XXIII
THOUGH FOREIGN AFFAIRS CONSUMED the major share of Kennedy’s time and attention, foreign policy, as he conceived it, had to draw its vitality and purpose from the energies liberated and the goals pursued within the United States. The Fourteen Points, he had remarked in the campaign, had been the “logical extension” of Wilson’s New Freedom; Franklin Roosevelt had succeeded as a good neighbor in Latin America because he had been a good neighbor in the United States; Truman’s Marshall Plan was the international “counterpart” of his Fair Deal. These three Presidents, Kennedy said, had been so notably successful around the world “because they were successful here, because they moved this country ahead, because they demonstrated that here in this country we were still revolutionaries.” America, in short, had to start moving at home if it were to move the world.
And in motion the country was certainly not. The fifties had hardly been a notable season of innovation in our national life. The politics of boredom had produced widespread public apathy. National policy had been complacent and lethargic. Young people had become so circumspect that they were known as the ‘silent generation.’ Economic growth had puttered along at an average rate of 2.5 to 3 per cent a year. There had been recessions in 1954 and 1958. In the early spring of 1960, the economy had begun to sink into another recession. Gross national product stagnated. Unemployment increased by 1.2 million between February and October. If Kennedy were to start the country moving again, he would have to begin with the economy.
Kennedy had received his highest grade and only B in freshman year at Harvard in the introductory course in economics. The course made no deep impression on him. Indeed, he remembered his grade as C, or so at least he liked to tell his economists in later years. Nevertheless it was fortunate that this early exposure to economics came in the later days of the New Deal, when the Keynesian revolution was having its first effect. This saved him from being taught that government intervention in the economy was wicked per se or that a balanced budget should be the supreme goal of economic policy. Unlike F.D.R., he never had to unlearn classical maxims in order to meet contemporary problems.
His experience as a young Congressman watching the fluctuations of the economy in the late forties confirmed him in an incipient Keynesianism. Thus just after the election in 1952, when Sylvia Porter, the financial columnist, asked him on Meet the Press whether he now expected inflation or deflation, he replied, “Deflation is going to be the more serious problem particularly if efforts are made which General Eisenhower and Senator Taft and others have talked about of reducing our federal expenditures. Once we begin to balance the budget or begin to reduce our national debt, then deflation obviously is going to be the major issue.” The proper policy, he continued, should be “to build up sufficient consumer purchasing power to absorb our increased productivity,” and he was prepared to do this either through maintaining government expenditures or cutting taxes—“anything to put enough consumer purchasing power in the market, and obviously that’s both ways.” If unemployment continued, “then I’d be in favor of unbalancing the budget, not enough to cause a severe economic dislocation but enough to keep a reasonable level of prosperity.” If we went into a recession, “one of the steps to meet the recession obviously is going to be government expenditures as it was in the thirties.”
Later on, in the presidential years, it was easy to forget that his pervading congressional concern was with domestic affairs. He recruited his senatorial staff, for example—Sorensen, Feldman, O’Brien, Dungan, Goodwin—as knowledgeable men on national problems; he never had a foreign policy specialist in his Senate office. His House issues were those of urban and industrial liberalism: the minimum wage, social security, unemployment compensation, housing, labor reform. To this roster he now added as Senator a growing concern with the structural problems of his state and region—the decay of older industries, like shoes and textiles; the stagnation of historic mill towns; the losing competition with the low-wage South.
The special character of his New England problems led him in the fifties to think less about fiscal and monetary and more about structural remedies—in other words, direct attempts to strengthen New England’s position in the national economy. His membership on the Labor and Education Committee encouraged the structural approach. (Though he sought appointment to the Joint Committee on the Economic Report, which dealt with fiscal and monetary issues, he did not make it until 1960.) In general, he looked for programs which he thought would at once benefit New England and the nation, like redeveloping depressed areas (he served as floor manager of Paul Douglas’s first area redevelopment bill in 1956) or raising the minimum wage (and thereby reducing the South’s competitive advantage) or repealing the Taft-Hartley Act (and opening the way for the unionization of the South). On occasion, he would vote against what Massachusetts considered its local interest, as when he supported the St. Lawrence Seaway. On other occasions, he was ready to help New England at possible expense to the general welfare, as when he favored special protection for textiles or, for a while, opposed farm price supports on the ground that they worsened New England’s terms of trade with the rest of the country.
To these analytical and political influences on his economic thought, a third must be added, though his advisers were always uncertain when it would come into play and how much weight the President gave it himself. This was the practical business wisdom he had heard so long—and from time to time continued to hear—from his father. The older Kennedy was, of course, far from a conventional businessman. He had been an outsider who made his money because he was more astute, daring and imaginative than the established leaders of business, and he was free in expressing his contempt for business grandees. On the other hand, if Mr. Kennedy had no particular faith in the leaders, he had deep faith in the system and deep mistrust of those who sought to tamper with it. In Henry R. Luce’s New York apartment, on the night John Kennedy accepted the Democratic nomination for President, when Luce ventured the remark that of course the candidate would have to be left of center on domestic affairs, Joe Kennedy, in Luce’s somewhat refined recollection, said, “Blank, blank, how can you imagine that any son of mine would be any blank blank liberal?” This was a considerable miscalculation, but it suggested the direction of his thought. The elder Kennedy had in particular the business belief in the mystique of ‘confidence’ and used to warn against actions or appointments which might impair that sacred commodity. And he also had the orthodox business reverence for the Eleusinian mysteries of the international monetary system and was apprehensive that ‘lack of confidence’ would drain America of its gold. These attitudes had some sort of effect on the President, though when he expressed them, one could never be sure whether he was doing so because he thought there was something to it or because he wanted to know the quick answer.
To this combination of influences, Kennedy added his own devouring curiosity about the way things worked. If at the start of his administration he was sometimes unsure of technical detail, he readily acquired an excellent command of economic analysis. In addition, he had shrewd economic intuitions, though perhaps more on national than on international problems. “He was the most perceptive of critics,” Walter Heller later said—“he could pick out a sentence or a paragraph and see its weakness. Even though he might not have understood the analytic bases for its weakness, he had the feel for it, and this was uncanny.” His approach to economic and social policy, in short, was that of an experimentalist and activist, restrained by politics and prudence but unfettered by doctrinal fetish or taboo.
As President, he meant to assure himself a wide range of intelligent advice. Having chosen Douglas Dillon as Secretary of the Treasury, he chose Walter Heller as chairman of the Council of Economic Advisers. “I need you both,” he told Heller, “for a proper balance in economic matters.” Diverging institutional interests created in any case a balance, or at least a tug of war, between the Council, charged by statute with working “to promote maximum employment, production and purchasing power,” and the Treasury, primarily involved in taxation, the management of the debt and the protection of the dollar. But Kennedy was further pleased by the personal contrasts: the economics professor vs. the investment banker; the liberal vs. the moderate; the man who worried about deflation vs. the man who worried about inflation; the Democrat vs. the Republican.
Dillon, if to the right of Heller, was by no means an economic conservative. He understood the value of academic advice, restored the economists to the Treasury Department, from which they had been driven out by George Humphrey, made Seymour Harris (at Kennedy’s suggestion) his economic adviser and encouraged Harris to set up a panel of outside consultants, whose meetings the Secretary regularly attended. Harris, who had a realistic grasp of the political problems of economic policy, became an effective bridge to the Council. Nevertheless, both Dillon’s personal background and the institutional predilections of the Treasury inclined him to a particular solicitude for the business community. He was also an exceptionally skilled operator within the bureaucracy, ready to pull every stop and cut many corners to advance the Treasury view, always (and justifiably) confident that his charm could heal any feelings hurt in the process.
Heller, on the other hand, had the knack of composing breezy memoranda on economic problems—some hundreds in three years—and Kennedy read them faithfully. Both Heller and Dillon were urbane and articulate men; and much of the debate between them was conducted in the President’s presence. The directors of the Budget also made significant contributions to the dialogue: David Bell was himself a professional economist, and Kermit Gordon, who succeeded Bell at the end of 1962, had been on Heller’s Council. The Treasury, the Council and the Bureau soon constituted an informal national economic committee known as the “troika,” meeting every two or three months with Kennedy for discussions of the economic outlook. In addition, Kennedy met more often with the Council as a whole than any of his predecessors, finding in Heller and Gordon a congenial blend of doctrine and practicality and in James Tobin, who was a brilliant theorist sometimes impatient of compromise, an economic conscience. The President also consulted with Galbraith, Harris, Paul Samuelson, Carl Kaysen and other economists and talked regularly with William McChesney Martin, Jr., of the Federal Reserve Board. All these sessions contributed to his growing proficiency in economic matters.
The first problem was the recession. It had deepened throughout 1960, and Kennedy had made it a central issue in the campaign. Deriding Nixon’s errant comments about economic “growthmanship,” Kennedy had argued that the resumption of economic progress was “the number one domestic problem which the next President of the United States will have to meet.” Growth, he said, was necessary not only to end the recession but to provide for the staggering increase in the national population—20 per cent, nearly 30 million people, in the single decade of the fifties. This increase, he pointed out, “has not been matched in our public plans and programs”; and it called for, he said, 25,000 new jobs a week for the next decade. The economy had to expand at an annual rate of 5 per cent, he told his audiences, “to keep you working and your children working.”
He threw out a variety of suggestions during the campaign to-bring the growth rate up to 5 per cent: using the budget “as an instrument of economic stabilization”; reversing the tight money policy of the Eisenhower years; providing special assistance to areas hit by economic decline and technological change; making “the public investments which provide a solid foundation for the private investment which is the key to our free enterprise economy”; developing the country’s resources; encouraging plant modernization; training manpower for an increasingly automated economy; improving the educational system; assuring equal opportunity for employment.
He believed, of course, that these things were worth doing for their own sakes. But, with his innate skepticism, he was not at all sure they would produce the growth rate he desired. This worried him, and he quizzed every economist he met in the hope of findings out how to bring the expansion rate up to 5 per cent. In August 1960 he summoned Galbraith, Seymour Harris, Archibald Cox, Paul Samuelson of the Massachusetts Institute of Technology and Richard Lester of Princeton to a seminar on the boat off Hyannis Port in an effort to learn the secret. They did their best, but there was no philosopher’s stone. In October, when Hubert Humphrey introduced him to Walter Heller before a campaign speech in Minneapolis, Kennedy’s first question inevitably was, “Do you really think we can make good on that promise . . . of a five per cent rate of growth?”
Now as President he had to make good. The recession had continued to deepen in the weeks after the election. By February 1961 unemployment reached the astonishing figure of 8.1 per cent of the labor force. In deciding how to set in motion the processes of recovery and re-employment, Kennedy met again in the world of economists the two currents of thought he had already brushed in his own experience—the structural and the fiscal schools.*
The first school attributed unemployment below a certain level—say, 4 per cent—to structural transformations in the economy. It argued that, given the pace and progress of automation, the scarcity of educated and skilled labor would constitute a bottleneck in an expanding economy, forcing an expansion stimulated by fiscal and monetary policies alone to stop short of full employment. Thus there might be a shortage of highly skilled labor in Detroit while there was unemployment in Appalachia; nor would aggregative policies solve the problem of the San Diego aircraft worker displaced in the missile age, or of untrained teen-agers or Negroes in a time of increasing technical demand. Professor Charles Killingsworth of Michigan State University and Gunnar Myrdal of Sweden thus identified a ‘manpower drag’ to be solved by the modernization of the labor market through better schools, vocational education, manpower retraining, improved labor exchanges, area redevelopment and the like.
The fiscal school, on the other hand, attributed stagnation and unemployment to deficiencies in aggregate demand; and it came to place particular emphasis on the theory, popularized by Heller, of the ‘fiscal drag’—the theory, that is, that with rising levels of output high tax rates drained away needed purchasing power and thereby forced expansion to stop short of full employment. To prove the efficacy of budgetary policies, extreme fiscalists liked to cite the experience of the Second World War when heavy government spending lifted the economy to unimagined heights, reduced unemployment by 1944 to 1.2 per cent and brought jobs to precisely the groups deemed on the outer fringes of employability—housewives, youth, Negroes, illiterates.
Very few economists were either pure structuralists or pure fiscalists. The pure structuralist argument, for example, omitted the consideration that, so long as, say, 6 per cent of the labor force was unemployed, there were few vacancies to be filled by retraining and that the only way to create more jobs was through the enlargement of demand. And the pure fiscal argument omitted the consideration that an immense structural apparatus—price and wage controls, material priorities, manpower direction—was required during the Second World War to prevent the massive budgetary injections from producing a runaway inflation.
Most government economists in the end therefore sought a combination of fiscal and structural positions—enough of a deficit to produce new jobs, enough redevelopment or retraining to equip men for the jobs. But a critical issue arose as to the best way to create the deficit. Here fiscalists especially sensitive to political urgencies favored tax reduction on the ground that it would slide down congressional throats more easily. Those especially sensitive to structural deficiencies argued, on the other hand, that the deficit should be brought about by an increase in public spending designed to improve education, labor mobility and so on.
Within the administration the Federal Reserve Board was a stronghold of structuralism, partly in order to head off pressure to unbalance the budget; and the Departments of Commerce and the Treasury, partly for the same reason, and the Departments of Labor and of Health, Education and Welfare, because of the character of the problems with which they dealt, all had structuralist tendencies. Those who wished to unite the structural and fiscal approaches in a single program argued in the spirit of The Affluent Society for increased investment in the public sector. The strongly fiscalist Council of Economic Advisers, on the other hand, after some interest in public works in 1961, espoused the tax reduction approach for the next two years.
Thus the spectrum of possibilities: but in the President’s mind what was theoretically desirable had to be tempered by what was politically feasible. His campaign had emphasized discipline and sacrifice; his victory had been slim; his Congress was conservative; and, at least in the mind of the business community, his party had a reputation for fiscal irresponsibility. As Kennedy told Heller in December 1960, “I understand the case for a tax cut, but it doesn’t fit very well with my call for sacrifice.” Nor did it fit very well with the need, increased by the shaky balance-of-payments situation, to appear, though a Democrat, a defender of the dollar. The science, so called, of economics had to return to its honorable antecedents and become the art of political economy.
Paul Samuelson, heading an interregnal task force, adjusted his recommendations to fit the presidential and congressional mood. While a believer in deficits and inclined toward social spending, he refrained from recommending investment in the public sector, apart from defense, and mentioned a temporary tax cut only as an emergency weapon. As for the use of monetary policy—the traditional Democratic remedy of lower interest rates—this, he thought, was seriously limited by the international payments problem. All this left structural measures, along with defense spending, as Samuelson’s main recommendation and the administration’s main resort.
Kennedy’s special message to Congress on February 2 therefore concentrated on the extension of unemployment insurance, area redevelopment, the increase of the minimum wage, housing and community development, acceleration of procurement and construction and the like. More novel though hardly more radical was a proposal for special tax incentives to investment. The message even catered somewhat to congressional fears about the budget, promising balance “over the years of the economic cycle.” Later messages through the spring called for other institutional measures. And Congress proved responsive to the structural approach. Within six months it passed an area redevelopment bill, an omnibus housing bill, a farm bill, a rise in the minimum wage, the liberalization of social security, temporary unemployment benefits, benefits for dependent children of unemployed parents and a program to combat water pollution—a record of action on the domestic front unmatched in any single sitting since 1935.
Still, this was a program of welfare, perhaps a program to end the recession, but not a program of economic expansion. Kennedy himself restlessly continued to seek the answer to the 5 per cent growth rate. A few weeks after his special economic message, when an Americans for Democratic Action delegation called on him, he singled out Robert R. Nathan, a Washington economist from New Deal days, and asked him the usual question. Nathan replied that the President could get his 5 per cent growth rate, but the price would be a deficit of $5 billion a year for the next ten years. The President said skeptically that would be great if only Nathan would organize the political support for such a policy.
As Kennedy told Walter Lippmann and me at luncheon a few days later, most economists were evasive when he tried to pin them down as to what exactly government could do to stimulate growth, but Nathan had been frank; and an addition of $50 billion to the national debt would of course be very little compared to the extra growth and revenue which could be thus induced. Only the systematic creation of annual deficits, he said, was the one thing which the political situation, short of a depression, precluded his doing. “I don’t want to be tagged as a big spender early in this administration,” he said on another occasion. “If I do, I won’t get my programs through later on.”
Thus when Heller argued within the administration for the stand-by public works program which Senator Joseph S. Clark was proposing on the Hill, he encountered opposition both in the White House, where the President and Ted Sorensen felt that the new plans for military and space spending put further domestic appropriations out of the question, and in the Treasury. Douglas Dillon had made it clear from the start that in case of depression he would recommend deficits; and he had cheered the New Frontier economists in the White House meeting on fiscal policy by saying, “What the country needs for the coming fiscal year is the largest deficit that will not frighten foreigners, say $5 billion.” But a deficit of this magnitude was coming anyway; and Dillon did not wish to increase it, partly because he hoped to hold out the dream of a balanced budget to the business community, and partly because he wanted to use limited tax reduction at some later point to trade off in Congress for a program of tax reform.
While these circumstances led Kennedy in 1961 to oppose an increased deficit, I have no doubt that his objections were political and not intellectual. He believed in 1961, as he had in 1952, in the general validity of compensatory fiscal policy; he was unquestionably the first Keynesian President. His problem throughout was not doctrine but politics. “That is the one thing Eisenhower has put over to the American people,” he once said to me. “We Democrats have put over other things. But he has put over the idea of the sinfulness of spending and the danger of inflation.”
Then, as the recession came to an end in the course of the spring and gross national product shot up 2.8 per cent in the second quarter of 1961 alone, the pressure for deficits slackened. Indeed, the first flurry of emotion over the Berlin crisis even produced a movement, which Heller and others succeeded in blocking, for a tax increase. This budgetary circumspection disappointed those who felt that sustained expansion required the purposeful use of fiscal policy. Leon Keyserling, who had been chairman of the Council of Economic Advisers under Truman, launched one long exhortation after another against administration timidity. In June, Lippmann said that Kennedy was carrying on “in all its essentials the Eisenhower economic philosophy. . . . It’s like the Eisenhower administration thirty years younger.”
This was extravagant, but Keyserling and Lippmann had a point. The Treasury, in its pursuit of business confidence, did indeed seem almost to be endorsing the Eisenhower theory that a balanced budget was the measure of success in economic policy. Toward the end of the year, Galbraith, after congratulating Dillon on his part in “perhaps the best [economic policy] we have ever had,” felt constrained to add: “You have had a good performance because the budget was not balanced. Yet you keep saying that a balanced budget is the test. You have now promised a balanced budget for the next year although there is little chance that in the end it will be balanced. Therefore, though there is a very good chance you will have continued recovery and continued reduction in unemployment, improvement in balance of payments and stable prices, it will still be possible to say that you have failed. You are so bent on your discredit that you plan for it. I am reminded of a courtesan whose conquests have made her the cynosure of all men and the envy of all women and who at any critical moment in the conversation insists on the absolute importance of chastity.”
As for the Treasury, beyond its avowals of budgetary orthodoxy, it concentrated in 1961 on the idea of a tax credit to provide incentives for modernization of plant and equipment. This was designed both as a spur to investment and as a signal of favorable intent to the business community. To the administration’s surprise, however, businessmen recoiled from the proposal; having counted on a liberalization of depreciation allowances, they considered the investment credit a poor substitute. Actually the administration had depreciation revision in mind too and was postponing it only because it involved too great a revenue loss if enacted apart from general tax revision. Yet, despite Washington’s placatory policy, business opposition blocked the investment credit in the 1961 Congress, and the bill was finally postponed to 1962.
This miscarriage set the tone for Kennedy’s relations with business. The resistance to the investment credit had sprung fundamentally from the inability of businessmen to believe that Democrats would ever do anything for business. “The business community,” as Robert Kennedy told one interviewer, “always has greater mistrust of any Democratic administration than of a Republican administration. It is an ideological reflex—obsolete, in my opinion—but that’s one of the facts of life, so I don’t know that businessmen, the big ones, anyway, no matter what we do, will ever be in love with us.” The Attorney General said this in 1963 when the Kennedys were reluctantly accepting business hostility as a fact of life; but in 1961 the President, because he also thought the reflex obsolete, really supposed that the hostility might be overcome. Convinced that the ideological fights of the thirties had been settled and hopeful that modern-minded figures, like his friend Thomas J. Watson, Jr., of International Business Machines, were leading business opinion, he saw no reason why government and business should not work together in rational partnership.
But his first steps were not reassuring to business. His series of distinguished appointments to the regulatory agencies—William L. Cary as chairman of the Securities and Exchange Commission, Newton Minow as chairman of the Federal Communications Commission, Frank McCulloch as chairman of the National Labor Relations Board, Joseph Swidler as chairman of the Federal Power Commission, Paul R. Dixon as chairman of the Federal Trade Commission—expressed the theory that these agencies should respond to the public interest rather than to the industries regulated. This naturally outraged businessmen who, in earlier years, had grown used to regarding regulatory agencies as adjuncts of their own trade associations.
Another episode in the spring of 1961 strengthened business anxieties. For a quarter of a century the Business Advisory Council, a collection of big businessmen, representing in 1961 a large share of the industrial production of the United States, had enjoyed a special relationship with the Department of Commerce. Roosevelt had established the BAC as a channel to the business community and, under such chairmen as Averell Harriman, it had played a modestly useful liaison role. But by 1960 its chairman was Ralph J. Cordiner of General Electric, whose firm in 1961 pleaded guilty to criminal charges of price-fixing and bid-rigging, and the BAC itself in the Eisenhower years had become cozily accustomed to closed meetings with government officials where, according to Hobart Rowen, an able business reporter, its members had access to economic information not available to other private groups.
Business had welcomed the appointment of Luther Hodges as Secretary of Commerce. The former governor of North Carolina, who used to describe himself as the administration’s “only tie with the nineteenth century,” was not only a generation older than the radical young New Frontiersmen but had been a businessman himself. Nonetheless, Hodges was determined that his department should represent the national interest. “You will never hear from me,” he said early on, “that this country should do this or that simply because business wants it. What is good for General Motors may, or may not, be good for the country.” Moreover, Hodges had serious reservations about the BAC both because it represented only big business and because he doubted the propriety of the secret meetings. Stimulated by Rowen, he asserted a right as Secretary to appoint or approve new members and also ruled that the meetings be open to the press. After a period of irritated negotiation, the BAC leaders, persuaded that they were no longer to enjoy their status of the Eisenhower years, withdrew from their association with Commerce. If even Luther Hodges acted this way, what could they expect from the young radicals?
This breakdown of an established business-government channel worried Douglas Dillon, who urged the President to repair relations. Kennedy, who needed business help on balance of payments and on his projected revision of trade policy, accordingly dissociated himself from Hodges’s excommunication of the BAC and initiated a policy of conciliation. When the President met in August with the presidents of the Chamber of Commerce, the National Association of Manufacturers and the Committee for Economic Development, he began by saying: “Gentlemen, I understand that we’re labeled anti-business. Why is that?” In September he received the members of the Business Council, as the BAC now called itself, at the White House; and in October, when the Council went into its annual retreat at Hot Springs, a parade of New Frontier officials assured it of the administration’s deep affection.
Kennedy had, I believe, considerable respect for the experience of businessmen. He felt that this experience gave them clues to the operations of the American economy which his intellectuals, for all their facile theories, did not possess. On the other hand, he had no great respect for the ideas of businessmen, and the respect declined the further their ideas moved away from their experience. The President probably agreed with Dr. Johnson: “A merchant’s desire is not of glory, but of gain; not of public wealth, but of private emolument; he is, therefore, rarely to be consulted on questions of war or peace, or any designs of wide extent and distant consequence.”
And he regarded the pressure to play up to businessmen with recurrent exasperation. At dinner at the White House on the night before his September reception for the Business Council, he observed that he was struck by a “paradox” in his dealings with business and with labor. Labor leaders, he said, were individually often mediocre and selfish, but labor as a body took generally responsible positions on the great issues; while businessmen were often enlightened as individuals but collectively hopeless on public policy. He now better understood Franklin Roosevelt’s attitude toward organized business, he continued, and he only wished there were no cold war so he could debate the future of America with the businessmen.
The debate was to take place in spite of the cold war. The President had been much concerned to keep costs and prices down both to prevent inflation at home and to relieve the balance of payments by promoting exports abroad. Inflation created by excess demand was not very likely in an economy only beginning to emerge from a recession; but ‘cost-push’ inflation, touched off on occasion in the fifties when wages rose faster than productivity, remained a threat. And steel obviously played a key role in the strategy of price stability because increases in steel prices reverberated so far, wide and fast through the economy. Accordingly Kennedy wrote the presidents of the leading steel companies in September 1961, describing steel as “a bellwether, as well as a major element in industrial costs,” and suggesting that the industry “forgo a price increase.” He followed this by a letter to David J. McDonald of the United Steelworkers proposing that wage demands be kept “within the limit of advances in productivity.” In the 1962 Economic Report this criterion became the basis of what were called the wage-price guideposts and an essential part of the administration’s defense against inflation.
Early in 1962, Secretary of Labor Goldberg, who himself had been the Steelworkers’ general counsel, helped negotiate a non-inflationary settlement which both the union and the industry accepted in April. Everyone concerned assumed that, in return for what one student has called “the least costly agreement in many years,”* the industry would never dream of raising prices. Then, on April io, Roger Blough, chairman of the board at United States Steel, made his famous call at the White House and, without advance warning, handed the President of the United States a four-page mimeographed statement announcing the decision to raise steel prices $6 a ton—a statement which the steel people, in fact, released before Blough completed his conversation with the President.
Blough said later that he had informed the President “in what I hope was as courteous a manner as could be devised under all the circumstances” and that he was surprised at Kennedy’s reaction. He added, “I know nothing about politics.” This innocence was a little hard to take in Washington, where Blough had been a familiar figure for years. Even Arthur Krock found it either “an intolerable strain on human credulity or an admission of incurable short-sightedness.” Yet Blough’s whole demeanor suggested a genuine belief that an increase in steel prices was no more the business of government than an increase in the price of the lemonade a child might sell in front of his house.
Kennedy’s reaction was a mixture of incredulity over what he saw as the selfishness and stupidity of the steel industry and anger over what he regarded as its premeditated deceit. Honorable people, he felt, did not behave in this fashion. “We were not asking the steel industry for capitulation,” Arthur Goldberg said; “we were asking it for candor.” The industry had accepted labor’s restraint four days before without the slightest hint that it did not plan to be equally restrained itself; its démarche now, from the White House view, seemed a plain and impudent double cross. “My father always told me,” Kennedy said, in the remark the business community never forgave, “that all businessmen were sons-of-bitches, but I never believed it till now.” This proposition, though offered in private, soon reached the newspapers. Kennedy later told a press conference that his father had limited his comment to steel men; “he was involved when he was a member of the Roosevelt administration in the 1937 strike. He formed an opinion which he imparted to me, and which I found appropriate that evening. . . . I quoted what he said and indicated that he had not been, as he had not been on many other occasions, wholly wrong.” (A few days later, he remarked to Adlai Stevenson and me, “They are a bunch of bastards—and I’m saying this on my own now, not just because my father told it to me.’’)
Anger was a flash; then he called in his advisers on domestic policy and swung into action. If he accepted the steel decision, it would mean a grave threat to the wage-price guideposts, price stability, the program of economic expansion, the balance of payments, the trust the labor movement had in him and the prestige of the Presidency. He was coldly determined to mobilize all the resources of public pressure and private suasion to force steel to rescind the increase. Soon he had to leave the council of war in order to dress for the annual White House reception for members of Congress and their wives. A year before it had been the Bay of Pigs; “I’ll never hold another congressional reception,” the President said.
The next morning Bethlehem Steel, the second largest company, announced an increase, and four others quickly followed. At his press conference that afternoon Kennedy described these actions as “a wholly unjustifiable and irresponsible defiance of the public interest” by “a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility.” He added: “Some time ago I asked each American to consider what he would do for his country and I asked the steel companies. In the last twenty-four hours we had their answer.”
In the meantime, he had mounted a campaign of pressure against the steel magnates. Dillon, McNamara, Hodges, Clark Clifford and others were making phone calls all over the country. The Defense Department started shifting its steel purchases from the United States Steel to companies which had not yet raised prices. The Department of Justice began inquiries into whether the steel companies had acted in violation of the anti-trust laws.* (It was in this connection that the Attorney General asked the FBI to check newspaper reports of remarks made in a Bethlehem Steel stockholders meeting which might indicate that U. S. Steel had forced Bethlehem into its supporting action. The use of the FBI to make preliminary investigations in anti-trust cases was routine. Unhappily, though the instruction went to the FBI in the afternoon, it was apparently passed on to Philadelphia by Pony Express, for the reporter involved was not called till three the next morning. The FBI’s post-midnight rap on the door caused a furor. The President, unmoved, later remarked, “Reporters have called up a good many people in the middle of the night themselves.”) The Federal Trade Commission announced an informal investigation to see whether the steel companies had broken regulations against collusive price-fixing. Congressional anti-trust committees promised hearings. Ted Sorensen started work on emergency wage-price legislation. And, despite the FBI episode, public opinion rallied behind the President. William W. Scranton, the Republican candidate for governor of Pennsylvania, wired Blough: “The increase at this time is wrong—wrong for Pennsylvania, wrong for America, wrong for the free world.”
Walter Heller and Kermit Gordon had argued that, if enough companies held out against the rise—the rule of thumb was 10 per cent of national steel production—then U. S. Steel and the others would be forced in competitive self-defense to bring their prices down. This strategy soon centered on the Inland Steel Company of Chicago. The President also talked to Edgar Kaiser of Kaiser Steel. On Friday, April 13, Inland, Kaiser and the Armco Steel Corporation all let it be known that they were prepared to hold the line. Goldberg and Clifford went to New York to talk to Blough—a conference interrupted by word that Bethlehem had rescinded its price increase. Before the afternoon was over, United States Steel surrendered. It was seventy-two hours after Blough’s call on Kennedy. On April 17, exactly a week after his ultimatum, Blough made another visit to the White House. At dinner that night I asked the President how his conversation with Blough had gone this time. He said, “I told him that his men could keep their horses for the spring plowing.”
The steel fight confirmed the worst suspicions on each side about the other. Businessmen had grown accustomed in the Eisenhower years to a President who sought their company, reverenced their opinions and treated them as if they were the most weighty group in the nation. Though they doubtless admired Kennedy’s intelligence, were impressed by his knowledge and were generally conciliated in his presence, they felt he stood at a distance from them. When he protested that he was pro-business, it was in a sense that many businessmen found hard to understand. It was true that he accepted an economic system founded on private ownership and that his policies were designed, in effect, to lure business into investment and growth. But this was not enough. The fact remained that he was outside the business ethos, that he did not regard the acquisitive impulse as man’s noblest instinct nor the pursuit of profit as man’s highest calling, that he was unimpressed by great accumulators of wealth, that he did not consider successful businessmen as the best brains or the most enjoyable company, that he saw them as a faction to be propitiated and not as a force to be followed, that he brought few of them into government and that he did not like to have them around in the evening. The business community knew that the President was not ‘one of ours’; they felt that business was not understood in Washington; and they construed Kennedy’s pro-business efforts as based on the need for economic and political placation and not on the belief that the true business of America was business.*
They felt, in short, that they were outsiders again. Many may even have resumed this role with a certain relief. During the Eisenhower years they were somehow implicated in the actions of government and therefore debarred from denouncing Washington whenever anything happened they did not like. Kennedy’s election had liberated them. Now they were exempt from responsibility. They had a Democratic administration to blame again and ‘that man in the White House’ to hate again. It was back to the old rituals and devils, and they spoke out with liturgical fervor. The Republican congressional leadership called the steel fight “a display of naked political power never seen before in this nation. . . . We have passed within the shadow of police-state methods.” Barry Goldwater said that Kennedy was trying to “socialize the business of the country.” John W. Bricker, resurrecting his prose of a generation before, cried, “The recent display of dictatorial power by President Kennedy has made us realize that freedom in its largest sense is at stake. The Republican party is the last and only remaining bulwark.” Kennedy’s citation of his father reinforced the comforting sense of continuity. (A cartoon of the day showed two businessmen in their club, one saying to the other, “My father always told me that all Presidents are sons-of-bitches.” Kennedy was delighted, and the original hung on a wall in Evelyn Lincoln’s office.)
As for the President, the steel fight showed once again his cool understanding of the uses of power. He had, in fact, no direct authority available against the steel companies. Instead, he mobilized every fragment of quasi-authority he could find and, by a bravura public performance, converted weakness into strength. And his victory was a durable one. When the administration a year later countenanced selective price increases by Wheeling Steel, some commentators rushed to conclude that Kennedy had thrown away his triumph of 1962. Actually these 1963 increases made no difference. As the Council of Economic Advisers reported in 1965, “On the average, steel prices are essentially unchanged from 1959.”
In winning this victory, Kennedy answered the question with which the business community had confronted every activist Chief Executive since Jackson: “Who is President anyway?’’ He delivered his answer at a cost, but the cost of not answering would have been greater. And, if the domestic cost was significant, in foreign policy his triumph over steel was an unmixed gain. Newspapers applauded his action around the globe. Wilson, Roosevelt and Truman had won world confidence in part because their domestic policies had established them as the critics, and not the instruments, of American business. Now Kennedy had left the world no doubt that he was equally independent of the American business community—and in a world indoctrinated with fears of aggressive American capitalism this won new trust for his leadership in foreign affairs.
His conclusion about organized business was impersonal and penetrating. “The problem is,” he said one day in July on the plane back from the Cape, “that the business community no longer has any confidence in itself. Whenever I say anything that upsets them, businessmen just die. I have to spend my time and energy trying to prop them up.”
He began the labor of propping up immediately after Blough’s capitulation. Moreover, the strength of pro-business sentiment in Congress and the need for active business collaboration in economic growth and foreign policy made it expedient to heal the wounds as speedily as possible. And in domestic, as in foreign, affairs, Kennedy never believed in humiliating an opponent or cutting off his retreat. He told his staff that it was “important that we not take any action that could be interpreted as vindictive.” When Blough received a citation from the Yale Law School, the President sent him a congratulatory telegram. At the end of April he made a conciliatory speech before the Chamber of Commerce.
But business was not notably responsive to the flag of truce. The president of the Chamber of Commerce, after Kennedy’s speech, took the platform himself and made the dark observation: “We should remember dictators in other lands usually come to power under accepted constitutional procedures.” (Appearing a few days later before the United Auto Workers, Kennedy said, “Last week, after speaking to the Chamber of Commerce and the presidents of the American Medical Association, I began to wonder how I got elected. And now I remember.”) And a tension remained between his own public attitudes and private emotions. He exposed some of them one day when Hugh Sidey asked if it was to be war with business in the old F.D.R. style. Kennedy said at first, “No, no, we’re not going to do that. They’re our partners—unwilling partners. But we’re in this together. . . . I’m not against business—I want to help them if I can.” Then he added, “But look at the record. I spent a whole year trying to encourage business. And look what I get for it. . . . I think maybe I ought to get a little tougher with business. I think that may be the way to treat them. They understand it. When I’m nice to them, they just kick me. I think I’ll just treat them rougher. Maybe it will do some good.”
Publicly he continued to be nice, however. Then on Monday, May 28, the stock market suddenly collapsed—the largest one-day drop in prices since the crash of 1929. Actually speculation on the possibility of inflation had pushed prices up too fast in the winter of 1960–61, and the market had been visibly adjusting, at least since the last week in March, to price stability and the diminished prospect for capital, gain. But the sudden descent created deep anxieties. Within the government Seymour Harris’s panel of Treasury consultants forecast trouble ahead. One conservative writer, Merryle Stanley Rukeyser, produced a book entitled The Kennedy Recession,* and business comment freely blamed the stock market troubles on the ‘lack of confidence’ engendered by the President’s disrespect for United States Steel. Marquis Childs, after talks with businessmen, wrote that their attitude to Kennedy was: Now we have you where we want you. When asked about this at a pressconference, the President convulsed the newspapermen by replying, with a nod to his office: “I can’t believe I’m where business—big business, wants me.” Privately he was increasingly disturbed and baffled by the problem of getting business to face the serious issues of the economy.
One afternoon early in June, he held forth to Sorensen, O’Donnell and me. ‘‘I understand better every day,” he said, “why Roosevelt, who started out such a mild fellow, ended up so ferociously anti-business. It is hard as hell to be friendly with people who keep trying to cut your legs off. . . . There are about ten thousand people in the country involved in this—bankers, industrialists, lawyers, publishers, politicians—a small group, but doing everything they can to say we are going into a depression because business has no confidence in the administration. They are starting ta call me the Democratic Hoover. Well, we’re not going to take that.”
O’Donnell said, “The worst thing we can do now is to put ourselves in a foot-kissing posture.” The President wheeled around and said, “Yes, we tried that after the steel case, and we didn’t get anywhere. . . . They are trying to make government responsible for everything on the ground that what we did to steel destroyed business confidence. We have to turn it around. We have to put out the picture of a small group of men turning against the government and the economy because the government would not surrender to them. That is the real issue.”
The market decline continued, if at a more stately pace, until the end of June 1962, and the business campaign against the administration intensified. Because Kennedy had great personal popularity through the country, the attacks began, in the classical manner, by concentrating on the more vulnerable of his advisers. Past sins made me an obvious target. A contribution in 1947 to a Partisan Review symposium on “The Future of Socialism” was now exhumed as evidence, as Barry Goldwater put it, that “for many years [Schlesinger] has been writing about socialism in America and laying out a blueprint on how to accomplish it. He announces himself as a socialist.” Goldwater had obviously never read the Partisan Review piece, for the article, following a discussion of capitalism and socialism, said: “After all which system has more successfully dehumanized the worker, fettered the working class and extinguished personal and political liberty? . . . The socialist state is thus worse than the capitalist state because it is more inclusive in its coverage and more unlimited in its power.” But the suggestion that I was writing about socialism as an analyst and not as an advocate made little dent on the gathering clamor (though Goldwater, to do him justice, stopped calling me a socialist when the facts were pointed out to him). I also attracted the attention of a columnist named Henry J. Taylor, well known for his belief in the existence of flying saucers.* Early in May he cited the Partisan Review piece in a column for the Scripps-Howard papers entitled crisply “Schlesinger Should Go.” A little later I foolishly accepted a telephone call from him. He was inquiring about a piece I had written for the Saturday Evening Post and what I intended to do with the payment (answer: turn it over to charity); but I seized the occasion to point out that his column on the Partisan Review piece had falsified my views. In short order the conversation began to deteriorate. When he made some particularly outrageous accusation, I said, “If you believe that, you’re an idiot.” Taylor soon wrote a column saying indignantly that my “first words” when he called were, “You are an idiot.” Walter Winchell added his contribution: “Schlesinger is haunted by intellectual snobbery, dominated by arrogance . . . as power-mad as he is venomous . . . a threat to fundamental American concepts.” A group of patriots in California founded the Organization to Remove Schlesinger from Public Life.
At this point Robert and Ethel Kennedy gave a party to celebrate their twelfth wedding anniversary. It was a gentle summer night at Hickory Hill. The tables were set around the swimming pool, and Ethel was sitting at a table for four on a bridge thrown rather precariously across the pool. Dancing took place between the courses. My partner and I ventured out on the catwalk; it shook under our tread; and to our horror we saw Ethel’s chair slide on the wet boards to the edge and then into the water. After a moment, I plunged in after her. We changed our clothes, and the party went pleasantly on. A few days later garbled versions of the swimmingpool episode began to find their way into print.
One afternoon I received a call from Tom Corcoran, who had endured similar attention in another age. He said, “I scent a man hunt. Whenever the market goes down, those fellows demand a human sacrifice, and they have nominated you. The play they gave the swimming-pool story was the tip-off.” By this time, I began to suffer from the sense of having brought unnecessary trouble on the administration and increased the President’s burdens at a time when he had quite enough on his mind. Accordingly, in a lapse of humor, I solemnly told him that I was ready to leave. He said with great kindness, “Don’t worry about it. Everybody knows what Henry Taylor is like. No one pays any attention to him. All they are doing is shooting at me through you. Their whole line is to pin everything on the professors—you, Heller, Rostow. When the market fell, Time put Heller on the cover, not Dillon. Don’t worry about it. This is the sort of thing you have to expect.”