As we delve into 1970, following the pivotal shifts of 1969, we encounter a year marked by escalating domestic economic challenges that compelled the Nixon administration to confront policies it initially abhorred. This period served as a crucible, forging the groundwork for dramatic policy reversals, driven primarily by the administration’s acute political calculations leading into the 1972 election.
The Economic Landscape of 1970: Stagflation and Nixon’s Evolving Strategy
When Richard Nixon entered office in 1969, his administration was committed to a neoclassical economic orthodoxy that explicitly condemned any direct interference with wages or prices. His first inaugural address in 1969 even echoed a broader sentiment of the time, confidently stating, “We have learned at last to manage a modern economy to assure its continued growth”. Yet, by 1970, the nation found itself entangled in a perplexing economic phenomenon: “stagflation”. Both inflation, which had climbed to 5.5 percent, and unemployment were on the rise simultaneously. This combination posed an “intractable dilemma” for policymakers, as traditional economic remedies for one problem often exacerbated the other.
The “performance of the economy disappointed many expectations and intentions” in 1970. This growing economic unease weighed heavily on the President. The year 1970 ended “on a sour political note for the president” as Republicans failed to capture either house of Congress in the midterm elections. Nixon and his team squarely attributed this electoral setback to the poor economy. This political reality became a decisive factor, causing Nixon to abandon his earlier commitment to “gradualism” in economic policy. Prioritizing jobs over inflation, which he saw as his greatest political vulnerability, Nixon understood that “some big changes needed to be made to his economic game plan”. As Chief of Staff H.R. Haldeman recorded, Nixon believed they could not afford an economic downturn, “no matter how much inflation flared up”.
Nixon’s personal focus was not primarily on economic details. He saw foreign policy initiatives, such as arms control with the Soviets and the opening to China, as his “real passions”. He explicitly told Haldeman in March 1970, “I do not want to be bothered with international monetary matters,” instructing that such problems “should be farmed out”. However, the economic pressures of 1970, coupled with the political imperative of the looming 1972 presidential election, increasingly forced his attention back to the domestic front.
Arthur Burns and the Reluctant Embrace of Controls
The year 1970 saw the beginning of Arthur Burns’s tumultuous tenure as Chairman of the Federal Reserve Board. Sworn in on January 31, 1970, Burns had been Nixon’s chief economic advisor during his 1968 presidential campaign and was a highly experienced figure. However, the relationship between the President and his new Fed Chairman was fraught with tension from the very start. At Burns’s swearing-in ceremony, Nixon, despite respecting the Fed’s “independence,” playfully yet pointedly remarked, “I hope that independently he will conclude that my views are the ones that should be followed”. Nixon’s “strong views on some of these economic matters” were clear: he wanted “lower interest rates and more money” to stimulate employment and avoid a recession, a lesson he keenly remembered from his 1960 loss to John F. Kennedy.
Burns, by contrast, defined his role at the Federal Reserve as protecting “the integrity of the dollar and to help foster a stable prosperity for the nation”. This inherent difference in priorities—Nixon favoring easy money for jobs, Burns prioritizing dollar integrity against inflation—set the stage for conflict.
Throughout 1970, Burns became increasingly convinced that traditional monetary and fiscal policies alone were insufficient to combat the persistent inflation. He began advocating for government controls on prices and wages as the “only solution”. Initially, these suggestions were for “voluntary measures” from business and labor, but he gradually concluded that only “mandatory regulations would suffice”. This position was “anathema” to Nixon, who “abhorred any kind of across-the-board intervention in the private sector”. Nixon felt Burns was “publicly beating the drum for wage and price controls” and “boxing him in”. He even expressed his anger, telling aide John Ehrlichman, “This Fed won’t be independent if it’s the only thing I do”.
The climax of this 1970 tug-of-war arrived in a significant meeting on November 20, 1970: Arthur Burns met privately with President Nixon. During this meeting, Burns “emphasized time was short, that he would eventually have to adapt [wage and price controls]. That events will force such a move, that chances of success in [the presidential election in 1972] would be best if he moved promptly”. The source indicates that Nixon “listened sympathetically”. However, given Nixon’s infamous avoidance of direct confrontation, “no one can be sure of what the president actually felt”. This sympathetic reception masked an underlying tension and Nixon’s tactical maneuvering.
Despite Nixon’s public opposition, a perception emerged in the media that an “implicit agreement” was taking shape between the two men. The New York Times famously labeled this public interplay the “Accord of 1970”. BusinessWeek agreed, suggesting that Burns was “offering the White House a concordant that could develop into a new framework for economic policy: monetary and fiscal policy would both be turned toward rapid expansion, and continued inflation would lead to intensified government intervention in private economic decisions,” implying forceful opposition to price and wage increases through controls.
However, this perceived “accord” was fleeting. Nixon reverted to his strong public opposition against controls, even as “rising wages and prices from collective bargaining continued to play havoc with the economy for the first half of 1971”. In a February 1971 message to Congress, Nixon flatly stated, “I do not intend to impose wage and price controls which would substitute new, growing and more vexatious problems for the problem of inflation”. This signaled that the internal debate and external pressures over the appropriate response to the economic challenges would continue to intensify, setting the stage for the dramatic policy shifts to come.
In essence, 1970 was a year where economic realities pushed a reluctant President Nixon towards policy options he initially rejected. Driven by political necessity, he began to acknowledge the inevitability of government intervention, a shift dramatically highlighted by the persistent advocacy of Arthur Burns and the rising tide of “stagflation.”