BUSINESS AND FINANCE spending. And the President ordered The Legacy of Nixonomics large increases in government spending ueled by the , the U.S. to pump up the economy. ident in a period of confronts By August inflation was clearly getting Feconomy was booming when Rich- one nasty fact: there is simply no proven ard Nixon ran for President in 1968. But out of control, and Nixon dramatically way to halt inflation without putting peo- announced a 90-day wage-price freeze the war had also touched off a vicious ple out of work and business through wave of inflation—and Nixon coupled his in hopes of containing the inflationary the wringer." pressures ravaging the now-surging econ- campaign pledge to extricate the nation That did not keep Nixon from trying— from its Indochinese nightmare with a omy. The controls worked at first; but with a policy called "gradualism." The ultimately they proved a disaster. • heady promise to stop the price spiral theory was that if the government ap- without tumbling the economy into re- plied the conventional anti-inflation pol- TOO HOT TO HANDLE cession. "Peace with prosperity!" went icies of budgetary and monetary restraint the slogan that helped elect him. For one thing, the domestic economy gradually and with scientific precision, was boiling at a rate impossible to cool Six years later, the departing. President that would produce just enough of a admitted in his resignation speech last off with wage and price controls. More- squeeze to curb spending while avoiding over, at about the same time, grain-crop week that his goal of "prosperity without a recession. The problem, however, was inflation" had eluded his Administration. failures overseas triggered a worldwide that business and labor leaders read explosion in food prices. And then in Nixon left the White House with the the newspapers. Knowing that this kid- economy slumping, rising late 1973 and early '74, the Arabs and inflation eating away at the U.S. dol- lar at twice the rate suffered during his first months in office (chart). Clearly, Nixonomics—that paradoxical amalgam of reluctant jawboning, full- scale government intervention and old- fashioned Republican orthodoxy—has been by and large a failure. Not even Nixon's stunning decision in August 1971 to freeze wages and prices for the first time in the nation's peacetime history was enough to put a lid on inflation. And his widely heralded plans for welfare re- form and revenue sharing never really did get off the ground. Indeed, the only economic area in which he can claim real success is international trade. His two decisions to devalue the dollar bolstered American industry's fading strength in world markets. A LACK OF PHILOSOPHY Where did Nixon go wrong? It cer- tainly wasn't in any exaggerated devo- tion to a particular economic ideology. Rather, it was precisely the opposite— a virtual lack of any fixed economic philosophy beyond the traditional Re- publican distaste for government inter- vention (and even this Nixon was will- ing to abandon when he felt the time was right). "It was not only that he was disinter- Fenge & Freyer gloves treatment was designed to keep stunned the world by quadrupling the ested in economics," notes Walter Hel- them from getting hurt, they could safe- ler, chairman of President Kennedy's price of oil. ly ignore it. In response, Nixon's shell-shocked Council of Economic Advisers. "He dis- So the inflation rate continued to liked economics." As President, Nixon planners gave up trying to control eco- climb and the government found itself nomic events with precision. Thus, as seems to have regarded economic policy forced to keep squeezing the economy as something to be exercised all too of- effortlessly as he had converted to Key- longer than it had planned. The result nesianism, the President reverted back ten for political advantage. "The Nixon was stagflation—prices kept rising, unem- economic policies were circumscribed to what his advisers called "the old-time ployment skyrocketed and the nation religion"—the idea that a stiff dose of by political debts," says Otto Eckstein, a found itself in its first recession since the CEA member under President Johnson. unemployment and reduced demand Eisenhower years. would bring inflation to heel. "Every corporate call by his fund raisers By early 1971, with unemployment at gave away a small piece of economic That has yet to happen. Whether it a ten-year high and inflation as bad as ever will, of course, is no longer Rich- policy." ever, memories of the late-1950s reces- Of course, the nation's current eco- ard Nixon's problem—though the damage sion that helped thwart his 1960 bid for his sudden policy shifts did to the Amer- nomic woes aren't entirely Nixon's fault. the Presidency tempted Nixon to switch "America's economic-policy machinery ican economy remains, in part at least, his approach. With the end of his first his legacy. His economic stewardship simply cannot control the weather, the term in sight, Nixon coolly rejected a life- Arabs or the superinflationary economic was cursed with bad luck, to be sure, but time of laissez-faire pronouncements and it was also crippled by his habit of sway- policies of other countries," points out announced that he had become a economist Albert H. Cox Jr. What's ing in the winds of expediency. "He let Keynesian—a believer in the doctrine his political instincts rule over his eco- more, notes NEWSWEEK'S chief economic that the economy could be "tuned" by correspondent, Rich Thomas, "Any Pres- nomic instincts," says Heller. "That was fiddling with taxes and government his major problem." Newsweek, August 19, 1974 67