While these circumstances led Kennedy in 1961 to oppose an increased deficit, I have no doubt that his objections were political and not intellectual. He believed in 1961, as he had in 1952, in the general validity of compensatory fiscal policy; he was unquestionably the first Keynesian President. His problem throughout was not doctrine but politics. “That is the one thing Eisenhower has put over to the American people,” he once said to me. “We Democrats have put over other things. But he has put over the idea of the sinfulness of spending and the danger of inflation.”
Then, as the recession came to an end in the course of the spring and gross national product shot up 2.8 per cent in the second quarter of 1961 alone, the pressure for deficits slackened. Indeed, the first flurry of emotion over the Berlin crisis even produced a movement, which Heller and others succeeded in blocking, for a tax increase. This budgetary circumspection disappointed those who felt that sustained expansion required the purposeful use of fiscal policy. Leon Keyserling, who had been chairman of the Council of Economic Advisers under Truman, launched one long exhortation after another against administration timidity. In June, Lippmann said that Kennedy was carrying on “in all its essentials the Eisenhower economic philosophy. . . . It’s like the Eisenhower administration thirty years younger.”
This was extravagant, but Keyserling and Lippmann had a point. The Treasury, in its pursuit of business confidence, did indeed seem almost to be endorsing the Eisenhower theory that a balanced budget was the measure of success in economic policy. Toward the end of the year, Galbraith, after congratulating Dillon on his part in “perhaps the best [economic policy] we have ever had,” felt constrained to add: “You have had a good performance because the budget was not balanced. Yet you keep saying that a balanced budget is the test. You have now promised a balanced budget for the next year although there is little chance that in the end it will be balanced. Therefore, though there is a very good chance you will have continued recovery and continued reduction in unemployment, improvement in balance of payments and stable prices, it will still be possible to say that you have failed. You are so bent on your discredit that you plan for it. I am reminded of a courtesan whose conquests have made her the cynosure of all men and the envy of all women and who at any critical moment in the conversation insists on the absolute importance of chastity.”
As for the Treasury, beyond its avowals of budgetary orthodoxy, it concentrated in 1961 on the idea of a tax credit to provide incentives for modernization of plant and equipment. This was designed both as a spur to investment and as a signal of favorable intent to the business community. To the administration’s surprise, however, businessmen recoiled from the proposal; having counted on a liberalization of depreciation allowances, they considered the investment credit a poor substitute. Actually the administration had depreciation revision in mind too and was postponing it only because it involved too great a revenue loss if enacted apart from general tax revision. Yet, despite Washington’s placatory policy, business opposition blocked the investment credit in the 1961 Congress, and the bill was finally postponed to 1962.
4. KENNEDY AND BUSINESS
This miscarriage set the tone for Kennedy’s relations with business. The resistance to the investment credit had sprung fundamentally from the inability of businessmen to believe that Democrats would ever do anything for business. “The business community,” as Robert Kennedy told one interviewer, “always has greater mistrust of any Democratic administration than of a Republican administration. It is an ideological reflex—obsolete, in my opinion—but that’s one of the facts of life, so I don’t know that businessmen, the big ones, anyway, no matter what we do, will ever be in love with us.” The Attorney General said this in 1963 when the Kennedys were reluctantly accepting business hostility as a fact of life; but in 1961 the President, because he also thought the reflex obsolete, really supposed that the hostility might be overcome. Convinced that the ideological fights of the thirties had been settled and hopeful that modern-minded figures, like his friend Thomas J. Watson, Jr., of International Business Machines, were leading business opinion, he saw no reason why government and business should not work together in rational partnership.
But his first steps were not reassuring to business. His series of distinguished appointments to the regulatory agencies—William L. Cary as chairman of the Securities and Exchange Commission, Newton Minow as chairman of the Federal Communications Commission, Frank McCulloch as chairman of the National Labor Relations Board, Joseph Swidler as chairman of the Federal Power Commission, Paul R. Dixon as chairman of the Federal Trade Commission—expressed the theory that these agencies should respond to the public interest rather than to the industries regulated. This naturally outraged businessmen who, in earlier years, had grown used to regarding regulatory agencies as adjuncts of their own trade associations.
Another episode in the spring of 1961 strengthened business anxieties. For a quarter of a century the Business Advisory Council, a collection of big businessmen, representing in 1961 a large share of the industrial production of the United States, had enjoyed a special relationship with the Department of Commerce. Roosevelt had established the BAC as a channel to the business community and, under such chairmen as Averell Harriman, it had played a modestly useful liaison role. But by 1960 its chairman was Ralph J. Cordiner of General Electric, whose firm in 1961 pleaded guilty to criminal charges of price-fixing and bid-rigging, and the BAC itself in the Eisenhower years had become cozily accustomed to closed meetings with government officials where, according to Hobart Rowen, an able business reporter, its members had access to economic information not available to other private groups.
Business had welcomed the appointment of Luther Hodges as Secretary of Commerce. The former governor of North Carolina, who used to describe himself as the administration’s “only tie with the nineteenth century,” was not only a generation older than the radical young New Frontiersmen but had been a businessman himself. Nonetheless, Hodges was determined that his department should represent the national interest. “You will never hear from me,” he said early on, “that this country should do this or that simply because business wants it. What is good for General Motors may, or may not, be good for the country.” Moreover, Hodges had serious reservations about the BAC both because it represented only big business and because he doubted the propriety of the secret meetings. Stimulated by Rowen, he asserted a right as Secretary to appoint or approve new members and also ruled that the meetings be open to the press. After a period of irritated negotiation, the BAC leaders, persuaded that they were no longer to enjoy their status of the Eisenhower years, withdrew from their association with Commerce. If even Luther Hodges acted this way, what could they expect from the young radicals?
This breakdown of an established business-government channel worried Douglas Dillon, who urged the President to repair relations. Kennedy, who needed business help on balance of payments and on his projected revision of trade policy, accordingly dissociated himself from Hodges’s excommunication of the BAC and initiated a policy of conciliation. When the President met in August with the presidents of the Chamber of Commerce, the National Association of Manufacturers and the Committee for Economic Development, he began by saying: “Gentlemen, I understand that we’re labeled anti-business. Why is that?” In September he received the members of the Business Council, as the BAC now called itself, at the White House; and in October, when the Council went into its annual retreat at Hot Springs, a parade of New Frontier officials assured it of the administration’s deep affection.
Kennedy had, I believe, considerable respect for the experience of businessmen. He felt that this experience gave them clues to the operations of the American economy which his intellectuals, for all their facile theories, did not possess. On the other hand, he had no great respect for the ideas of businessmen, and the respect declined the further their ideas moved away from their experience. The President probably agreed with Dr. Johnson: “A merchant’s de
sire is not of glory, but of gain; not of public wealth, but of private emolument; he is, therefore, rarely to be consulted on questions of war or peace, or any designs of wide extent and distant consequence.”
And he regarded the pressure to play up to businessmen with recurrent exasperation. At dinner at the White House on the night before his September reception for the Business Council, he observed that he was struck by a “paradox” in his dealings with business and with labor. Labor leaders, he said, were individually often mediocre and selfish, but labor as a body took generally responsible positions on the great issues; while businessmen were often enlightened as individuals but collectively hopeless on public policy. He now better understood Franklin Roosevelt’s attitude toward organized business, he continued, and he only wished there were no cold war so he could debate the future of America with the businessmen.
5. STEEL
The debate was to take place in spite of the cold war. The President had been much concerned to keep costs and prices down both to prevent inflation at home and to relieve the balance of payments by promoting exports abroad. Inflation created by excess demand was not very likely in an economy only beginning to emerge from a recession; but ‘cost-push’ inflation, touched off on occasion in the fifties when wages rose faster than productivity, remained a threat. And steel obviously played a key role in the strategy of price stability because increases in steel prices reverberated so far, wide and fast through the economy. Accordingly Kennedy wrote the presidents of the leading steel companies in September 1961, describing steel as “a bellwether, as well as a major element in industrial costs,” and suggesting that the industry “forgo a price increase.” He followed this by a letter to David J. McDonald of the United Steelworkers proposing that wage demands be kept “within the limit of advances in productivity.” In the 1962 Economic Report this criterion became the basis of what were called the wage-price guideposts and an essential part of the administration’s defense against inflation.
Early in 1962, Secretary of Labor Goldberg, who himself had been the Steelworkers’ general counsel, helped negotiate a non-inflationary settlement which both the union and the industry accepted in April. Everyone concerned assumed that, in return for what one student has called “the least costly agreement in many years,”* the industry would never dream of raising prices. Then, on April io, Roger Blough, chairman of the board at United States Steel, made his famous call at the White House and, without advance warning, handed the President of the United States a four-page mimeographed statement announcing the decision to raise steel prices $6 a ton—a statement which the steel people, in fact, released before Blough completed his conversation with the President.
Blough said later that he had informed the President “in what I hope was as courteous a manner as could be devised under all the circumstances” and that he was surprised at Kennedy’s reaction. He added, “I know nothing about politics.” This innocence was a little hard to take in Washington, where Blough had been a familiar figure for years. Even Arthur Krock found it either “an intolerable strain on human credulity or an admission of incurable short-sightedness.” Yet Blough’s whole demeanor suggested a genuine belief that an increase in steel prices was no more the business of government than an increase in the price of the lemonade a child might sell in front of his house.
Kennedy’s reaction was a mixture of incredulity over what he saw as the selfishness and stupidity of the steel industry and anger over what he regarded as its premeditated deceit. Honorable people, he felt, did not behave in this fashion. “We were not asking the steel industry for capitulation,” Arthur Goldberg said; “we were asking it for candor.” The industry had accepted labor’s restraint four days before without the slightest hint that it did not plan to be equally restrained itself; its démarche now, from the White House view, seemed a plain and impudent double cross. “My father always told me,” Kennedy said, in the remark the business community never forgave, “that all businessmen were sons-of-bitches, but I never believed it till now.” This proposition, though offered in private, soon reached the newspapers. Kennedy later told a press conference that his father had limited his comment to steel men; “he was involved when he was a member of the Roosevelt administration in the 1937 strike. He formed an opinion which he imparted to me, and which I found appropriate that evening. . . . I quoted what he said and indicated that he had not been, as he had not been on many other occasions, wholly wrong.” (A few days later, he remarked to Adlai Stevenson and me, “They are a bunch of bastards—and I’m saying this on my own now, not just because my father told it to me.’’)
Anger was a flash; then he called in his advisers on domestic policy and swung into action. If he accepted the steel decision, it would mean a grave threat to the wage-price guideposts, price stability, the program of economic expansion, the balance of payments, the trust the labor movement had in him and the prestige of the Presidency. He was coldly determined to mobilize all the resources of public pressure and private suasion to force steel to rescind the increase. Soon he had to leave the council of war in order to dress for the annual White House reception for members of Congress and their wives. A year before it had been the Bay of Pigs; “I’ll never hold another congressional reception,” the President said.
The next morning Bethlehem Steel, the second largest company, announced an increase, and four others quickly followed. At his press conference that afternoon Kennedy described these actions as “a wholly unjustifiable and irresponsible defiance of the public interest” by “a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility.” He added: “Some time ago I asked each American to consider what he would do for his country and I asked the steel companies. In the last twenty-four hours we had their answer.”
In the meantime, he had mounted a campaign of pressure against the steel magnates. Dillon, McNamara, Hodges, Clark Clifford and others were making phone calls all over the country. The Defense Department started shifting its steel purchases from the United States Steel to companies which had not yet raised prices. The Department of Justice began inquiries into whether the steel companies had acted in violation of the anti-trust laws.* (It was in this connection that the Attorney General asked the FBI to check newspaper reports of remarks made in a Bethlehem Steel stockholders meeting which might indicate that U. S. Steel had forced Bethlehem into its supporting action. The use of the FBI to make preliminary investigations in anti-trust cases was routine. Unhappily, though the instruction went to the FBI in the afternoon, it was apparently passed on to Philadelphia by Pony Express, for the reporter involved was not called till three the next morning. The FBI’s post-midnight rap on the door caused a furor. The President, unmoved, later remarked, “Reporters have called up a good many people in the middle of the night themselves.”) The Federal Trade Commission announced an informal investigation to see whether the steel companies had broken regulations against collusive price-fixing. Congressional anti-trust committees promised hearings. Ted Sorensen started work on emergency wage-price legislation. And, despite the FBI episode, public opinion rallied behind the President. William W. Scranton, the Republican candidate for governor of Pennsylvania, wired Blough: “The increase at this time is wrong—wrong for Pennsylvania, wrong for America, wrong for the free world.”
Walter Heller and Kermit Gordon had argued that, if enough companies held out against the rise—the rule of thumb was 10 per cent of national steel production—then U. S. Steel and the others would be forced in competitive self-defense to bring their prices down. This strategy soon centered on the Inland Steel Company of Chicago. The President also talked to Edgar Kaiser of Kaiser Steel. On Friday, April 13, Inland, Kaiser and the Armco Steel Corporation all let it be known that they were prepared to hold the line. Goldberg and Clifford went to New York to talk to Blough—a conference interrupted by word that Bethlehem had rescinded its price increase. Before the afternoon was over, United States Steel surrend
ered. It was seventy-two hours after Blough’s call on Kennedy. On April 17, exactly a week after his ultimatum, Blough made another visit to the White House. At dinner that night I asked the President how his conversation with Blough had gone this time. He said, “I told him that his men could keep their horses for the spring plowing.”
The steel fight confirmed the worst suspicions on each side about the other. Businessmen had grown accustomed in the Eisenhower years to a President who sought their company, reverenced their opinions and treated them as if they were the most weighty group in the nation. Though they doubtless admired Kennedy’s intelligence, were impressed by his knowledge and were generally conciliated in his presence, they felt he stood at a distance from them. When he protested that he was pro-business, it was in a sense that many businessmen found hard to understand. It was true that he accepted an economic system founded on private ownership and that his policies were designed, in effect, to lure business into investment and growth. But this was not enough. The fact remained that he was outside the business ethos, that he did not regard the acquisitive impulse as man’s noblest instinct nor the pursuit of profit as man’s highest calling, that he was unimpressed by great accumulators of wealth, that he did not consider successful businessmen as the best brains or the most enjoyable company, that he saw them as a faction to be propitiated and not as a force to be followed, that he brought few of them into government and that he did not like to have them around in the evening. The business community knew that the President was not ‘one of ours’; they felt that business was not understood in Washington; and they construed Kennedy’s pro-business efforts as based on the need for economic and political placation and not on the belief that the true business of America was business.*
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