On the morning of August 8, 1974, Greenspan appeared before the Senate banking committee. It was six years to the day since he had watched Nixon accept the Republican nomination at the convention in Miami Beach, and he had matured well in the interim. Now past his forty-eighth birthday, he still boasted a full head of dark hair, a strong build, and a strong jaw; he still dressed in the same conservative suits he had worn since the fifties. His youthful belief that he would one day command the world’s respect had been vindicated, amply. Time magazine had recently informed millions of readers that he was “erudite and witty”; and he was earning $300,000 per year—$1.4 million in 2015 money.1 Yet traces of his boyhood shyness stuck to him, disguising his success behind a mask of modesty.
“Mr. Greenspan, that is quite a battery you have to introduce you,” the committee chairman began.2 Greenspan was flanked by a congressman on one side and a White House counselor on the other.
“Senator, I have rarely been in the middle of anything,” Greenspan responded, in the self-deprecating manner of a sideman.
Eleven senators looked down at him. They had copies of his curriculum vitae, and they knew this statement to be nonsense. Oddly for a libertarian, Greenspan had emerged at the very center of the nexus between business and government: he now had a string of corporate directorships to his name, and he served as an adviser to the Federal Reserve, the White House budget office, the Treasury, and the Council of Economic Advisers. Far from being a sideman, Greenspan was appearing before the Senate committee as President Nixon’s nominee to one of the three top economic jobs in Washington. He was to chair the White House Council of Economic Advisers, the committee of three eminent economists served by a powerful staff of experts on leave from academia.
Greenspan had hesitated before agreeing to serve a president whose economic policies he had reviled, but his misgivings had been calmed by several considerations. For one thing, Nixon had ended his disastrous experiment with wage and price controls in April, removing the clearest obstacle to Greenspan’s joining the administration. For another, his longstanding hunger for high office remained with him, and the position of CEA chairman was several rungs more senior than anything Greenspan might have been offered at the start of Nixon’s presidency. Finally, although others might have balked at the idea of joining an administration that was coming apart under the impact of the Watergate scandal, Greenspan saw the prospect differently. The nation was entering a dark moment, and Arthur Burns and several leading administration officials had entreated him to help.3 “This government is paralyzed. But there’s still an economy out there and we still have to make economic policy. You owe it to your country to serve,” Burns had urged him.4 A month or so later Greenspan told an interviewer, “What is at stake is so large that if anyone has the possibility of making a contribution, he should. It’s one of the rare instances when the issue of patriotism comes up.”5
So here was Greenspan on Capitol Hill, ready for what promised to be a gripping confirmation hearing. The news of his nomination had already generated a clutch of newspaper profiles, several of which portrayed him as the leader of a far-out sect. “To the congregation of conservative economists, Greenspan is high priest, and austerity is his faith,” BusinessWeek declared, while Newsweek titled its profile “Fundamental Fountainhead.” The New York Times spiced its coverage with quotes from Ayn Rand. “My impression is that Alan did not want to go to the Council in the first place, and I don’t believe he would stay if he is asked to compromise on his principles,” Rand told the Times. “Inconsistency is a moral crime,” she added, a bit menacingly.6
After some introductory pleasantries, the chairman of the banking committee invited Senator William Proxmire to lead the questioning. A wiry ascetic, the author of a book on dieting and exercise, Proxmire was intelligent and strange: modest enough to refuse absolutely all campaign donations, vain enough to invest in hair transplants and a facelift. But Proxmire was, first and foremost, a Wisconsin progressive. He was not going to look kindly on Ayn Rand’s chief economist.
“You said, ‘What the economy badly needs is a strong dose of do-nothingism,’” Proxmire began, accusingly.
“That is correct, Senator.”
“Is that still your view?”
Greenspan assured Proxmire that it was. Do-nothingism was “not a terribly philosophical term,” the nominee apologized. But price controls had been a “shambles.” Greenspan was apparently not going to soft-pedal his free-market views—whether for the senator’s benefit or for the benefit of the president who had nominated him.7
Proxmire moved on. His staff had dredged up Greenspan’s Randian claim that antitrust law was unnecessary. Calling Greenspan’s attention to the fact that the Federal Trade Commission blamed price fixing for inflation, the senator suggested that a clampdown on monopolistic practices would take the pressure off prices.
“I would think that the effect on the price level has got to be negligible,” Greenspan objected.
“Negligible?” Proxmire exclaimed. “I see.” Like a lawyer confronting a witness who has just incriminated himself, he wanted to make sure he had understood Greenspan correctly.
“Antitrust action—the threat or the reality of it—coupled with jawboning, coupled with procurement policies, were among the ingredients that enabled Kennedy to roll back steel prices in 1962,” Proxmire explained, presenting the standard case for the New Frontier approach to inflation. “Do you think that kind of action by a chief executive would be irrelevant?”
“Yes, sir; it is. It’s treating the symptoms of the problem,” Greenspan insisted.
But surely Greenspan would support a tough line on price fixers?
“No, sir,” Greenspan answered.
“All right, why?”
Greenspan launched into his views on antitrust, restating his Randian paper unapologetically. With a very few exceptions, the entire edifice of antitrust law should be jettisoned. Monopoly power almost never harmed consumers.
“Let me ask you this one, Mr. Greenspan, and see if you can bat it back over the fence,” Proxmire continued. “The steel industry has increased its prices by 30 percent this year, chemical industry by 30 percent. . . . A fantastic increase. Nothing ever like it. . . . Nonferrous metals increased their prices 48 percent. Oil by 82 percent. . . . This is why it seems to me that the concentration problem is so critical with respect to inflation.”
Greenspan might have conceded the point. Proxmire’s numbers were broadly correct, and the senator had the power to vote against his confirmation. But instead of giving in, Greenspan responded with an economics lesson.
“Let me see if I can distinguish between the general effect of inflation and the specific prices themselves,” he began. The general price level reflected the amount of money in the economy relative to the supply of goods, but the specific price of certain commodities could shoot up independently, reflecting shortages or special circumstances. Those idiosyncratic price spikes would result in inflation only if more money was printed. In the absence of money printing, a price spike in some commodities would be offset by falling prices elsewhere. Therefore the rising cost of steel or chemicals should not be confused with inflation.
More senators weighed in, and the economics lesson continued. Senator Joe Biden of Delaware wanted to know whether Greenspan’s past consulting ties would affect his policy judgments. The nominee had pledged to sever all connections with Townsend-Greenspan while in government service, and to give up his claim to its revenues so long as he remained in Washington; the CEA salary, at $42,500, represented a huge sacrifice.8 But even if Greenspan cut his ties with his company, surely he would still be biased? Would he not favor the firms that would be his clients when he returned to the private sector?
“I don’t think that my ideas change because of the particular job that I hold. I take ideas seriously,” Greenspan responded. He had opposed quotas on foreign steel imports, even though these suited the steelmakers who paid him large retainers. “While I have nothing against making money, that is not what I am in business for,” Greenspan said simply.
Biden had to admit that this had the ring of truth about it. Greenspan’s ideas were far too extreme to reflect expediency. Even though he must surely understand that Randian libertarianism would harm his political prospects, Greenspan was not softening his opinions. To the contrary, he was calmly sticking to his positions. Intellectual honesty seemed to define him.
“I am glad that the president picked you,” Biden declared. “If he picks a conservative, I want him to pick a straight one and a bright one.”
Proxmire had been waiting for his moment to weigh in again. “I am not so sure that if you are going to pick an executioner that you want to pick one with the sharpest possible ax,” he interjected.
“You want it clean,” Biden responded. “If I go, I want a clean knife. Just, ‘Bang.’”
Proxmire had his own knife out for Greenspan. “You have indicated at one time or another that you don’t support the concept of a strongly progressive income tax.”
“That is correct. I do not,” Greenspan responded.
“You do not?” Proxmire exclaimed. The United States had taxed the incomes of the rich at a higher rate than those of the poor since the passage of the Sixteenth Amendment in 1913. Greenspan was saying, without so much as a hint of embarrassment, that he wanted to wind back the clock to the nineteenth century. The ease with which he confessed to this fantastical ambition was both disarming and horrifying. The man was a riddle. He was courteous, calm, and absolutely terrifying.
“The logic underlying the equity of the income tax per se, I find very elusive,” Greenspan said evenly.
“Why isn’t it simple?” Proxmire demanded. “The utility of a dollar is so much less for a man who earns $100,000 a year than a man who earns $10,000 a year.”
Greenspan stood his ground, insisting that a progressive tax was “not consistent with a free society.” But Proxmire came at him again.
“Would you, then, like to see a flat tax on all incomes?”
“That would be my ideal state, but I scarcely expect it to happen,” Greenspan replied.
“But that is the direction you would want to have government policy move?”
“My view on this is perfectly clear,” Greenspan answered. Then he added that nobody else in Washington agreed with him. “I am a minority of one,” he said squarely.
The hearing had already lasted for three hours, and the senators understood that they confronted a puzzle. Greenspan had lectured Joe Biden on how seriously he took ideas; and if he tried to make the nation conform to his ideas, the results would be hair-raising. But if he truly accepted that he was a minority of one, his opening joke to the committee might turn out to be true. He might be so far off toward the fringe of the policy debate that he really would be a sideman. His practical impact on the government might be negligible.
Proxmire made one final attempt to bridge the gulf with Greenspan. The nominee’s manner was so reasonable that it was hard to understand how his views could be so unreasonable.
“My problem with your nomination,” Proxmire summed up, “is that it is very difficult, because you are honest, you are capable, and some of the things that you propose I enthusiastically applaud; but I have a great, great difficulty with the fact that you are a free enterprise man who does not believe in antitrust, does not believe in consumer protection, does not believe in progressive income tax. . . . The old-style laissez-faire capital system is dead,” Proxmire continued; the challenge for intelligent policy makers in the late twentieth century was how to make the mixed economy work better. “With the greatest goodwill in the world, you are not going to go back to Adam Smith. You know that.”
“I am aware of that,” Greenspan conceded. But he was still not backing off. However popular the mixed economy, its existence was precisely the problem. The past decade had demonstrated how each encroachment by the state would fuel demand for the next one, driving the nation inexorably to price controls and stagflation. “My observations of the fundamental mechanisms by how this particular type of mixed economy works is one of the reasons why I am such a strong advocate of free enterprise capitalism,” Greenspan insisted. “We have come to a point where the damage being done by our mixed economy policies is very patent.”
Which part of Greenspan mattered? The reassuring style or the far-out ideas? The modesty or the Randian ambition? After questioning Greenspan closely, Proxmire concluded that the nominee’s fringe libertarianism counted for more than the unassuming sideman pose—a CEA chairman who openly denounced the mixed economy was simply not acceptable.9 But although he opposed Greenspan for his ideology, the senator befriended him for his character. After an overwhelming majority of his colleagues voted to confirm Greenspan, Proxmire developed an excellent relationship with him.
• • •
As it turned out, Greenspan never served in the Nixon administration. The day that he testified before the Senate, the president’s press secretary announced that Nixon would appear on television and radio at nine o’clock that evening. A crowd of curious Americans collected around the White House, braving the August humidity and intermittent rain to watch the newsmen come and go, savoring the thrill of a dramatic moment in the nation’s history. At 7:30 p.m., Nixon left the White House for the short walk to the Old Executive Office Building, and the crowd outside the gates waved U.S. flags and sang “America” as he walked slowly up the steps, his head bowed, alone.10 Somebody put up a sign reading DING DONG, THE WITCH IS DEAD. A little while later the president returned and delivered his promised address to the nation from his desk in the Oval Office.11 Speaking in strong tones, his emotions firmly under control, Nixon announced his resignation, effective at noon the next day. The next morning Gerald Rudolph Ford Jr. was sworn in as the thirty-eighth president of the United States, famously declaring, “Our long national nightmare is over.”
For the economy, it was not over. To the contrary, Time magazine complained of “feverish inflation, constriction of credit and throbbingly high interest rates.” GDP had shrunk at an annualized rate of 3.9 percent in the previous quarter, the consumer price index was up 10.9 percent over the past year, and unemployment stood at 5.5 percent. “Middle-class people are being pushed into such demeaning economies as buying clothes at rummage sales and cutting contributions to their churches,” Time lamented.12 At his first press conference, President Ford was asked whether he would fight the war against inflation by reviving Nixon’s tools—after all, every president since Kennedy had tried to intervene directly in the price-setting process. But Ford had already had his mind made up by his incoming chief economist, Alan Greenspan. “Wage and price controls are out, period,” he responded bluntly.13
A month into the Ford presidency, on September 4, Greenspan was formally sworn in as the chairman of the Council of Economic Advisers. Greenspan’s mother, Rose, put on a sleeveless dress for the White House ceremony, undaunted by the fact that she was past the age of seventy. When the president put his arm around her to pose for a photo, she barely came up to his shoulder. Ayn Rand came, too, bringing along her husband and some theatrical white gloves; she shed her combative atheism for long enough to allow Alan to place his hand on the Jewish holy book and swear the oath of office. Afterward, Rose and Ayn talked to the president, and Alan smiled a broad, untroubled smile that recalled his carefree youth as a ball-playing high school student. After a long journey, Greenspan had ascended to the apex of American life, and the two most important women in his life were at his side.14
Greenspan rented a two-bedroom apartment at the Watergate complex, the flowing, Italian-designed development overlooking the Potomac. Before Nixon’s antics made the Watergate synonymous with scandal, it had been a magnet for the rich and notable; Greenspan had often visited Arthur Burns and his wife at their apartment there. But Greenspan appreciated the Watergate for other reasons, too. His considered view of the waterfront property, after weighing its curvilinear architecture and its cultural merits, was that it was a brisk eighteen-minute walk to his office; he also appreciated the fact that the Watergate leased out apartments on a thirty-day basis. True to Ayn Rand’s fierce statements to the New York Times, he had warned people at the White House that he could not serve in a government that violated his principles. He wanted to preserve the feeling that he could quit Washington if he had to.15
It was not long before Greenspan’s purity was tested, however. The morning after his swearing-in ceremony, he found himself sitting with President Ford in the gold-and-white East Room of the White House. Television camera crews bathed the whole scene in a blinding light.16 “Inflation is our domestic enemy number one,” the president declared to an audience of economists, and then he laid out how he proposed to tackle it. The administration would hold twelve minisummits to solicit opinions from around the country; then it would fashion the resulting input into a master plan for price stability. “The President cannot lick inflation,” Ford lectured the meeting. “The Congress cannot lick inflation. Business, labor, agriculture, and other segments of America cannot lick inflation. Separately we can only make it worse, but together we can beat it to its knees.”17
Greenspan was relieved that Ford had not fallen back on price controls. But a series of billowy civic meetings was not his preferred approach, either. Still, he played along loyally over the next weeks. In the middle of September he dutifully attended a gathering of supposed inflation experts from the health, education, and social services professions. Some way into the proceedings, a labor union chief complained that a policy of fighting inflation would favor rich bankers and harm ordinary workers. How could Greenspan defend that?
A warning light flashed dimly somewhere in Greenspan’s brain, but he was already answering the question.18 If the issue was who would see their incomes decline most, he was saying, why then the speaker was mistaken. If the government cooled inflation by clamping down on demand, Wall Street brokers would actually lose more because their incomes were more volatile. “If you want to get statistical,” Greenspan said, “I mean let’s look at what the facts are.”19
A horrified booing filled the room. Somebody yelled out, “That’s the whole trouble with this administration!”20 Afterward, labor unions announced that Greenspan would be a candidate for their annual “dubious distinction” award, and Congresswoman Barbara Jordan of Texas suggested that Americans send Greenspan their grocery receipts.21 Home builders in Oregon formed a group called Save Our Brokers. They mailed handkerchiefs to stockbrokers so that they would have something to sob into.22
The next day Ford saw Greenspan at the White House. “I understand you had fun yesterday,” he said. “Welcome to Washington!”23
It was nice to have the president’s support, but it did not make his inflation policy more credible. The minisummits produced a babble of contradictory ideas, mostly reflecting the lobbies that advanced them. Several prominent participants demanded a return to price controls, while others doubted that progress against inflation could justify the sacrifice that would be necessary. The chief economist from the IBM company presented a study showing that a painful $10 billion reduction in government spending would cut inflation by just one tenth of one percentage point, pushing up unemployment by far more. “Is it really worth it?” the man from IBM demanded.24 Greenspan chaired a minisummit for economists at the Waldorf Astoria in New York, and the professionals considered a list of deregulatory initiatives that would take the pressure off prices—an approach much more to Greenspan’s liking. But perhaps because he had advocated deregulation to no avail during the Nixon years, Greenspan responded warily. “These issues . . . have been raised many times before,” he wrote in a memo. “There are solidly entrenched special interests working against such notions.”25
On September 27, the minisummits culminated in a grand plenary. Two thousand clamorous participants crammed into the International Ballroom at the Washington Hilton, and the nation was treated to an Athenian experiment in economic policy. But at the end of two days of deliberation, the president was left clutching one single idea: the exercise in mass civic mobilization should be followed up by more mass civic mobilization. Ford now argued that given Washington’s failure to rein in inflation, it was time for the American people to take the lead; they must be urged to relieve the pressure on prices by consuming less, recycling more, and boosting the national food supply by growing vegetables. On October 8, the White House unveiled its strategic contribution to this citizens’ campaign. With the help of an ad agency, it had produced millions of red-and-white buttons that read WIN—“Whip Inflation Now” would be the slogan that inspired a national mobilization against price increases.
The economists in the administration were mortified.26 Johnson’s policy of cajoling captains of industry and union bosses had failed to restrain wages; the idea of cajoling the public at large was even more fanciful. It was one thing to ask people to plant Victory Gardens during World War II; it was another to expect them to dig vegetable plots now, with no goad from the Nazi threat and patriotism driven to an all-time low by the Watergate scandal. In an otherwise indifferent citizenry, the only flashes of enthusiasm for the WIN campaign came from discount retailers. A Denver grocery chain plastered its windows with WIN posters and proclaimed that its cheap products made it a champion inflation whipper.27 An auto dealership in Pasadena offered a WIN button to anyone who would “test drive one of our inflation fighters.”28 A campaign to discourage consumption had been turned into a way of promoting it.
A few months later, in February 1975, Greenspan summed up the impact of the first major initiative of his public career. The WIN campaign “has not made a perceptible contribution to economic policy,” he reported in a memo, “and I am unaware of any reason to expect it to do so in the future.” It was time to acknowledge a failure. The WIN campaign should be allowed to make a “graceful exit.”29
• • •
Yet Greenspan himself was not making for the exit. He had joined the administration promising to quit if its policies offended him, but association with the excruciating town-hall-and-vegetable-garden fiasco had failed to arouse his spirit of rebellion. On the contrary, he was emerging as a loyal team player—the part of him that had rallied to Nixon in the last months of 1968 trumped the part of him that stood on principle.30 Greenspan seemed comfortable accepting that he was often in a minority, and that his views would not prevail. He was more of a sideman than Proxmire had anticipated.
It was not that Greenspan lacked intellectual backbone. He was clear on his own views and could stick up for them unflinchingly, as his Senate performance had demonstrated. But he did not feel compelled to force his positions on others—he had no need to dominate meetings, as his low-key performance on the draft commission had illustrated. At the start of the Ford administration, Greenspan insisted that unlike the previous CEA chairman, he would not serve as the public spokesman on economic policy; going on the record defending an initiative he disliked would have been anathema to him.31 Once the spokesman’s job had been passed off to the Treasury secretary, Greenspan was happy presenting confidential analysis to his political superiors and leaving them to decide what to do with it.
Recalling his time in the Ford administration years later, Greenspan told a story that summed up his approach to government service. At one point he had decided that Vice President Nelson Rockefeller was pushing a muddled energy policy; he had therefore done his duty by pointing out its flaws to the president. Ford had promised to block Rockefeller’s initiative, but after a week he had called Greenspan into his office.
“Alan, you know, last week I promised you I was going to do this and frankly the politics were too tough,” Ford said. “I want to apologize to you.”
“Mr. President,” Greenspan responded, “I am working for you and advising you. You don’t have to apologize to me. I know what the problems are.”32
Greenspan’s sense of separation between his advice and the president’s decisions came naturally to him. It was part of his loner psychology: he had relatively little need to feel that others approved of him, so he did not take offense if his advice was disregarded. It was also an extension of the habits he had learned as a consultant: he had spent two decades providing clients with analysis, and feeling blissfully indifferent as to what they did with it. But as well as coming naturally, Greenspan’s sense of separation was convenient. It allowed him to remain true to his principles because the advice he gave was intellectually honest; but it also allowed him to flourish in his White House position, for it meant that he emerged as a popular team player. Senior officials from the president on down trusted his analysis because it seemed not to come burdened with any policy agenda. Precisely because he appeared not to want influence, Greenspan accumulated plenty of it.
• • •
In December 1974 Ford turned his attention to a new economic challenge: the economy was in recession. He was a bit exasperated by this turn of events—his economic advisers had allowed him to make speeches about inflation as enemy number one, while a far grislier enemy was sneaking up on him. The political price was already clear. The conservative commentator George Will had compared the halls of the Republican National Committee to “the set for a disaster flick, a political Poseidon Adventure.”33 A few days before Christmas, on December 21, Ford gathered his six top economic advisers plus Arthur Burns from the Fed and demanded to know what should be done.
Greenspan’s preferred answer was, as usual, to do nothing—or at least to do as little as possible.34 If companies were idling workers because their warehouses were full of unsold inventory, then the recession would end of its own accord once the excess had been sold off. For the government, the best policy would be no policy. Likewise, if the recession stemmed from a loss of business confidence, reflecting the spike in inflation, panicky government meddling might make things worse; for example, a budget stimulus might drive inflation up, damaging confidence further.35 But because he felt more comfortable providing analysis than offering prescriptions, Greenspan spent more time describing the troubles in the economy than laying out how the president should react; and the more he outlined the troubles, the less Ford was inclined to do nothing. At the end of the meeting, when the president checked off his decisions on an option paper prepared by his staff, he came down in favor of stimulating the economy by means of a tax cut.
Ford’s decision confronted Greenspan with an uncomfortable dilemma. His own gloomy economic forecast had driven the president toward activism—Greenspan the analyst had inflicted a defeat on Greenspan the libertarian. But he was not about to sugarcoat his forecast in order to discourage economic tinkering; to the contrary, he had the consultant’s self-protective habit of emphasizing bad potential outcomes.36 And so rather than sweetening the data, Greenspan provided more data. Marshaling his team of staff economists at the Council of Economic Advisers, he came up with a statistical device to help limit the size of the tax cut: a weekly GNP estimate.
It was a classic Greenspan data-sleuthing exercise. The official GNP data came out once per quarter, but by cobbling together weekly numbers on retail sales, unemployment claims, and housing starts along with monthly numbers on machinery shipments, Greenspan’s team could provide the president with real-time updates on national output.37 If the libertarian in Greenspan was correct that the economy was going to stabilize itself, then the real-time updates would provide early proof that no stimulus was needed. If on the other hand the updates suggested that the economy was getting worse, then the empiricist in Greenspan would accept that stimulus was warranted.
Despite the fact that his economic principles were under fire, Greenspan was in his element. Shortly after deciding in favor of a tax cut, the president had left with his family for his traditional Christmas ski vacation in Vail, Colorado, where he stayed in a luxurious log cabin with a vaulted living room and crackling fires. Greenspan and other key advisers were billeted with various presidential friends dotted around the resort, mixing policy work with holiday socializing. Both obligations were fun. Greenspan enjoyed the company of the Ford team, even though it suffered from more than its fair share of difficult egos. There was the flagrantly ambitious Donald Rumsfeld, now serving as Ford’s chief of staff. There was Dick Cheney, Rumsfeld’s quietly effective young deputy with the lank comb-over, rounded shoulders, and squinted eyes, who brought along his daughters to enjoy the mountains. And there was the budget director, Roy Ash, who showed up at meetings with the president in a jazzy dark sweater with red-and-white stripes down the arms.38 Ford himself retained the habits of a longtime congressman; he was used to working with a handful of advisers, and liked having the gang over for drinks at the end of the day. Greenspan became part of this inner circle, forging friendships that would last for years, and even permitting boisterous plaid to make an appearance in his wardrobe. A decade or so after disengaging from Ayn Rand’s objectivist salon, although not from Rand herself, Greenspan found in the Ford team a compelling substitute.
By the start of 1975, Greenspan had carved out a special place for himself in Ford’s cabinet meetings. The president’s team understood that the proper size of the forthcoming tax cut would depend on just how weak the economy was, and thanks to his weekly GNP update, Greenspan was the man who knew—nobody else could shed light on this question. He had a way of expounding on the data that achieved two goals at once: he made it clear that everything was unclear, so that laymen could not possibly grasp what was going on; and then, having confused his audience into submission, he offered a rescuing hand in the form of his own forecast. If anybody else around the cabinet table tried to challenge his analysis, Greenspan swiftly cut him down. “He is extremely adept on his feet,” a colleague noted in his diary on January 2. “No staffer knows the general subject of economics better than Greenspan—and he is quick to criticize anyone who misuses a phrase or term.”39 “He has the best bedside manner I’ve ever seen,” another Ford administration colleague would recall, remarking on Greenspan’s hypnotic effect on his superiors.40 “Extraordinary. That was his favorite word. He’d go in to see Ford and say, ‘Mr. President, this is an extraordinarily complex problem.’ And Ford’s eyes would get big and round and start to go around in circles.”41
The more Greenspan parsed the mysteries of the economy, the more the president came to depend on him. The CEA chairman seemed to understand economic data like a horse whisperer understands a wild mare: he connected with them on a level that was invisible to most mortals. Yet because Greenspan drew a sharp line between analysis and prescription, his dominant alpha-male approach to economic forecasts combined with a mild diffidence as to policy questions. During the discussions of early 1975, Treasury Secretary William Simon argued forcefully that a tax cut was tantamount to going soft on inflation—a view that echoed that of Ford’s likely challenger for the Republican nomination, California governor Ronald Reagan. By comparison, Greenspan seemed dovish, or possibly confused.42 “Greenspan is on the fence—one day emphasizing inflation, the next day stressing the recession,” his colleague noted in his diary.43
A few days before presenting his tax cut to the public, the president tried to force Greenspan off the fence. The administration was coalescing behind a plan for a $16 billion tax rebate, and Ford wanted to know whether that would hurt growth in the long run. Greenspan gave an honest answer, but it was also an answer that the boss wanted to hear. A onetime rebate would not affect the long-term budget or inflation much, one way or the other.
“As long as it’s a one-shot deal and doesn’t become permanent, it’s not going to do much harm,” Greenspan told Ford.
Ford seized on Greenspan’s lack of objection and turned it into an endorsement. “If that’s what you think should be done, then I’ll propose it,” he said, leaving Greenspan feeling startled but also gratified at the extent of his influence.
“The president of the United States is taking my advice,” Greenspan later recalled thinking.44
On Sunday, January 13, 1975, Greenspan joined Rumsfeld, Cheney, and some other aides at the office. The president was to signal his intention to cut taxes that evening, using the format of an informal fireside chat, to be delivered from a White House library. Ford’s speechwriter from his days in Congress had produced a draft of the address, but Rumsfeld was not impressed and wanted Greenspan’s help in fixing it.45
After Ford had read out the speechwriter’s draft on the teleprompter and watched a video playback, Rumsfeld seized the opportunity to suggest a few changes. Individual words were tweaked. Then phrases were improved. Then sentences went, and soon Rumsfeld and his allies were recasting whole paragraphs.46 The more Greenspan got involved in this rewrite, the more he experienced a strange, contradictory sensation. He was conspiring in the overthrow of his own policy preferences: selling the case for a fine-tuning tax cut. But he was reveling in the feeling of being close to the action. Here he was on a weekend, crafting the president’s message to the nation with a deadline approaching. In between the rehearsals and revisions, Ford invited Greenspan and the others to his residence on the second floor of the White House, where they watched snippets of the Super Bowl.
The next day the process was repeated all over again, with Rumsfeld, Greenspan, and colleagues scrambling to fill out the details of the president’s State of the Union address, which would reiterate the call for a $16 billion tax rebate. The team worked steadily into the evening, piecing together the text and sustaining themselves with cookies, peanuts, and steak sandwiches. At one point, as Greenspan was pasting paragraphs of the speech into the right sequence, a colleague captured his sense of the moment, asking, “I wonder how I’m going to feel when I leave this place, looking from the outside in?”47 There was nothing quite like the buzz of working in the White House.
Ford approved the final draft of the address at four a.m. the next morning.48 Greenspan, for his part, faced his own moment of reckoning. Letters arrived from Ayn Rand’s followers asking whether he had sold out; since when was a libertarian in favor of fine-tuning? Greenspan had preached repeatedly that budget discipline was key to controlling inflation; but now he had changed sides, going out of his way to marshal arguments that might mollify opponents of the rebate, such as Treasury Secretary William Simon. In a memo to Simon on the day of the State of the Union address, Greenspan explained that more government borrowing would not drive up prices so long as it happened soon, while private borrowing was in the ditch, along with the economy. “The problem will come in 1976 or after the economy has strengthened,” Greenspan pleaded.49 “We are all Keynesians now,” he might as well have told him.
Greenspan reassured himself that he was making the world better. He had succeeded in improving the design of the rebate, insisting that it had to get to people before the economy recovered unassisted.50 Besides, he and the president were steering a difficult course. If the $16 billion rebate seemed irresponsible to hawks such as Simon, it was still a triumph of restraint relative to the demands of liberal critics. The labor leader George Meany was among those demanding a far larger stimulus, and he had no doubt whom to blame for the administration’s tightfistedness: “Alan Greenspan is there representing the philosophy of economic Darwinism—the survival of the richest,” he growled bitterly.51 Academics provided Meany with cover: “We’re going to cut our own throats,” said a professor at the University of Chicago, referring to the Ford team’s reluctance to stimulate harder.52 On January 23, 1975, Senator Hubert Humphrey, the Democratic presidential nominee of 1968, served warning that “unless the Administration gets with it, unless it begins to understand . . . we will go into a depression.”53
The next day Greenspan appeared in Ford’s office and sat himself down in an armchair directly across from the president’s grand desk. His thick dark hair was swept back from his forehead, and although the colleague to his left was sporting a loud plaid jacket, Greenspan still wore his trademark dark suit—his sense of sartorial adventure was firmly suspended on days when he was in the office. To Greenspan’s right sat a young speechwriter named Kaye Pullen. She was wearing a one-piece knit dress, short and tight. It was a very 1970s orange.
Pullen was looking a bit nervous, as though she feared spilling coffee on the presidential rug. She was thirty years old, she was the only woman in the meeting, and this was her first time in the Oval Office.
Greenspan introduced himself to Pullen and asked what she was working on. For a guy who had grown up in New York, Pullen later reflected, Greenspan had very nice southern manners. When Ford’s meeting was over, Greenspan asked where Pullen’s office was, and insisted on walking there with her.54
“My mother says, ‘It seems to me that economic policy is about robbing Peter to pay Paul,’” Pullen ventured.
“It’s pretty close,” Greenspan indulged her. He mentioned something about Ayn Rand, and said that he would soon be off to a conference in a place called Davos. When he got back, he would be sure to be in touch with her.
Pullen got hold of Rand’s novels but found them mostly impenetrable. The first was about an architect who blew up a building because it deviated from his original design; it was hard to relate to that when you worked in the Washington sausage factory. But when Greenspan called a few days later, Pullen happily accepted his invitation to dinner, and the two went to a place near Congress on Capitol Hill, the very citadel of sausage making. Pullen chattered excitedly, filling the space created by Greenspan’s shyness with a stream of vivid stories. Her mother had sent her off to teenage parties in Nashville wearing long white gloves; she had been a reporter in Memphis covering civil rights; one time she and a news photographer had given chase to a local murderer known as the “cunning sex killer.” Pullen was hitting her stride, impressing this big guy from the White House; and then, with one particularly vivacious wave of the hand, she knocked over a bottle of ketchup and spattered red gunk over the table.
Pullen felt an urgent longing to disappear into a dark hole. But slightly to her amazement, Greenspan didn’t seem to think that the evening had been ruined. He just looked at the tablecloth and laughed an unfazed laugh. It was the beginning of a romance that would run and stop and start again.55
• • •
Toward the end of February 1975, Greenspan attained a new measure of fame—or perhaps infamy. A close-up of his face, with its heavy dark-rimmed glasses and soft eyes, filled the entire cover of Newsweek. Kaye Pullen’s mother saw the photograph and was thrilled that her daughter was dating a celebrity, although she wished he were not Jewish.
The coverage inside Newsweek was less flattering than the photograph. A profile began by describing Greenspan as a “creeper”—“an unprepossessing presence who moves inchmeal through the roil of a Georgetown cocktail party leaving hardly a wake.” People had begun to remark on Greenspan’s curious combination of charm and awkwardness: he had a gift for getting along with powerful people, but his shyness flooded back when he navigated social gatherings. “He does not flow easily from one major conversational group of celebrities to another,” the Washington Post reported, “but walks through various rooms looking as if he is going somewhere in particular—then you see him later heading back with the same purposeful expression.”56 Some people wondered why Greenspan bothered going to parties at all; he did not appear to be at ease in them. A few who remembered his Senate performance might have thought back to his opening remark—this man who professed never to be at the center of things seemed determined nonetheless to occupy a central place in Washington society. Some mysterious demon inside him must be driving him on. Perhaps, as the economic adviser to the leader of the free world, Greenspan felt compelled to claim the glamour that was due to him.
After labeling Greenspan a creeper, Newsweek allowed that he was likable, energetic, and possessed of the ear of the president. But it shared Senator Proxmire’s suspicion that he was not to be trusted with it. “Greenspan’s stern policy prescriptions have earned him a reputation as an insensitive Neanderthal,” the magazine reported, adding that “many in Congress still doubt the wisdom of installing a CEA chairman who seems committed to the laissez-faire doctrines of a century ago.”57 A long essay accompanying the profile argued that Greenspan’s supposed enthusiasm for austerity was especially risky in a time of recession. “Do Gerald Ford and his advisers know what they’re doing?” Newsweek demanded. Unemployment had reached its highest point since 1941, but the inflation-obsessed hawks around the president were set against a real stimulus. The president, said one Democrat, was “getting the same kind of economic advice that Herbert Hoover was given,” and the chief provider of that advice was the “ultraconservative” White House chief economist.58 If austerity failed, Greenspan would surely be disgraced. “He’ll be Alan Shortspan back in New York,” Newsweek’s reporter quipped.59
Amid this storm of criticism, Ford’s approval ratings hit the lowest point of his brief presidency.60 Feeling the wind at their backs, the Democrats in Congress began to work up their own version of a stimulus, and in March both chambers passed a tax cut of $22.8 billion—a considerable expansion of Ford’s original proposal. The president had to decide whether to veto the measure and take full responsibility for an unemployment rate that had passed the 8 percent mark, or bow to it.
Greenspan’s position was now more uncomfortable than ever. After Ford had decided on a tax cut in December, Greenspan had responded by tracking the weekly GNP, and that gauge was now telling him that the worst of the recession was over.61 Starting around mid-February 1975, he had “felt reasonably confident we were okay” and that “a marked recovery was a statistical necessity.”62 For Ford to sign a stimulus in late March would be to commit precisely the error that fine-tuners always made: by the time a recession captured Washington’s attention and Congress drew up a bill, the stimulus was unneeded, wasteful, and potentially inflationary. But if Greenspan advised Ford to veto the tax cut, he would be exposing the president to political risk, potentially ruining his chances of election the following year. The weekly GNP gauge, however encouraging, could not provide proof of a recovery beyond all reasonable doubt. Given the uncertainty, could Greenspan really tell Ford to gamble on a do-nothing policy?
Ford demanded that his advisers state their recommendations to him in writing. Treasury Secretary Simon responded with a memo urging a veto. Arthur Burns supported him, maintaining that “if the tax bill becomes law, our national finances will be distorted for many years.” Burns feared the bill’s temporary provisions would become permanent: it was always easier to distribute candy to voters than to cut off their sugar supply later. “If you do not take a firm position on fiscal responsibility now, will you soon have another equally good chance to do so?” Burns demanded.63
With the Treasury secretary and the Fed chairman both opposed to the stimulus, Greenspan might have scuppered it if he had sided with them. But despite his frequent denunciations of deficits, Greenspan’s nerve failed him.64 On March 28 he advised Ford, “I recommend that the tax bill be signed but that you simultaneously come down very hard on expenditure increases.”65
Ford quickly accepted Greenspan’s advice.66 He signed the tax reduction into law, then wielded the presidential veto over the next months in an effort to rein in spending. He did so with sufficient energy to upset the Democrats: “This has been a government by veto,” Senator John Pastore of Rhode Island huffed. “We’ve got the minority dragging the majority by the nose.”67 But Ford’s veto campaign had barely any impact on the budget math: the federal deficit hit 3.4 percent of GDP in the year to June 1975, a larger shortfall than any that occurred under Lyndon Johnson. And unlike Johnson’s big 1967–68 deficit, which was followed by the balanced budget enacted during his last year, Ford’s 1974–75 deficit was followed by an even larger one. Just as Arthur Burns had predicted, Ford signed a measure extending the supposedly temporary tax rebate in December 1975, and the budget deficit for the year ending in June 1976 came to a shocking 4.2 percent of GDP, a postwar record.68 Moreover, the stimulus hit the economy with the lousy timing that a critic of fine-tuning might have expected. It pumped up spending just as it was recovering anyway, with the result that annualized growth hit a blistering 9.3 percent in the first quarter of 1976 before crashing back to 3.1 percent in the following one.69
Greenspan had become the enabler for a policy that contradicted his principles. He had lambasted Lyndon Johnson’s budget deficits; now he shared responsibility for permitting even larger ones. He had insisted that budget deficits were the cause of inflation; now he ignored his own lectures. He had required his staff at the Council of Economic Advisers to come up with a weekly GNP gauge whose express purpose was to signal whether a stimulus was needed; now, when that measure correctly indicated that no stimulus was justified, Greenspan had supported one anyway. Admittedly, he had supported the tax cut while simultaneously saying that spending should be restrained by means of vetoes. But this was a fig leaf. Given the nature of Congress, it was bound to be impossible to eliminate major programs; and Greenspan, who had long described inflation as a political problem, understood that better than anyone.70 Only a few months earlier, Greenspan had promised Senator Biden that he would not change his ideas according to the job he held; and for a while he had kept his promise by drawing a bright line between his honest analysis and his bosses’ policy compromises. But when it came to the tax question, Ford had asked him directly what ought to be done, and Greenspan had lacked the fortitude to join Burns and Simon in confronting the president with a tough message.
Greenspan’s conduct was not shocking by the standards of Washington. There was a chance that the economy might fail to recover by itself, and he felt he should protect Ford against the possibility that his weekly GNP gauge was mistaken.71 But the fact that Greenspan was following the ways of Washington was precisely the point. Half a year into his tenure, Greenspan had completed his journey from Ayn Rand’s outsider salon to the inner circle of power; he might still condemn the status quo from time to time, but in truth he was now part of it. In voting against Greenspan’s confirmation, Senator Proxmire had misjudged the man. Ideas were not what drove him after all; his courteous, clubbable, and nonconfrontational manner proved to be a better predictor of his conduct in office than his libertarian ideology. However disarmingly Greenspan might portray himself as a sideman, he was only human, after all. He wanted to be at the center.