CHAPTER 3

THE ECONOMY

“I don’t think we’re in a recession, but no question we’re in a slowdown. . . . One way Congress, if they really want to make a substantial difference in creating certainty during uncertain times, is to make the tax cuts we passed permanent.”

—President George W. Bush, February 28, 2008

Like war, economic issues have dominated every president’s attentions, fears, failures and occasional triumphs—so much so that Bill Clinton’s team adopted the internal admonition, “It’s the economy, stupid.” The New Deal tested the constitutional limits of presidential power, while Lyndon Johnson’s War on Poverty redrew the boundaries of government involvement in people’s economic lives. Richard Nixon’s price controls strained the ideological unity of his Republican Party; Americans tittered over Gerald Ford’s “Whip Inflation Now” (W.I.N.) program; the 2008 financial collapse brought George W. Bush’s tenure to an ignominious ending and gave Barack Obama a mammoth challenge for his historic presidency. All along, Americans hotly debated Republican notions of low taxation and small government versus Democratic ideals of government activism and social safety nets.

A house for sale in Detroit, December 30, 2008. Detroit was one of six U.S. cities with record one-month declines in home prices during the 2008 collapse.

BANK BILL IS ENACTED

MARCH 10, 1933

A record for executive and legislative action was written today in the effort of the nation to end its banking difficulties, but progress was partly checked tonight by the inability of an administrative arm of the government to keep pace.

After Congress had passed emergency legislation designed to affect a wholesale resumption of banking activities throughout the United States and the measure had been signed by the executive, all within 8 hours and 37 minutes, President Roosevelt was forced to issue a proclamation at 10:10 o’clock tonight, extending the bank holiday and gold embargo indefinitely until the Treasury Department could make regulations to meet the new conditions. This may be as late as Monday.

The President last night had said that a large number of banks could open tomorrow.

Keen disappointment at the outcome was apparent at the White House, where President Roosevelt and his associates had worked almost incessantly since his inauguration last Saturday to bring about the reopening of the banks of the country.

On Michigan’s second “bankless” day, Chrysler workers line up in Detroit at a special disbursing office on February 16, 1933, to cash their paychecks.

Sense of Disappointment Felt

The president’s sense of disappointment was radiated to leaders of Congress.

The president had told them that enactment of the emergency banking law would bring about the opening of a large number of banks tomorrow, and they had held out this statement to their colleagues as the reason for haste, resulting in such action as the House passing the bill unanimously after 40 minutes’ debate and the Senate following within 3 hours.

Undismayed by the turn of affairs, the president and his Congressional advisers went into conference tonight to work out the task for the remainder of the present extraordinary session.

It was expected that the president would send up a message urging two other legislative enactments, one to provide for unemployment relief and the other carrying out the economy program which the president’s party has promised.

After the White House conference ended, Senator Glass said that the bank holiday had been continued, first, to permit the state banks to come under the shelter of the Federal Reserve System, and second, to give the Federal Reserve and regional banks opportunity to ascertain more accurately than the Controller of the Currency had been able to do, what banks should be opened when the holiday ended.

Congress Moves with Speed

The new Congress moved with a speed that dazzled the veteran members of that assembly. Within less than seven hours and a half, the Congress convened in special season, organized, received the message from President Roosevelt asking a measure to “reopen all sound banks,” passed that measure and sent it to the White House.

Barely an hour and fifteen minutes after the Senate passed the act by a vote of 73 to 7, the House having adopted it unanimously, it became law by the signature of Franklin D. Roosevelt.

This deferment of the reopening of banks already rated as sound by tests which national bank examiners have been making during the last two days was made necessary, by the fact that there was no time before tomorrow morning to issue the necessary regulations.

It was expected that possibly by Saturday, and certainly by Monday, those banks which have demonstrated their soundness to the inspectors of the Federal Reserve System will be permitted to open.

Officials were besieged all day with applications from state banks to enter the protective zone of the Federal Reserve System as expanded by today’s legislation.

The new banking law was designed to provide both the authority and the currency with which to reopen all the solvent national banks and Federal Reserve members, and indirectly, their correspondents.

Briefly, the act provided:

• Issuance of new Federal Reserve Bank notes in an amount necessary to meet the present situation, such notes to bear an interest tax to assure their retirement when no longer needed.

• A grant to the president of practically dictatorial powers to stop hoarding, retrieve gold from hoarding and embargo gold.

• Extension of power to the executive branch for such control over all national banks as may be necessary for the protection of depositors and creditors, including creation of a “conservator” system for these institutions.

• Validation of what already has been done by the president and what may hereafter be done under the Trading with the Enemy Act to deal with the present emergency.

The bill made a peacetime record in Congress. It was passed unanimously in the House after forty minutes of debate, without a completed copy being available to a member. It was approved by the Senate three hours later by a vote of 73 to 7. Opposing the measure were Senators Borah, Carey, Dale, La Follette, Nye, Costigan and Shipstead.

The new Treasury banknotes “shall be receivable at par in all parts of the United States” for the same purposes are national bank notes and shall be direct obligations of the Federal Reserve Banks issuing them.

Issuance of national banknotes is limited to the amount of the capital stock of the bank of issue.

Issuance of national banknotes is limited to the amount of the capital stock of the bank of issue, but this restriction does not apply to Federal Reserve Bank notes. Various estimates have been made as to the amount of additional currency which might be quickly available under the various provisions of the bill, one government expert putting the total at $2.8 billion or more, with much depending upon rulings by the Reserve System as to eligible collateral.

The bill was not amended in a single particular from the form in which it was received from Secretary Woodin and Attorney General Cummings, who drafted it.

The bill was a mere restatement in legislative form of the message sent by President Roosevelt to Congress on the subject.

“Our task,” the president’s message said, “is to reopen all sound banks.”

And with that he proceeded to ask for particular provisions. He wanted immediate legislation giving the executive branch control over banks for the protection of depositors; he wanted authority to open such banks as “have already been ascertained to be in sound condition and other such banks as rapidly as possible.”

He asked authority, too, to reorganize and reopen banks that may be found to require reorganization. He asked last of all for amendments to the Federal Reserve Act that would provide such additional currency, “adequately secured,” as might be necessary to issue to meet “all demands for currency” in the present situation without increasing the unsecured indebtedness of the government.

Party Lines Are Forgotten

The president expressed the belief that the legislation requested not only would lift immediately all unwarranted doubts and suspicions as to the soundness of the banking system but also would “mark the beginning of a new relationship between the banks and the people of the country.”

The president urged action, and he got action. Senators who for years had held unswervingly to certain convictions on banking and currency swallowed them in the urge for speed in the banking crisis. Leaders of the opposition party laid down a plea for the support of President Roosevelt with as much feeling as if he had been the champion of their own band.

Mr. Roosevelt indicated in his message that he would ask still other things of this extra session. He mentioned “two other measures” which he regarded as of immediate urgency. Congressional leaders believed that one of them would be a $500 million public works bond issue as an aid to unemployment, and the other a reorganization order in the interest of public economy.

Glass Supports the Measure

The only delay in meeting the president’s request for legislation was the time it took to explain the measure to the Senate Banking and Currency Committee. Senator Glass, author of the Federal Reserve Act, who later told the Senate that under ordinary circumstances the measure would be a “shock” to his convictions, performed the task of explaining it.

The Virginian later took the floor and espoused it as a “great piece of legislation,” great because it met so paralyzing an emergency. He considered his support of the measure a patriotic duty.

As for the House, it did not delay. It did not even wait for a copy of the bill. Drafted as it was in an all-night conference of Congressional leaders and administration officials, it was still in an unfinished form this afternoon and was corrected from time to time in the type forms at the Government Printing Office.

Impatient at the delay, the House leaders brought up the subject under unanimous consent. They used a first draft of the bill, corrected by pencil. They allowed only forty minutes’ debate and not all of this actually was used, as the 435 members demanded as with one voice, “Vote! Vote! Vote!”

No Roll Call in the House

Democratic and Republican members alike agreed that “this is no time to argue,” and within less time than it takes to tell it on paper the House passed the bill without a single dissenting vote—without even asking a roll call—and sent it along to the Senate, several hundred of its members following it over to the other side of the Capitol.

NOTE: This act of Congress, also known as the Glass-Steagall Act, represented the first real attempt to regulate the banking industry, by separating banks from firms that dealt in stock and bond trading, and insuring depositors’ accounts through the new Federal Deposit Insurance Corporation. Opposition from the political right and the financial industry emerged almost immediately, but it was not until 1999 that Congress essentially repealed it and President Bill Clinton, a Democrat, signed off. Predictably, banks immediately moved into the business of stock speculation, which many economists said was a root cause of the 2008 Great Recession.

THE N.I.R.A. DECISION

MAY 28, 1935

Two incidental reasons for satisfaction with the decision of the United States Supreme Court in the case of the National Industrial Recovery Act must catch every eye. The first is that Chief Justice Hughes spoke for a unanimous court. There can be no question now of asserting that the minority was right in a 5-to-4 decision; nor can there be invidious remarks about the Tories among the judges outvoting the Liberals. All are united in up-holding the view that most of the provisions of N.I.R.A. are invalid under the Constitution. The second cause for gratification is that the judgment of the court came so long after the enactment of the law. Had it fallen near the time when the nation was enthusiastic about N.I.R.A. it would have been bad both for the court and the country. Now it follows closely upon a marked change of public sentiment. The Recovery Act had done its work, the chief benefit of which was to stir the people into hopeful activity and had come to be almost universally regarded as a piece of legislation now obsolete and ineffective. Nowhere will the opinion of the Supreme Court in the matter now provoke angry resentment. The judges simply pronounce to be dead a statute which the great mass of the people had already decided to be dead.

Especially repugnant to the court was the grant of authority to [the president] to make changes in the codes as he might please.

Taking the instance of codes under N.I.R.A., we find the Supreme Court making a complete end of them. It decides that Congress had no constitutional power to delegate to the president authority to impose codes upon private business. Especially repugnant to the court was the grant of authority to him to make changes in the codes as he might please. The Constitution does not permit delegation of power to the president to do “whatever he thinks desirable.” Going still further, the Supreme Court holds that no group in any industry may frame a code for itself through which the attempt is made to give the force of law. In other words, violation of the code, even when it is voluntary, cannot be punished by the courts. This seems to make the case against the codes complete. A large number of them had already been extinguished. The rest of them were ended by Mr. Richberg’s announcement last night.

More striking and penetrating is the decision of the court that the federal government has no constitutional right to go into the states and fix hours and wages in industries which are not clearly and exclusively engaged in interstate commerce. Transactions, declares the court, which merely affect intrastate commerce, are not subject to federal legislation and must remain within the control of the states. Otherwise, affirm the judges, we should soon have everything brought within federal jurisdiction, with the result of setting up a “centralized government” never contemplated by the Constitution. This part of the decision seems to do away with section 3 of the Recovery Act and leaves it only a thing of shreds and patches. Congress may attempt to piece the fragments together, but it is now evident that if any revision of N.I.R.A. is to be made, it will have to be an entirely new law. Perhaps the old one will now be allowed to expire on its appointed date of June 16.

Great significance attaches to the ruling out by the court of business which merely “affects interstate commerce.” That same clause, it will be noted, occurs in the Wagner Labor Bill. If it remains there and another judicial test is made, the consequence will be expected to be the same as in the rejection of N.I.R.A. as unconstitutional. It is a nice point to decide whether an industry is frankly engaged in interstate commerce, or merely affects it indirectly. Yet it was deemed vitally important by the government, since the solicitor general argued in this very case that intrastate transactions are frequently so interwoven with interstate commerce that the latter cannot be “effectively regulated without control over the former.” That control the Supreme Court has declared to be unconstitutional.

There will be more to say of this Supreme Court decision, as Congress may seek to gather up the fragments of N.I.R.A. The action of the court seems so far to have met with general approval. Senator Borah says that by it the Constitution is reestablished. Two years ago Congress was ready to take great chances with the supreme law. Hereafter it may be more careful, since the evidence is now clear that the Supreme Court will not permit the federal government to usurp or encroach upon the constitutional rights of “indestructible states.”

THE CHOICE OF A CANDIDATE

SEPTEMBER 19, 1940

T he New York Times supported Franklin D. Roosevelt for the presidency in 1932 and again in 1936. In 1940 it will support Wendell Willkie.

It has made its choice, as all Americans must make their choice, in one of the great crises of this nation’s history. The liberties of the American people are in danger. A hostile power, openly proclaiming its hatred of the democratic way of life, has swept across Europe and is now battering it at the gates of England, seeking to grasp the eastern approaches to that Atlantic world in which our own democracy has lived and prospered.

Both Mr. Roosevelt and Mr. Willkie understand the critical nature of this threat to the United States. Both are citizens of the world. Both know that it is impossible to isolate ourselves from the consequences of a world revolution. Both know that we must take sides morally or count for nothing. Both are opposed to actual intervention in the war, but short of war both favor every possible aid that can be given to the one democracy in Europe that still stands in Hitler’s path.

This agreement between the two presidential candidates on the fundamentals of a foreign policy is a deeply fortunate fact for the American people. Without it we might now be involved in a bitter controversy which would wreck our unity. As matters stand, the choice before us has been narrowed to this question: In whose hands, Mr. Roosevelt’s or Mr. Willkie’s, is the safety of the American people likely to be more secure during the critical test that lies ahead?

We give our own support to Mr. Willkie primarily for these reasons: Because we believe that he is better equipped than Mr. Roosevelt to provide this country with an adequate national defense; because we believe he is a practical liberal who understands the need of increased production; because we believe that the fiscal policies of Mr. Roosevelt have failed disastrously; because we believe that at a time when the traditional safeguards of democracy are failing everywhere it is particularly important to honor and preserve the American tradition against vesting the enormous powers of the presidency in the hands of any man for three consecutive terms of office.

Wendell Willkie preparing to give a speech at the National Press Club, Washington, D.C., June 12, 1940.

Our readers are entitled to a statement of the reasons which, upon mature consideration, have led us to these opinions.

Defense of the United States

In the field of national defense, we recognize that Mr. Roosevelt has taken a number of necessary steps, all of which have had our wholehearted endorsement, both before he was ready to take them and later, when he had acted. He has recreated the Defense Advisory Commission and called some able men to Washington. He has recommended that Congress appropriate large funds for defense equipment. He has succeeded in negotiating leases for new naval and air bases which are of great potential importance to the defense of the whole North American continent. He strongly urged Congress to adopt a system of compulsory selective military service.

But there are a number of other equally important steps which Mr. Roosevelt has not taken. He has withheld power from the Advisory Commission and made it a mere consultative agency, unable on its own authority to cut the endless red tape in Washington. He has kept power for himself, tried to be his own defense administrator and retained in his own hands control over too many details of a defense program which still lacks central planning. He has seemed to regard the whole business of defense as a sideshow to the ordinary activities of the country, requiring no fundamental change in the habits of the American people and no revision of any of the policies of his administration. We find Mr. Willkie’s early call for sacrifice, for hard work, “sweat and toil,” more reassuring than Mr. Roosevelt’s cheerful confidence that we need not let ourselves become “discomboomerated” by the task that lies before us.

But all these points, important as they are, only touch the surface of the matter. At bottom, adequate national defense means much more than airplanes, tanks and cannon, even when all of these are actually on hand and not just “on order.” It means a nation strong in its economic health and power, with a thriving industry, full employment, both of manpower and of money, new capital flowing vigorously into new channels of production. It means, in short, a nation with gigantic industrial force behind its army and its navy.

The record shows that Mr. Roosevelt has achieved least success in the solution of this very problem. He has failed to create the conditions for a confident and expanding business. It is a reasonable assumption that this same problem can be managed better by a man who understands business, who has the confidence of business, who has himself been a part of business, whose interest in business problems has been firsthand and continuous rather than casual and intermittent, and whose experience includes a successful personal record in stimulating business and expanding industrial production.

In this field Mr. Willkie is the professional and Mr. Roosevelt is the amateur.

Liberalism and Reform

In the field of domestic policy, this newspaper has recognized the need of the sound social and economic reforms of the two Roosevelt administrations. It has given its support to these reforms. Specifically, it has endorsed the purpose and the principle of the Social Security Act, the National Housing Act of 1934, the Slum Clearance Act of 1936, the Wagner Housing Act of 1937, the Soil Conservation Act, the Securities Act of 1933, the regulation of the stock exchanges, the supervision of investment trusts. The reforms at which every one of these measures aimed were long overdue.

Mr. Willkie has affirmed his own belief in the necessity of reform and his own support of the major reforms of the Roosevelt administrations. Because of this he has been attacked by the president’s friends as a mere plagiarist who is now attempting to steal the New Deal’s thunder, and an impostor who is trying to run “on the president’s own program.” This is a curious attitude for the president’s friends to take. It is a curious attitude, because it suggests a belief that the New Deal has a monopoly on reform and wants nobody else to share in it. But the truth is that no faction and no party has a monopoly on reform in the United States; many men have shared in it and will continue to share in it. “Plagiarism” is beside the point. For seven years Mr. Roosevelt himself has been making daily use of important reforms introduced by Republican administrations—among them the Sherman Antitrust Law, the Pure Food and Drug Act, the Children’s Bureau, the executive budget, the Reconstruction Finance Corporation.

For ourselves, we welcome the fact that Mr. Willkie stands pledged to conserve rather than to destroy what is best in Mr. Roosevelt’s reforms. We believe that these reforms would be safe in Mr. Willkie’s hands, not only because Mr. Willkie is a man of goodwill, but because his approach to the problems now before us shows him to be a liberal. He is enough of a student and enough of a realist to know that we are living in a changing time and that it is both necessary and desirable that the government should take an increasingly active part in policing the financial markets, in safeguarding labor’s right to bargain collectively and in achieving social justice for underprivileged people.

More than this, we believe that Mr. Willkie could be relied upon not to make some of the mistakes and not to take some of the risks which Mr. Roosevelt has made and taken. For we believe that while Mr. Roosevelt has helped enormously to awaken the social conscience of this country, and that while he deserves lasting credit for this leadership, Mr. Roosevelt has also put his own reforms in peril. He has put them in peril by ignoring or by failing to understand the fundamental problem of increased production; by encouraging great numbers of Americans to believe that it is possible to grow richer by working less and producing less; by fostering the idea that there exists somewhere a great fund of wealth which has only to be divided more equitably in order to make everybody prosperous; by permitting important members of his administration to preach the doctrines of class jealousy and class hatred.

Mr. Willkie stated the case accurately when he said that “American liberalism does not consist merely in reforming things; it consists also in making things.” It consists in expanding the production of the necessities and the good things of life. Wealth is only another word for production, and in the long run there is no other way to achieve a higher standard of living for the whole people of a nation than to produce in abundance.

We believe that Mr. Willkie understands this crucial point better than Mr. Roosevelt, and that he would be more likely to succeed in putting this principle into practice.

“The Road to Bankruptcy”

In the field of fiscal policy our dissent from the course pursued by Mr. Roosevelt dates from his first year in office. We expressed this dissent in 1936, even while supporting him for reelection, and ventured then to express the hope that he would pursue a more responsible fiscal policy during his second term in office. Unfortunately, his course during his second term has become still more reckless. We cite evidence at three points to support this statement.

(1) The fantastic silver policy of the Roosevelt administration, scarcely begun in 1936, has now grown to almost incredible proportions. More than 2 billion ounces of a metal for which our government has no earthly use—approximately a hundred times as much silver as all the silver mines in the United States produced in the year before this policy began—have been bought by the Treasury at overvalued prices in an artificial market. This policy makes no sense, except as a political maneuver to win the support of the so-called silver bloc. Otherwise its only visible results have been to drive off the silver standard the one important country which had previously been on it and to take from other nations useless silver in exchange for our own good wheat and oil and motor cars and other exports. There is only one way to describe such a policy as this. It leads over the hills to the poorhouse.

(2) The national budget, which was originally to be balanced so courageously, has been continuously out of balance since Mr. Roosevelt entered office. The national debt has more than doubled in seven years. It is true that the new defense program has now made a balanced budget hopeless at the moment. But even before this program was proposed, the administration was operating under a gigantic deficit and spending far more money annually than had ever been raised by taxation in any year in the whole history of the United States. Moreover, the problem of the budget is not less serious, but far more serious, because of the new difficulties presented by the defense program. For the sake of conserving the national credit in a time of danger, expenditures other than those for defense ought now to be cut to a point at which they balance tax yields. But the administration, with whom borrowing has become a habit, has not proposed a single important economy as an offset against its huge defense spending.

(3) The fundamental trouble is that the administration has thrown overboard the central fiscal theory in which it professed to believe, even as late as 1936. It has abandoned the idea that the best contribution it could make to reemployment and recovery is to put its own fiscal house in order. It now believes, and the president frankly says this in his budget messages, that when business is lagging, the government ought to go in debt deliberately in order to “create purchasing power” and “energize private enterprise.” This is the perfect politician’s paradise—a paradise in which public money is spent on a gigantic scale without any responsibility of raising an equivalent amount of money by taxation. We believe that the results of a continuation of this policy will be precisely what Mr. Roosevelt himself said they would be in 1932—“If, like a spendthrift, a nation throws discretion to the winds and is willing to make no sacrifice at all in spending . . . it is on the road to bankruptcy.” We believe that there is no real possibility whatever of checking the present trend toward bankruptcy so long as Mr. Roosevelt remains in office. It will be a desperately hard task at best. The only present hope lies in a change of administrations.

The Third-Term Issue

We come, finally, in the choice before us, to an issue which has been defined by more than a hundred years of American history, by the deliberate decision of some of our greatest presidents and by the reluctance of many Americans today to surrender what they believe to be a safeguard of the democratic system the issue of the third term.

From Mr. Roosevelt’s own statement in his radio acceptance speech to the Democratic National Convention, the country knows that even as late as a year ago he had no intention of challenging the tradition against a third term: “Last September it was still my intention to announce clearly and simply at an early date that under no conditions would I accept re-election.” This announcement was never made; when the president finally declared his intentions regarding the third term he did not say that “under no conditions would he accept reelection,” but merely that he “had no wish to be a candidate again”—a very different statement. The practical effect of the postponement was to lessen greatly the chance of any other Democrat to receive his party’s nomination. The practical effect of the change in the character of the president’s announcement was to encourage the “draft,” which some of the highest officials of his own Administration had long favored and long worked to bring about. From these facts it seems to us that only one conclusion can be drawn. As the situation created by the war developed, the president came to regard his own personal leadership as indispensable and to believe that there was no other member of his party, however trusted, however close to him, however deeply in accord with his own convictions about the war or about domestic issues, who could safely take his place.

The doctrine of one man’s indispensability is a new doctrine for this country. It is a doctrine which less scrupulous men in Europe have used to root themselves in power. It is a doctrine which we in the United States have good reason to question, particularly when we consider how the powers of the presidency have grown, what immense patronage, what gigantic expenditures, what enormous power to perpetuate himself in office is now within the grasp of any president of the United States.

These considerations are especially relevant when the particular president who now chooses to remain in office for a third term is the same president who has never surrendered voluntarily a single one of the vast “emergency” powers which Congress has given him. He is the same president who has shown himself so impatient of constitutional restraints that he was willing to circumvent the Supreme Court itself by adding enough members to it to give his own opinions a majority.

In the defeat of Mr. Roosevelt and the election of Mr. Willkie there is an opportunity to safeguard a tradition with the wisdom of long experience behind it.

NOTE: The primary objections that The Times had to Roosevelt’s reelection seem rather odd in retrospect—that his policies were going to bankrupt the country, and that he was not tough enough to face up to the threat from Nazi Germany, which of course they did not, and he certainly was. The third concern—that three terms was too many for a president—proved to be prophetic. The Constitution was later amended to allow only two presidential terms.

NIXON ORDERS 90-DAY WAGE-PRICE FREEZE, ASKS TAX CUTS, NEW JOBS IN BROAD PLAN

By JAMES M. NAUGHTON, AUGUST 16, 1971

President Nixon charted a new economic course tonight by ordering a 90-day freeze on wages and prices, requesting federal tax cuts and making a broad range of domestic and international moves designed to strengthen the dollar.

In a 20-minute address, telecast and broadcast nationally, the president appealed to Americans to join him in creating new jobs, curtailing inflation and restoring confidence in the economy through “the most comprehensive new economic policy to be undertaken in this nation in four decades.”

Some of the measures Mr. Nixon can impose temporarily himself and he asked for tolerance as he does. Others require Congressional approval and—although he proposed some policies that his critics on Capitol Hill have been urging upon him—will doubtless face long scrutiny before they take effect.

Two Tax Reductions

Mr. Nixon imposed a ceiling on all prices, rents, wages and salaries—and asked corporations to do the same voluntarily on stockholder dividends—under authority granted to him last year by Congress but ignored by the White House until tonight.

The president asked Congress to speed up by one year the additional $50 personal income tax exemption scheduled to go into effect on Jan. 1, 1973, and to repeal, retroactive to today, the 7 percent excise tax on automobile purchases.

He also asked for legislative authority to grant corporations a 10 percent tax credit for investing in new American-made machinery and equipment and pledged to introduce in Congress next January other tax proposals that would stimulate the economy.

Combined with new cuts in federal spending, the measures announced by Mr. Nixon tonight represented a major shift in his administration’s policy on the economy.

Cuts Ruled Out Earlier

Only seven weeks ago, after an intensive cabinet-level study of economic policy, the president announced that he would not seek any tax cuts this year and would hew to his existing economic “game plan,” confident of success.

Eleven days ago, Mr. Nixon reasserted his opposition to a wage and price review board—a less stringent method of holding down prices and wages than the freeze he ordered—and said only that he was more receptive to considering some new approach to curtailing inflation.

The program issued tonight at the White House thus came with an unaccustomed suddenness, reflecting both domestic political pressures on the president to improve the economy before the 1972 elections, and growing international concern over the stability of the dollar.

The changes represented an internal policy victory for Paul W. McCracken, chairman of the Council of Economic Advisers, and Arthur F. Burns, chairman of the Federal Reserve Board, both of whom had pushed over a number of months for a wage price curtailment. It marked the first major defeat for George P. Schultz, Mr. Nixon’s director of management and budget, who has vigorously opposed such an incomes policy.

The president adopted the new tactics following a weekend of meetings at the presidential retreat at Camp David, Md. With him there were Dr. Burns, Mr. McCracken, Mr. Shultz and John B. Connally, the secretary of the Treasury.

“Action on three Fronts”

“Prosperity without war requires action on three fronts,” Mr. Nixon declared in explaining his new policies. “We must create more and better jobs; we must stop the rise in the cost of living; we must protect the dollar from the attacks of international money speculators.

“We are going to take that action—not timidly, not halfheartedly and not in piecemeal fashion,” he said. As a corollary to his tax cut proposals, the president announced that he would slash $64.7 billion from the current federal budget to produce stability as well as stimulation, the budget cutback would come from a 5 percent reduction in the number of federal employees, a 10 percent cut in the level of foreign aid and through postponement of the effective dates of two costly domestic programs—federal revenue sharing with states and localities and reform of the federal welfare system.

Mr. Nixon’s sudden adoption of a wage and price freeze represented his most drastic reversal of form. He established an eight-member Cost of Living Council to monitor a program under which management and labor must keep wages and prices at the same levels that existed in the 30 days prior to tonight.

Wage or price increases that had been scheduled to go into effect during the next 90 days, such as a 5 percent raise for the nation’s rail workers due to take effect on Oct. 1, must he postponed at least until the 90 days expire. But wage improvements that took effect before tonight, including the 50-cent-an-hour increase won by the steelworkers on Aug. 2, will not be affected.

The White House did not include interest rates in the freeze on the theory that they cannot properly be kept under a fixed ceiling. Although describing the freeze as “voluntary,” officials noted there was a provision for court injunctions and fines as high as $5,000 for failure to adhere to the ceiling.

The freeze could be extended after 90 days if Mr. Nixon should decide it still is needed. This authority to impose a ceiling will expire on April 30.

Political pressures for some form of an incomes policy have been building for weeks. Public opinion polls have certified concern over unemployment and prices as the number one domestic issue. Democratic presidential hopefuls have singled out the economy as the primary area for criticizing Mr. Nixon.

At a White House briefing just before the president’s address, Secretary Connally said that the changes had been “long in the making.” But he conceded in response to questions that he had left last week on vacation without any expectation that Mr. Nixon would put the program into effect tonight.

Why Strategy Changed

In explaining why the White House had shifted its economic strategy since he expressed confidence on June 30 that “we’re on the right path.” Mr. Connally cited tonight an “unacceptable” level of unemployment—currently running at an annual rate of 5.3 percent—as well as continued inflation, a deteriorating balance of trade and an “unsatisfactory” balance of payments in dealings abroad.

Congress, which is in recess until after the Labor Day weekend, must approve the president’s request for new consumer tax breaks and investment credits.

The individual income tax exemption, currently $650 for each member of a family, is scheduled to rise to $700 next Jan. 1, and $750 a year later. Mr. Nixon asked that it go to $750 in one step next January.

“Every action I have taken tonight is designed to nurture and stimulate [the] competitive spirit, to help snap us out of the self-doubt, the self-disparagement that saps our energy and erodes our confidence in ourselves,” the president said.

In calling for repeal of the tax on automobiles, the president said it would represent an average drop of about $200 in the price of a new car. “I shall insist that the American auto industry pass this tax reduction on to the nearly 8 million customers who are buying automobiles this year,” he emphasized, but did not say how he would keep that pledge.

APRIL 30 WINDUP OF MOST CONTROLS URGED BY SHULTZ

By EDWARD COWAN, FEBRUARY 7, 1974

The Nixon administration recommended to Congress today that it let all wage-price controls expire on April 30 except for health care and petroleum products.

Secretary of the Treasury George P. Shultz said the administration opposed even standby controls because they “can become an inflationary force in and of themselves.” He explained that the expectation that they would be used could accelerate price and wage increases.

Some members of the Senate banking subcommittee who heard Mr. Shultz and John T. Dunlop, director of the Cost of Living Council, thought standby authority should be extended beyond the scheduled expiration on April 30 of the Economic Stabilization Act, the enabling authority for controls.

To Seek Commitments

No senator present, however, said that controls themselves should be kept in effect beyond April 30. Mr. Dunlop testified that in the 83 days until then he would seek price-restraint commitments from more industries in exchange for suspensions of controls.

The reluctance of some members of Congress in this election year to appear to be leaving consumers without a shield from an inflation that the administration forecasts at 7 percent was expressed by Senator J. Bennett Johnston Jr., Democrat of Louisiana, who is chairman of the Subcommittee on Production and Stabilization.

“I am searching for a middle ground,” he said, “a meeting place for those who see total decontrol as a sublime but perilous experiment as well as those for whom controls are a nightmare of economic inefficiency and inequity.”

Senator Johnston introduced yesterday a bill that he said would provide “orderly transition to selective controls.”

Senator William Proxmire of Wisconsin, the ranking Democrat on the Banking Committee, backed the administration, but for his own reasons.

“This wage-price act has to go,” he said. “The working people of this country are really being hurt badly by this program. Wages are being held down. Prices are going through the roof.”

The two Republicans at the hearing, Senators John G. Tower of Texas and Bill Brock of Tennessee, endorsed the administration position.

Later, at a news conference, Mr. Dunlop echoed the view of many on Capitol Hill that the legislative situation was wide open.

“I haven’t the slightest idea what Congress will do,” he said.

Mr. Shultz explained that no action by Congress was necessary to keep crude oil and refinery products under price controls because the Emergency Petroleum Allocation Act signed in November does that until March 1, 1975.

The fact was thought to give the administration a slight advantage in pressing Congress for a separate bill along the lines proposed today. Some observers expect the key issue will be whether President Nixon signs standby controls authority, as he did reluctantly in 1970, when he said he would not use it.

Arthur F. Burns, chairman of the Federal Reserve Board, generally supported the administration proposal. As for credit policy, he acknowledged that the central bank was coming under “a great deal of pressure” to “step up the rate of growth of the money supply” and bring down interest rates to ward off an economic “recession.” Dr. Burns used that term, then moments later changed his usage to “slowdown or recession.”

“I haven’t the slightest idea what Congress will do.”

“We will not open up the spigot and permit the money supply to increase rapidly,” he said. To do so, he added, would make no significant dent in unemployment and would add to inflation.

The Banking Committee hearing room was packed to overflowing as Mr. Shultz, who is also chairman of the Cost of Living Council, Mr. Dunlop and James W. McLane, Mr. Dunlop’s deputy, made their way to the witness table.

Business and labor lobbyists stood in the back row and waited in the corridor to learn what the administration proposed to do about the price-wage controls program Mr. Nixon announced with startling suddenness two and a half years ago, on Aug. 15, 1971. Mr. Dunlop submitted a loosely bound volume of 63 pages of testimony and 157 pages of graphs, charts and statistics, largely written by him. Running through it was his strongly held view that inflation over the years has been a many-faceted problem that must be examined afresh in each context and dealt with in highly specific, flexible ways.

Various studies have indicated that wage-price controls have moderated the rate of inflation by perhaps 1 or 2 percent, he testified.

Nevertheless, he said, the effectiveness of direct wage-price restraints is short-lived. “They tend to run down and wear out,” he added.

Mr. Dunlop recommended that Congress enact legislation to keep health care under controls until enactment of national health insurance legislation. He said a great deal of the inflationary pressure in the health field resulted from the infusion of large sums of federal money for Medicare and Medicaid in recent years.

Dr. James H. Sammons of Baytown, Tex., chairman of the board of trustees of the American Medical Association, recommended that all controls be allowed to lapse on April 30. He criticized controls on hospital fees as a “capricious and unwise” attempt “to restructure health care.” He accused the Cost of Living Council of having “attempted to dictate medical practice patterns under the guise of price control.”

The administration asked that Congress extend the life of the council so that it could press for anti-inflationary government policies, especially in agriculture, monitor performance by industry and labor under stabilization commitments given in exchange for early release from controls, keep an eye on potentially inflationary problem spots in the economy, promote productivity and watch for developing shortages.

Mr. Dunlop said the council should have authority to compel individual companies, industries or unions to explain “price and wage decisions” at public hearings. Dr. Burns in similar proposal would give a review board the power to delay increases pending the outcome of the hearing.

In response to a question, Secretary Shultz held out the possibility that “if they are way out of bounds for no good reason,” the administration could ask Congress to intervene.

BIPARTISAN SPIRIT FALTERS IN FIGHTS ON DEBT RELIEF

By EDMUND L. ANDREWS, FEBRUARY 29, 2008

Just a month after President Bush and Democratic leaders hailed their bipartisan agreement on an economic stimulus plan, the two sides went to war on Thursday over how to prevent widening damage from the housing crisis.

Senate Republicans, lining up with President Bush, blocked a Democratic bill that would provide more money for homeowner counseling programs and let bankruptcy judges reduce the terms of a mortgage for people about to lose their houses through foreclosure.

Meanwhile, the Bush administration flatly rejected Democratic proposals to rescue hundreds of thousands of borrowers, as well as their mortgage lenders, by having the government buy up and restructure billions of dollars in delinquent home loans. Instead, the president called on Congress to extend indefinitely his 2001 and 2003 tax cuts, which expire at the end of 2010. With new data showing that the economy may be even weaker than previously thought, Republicans and Democrats plunged back into a partisan, ideological clash over whether the government should try to stabilize home prices, prevent foreclosures and perhaps even bail out lenders.

The battle played out as Ben S. Bernanke, chairman of the Federal Reserve, told the Senate Banking Committee on Thursday that he did not expect a recession or a return of stagflation. But he reiterated his prediction of very slow growth this year and rattled investors by warning that some smaller banks might fail.

“I expect there will be some failures,” he told lawmakers. The Dow Jones industrial average declined 112 points.

In Congress, Democratic lawmakers have begun to push ahead with an agenda aimed at shoring up the housing market with federal money, giving delinquent homeowners more bargaining power with their lenders and having the government buy troubled mortgages.

About 20 percent of subprime mortgages, which are made to people with low credit scores or low incomes, are delinquent and in danger of default. Moody’s Economy.com recently estimated that 3 million subprime borrowers were likely to default over the next several years.

Delinquencies are also climbing sharply among people with good credit who took out risky mortgages, often with no down payment, and are now watching the resale value of their homes sink to less than the amount of the outstanding mortgage.

The bill drafted by Senate Democrats would have provided $4 billion for state and local programs to rehabilitate abandoned housing; $10 billion for states to raise low-cost mortgage money through tax-free revenue bonds; and another $200 million for counseling services to help homeowners renegotiate their loans.

A boarded-up house in Central Falls, R.I., where more than 100 homes were foreclosed by banks. December 27, 2008.

The Bush administration opposed most of those provisions, but the biggest fight was over allowing bankruptcy judges to reduce the total owed or the interest rate on mortgages as part of a broader debt restructuring.

That provision, supported by a wide range of consumer and civil rights groups, drew intense opposition from the mortgage industry, whose lobbyists argued that it would increase risks for lenders and drive up mortgage rates in the future.

Republican lawmakers blocked the bill, voting almost entirely along party lines to defeat a “motion to proceed” that required 60 votes.

Senator Mitch McConnell, the Senate Republican leader who is from Kentucky, called the Democratic bill a “hastily concocted political exercise.”

But in presenting what they described as their own proposal to protect homeowners, Mr. McConnell and other Republican lawmakers resorted to a grab bag of longstanding Republican initiatives, like making Mr. Bush’s tax cuts permanent and reducing “frivolous litigation,” that had little direct connection to the mortgage mess.

Democrats, knowing that they could not muster 60 votes to pass their bill, charged that Mr. Bush and the Republicans were protecting banks and Wall Street firms while doing little for people trapped in mortgages they cannot afford and houses they cannot sell.

“Their do-nothing leadership will cause this crisis to spiral farther out of control,” said Senator Richard J. Durbin, Democrat of Illinois. Mr. Durbin, who had drafted the provision to let bankruptcy judges modify mortgages on a person’s primary residence, said his measure could have helped as many as 600,000 people avoid foreclosure and keep their homes.

Senator Harry Reid of Nevada, the Senate Democratic leader, promised to bring up the housing bill again but declined to say when. “The bankers on Wall Street and the big lenders are high-fiving tonight,” Mr. Reid said after failing to get enough votes to bring the bill up on the Senate floor. “It is becoming increasingly clear that Republicans either have no interest in turning around our sinking economy, or no ideas on how to do so.”

President Bush, who met with his top economic advisers at the Labor Department on Thursday, brushed aside the need for new government rescue efforts.

“I don’t think we’re in a recession, but no question we’re in a slowdown,” he told reporters at a news conference. “One way Congress, if they really want to make a substantial difference in creating certainty during uncertain times, is to make the tax cuts we passed permanent.”

The next big fight could be over proposals, which the Bush administration strongly opposes, that would allow the federal government to buy up billions of dollars in troubled mortgages. Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, proposed a bill this week that would provide $10 billion for the Federal Housing Administration to help refinance as many as 1 million distressed subprime loans with cheaper government-insured loans.

Senator Christopher J. Dodd, Democrat of Connecticut, has proposed creating a government agency that would buy troubled mortgages at a discount and restructure them into more affordable loans.

Henry M. Paulson Jr., the Treasury secretary, said such proposals appeared to be a taxpayer-funded bailout and saw no need for them. “While some in Washington are proposing big interventions, most of the proposals I’ve seen would do more harm than good. I’m not interested in bailing out investors, lenders and speculators,” Mr. Paulson said in prepared remarks to the Economic Club of Chicago.

But unlike other Democratic proposals, the idea of a government-funded mortgage buyout has considerable support among banks and mortgage lenders. Lobbyists for the mortgage bankers have circulated a detailed proposal, though company executives said they were merely providing “technical information” requested by Democratic lawmakers.

Stephen O’Connor, chief lobbyist for the Mortgage Bankers Association, which fought intensely to prevent bankruptcy judges from having the power to change mortgage terms, said this week that the administration and Congress should have a “conversation” about mortgage buyout proposals.

NOTE: The financial disaster of 2008 hurt economies worldwide and led to the ruin of millions of American homeowners who found their mortgages were suddenly held on properties worth almost nothing. It spawned the Occupy Wall Street movement and helped lead to the election of Barack Obama—but also to the political backlash that swept the Tea Party, the hard right, and, ultimately, Donald Trump into office.

IN TAX OVERHAUL, TRUMP TRIES TO DEFY THE ECONOMIC ODDS

By PATRICIA COHEN, DECEMBER 20, 2017

When President Trump adds his distinctive signature to the tax bill, he will also be making a huge bet that the Republican strategy of deep cuts for businesses and wealthy individuals will fuel extraordinary growth across the board.

Perhaps more than any other American political leader, Mr. Trump knows that long shots, like his own presidential bid, sometimes pay off. In that vein, he and congressional Republicans are arguing that their bitterly contested and expensive rewrite of the tax code will ultimately create more jobs and raise wages.

If they are proved correct, they will be repudiating not only historical experience, but most experts. From Congress’s own prognosticators to Wall Street’s virtuosos, scarcely any independent analyses project anything like the rosy forecasts offered by the president’s top economic advisers.

To Mr. Trump and his allies, the normal models just do not fully capture the high-octane “rocket fuel” embedded in the tax plan. Mr. Trump intuitively understands just how much attitudes and expectations can shape economic decisions.

With a businessman in the White House, Mr. Trump argues that companies, large and small, have a renewed faith in the economy. And the corporate tax cut, combined with the rollback in regulation, will prompt waves of new investment and hiring, as middle-class Americans liberally spend the extra money in their pockets.

“We’re going to easily see 4 percent growth next year,” the National Economic Council director, Gary D. Cohn, said. Steven Mnuchin, the Treasury secretary, declared the tax plan would generate enough growth to more than pay for its $1.5 trillion cost.

But those pronouncements are at odds with estimates from the former employer of both men, Goldman Sachs. The bank projected that the tax bill will add just three-tenths of 1 percent of growth in the next two years, before its impact peters out.

The firm’s annual growth estimate of 2.5 percent for 2018 matched the one issued this week by the nation’s central bank, the Federal Reserve, while the latest median Wall Street forecast hovered close by. And in 2019, growth is expected to drop to 1.8 percent, Alec Phillips, chief United States political economist for Goldman, said Wednesday after the Senate vote.

“We note that the effect in 2020 and beyond looks minimal and could actually be slightly negative,” the company said in a recent published summary.

Such projections are unlikely to deter Mr. Trump and Republican leaders from declaring success next year. Lower taxes and extra incentives to invest in 2018 are almost certain to encourage consumers to spend and businesses to expand.

Reduced rates mean most Americans will start taking home more money right away. Roughly three-quarters of taxpayers are expected to get a cut next year, according to the nonpartisan Tax Policy Center.

Employers may offer other sweeteners, even if they were not specifically spurred by the tax plan. AT&T announced Wednesday that it was giving more than 200,000 domestic employees a $1,000 bonus when the tax bill is signed. Fifth Third Bancorp, based in Cincinnati, also promised a $1,000 bonus and said it would raise the company’s minimum wage to $15 an hour.

At the same time, the anticipated cut in the corporate rate to 21 percent from 35 percent and other business perks are lifting the stock market to new heights. In an earnings call this week, Alan B. Graf Jr., FedEx’s chief financial officer, said the company planned to use part of its tax windfall to fatten dividends.

But like a shot of adrenaline, that initial burst of economic activity is likely to fade.

Some provisions of the bill were intended to be sharp and short. Next year, for example, businesses will be able to borrow money and deduct the cost of those loans at the current rate of 35 percent. But later on, when they reap the profits, they will pay a tax rate of only 21 percent. That could end up causing firms to simply shift the timing of investments they would have made regardless of a change in the tax code.

“The really hard question a year from now is going to be is how much of the miniboom we see is just an acceleration of stuff that was going to happen anyway or additional investment that is really going to spur the economy,” said Mihir A. Desai, a professor of finance at Harvard Business School.

That initial burst of economic activity is likely to fade.

Tax cuts can provide an added incentive to invest. But as most chief executives acknowledge, they are generally not the crucial factor.

Investment decisions are much more closely linked to demand for goods and services or technological advancement. As it is, manufacturers are not making full use of the capacity in their existing facilities.

Mr. Graf of FedEx held out the possibility of more spending on capital investment and hiring next year. But he noted that the economy as a whole would first have to “increase materially.”

Senator Bob Corker (R-Tenn.) is questioned by protesters during a demonstration on Capitol Hill against the G.O.P. Tax Bill, December 13, 2017.

Over time, most of the broad-based tax cuts will disappear. Although the richest sliver of Americans will continue to get a break, most people who earn less than $100,000 will see their taxes rise, which could slow the economy’s primary engine, consumer spending.

Further tightening is likely if the Republicans follow through on sharply cutting Medicare, Medicaid, Social Security and other programs that tend to put extra cash into the pockets of lower and moderate-income households.

Either way, the deficit will continue to balloon. Over the last decade alone, the deficit has more than tripled. So far, the interest needed to cover that enormous loan has remained relatively small because interest rates have been at historically low levels.

But those costs are expected to soar. The Federal Reserve has indicated that it intends to slowly but surely raise the benchmark interest rate.

Some economists support such deficit spending during recessions, but they worry that offering stimulants when the economy is on fairly steady ground can backfire. Although employers have resisted raising salaries by much, they continue to complain about the tightness of the labor market. The jobless rate has dipped to 4.1 percent while job openings have remained at record high levels.

Virtually no economists believe that the tax cuts will pay for themselves. Several studies have shown that they rarely cover more than a third of the cost. Others have questioned whether cuts produce any significant growth at all—even if they do encourage some individuals to work, save and invest. In a study that William G. Gale and Andrew Samwick did for the Tax Policy Center, they concluded that cuts that increase budget deficits “in the long term will reduce national saving and raise interest rates.”

The pattern of short-term promise followed by disappointment is one that other presidents have experienced. President Ronald Reagan in 1981 and President George W. Bush in 2001 and 2003 both passed tax cuts that delivered temporary bumps to the economy followed by slowdowns and rising deficits.

“The clear consensus among independent economists is that the impact of the tax cuts on growth is nowhere close to what the administration is talking about,” said Mr. Desai of Harvard. Whatever growth does occur, he added, will be “counteracted by the fiscal irresponsibility of the bill.”