Playing 'Em Hot and Cold: Nixon
Economics
A Review of Nixon's Economy:
Booms, Busts, Dollars, and Votes
by Allen J. Matusow
Author Biography
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In a presidency veiled by scandal, deceit and political
prowess, ,iNixon’s economy often times fades into the
background as a secondary issue of the administration.
However, in his book Nixon’s Economy: Booms, Busts,
Dollars, & Votes, Allen J. Matusow identifies and
explains the convoluted economic issues that privately
haunted the administration. To Nixon, at a time of economic
boom, “economic policies were simply tools of political
expedience”.1 Following a conservative economic
suit, his administration emulated past policies employed by
the Johnson and Kennedy executives. In an unexpected twist
however, the post-war boom cooled and a turbulent economy
sent Nixon’s economists into an enigmatic dilemma filled
with mistakes and miscalculations.
At the start of his presidency, Nixon expected to ride the
booming economics of past post-war plans designed by
Keynesian economists. A man designed to run for president, a
man “specially trained to run a particular race”, a man
hoping to revolutionize the political world, Nixon focused
his campaign on a “new majority” or a “silent majority”,
appealing to all the masses.2 Economic issues
played little role in both his campaign and his policies as
he left economic matters to an organization called the
Troika with conservative Keynesian economists. Led by four
core men¾David Kennedy as treasury secretary, Robert Mayo as
budget director, Paul McCracken as chairman of the CEA, and
Arthur Burns as Nixon’s personal economist, the Troika
utilized conventional fiscal policies to help manipulate the
stable and thriving economy. However, just as Nixon took
presidency, the economy began to increasingly waver under
the pressure of Johnson’s two expensive wars: “the war on
poverty and the ground war in Vietnam”.3 These
new fiscal strains brought on by heavy deficit spending
caused a continual inflation as Congress “reduced federal
expenditures by 6% and enacted a one-year tax increase with
a 10% tax surcharge."4 Viewing these fiscal
restraints as too radical, conservative Keynesian economists
feared a recession because the economy would be too cooled
off. They were wrong; the economic boom continued and
inflation skyrocketed to new levels uncontrollably. In turn,
Nixon’s Troika adopted a monetarist point of view in that
government, namely the Federal Reserve (Fed), was the cause
of economic instability rather than private businesses. With
this new philosophy, the administration implemented
gradualism, “reduced aggregate demand” and “moderate
monetary restraint” to ride out this boom and re-stabilize
the economy.5 A new but experienced organization,
Troika began to confidently take control and ease the
economy back to prosperity in 1969, the first year of
Nixon’s presidency.
Due to the raise in taxes and less spending, Nixon needed a
new fiscal policy to help deflate inflation. Once in office,
Nixon’s first goal was to “lower the uncontrollable defense
spendings in Vietnam” and to “raise domestic spendings at
home”.6 These policies, tuned to impress the
public and to curb inflation, failed to do either. In
addition, he rallied for the 10% tax surcharge bill
initially passed by Congress to stop inflation to be
extended for one more year. Liberals protested against the
extensive taxes and called for a totally new tax reform
package. Consequently, the surcharge bill met much
opposition and barely passed through the House of
Representatives. In the Senate, senators transformed the
bill, which had provided tax relief to all classes, to one
that provided relief only for the poor. Nevertheless, after
fiscal reformation, the Troika still faced a revenue deficit
as well as a need for a new, less intensive budgeting plan.
Nixon’s advisors, perceiving the discontentment of the
public mood, “opposed new taxes and proposed reduced
spending."7 Nixon, a self-proclaimed Republican,
began to adopt all of Lyndon Johnson’s reform policies of
tax surcharge, money for good works, repealing pro-business
investment tax credit, defending revenues, and raising taxes.
After a year of unsuccessful attempts, the economy itself
slowed drastically and fell into a recession without any
influence from the Troika or other economists. In the House
and Senate elections that year, the two parties battled over
economic issues to gain ground in Congress. An unskilled
economist, Nixon “turned to Mayo and Burns to stop the
recession”, to cut spending, to lower unemployment, and to
raise the gross national product (GNP).8 By
spring, without any production from Mayo and Burns, people
feared another Great Depression as the stock market began to
“drop and shake”, but there was no earthquake. Tiring of the
failing policies of the Troika and edging towards another
election year, Nixon began to take drastic measures to slow
the inflationary boom riding the economy. Firstly, Nixon
fired Robert Mayo and David Kennedy and appointed the
socially appealing but economically lacking John Connally as
the new Secretary of Treasury. Focusing his campaign on blue
collar workers, Nixon tried to rally the average American in
his dream of forming the “new majority”. However, in the
fall, the General Motors strike worsened the economy and the
Democrats took another blow to Nixon’s administration for
its inability to stop these continuous inflations and
recessions. Meanwhile, Burns, formerly a member of the
Troika, was now voted as the head of the Federal Reserve,
and promised that the Fed and the White House would work
together to steady the economy. With a boom in the recession
caused by these unorthodox actions opposite of what Nixon
believed in—”wage and price controls, abandonment of the
international gold standard, depreciation of the dollar, and
deficit spending”—Nixon and Connally skyrocketed the economy
out of the recession and Nixon won the election of 1972 in a
landslide.10
When Nixon took power at the end of the 1960s, the United
States was the most dominant world economic power of the
post-war world. Having helped through the Marshall Plan to
reconstruct a war-devastated Europe, the United States
became a leading force in the world economy. Most known for
his visits and attempts to open up trade with the USSR and
People’s Republic of China, Nixon focused most of his
economic attention on this triangular relationship,
believing that opening up China and the USSR would help ease
problems at home. In 1969, Nixon established a view of world
harmony both economically and politically shown by his
strides toward détente. However, by 1971, with the US
economy in constant fluctuation and upheaval, Nixon
“abandoned his world harmony views”.11 Up until
1973, energy had played a minor role in Nixon’s economic
worries as his administration “was slow to recognize the
energy shortage” crisis that plagued his second
term.12 As the year continued, the energy
problems worsened until the Arab oil boycott in October 1973
turned energy into a full-fledged crisis, throwing the
public into panic, doubt, and conspiracy theories and
accelerating inflation and recession. Nixon’s
administration, deceived by the oil surpluses of the 1960s,
fell into another predicament as “energy consumption in the
United States rose 50 percent during the
decade."13 Before, during the 1960s, the oil
industries had suffered from surpluses in supply and
therefore oil import quotas were passed to control the
market. Now, with a shortage of oil, George Shultz, one of
Nixon’s new economic advisors, proposed to replace the
quotas with a trade tariff. This proposal drew intensely
adverse opinions from the East Coast businesses, who relied
on international trade and would benefit from the change,
and Midwest oil barons who wanted to keep the market close
to themselves. Then, as 1973 approached, “home-healing-oil
stocks fell to dangerously low levels” leading to a fear of
another energy crisis.14 Because of price
controls set by Nixon in 1971, heating-oil prices which
would usually rise during the winter time could not and this
in turn “deprived refiners of incentives to produce heating
oil in sufficient quantities."15 The oil crisis
took another turn in 1973 when the Organization of the
Petroleum Exporting Countries (OPEC), whom the United States
heavily relied on for oil, demanded an increase in prices
and a change in US policy for the Middle East, which
included helping Israel. Nixon, offended by this act, chose
to embargo OPEC’s supply, stating that “oil without a market
does not do a country much good."16 After all
these problems in two short years, Nixon’s support fell
sharply as he was forced to raise oil prices and thus
raising inflation to a new level.
Taking a different approach on Nixon’s presidency, Matusow
reminds the reader that Nixon’s presidency, though covered
by scandal, was deeper and more complex than most people
realize. Written with interesting researched facts, this
book gives insight to Nixon, the man behind Watergate, who
was quite unskilled in economic matters, and his assistants,
mainly John Connally, and their numerous blunders. Written
like a novel, Nixon’s Economy retains the reader’s attention
by summarizing initial economic problems and building up to
an intense world economic showdown over oil all orchestrated
by the numerous gaffes of Connally. This book, in turn,
challenges the traditional view of Nixon’s presidency, which
scandals aside, received a “fairly positive
review."17 Matusow “paints a vivid picture of the
intellectual confusion” that laid in Nixon’s Troika and
later administration because of their misjudgment of the new
economic patterns.18 Through this book, the
reader sees the change in Nixon’s mindset over economy as
his presidency went on. At first, Nixon and his advisors
confidently followed a gradualist policy, believing that it
will bring down inflation and end recession. However, as
time went on, Nixon feared the problems a stagnant economy
would bring during election year and consequently switched
to more radical programs designed by a new advisor, Connally.
Although Matusow skillfully composes an interesting yet
factual book, Nixon’s Economy is not flawless. In the
beginning of the book, he does not explain the new economic
patterns of post-war United States and the world. He throws
the reader into a cloud of confusion, forcing the reader to
piece together the causes of the inflations and recessions
as he goes along. Also, Matusow states that Nixon at first
planned to follow Kennedy and Johnson’s previous
conservative economic policies, but fails to explain fully
what these policies were and meant. Matusow further confuses
the reader by blaming the economic upheaval, in different
parts of the book, on different organizations and people.
For example, Matusow claimed that “the main reason why
prices kept rising through 1970…was the big wage increases
that workers were demanding and getting” and that private
business were not the cause of inflation.19 Then
later, he “suggests that currency devaluation and oil price
hikes” were the causes of inflation in the United
States.20 By not clearing up these
contradictions, Matusow confuses the reader about the real
causes of the economic troubles faced throughout not only
Nixon’s, but later presidents’ presidencies as well.
Despite these inadequacies, Nixon’s Economy overall was
well-written and attention-grabbing. With his ability to
incorporate some of Nixon’s familiar political policies with
Nixon’s generally unknown economic policies, Matusow clears
up previous misconceptions and assumptions about Nixon’s
presidency. In this way, Matusow “calls into question the
notion that the Nixon Administration should be judged”
without being overwhelmed by his scandals and
deceits.21 As explained in the Introduction,
Nixon’s main goal was to win presidential elections—it was
what he was designed to do. In this book, Matusow explains
some of Nixon’s policies while incorporating these policies
into Nixon’s motive of winning the presidential election.
For example, before the election year, Nixon and Connally
pushed through inflationary policies during the recession
and caused a boom in the economy, helping Nixon win the
re-election with ease. However, this boom would end in an
economic fiasco and bring about bigger recessions and
economic problems. Matusow integrates Nixon’s economic
policies and stumbles into Nixon’s real goals and objectives
to help the reader easily understand Nixon’s economy.
Nixon’s administration, at the junction of the 1960s and
1970s, would prove to have a huge impact on future economic
policies and presidencies. When thinking about economic
upheaval, one may turn to the Reagan era of “Reaganomics” as
an example of failed economic policy. However, Matusow,
publishing Nixon’s Economy in 1985, shines light on the
causes of these inflations, recessions, and oil crisis of
Reagan’s administration as Nixon’s blunders in economy.
Thus, Nixon’s administration and economic policies,
illustrated by Matusow as inflationary and unsuccessful,
explains the economic problems faced in future years and
presidencies. In abandoning his “steady-as-you-go policy in
1971”, Nixon, Matusow seems to imply, created a watershed
for economic problems in both domestic and world economic
problems.22 In turn, he blames and criticizes
Nixon’s economic mistakes for the uncontrollable economic
fluctuations of Reagan’s conservative era, in which this
book was published. Viewing Nixon’s economic policies with a
biased point of view, Matusow criticizes the Nixon
administration because of the woe it brought upon the
conservative Reagan administration in the 1980s, the decade
in which this book was published. Through this book, Matusow
blames the economic slump of the 1980s on the Nixon
administration by analyzing its failures and inflationary
policies. At the end of Nixon’s presidency, with what
Matusow calls “The Great Recession”, Nixon’s inconsistent
rollercoaster economy of booms and busts would continue into
the 1980s and beyond.
With his oil crisis in the Middle East, Nixon started an
on-going battle still today on oil prices which are higher
than ever. By fighting OPEC and trying to boycott oil
imports, Nixon made one of his biggest blunders in his
economic planning. Stubbornly fighting with the Arabs in an
uphill battle, Nixon did not stand a chance as the Arabs
“used oil as a club” to beat the United States into
submission.23 Oil, at this time, was on the rise,
and Nixon’s economy decided whether the United States would
ride this new form of energy with peace to the next
generation or try to battle against the Middle Eastern oil
barons for ground. Nixon, portrayed by Matusow, obviously
thought of the Middle Easterners as inferior and did not
concede to their reasonable demands, thus setting the United
States into an uphill battle on oil ever since. As Matusow
stated, “a commodity as precious as oil could affect not
only the economy but also political relations among
nations”, which meant that the oil crisis also sprung from
US assistance of Israel in regaining its
territory.24 When Nixon helped Israel to fight
the rival Middle Easterners and regain their land, he
instilled deep hatred from the Middle East toward the United
States shown in the numerous oil crises in the 1980s and
1990s as well as the 9/11 bombing of the World Trade Center.
Due to Nixon’s blunders in oil economy, the United States
has battled with the Middle East both economically and
politically for decades.
Taking office at the “end of the post-war golden age”, Nixon
hardly expected economy to play a big role in his
administration.25 However, with a fluctuating
economy of booms and busts, Nixon’s inadequate and old
fashioned programs proved to be ineffective. His short term
goals of winning the next election would forever put the
United States into a state of economic downfall all the way
up to the 1980s. It would also lead to oil crises with the
Middle East and growing political tensions. In this way, the
1960s and 1970s of Nixon’s vital presidency, would forever
affect the future of American economy.
review by Steven Wang
- Book Review “History” Rev. David L. Littmann.
- Matusow, Allen. Nixon’s Economy: Booms, Busts, Dollars &
Votes. Kansas: University Press of Kansas, 1992. 1.
- Matusow, Allen, 13
- Matusow, Allen, 27
- Matusow, Allen, 30
- Matusow, Allen, 51
- Matusow, Allen, 122
- Matusow, Allen, 184
- Matusow, Allen, 199
- Matusow, Allen, 236
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- Matusow, Allen, 241
- Matusow, Allen, 242
- Matusow, Allen, 300
- Matusow, Allen, 300
- Matusow, Allen, 301
- EH.Net Review “History” Rev. David Stebenne
- Stebenne, David
- Littmann, David
- Littmann, David
- Stebenne, David
- Matusow, Allen, 282
- Mattusow, Allen, 259
- Mattusow, Allen, 258
- Mattusow, Allen, 303
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