he was the first and only President chosen by one man, elevated to the vice presidency after Agnew quit under fire, elevated to the presidency after Nixon quit under fire. He chose Nelson Rockefeller as his Vice President in the hope that the former New York governor would bring support from the once-mighty presidential Republicans, but that old party was now a ghost party and Rockefeller a hate object to the resurgent Republican Right. Inundated by advice, Ford pressed his fight against the twin horsemen of inflation and unemployment, shifting back and forth without routing either. Hardly a year after entering the White House he had to launch his struggle to hold his office. Democrats attacked his tax program as regressive, his welfare programs as inadequate, his economics as thwarting growth, his military spending as excessive. And millions of Americans thought of him chiefly as the man who had pardoned Richard Nixon.

  Compromised by their own failures to find a solution to the stagflation problem, congressional Democrats were vulnerable to many of the same attacks they launched against the President. Their best hope, and Ford’s worst fear, was the emergence of a presidential candidate untainted by past Democratic failures. Such an outsider was Jimmy Carter. The new President pictured himself, however, much more the orderly policy maker than the passionate, “charismatic” leader. He based his “exact procedure” to some degree on his scientific and engineering background, he told Neal Peirce shortly after winding up his remarkable primary victories in 1976. He liked first to study the historical background of a problem, then “to bring together advice or ideas from as wide or divergent points of view as possible, to assimilate them personally or with a small staff,” bringing in others if necessary to discuss the matter in depth. “Then I make a general decision about what should be done involving time schedules, necessity for legislation, executive acts, publicity to be focused on the issue. Then I like to assign task forces to work on different aspects of the problem,” and he would remain personally involved in the whole process.

  This was the operational code of a commanding, “take charge” leader, a blueprint for action—but one that Carter appeared to ignore in much of his economic policy making. The White House sent out mixed signals as to what it wanted. Advance preparation was inadequate, follow-through sporadic, lines of communication and delegation scrambled. The normal friction between the executive and legislative branches was exacerbated by exceptionally poor staff work in the White House’s congressional liaison office. Above all a clear sense of priorities was lacking.

  Gradually, almost imperceptibly for a while, the Carter Administration drifted to the right in economic policy. This appeared to be the result of no grand strategic reconsideration but rather, after the first year or so, of mishaps and collisions that drained the White House of a sense of resolution and consistency, even while the old populist rhetoric remained much the same. Thus the President continued to attack the oil industry and other special interests, Betty Glad noted, even while he moved toward their positions on policy. He talked about the nation’s health crises, but made funding of a national health insurance plan contingent on the state of the economy and the federal budget. In his first year in office he emphasized tax reduction and raising the minimum wage; in the next three years he showed much more concern about inflation and pressed for some restriction on wage increases.

  Most of this was in response to immediate, specific problems and crises. But once again “practicality” and “pragmatism” faile
d. By December 1980, the annual rate of inflation was at 13 percent, the prime rate had risen to 21.5 percent, and unemployment stood at 7.4 percent. Stagflation was back with a vengeance.

  One by one Carter’s liberal, urban constituencies began to back away from the Administration. Speaker Tip O’Neill, repeatedly bypassed and “blindsided” by the White House, proclaimed that he had not become Speaker “to dismantle programs I’ve fought for all my life.” Hearing of proposed Social Security cuts, House Majority Whip John Brademas, a workhorse for Democratic party programs, warned that the White House would “run into a buzzsaw” if it tried to eliminate major benefits. As Carter began his third year Senator Edward Kennedy complained that the Administration’s budget asked “the poor, the black, the sick, the young, the cities and the unemployed to bear a disproportionate share of the billions of dollars of reductions.” Urban, black, labor, consumer, and other leaders turned more and more against the Administration during 1979 and helped project Kennedy that fall into his failed effort to wrest the 1980 nomination from the President.

  White House watchers had been quick to jump on sudden and erratic shifts of policy. Nixon “clings to what is familiar until the last moment,” Hugh Sidey of Time had noted. “Then, when the evidence overwhelms him or something happens in his gut, he decides to act, and nothing stands very long in his way. He abandons his philosophy, his promises, his speeches, his friends, his counselors. He marches out of one life into a new world without any apologies or glancing back.” Scholars as well as journalists maintained a drumbeat of critical comments on Carter’s gaps between principle and policy. Few of these critics paused to ask whether the White House during the 1970s was receiving steady and adequate intellectual nourishment from the pundits and the professors.