Playing 'Em Hot and Cold: Nixon Economics

A Review of Nixon's Economy: Booms, Busts, Dollars, and Votes
by Allen J. Matusow

Author Biography


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

  1. Book Review “History” Rev. David L. Littmann.
  2. Matusow, Allen. Nixon’s Economy: Booms, Busts, Dollars & Votes. Kansas: University Press of Kansas, 1992. 1.
  3. Matusow, Allen, 13
  4. Matusow, Allen, 27
  5. Matusow, Allen, 30
  6. Matusow, Allen, 51
  7. Matusow, Allen, 122
  8. Matusow, Allen, 184
  9. Matusow, Allen, 199
  10. Matusow, Allen, 236
  11. Matusow, Allen, 262
  12. Matusow, Allen, 241
  13. Matusow, Allen, 242
  14. Matusow, Allen, 300
  15. Matusow, Allen, 300
  16. Matusow, Allen, 301
  17. EH.Net Review “History” Rev. David Stebenne
  18. Stebenne, David
  19. Littmann, David
  20. Littmann, David
  21. Stebenne, David
  22. Matusow, Allen, 282
  23. Mattusow, Allen, 259
  24. Mattusow, Allen, 258
  25. Mattusow, Allen, 303

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