View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

LBJ Library
2313 Red River Street
Austin, Texas 78705

For Internet Copy:
Transcript, Arthur Okun Oral History Interview II, 4/15/69 by David G. McComb,
Internet Copy, LBJ Library.
For Electronic Copy on Compact Disc from the LBJ Library:
Transcript, Arthur Okun Oral History Interview II, 4/15/69 by David G. McComb,
Electronic Copy, LBJ Library.


Legal Agreement Pertaining to the Oral History Interviews of Arthur M . Okun

In accordance with the provisions of Chapter 21 of Title 44, United States
Code and subject to the terms and conditions hereinafter set forth, I,
Arthur M. Okun of Washington, D .C . do hereby give, donate, and convey
to the United States of America all my rights, title, and interest in the
tape recordings and transcripts of personal interviews conducted on March 20
and April 15, 1969 in Washington, D .C . and prepared for deposit in the
Lyndon Baines Johnson Library .
This assignment is subject to the following terms and conditions(1) The transcripts shall be available for use by researchers as soon
as they have been deposited in the Lyndon Baines Johnson Library .
The tape recordings shall be available to those researchers who
have access to the transcripts .
I hereby assign to the United States Government all copyright
I may have in the interview transcripts and tapes .
_ :
Copies of the transcripts and the tape recordings may be provided
by the Library to researchers upon request .

Copies of the transcripts and tape recordings may be deposited in
or loaned to institutions other than the Lyndon Baines Johnson Library .



April 15, 1969





Tape 1 of 2

This is a second interview with Dr . Arthur M . Okun.
his office in Brookings Institution .

Once again I am in

The date is April 15, 1969, and my

name is David McComb .
I'd like to ask something about Lyndon Johnson and your work under
him .

Was he a difficult man to work with?

Was he hard to see, for example?

I think it's important to separate my relationship to him in the period in
which I was a member and the period in which I was Chairman .

The whole

operation of the Council leaves in the Chairman's hands most of the
responsibility for any direct dealing with the President .

As a member I

would see the President from time to time but never felt a direct
responsibility .

I'd talk to him occasionally .

through Gardner Ackley .

The contacts were largely

Certainly I didn't feel any sense of responsibility

directly for the Council's relations to the President .

You might say something about your appointment as Chairman then, go into
that .


Yes .

I knew that Gardner Ackley was interested in resigning from the

chairmanship in late '66-early '67 and basically just that the pressures
were accumulating on him physically and personally .
Your work week is fantastic .

It is a grueling job .

He had been doing it for four-and-a-half

years, and he just wanted an opportunity for a more relaxing kind of activity .
I don't remember when he first made it clear that he had asked the
President for authority to leave .

I did suspect that the President had

asked for his recommendation and quite likely that he would recommend that
the President ask me to be Chairman .

It was actually during March 1967 at

a time when I was really in the last throes of planning to return to Yale
for the

'67-'68 academic year, really ready to tell my tenant to get out

of my house back in New Haven, and end my

lease here and so forth, that

I think Gardner made a stronger plea to the President for authorization to
leave his job .
It was during the week that Gardner was in Europe on some OECD meetings
that the President called me into his office--I believe it was March 25,
1967--and he said at that point that Gardner was interested in
that he was going to ask Gardner to stay through the economic
'68 report .


And he asked me whether I would serve as Chairman .

This was about a fifteen-minute conversation in which he did all of
the talking .

I knew I was prepared to accept right on the spot .


somehow I did jot down some notes on that conversation, but I think I pretty
well remember it .

He said that he wanted to make it clear that he was not

asking me merely because I was there and sort-of the second man and the
obvious choice, but rather that he had asked lots of people for their views-the Secretary of the Treasury, Budget Director, people outside the
government--and had this fully explored, was convinced I was the man for
the job .

He went out of his way to reassure me on this rather long period

of interregnum that--we were talking about my assuming that job ten or
eleven months hence .

I guess I was particularly amused and impressed that

he said, "Look, this may leak into the press .

I recognize that .

it doesn't, but that's really up to Gardner in part .

I hope

If he felt that he

wanted to make it clear, maybe there's some purpose in not now,

but sometime

before January or February of next year, preparing the way by announcing it .

That's up to him .

I'll be glad to go along with it .

In any case, even

if it should leak tomorrow--don't you leak it tomorrow, but if it should
leak tomorrow, that's not going to change my view ."
length to say that he'd never

He went on at some

lost a good man yet because of the premature

news of an appointment and that this was one of the many myths that had
been invented about his operation ; that it was important to him to have
the best man, and the question of when the public knew about it wasn't all
that important .
He also said some things at that time about the good advice the Council
had been giving him, and his recognition that I contributed to it ; his
regret in some instances that he hadn't taken, or hadn't been able to take,
all the advice he got from us .

-I don't remember whether he made particular

reference at that time, but I know a number of times he did mention that
somehow if the tax increase and the fiscal restraint that the Council had
been recommending early in '66 had become policy, we would all be in
better shape .



He also recognized and emphasized his appreciation for the

Council's hard work and long hours .

He was very sensitive to the fact that

people did put in a lot of effort for the Administration, for the country-very appreciative of it .
It was remarkable actually that that story didn't ever really leak .
It was announced deliberately on January 2, 1968, as I recall .

And, as I

say, it was a very amusing example of the kind of problem of communication .
There was immediate speculation when Ackley's resignation was announced as
to why he left, and whether he was falling out of grace, whether he had
been pushed--the typical kind of press insistence on finding some ulterior
motive and some hidden meaning, lurking under the bed .
In the first couple of months of the chairmanship I was rather concerned

that the President didn't seem to be turning to the Council as often as
he had when Gardner had been there, and perhaps took it as a bit of a personal
affront that he didn't seem to have the confidence in me
Gardner .

that he'd had in

I think the real breakthrough in my feeling of participating

and really getting the Council's voice through came
the tax debate was at

around mid-May when

its peak .

You know, the Council is in rather a unique position--perhaps not
unique, but different from many of the President's advisers in that there
are no operating responsibilities .

The Secretary of the Treasury has

business to transact ; he had decisions which he has to make on which he
wants the President's approval .

He had decisions which only the President

can make where he has to make recommendations that something has got to
be done one way or another .

He can't get ignored in some sense .

thing is true, really, of the Budget Director .

The same

The Council doesn't have

any of that sort of obvious entree to the President, claim on his time .
There are no decisions, no operating responsibilities .

Did the President's


It hit like a ton of bricks .

decision not to run again affect you in any way?
I had seen the draft of the speech right up

to that last couple of paragraphs .

I remembered afterwards that when the

speech had come over, Harry McPherson's secretary had alerted us that the
conclusion was missing .

I thought, well, that meant that some grand

peroration or summary at the end was going to be tacked
words were ominous .
I had seen .

on .

Boy, those

The conclusion was missing indeed in the draft that

I think it struck me all the more, having sort of read the

material and having commented on the economic points of the speech, then
sort of waiting for it to end,

and finding he was going on .

I think there was a lot of implication for lots of people around, and

yet you could see a

sense of concern about people's own future .

Lots of

people began planning ahead toward January 20 who would otherwise not have
been doing so .

I don't think it really affected the operation of the

White House or the Administration in any significant way .
remarkable how right until January

It was just

19 it was "business as usual", and

the President was the President--he wanted to know everything that was

on and with no real change in his attitude .


quality whatsoever in his feelings about

There was no

lame duck

the world .

I think in putting together the fiscal '70 budget program and the
legislative program a lot of the Cabinet agencies seemed to have a certain
detachment and lack of enthusiasm that was a reflection of the lame duck
character of the Administration . .

Even there, that was not uniformly true .

Wilbur Cohen was fighting the battles right to the last minute .

But I

think as far as the operation of the Administration is concerned, the
remarkable thing was how little it meant rather than how much .
I knew the Vice President .

I certainly enthusiastically supported

him, did a little moonlighting in providing him with some speech material,
worked with his staff on some economic matters during the campaign .
Obviously I don't know whether he would have asked me
election turned out differently .

The press' judgment was that Art Ok

was safe in his job if Humphrey won .
although I'd never had much

to stay on had the

I would have been glad to serve,

of a close relationship with the Vice President .

It wouldn't have surprised me if he had turned to people whom he personally
knew better and asked them to come onboard .

After you became Chairman of the Council, how often did you see


Say, three times a week, or what?

It varied .

I don't think it averaged three times a week .


It would be

maybe more than once and probably less than twice a week on the average .
There would be periods, particularly at the beginning, when--I would guess
from mid-February until mid-April that I saw him only four or five times,
and this did concern me .

When I did see him--in those--circumstances I had

no real occasion to ask for a meeting .

In fact, I would guess I probably

asked to see him no more than three or four times during the eleven months
that I was Chairman .

It was almost always at his initiative .

There was

throughout clear evidence that he was reading the stuff that we were sending
him .

How often would you send him memos?


Flood--that would average about once a day that he would get a piece of
paper from us .

Once a day?

Now some of these were what we called "Economic

Newsnotes" .

I think I mentioned last time that he'd asked Walter Heller right early
in 1964 to keep him briefed with information on anything he wanted to know
about that was going on--economic numbers, views that were expressed that
were of some significance, foreign attitudes, Congressional hearings on
the major economic problems--inflation,
monetary policy .

prosperity, questions of that--

I would guess there were ten or twelve newsnotes a month

which were purely--"the Federal Reserve Board Index .of Industrial Production
went up a lot" or "didn't do much," and "this is significant", or, "it adds
to the evidence that the economy is moving strongly," and so forth .


would just be, you know, a couple of numbers and a couple of sentences .
I remember on a number of occasions mentioning something to the President
and his saying, "Oh, yes, I know that .
last week ."

You had that in the memo to me

There was just lots of evidence of that sort that he did his

homework .

Did a lot of this go into the night reading?


Yes .

In fact, there was always a real procedure of trying to make sure

that Juanita or whoever was on duty to put his night reading together was
going to get our piece of paper in there .

I think on one or two occasions,

perhaps during the time I was Chairman, I had some little complaint or
reminder that he had read something
known about before .

in the newspaper that he should have

In some ways that was a compliment,

that he did rely

on us for the information and briefing material .

The President has the reputation of having a rather bad temper .

Did you

ever see an example of that?

No .

I never really saw him display temper .

I saw pieces of evidence

which are not inconsistent with someone who under some circumstances could
lose his temper .
hide his feelings .

When he didn't like something, he made no attempt to
I've seen him cut people off rather sharply .


But this was never a problem to you?


No .

I was trying to remember whether I could ever say I got anything such

as a real bawling-out .

I guess the closest it came was back in the spring

of '66 there was a story that Ed Dale had in the Times which angered the
President and which he was convinced came with the help of some briefing
background from the Council .
He got me .

And he got on the phone, and Gardner was out .

He made it clear that he was angry .

language that might have

gone something like :

His kind of strongest
"If you fellows want to be

the economic advisers to Ed Dale, then you don't have to send me your memo
anymore," or something like that .
invective .

It was obviously anger .

It was no

Words of displeasure coming from the President of the United

States take on an added meaning .
I think perhaps the sense in which he might have been hardest to work
for was that it was very hard on many occasions

to get him to react to

something, to tell you what he thought of it, to indicate which way he was
. coming down on an issue as it was getting down the

homestretch .


secrecy, the keep-the-options-open kind of strategy, which is attributed
to him--there was a good deal of validity in what I saw of his obvious
way of working .

Was this kind of secrecy necessary?


I don't know how you'd define that .

Maybe it was necessary to him .


remember some examples under President Kennedy when virtually transcripts
of meetings in the President's office appeared in the press .

That kind of

thing is just terribly disruptive of government operations, not for
political reasons in the narrow sense, but really it seems to me that if
the President can't get the honest advice of his advisers

without their

worrying about how it's going to look in the newspapers, whether they're
going to be on record in a way that . when he makes his decision everybody's
going to know that he was on the side of A, B, and C, and rejected the
advice of X, Y, and Z--he just can't get the kind of advice

he needs ; he

can't get the kind of unified Administration position that you need
you've made a decision to go up the Hill and

to present the case .


concern about the destructive nature of leaks and press speculations and
so forth was not entirely

idle by any means .

It had a good deal of substance

to it .
Now, how far it went and all of that, it did seem extreme to us at
times, just working for him .

It made it harder

to really get a feeling

of what considerations were uppermost in his mind because he did hold his
cards close to the vest until he was ready

to come down to a decision on

something often couldn't find out quite what was the trouble.
I had a report which was negotiated by the Cabinet Committee on Price

Stability that was established last year .
authorization to release it .

We wanted the President's

This wasn't anything formal .

Certainly it

was the kind of thing where it had some substance ; it was going to be a
newspaper story ; surely the President should have an opportunity to see
the report, to rule on whether this was the kind of thing he wanted to
make public or not .

I sent it in with a little summary note on it,

explaining what I thought was of substance in it ; how I expected it to
appear in the press when it was written up ; why we felt it was a desirable
thing to make that report public ; and then supplied the traditional "Yes,
No" box .

Nothing happened for a few days .

I guess I spoke to--I don't

know who--whether it was Jim Jones or Juanita Roberts, asking whether
that was in fact on the President's desk .
seen it .

Yes, it was, and, yes, he'd

And he just put it back in the pile .

and nothing happened .

A few more days went by,

I saw him in an interagency meeting and was hoping

to get a chance at the end to catch him and call it to his attention .
Didn't .

[I] just didn't know quite how to approach it, and didn't think

he would take too well

to a phone call which very bluntly said, "Mr .

President, what have you got against our report?"

or, "Why don't you want

to react to it?"
Subsequently, I saw him on another matter and did raise it .
it over and said, "Yes, that's fine .

Let it go ."

He wasn't a guy to let his "In' box accumulate .
didn't want to bother .

He looked

And I'll never know why .
It wasn't that he just

I know he did his homework, and there was some

reason why he wasn't convinced or wasn't sold or something, and then
subsequently let it go .
There are a few other examples of that sort, this perhaps was the most
significant one .

It was a little hard to know how to operate--why exactly--


Did he understand the memos that you sent him?


Yes .

We made every effort to communicate in non-technical terms and

--didn't feel the President

should have to learn a lot of professional

economists' jargon to know what was going on in the world, that it was our
job to put the thing into. laymen's language, if you wish .

There were

several times when he complimented us on the fact that he could always
read our memos--very spontaneously when he signed the 1969 Economic Report .
I was very gratified and delighted .

I know that it wasn't in anything that

any speech writer had drafted for him .
something about how pleased he'd been
had been able to write economics .

He went off at the end and said
with this Council and all his CEA's

He joked a bit about the fact that he

would have learned a lot more economics as a student if he had had books
which were written by people who wrote

as lucidly and clearly as we

did .

There was a grand tradition whereby an awful lot of Treasury memos
that came to him were bucked to us for what we used to call "English
translation ."

He didn't make any comment in every case .

Sometimes it

would just come over with a note from anyone ranging from Mrs . Roberts to
Jones to Califano or Levinson just saying, "The President wonders whether
you could summarize this and develop the issues in it ."

It was clear

that he wasn't happy with the kind of memos he was getting from Treasury
and that he was counting on us to do a better job of exposition .

We used

to wonder where the Council would be if the Treasury could write .

Did he have lots of physical energy?


Tremendous enthusiasm, energy--you know, just bounded out all over the
place .

It was an inspiration, I think .

There was no question that working

at midnight was a lot easier knowing that my boss was also willing to do
that and that he was as alert and hard-working as he was .

When he reflected

on this, as I say, he often expressed his appreciation of the grind that
we went through .

On the other hand, on specific things he often showed

very little conception of the time of day or the work week .

It was not

uncommon to get a call from one of the White House aides saying, "The boss
would like a piece of paper
This might come in at

for breakfast tomorrow, laying out the following,"

6 p .m., and it might be a very complicated issue

that required quite a bit of staffing out .

But he got it at breakfast,

although. it may not have :beeh the :best :memb .that could have .beerx -,written, and
he read it .

And the fact that he read it made it worth doing too l


he did take it seriously .

How many hours a day would you work?


I never really kept a record .

I'm not an early bird .

I got into the office

9, or 10 after 9, but rarely left before 8 :30 p .m . ; often took home work .

Your worst working time would be in the preparation of the economics report?


Yes .

The hours I just outlined were sort of the regular peiiod .


the report, I think I literally averaged a hundred-hour work-week from
Thanksgiving until January 10 .

I think there was one week when I never

got home before 2 a .m . at the earliest .

I saw more of the President, I

think, during the budget making and the economic report period than at any
other .

There was a meeting for obvious consultation .

There was a lot of

negotiation on this whole issue of what the Nixon people would say about
the surcharge and such .

Would you help draft speeches, say, for his--?


Yes .

Several occasions I was the principal draftsman of speeches he gave--one

to the Business Council last May, things like signing the Economic Report,
and things like that .

There were other examples .

Almost everything that had any major economic content would come

across to us .

We had very close relations with Joe Califano, good relations

with other people--Harry McPherson, Charlie Maguire .

Hence I think it's

fair to say that almost nothing on the economic front ever took us by
surprise, and that's very important .
Were you at work with these other members of the White House staff in
M: preparing a draft or a speech?

Yes, that's right .

Did you pass it back and forth?

Sometimes we would be asked to draft a couple of

paragraphs of economic content in a speech .

Sometimes we would just get

what had been drafted for the President by somebody else and try to
straighten out the economics and put the numbers in .
steady flow of briefing . material on the record

We also provided a

of prosperity and poverty

reduction .
I always joked that the most frequent call on the White House line for
me was the question of "What month are we in?"


of the speech writers

or press guys could ever quite keep straight the calendar on the length of
the economic expansion ; and they would often begin with an apologetic,"I
know I asked you this recently .

I can't remember whether it was last

month or this month that you told me it was eighty-nine .
eighty-nine or is it ninety?"

Now is it still

It was a very informal and very easy

relationship .
I think it was important .

I think on a number of occasions we really

were able to shape some of the ideological, or contribute to the ideological
image in the Administration by suggesting words to the President ; in other
casds, to head off some things which we thought were undesirable .

And the

speech writers in the White House were very sensitive to nuances, at least
to the extent of recognizing this even when they couldn't quite grasp the
substance .

You know, there would be a Rose Garden speech to give a 4-H

gal a medal and something would come over from Agriculture suggesting
what the President ought to say, and sometimes in the purple prose there
was a real policy initiative, and occasionally a policy initiative that
really had never been thought through .

It was not uncommon to find an

agency trying, if you will, to hook the President on some words, and then
two months later saying, "Look, this is foreclosed .
it .

You can't argue about

The President said he was going to send up a program ."

When indeed,

the President was handed something on three minutes' notice which he
didn't expect to have any great substantive content in it .
I remember an amusing series of incidents of this sort back in '65
and '66 .

Some of the White House speechwriters, in trying to put the

emphasis on Great Society goals and human considerations and so forth,
often seemed to deliberately downplay economics as though there was a
basic conflict between the human considerations and the material considerations .

There was one speech which kept on back and forth--it

was, as I

recall, Dick Goodwin who drafted it--which said, "We must be concerned about
the quality of our goals and not the quantity of our goods ."
trying to change it to "as well as the quantity of our goods ."

We kept

implication somehow that it helped humanity if we stopped producing goods
and services never struck us as a very logical conclusion nor one that
seemed consistent with the way the President viewed the world .

There's a

lot of fussing about the President's words, and there ought to be .


does have an element of the image of the Administration .

Was it fairly easy to work with the White House staff?


In general, yes .

A clearer delegation of authority and jurisdictions and

so forth would have made it easier .

When in doubt, we always turned to

Califano and had very close relations with him .

I could imagine that some

of the Cabinet officers would have found it more difficult, particularly .
There's no-question that toward the end Califano and his extremely able
and very small staff was really, in many cases, operating independently of
Cabinet officers in areas in which they were responsible,
I mean, it was easy to have a kind of Executive Office alliance,
Budget Bureau and Council .

It was terribly important to us that there was

no economist in the White House and that the only place that there was an
answer to the question of "what month are we in," or "what's the percentage
increase in real living standards since November 1963 "and all the other
trivia was through us .

I think the responsibility for that kind of trivia

also gave us a kind of natural "in" on things that were by no means


as well as on stubbing our toes ,pn things that looked trivial and weren't .
It's in this sense, I think, that there might be grounds for concern
by my successor on the presence of Arthur Burns and his
House .

deputy .in the White

I think there has been a lot of discussion of that .

I'm not sure

how--just comparative government organization is of some interest to me .
You know, Arthur Burns is a former Chairman of CEA, and indeed, he deserved
a lot of credit really for saving the life of the Council in 1953 when it
looked as though Eisenhower might not use the Council at all .

I think on

grounds of institutional loyalty and on grounds of his own very good
personal relationships with Paul McCracken, he'd lean over backwards to
avoid stepping on Paul's toes .
At the same time, I think the fact that Burns and Marty Anderson, who
is a younger guy now who works for Burns, maybe one or two other economists,
who are closer to the President's desk and closer to his ear and closer to
the White House staff, will interfere with the flow--well, let's say, reduce
the flow of communication between the White House and the Council .

Walter Heller says that Saulnier told him back in January 1961 when
Walter was ready to take over that he thought Walter might be making a
mistake in asking that there not be an economist in the White House, that
this was going to force Walter into doing all kinds of trivial things
like worrying about the Rose Garden speeches--and gosh, it certainly seems
to me a misassessment of where time ought to be spent .

Anything that the

President is going to say, anything involving his words, actions, and so
forth, has got to be top priority for the Council .

You mentioned earlier that the surcharge was sort of a breakthrough for
your relationship with the President, as Chairman, and it's obviously an
important event in the Johnson Administration, so we might talk about that
somewhat .


I just thought of another example of where there is some substance to the
problems of the President's concern about secrecy and privacy .

The whole

issue about tax reform last year was one where I'll never quite understand
why the President felt, as he did, that a bill should not be sent up, that
he should not take a position on this .
were raised about it .

Memos went over to him ; questions

He always listened ; he always responded ; he always

showed interest, but never moved, and never any real explanation .


that he owed an explanation, but it does get hard to operate in an
environment where at times you don't quite know what it is that's bothering
the boss . .

It would have been easier if we'd had a better understanding

of what the negative considerations in his mind were .

Was there trouble on the Hill over this?


It could have been .

Was that part of his problem?

I am sure it would not have been universally applauded .

On the other hand, a case could have been made, and there were lots of
issues which ran into more trouble on the Hill than tax reform where the

President was perfectly ready to take a stand .
There is one element in the whole posture of the Johnson Administration
which may have made tax reform unattractive to him .

All the way through

the President did operate on this sort of consensus basis of never being
anti-business or anti-farmer or anti-labor or anti-anything else .


most of the economic policy was sold on the principle that the real
benefits are in enlarging the national pie and more for everybody, and you
don't fight over the sharing in the pie .

When we did things for the poor,

you could defend these to the middle classes as turning tax-eaters into
taxpayers .

It was no real sacrifice explicitly in doing this .

tax reform is a divisive issue .

It's a class issue .

You know,

But I'm speculating

on sort of what the negative reaction was .
And this kind of thing, it seemed to me, made us always looking for
clues and hints .

I heard that the President had asked one of the guys in

the White House whether it was true that every will in this country would
have to be redrawn if the Surrey estate tax program was enacted .
could that be a major factor inhibiting him!


Things like that where you'd

be trying to guess what kind of argumentation, what kind of documentation,
what kind of a presentation would really sell him and convince him .
You know, I haven't been following all the miserable Johnson biographies
that have come out, but I guess I do have a feeling that there's some
degree of substance in all the criticisms that are made and yet
caricatures--they're completely caricatures .

they are

They miss a lot of the

breadth of the President's character, and they miss the warmth that he could
show and that he did hhow on many occasions ; they miss his dedication of
principles and his real interest, I think.

The guy could just light up

with enthusiasm and inspire everybody around him with enthusiasm when he'd

talk about what equality of opportunity ought to mean and what


importance was of having job security for American families and things
like that .

It could be very moving to listen to him really get started

in a very spontaneous, very earnest way about what he saw as the goals
of this country .

And it . was not the picture of the wheeler-dealer, the

riverboat gambler type of operator, yet there were nuances

of that at

times, and there were indications of his really seeing ways of using


that could be Machiavellian in a way--the whole sense of making things
feasible when the goal was right by techniques that may not be right out
of Hoyle .
I'm sure that when there was a key congressman who needed to be
convinced on a measure, and

if the thing that convinced that congressman

was a compromise on some other, less important measure, or an appointment
that was near and dear to the heart of that congressman, even if that would
not have been the President's first choice, he'd give way .

Things like

that, I suppose, detract from the purity of the image and all that, but
they also were the essential difference between the legislative success that
he had, particularly in the pre-Vietnam period .
I think I was really struck by how he approached proposals in terms
of, "How do you turn them into legislation, who has to be convinced, who's
going to be against this, who's going to be for it ."

In many cases when

we made a recommendation on policy, this was immediately when he said,
"Who's going to lobby against it ; what are they going

to say, how are you

going to answer them ; how are you going to sell this ; whom do we need?"
He didn't ask us whether we could count the votes, but he was counting them
all the time .

"How do you get the 218 in the House of Representatives

and 51 in the Senate!"

That was the name of the game and he was a master

at it, and everybody who had any contact with previous Administrations
said it had never been done before .

Did you have


We worked very little on the Hill .

to work much on the Hill?
Indeed, in some respects I wish we had

had better contacts and more contacts .

We made a few pilgrimages .


operating responsibilities for most of the legislation that we were inter
ested in lay with Treasury, and we worked a lot with their people in
providing briefing material and information and speechwriting and such .
I should say also of course with the White House legislative liaison . staff-Barefoot Sanders, Mike Manatos .

The Congressional Record was full of our

words when a friendly congressman or senator would make the right speech
on the right issue .

You didn't get your tax reforms--all of them that you wanted .

You did get

the tax surcharge .

We did get the tax surcharge .

We didn't get any reform .

We didn't get

the President onboard a tax reform, and Joe Fowler, who was really pushing
this very hard on his own, got the President's authorization to send up as
a Treasury staff program a tax reform program in the closing days of the
Administration .
You raised the question--I was wandering after you asked about the
surcharge issue .

The President's surcharge recommendation went up in

August '67 P and that followed a Troika recommendation .
problem there whatsoever .

There was no

The President was firmly onboard, and basically

when the Troika told him that the economic outlook

seemed strong enough

to be able to justify and make the case for the tax increase in the summer
of '67, he moved really on that recommendation .

It wasn't difficult to convince the President that you needed the surcharge?


Not at that point .

There was a whole other and

very different episode

from December '65 until the summer of '66 where there had been a constant
battle to try to convince him that something needed to be done and that it
was important for him to use whatever legislative skills he had--his enormous
legislative skills--to try to achieve it .
Then there was a period

from September

'66, roughly, until mid-'67

when tight money had pretty much brought the economy under control ; and
indeed for awhile it looked as though that all the dangers were on the
other side of possibly falling into a recession .

The January '67 budget

did contain this proposal for a tax increase to be enacted at mid-year .
I guess I think of the notion of a delayed measure of that sort as being
my idea, I carry it proudly .

But it was clear that you'd have to wait

until economic activity was perking up, and people were no longer talking
about recession, before you either wanted a tax increase or could hope


make a case for it .
Then there was this period late in '67 when the basic problem was
trying to convince the Congress that we needed fiscal restraint .


when we moved in '68 it became very clear that the economy was going too
fast, and nobody could deny the need for fiscal restraint .

Then all the

peripheral issues came up, some congressmen saying, yes, they would be for
the surcharge, but only if it was coupled with tax reform .

Others, yes,

they would be for the surcharge, but only if it was coupled with some
increase in high priority federal programs ; and others, yes, they'd be for
the surcharge, but only if it was coupled with a big cutback in federal
programs .

And it was awfully hard to find that consensus here .

It was particularly tough .

Congress wanted the President essentially

to eat his January budget recommendations and revise them and, in effect,

confess that they were bigger than they should have been .
that way .

He didn't feel

I think he was right in feeling that the January '68 budget

program for fiscal '69 was a good program .

If-they wanted to cut it, fine,

that was their business, but this demand that he do the cutting I think
particularly infuriated him, and with a good deal of justification in
terms of the whole tradition and

legislative-executive division of authority

and power .
And yet, I think it was at that point that when this thing seemed to
be falling apart there was a conference involving the Senate bill that
carried the tax surcharge coupled with a six-billion dollar expenditure
cutback, and a minor House bill which did not have a surcharge or the
expenditure cutback in it .

The initial House bill was just extending a

postponement of an excise tax cut .

While the conference seemed to be

falling apart because there was no agreement, it was clear that they were
waiting for the President to ask for a reduction in expenditures or accept
it .
During this early period I felt I was not getting into meetings that
Gardner would have been in on and [I] was concerned about it .
even then there was a good deal of contact with the President .

Let me say,

example, he gave a speech I wrote for him to give at the Business Council,
one of those things .

When it looked as though the conference might bust

up, I sent the President a memo urging him with a degree of emphasis and
candor that we didn't usually use that if the only alternative to a
failure on the surcharge was a cutback in programs ; that I felt very
strongly that the latter course was better for the country, that certainly
he needed to establish on the record that he wasn't being intransigent on
the budget cutback issue, and that the opponents of the surcharge would


always have that as an excuse if the thing failed and if indeed there
were--adverse consequences .
I got invited the next day to a meeting which involved the House
leadership as well as Fowler and Charlie Zwick .
meeting by reading my memo .

The President began the

It was a very exciting meeting .

I would say

that there was a good deal of emotion, certainly on Wilbur Mills' part,
in which he was protesting his allegiance to the President and high regard
for him and insisting that all his actions on the surcharge had been
entirely misunderstood .

I would say that in

the course of that meeting

that Wilbur Mills made an unqualified promise to the President, which he
subsequently broke, that he would make every effort
through with a four-billion dollar cut on it .

to push that thing

To the best of my knowledge

there was never any explanation of why he just turned around on this .
made apparently no effort to get the four-billion dollar cut .
he pushed it through with a six-billion dollar cut on
tense .

it .


In fact,

But it was very

The President basically at that meeting said that he would agree

to give his full support to the combination of a surcharge and a four-billion
cut .

And while there was a little bickering over whether he would make

the statement or Joe Fowler would make

the statement on behalf of the

Administration, he refused to make the statement .

Do you think the reading of your memo was

a sort of breakthrough for you


Yes .

I'm not claiming that he came out any differently on it, but at least

my morale was very much affected .
"All right .

At the end of the meeting, he said,

Did I do what you told me?"

So I said, "Yes, sir ."
He said,"All right, you can have your memo back .

I don't need it any

more ."

I guess it was the first demonstration on an issue of considerable

controversy that he was taking my advice very :seriously, and not just
using me for a briefing and information service .

And I suppose the

sensitivity of a new man in the job--I needed something like that to
provide me the reassurance .

Did you have anything to do with the gold crisis that came?


Yes .


That would be November '67 .


Yes .

My participation in the whole international monetary area really

began'way back in the fall of '65 when that Deming group was formed .


Bator, who was on the White House staff at that time, felt that there was
a strong need for some kind of more formal and still informal interagency
group that would report to the President on these issues, and Fred Deming
chaired the group .

Francis Bator, Dewey Daane of the Fed;-Tony Solomon .of

State, and I were the other four members .

It was a group of five .

We met

regularly, a primarily principals-only kind of session in Deming's office,
not the big staff meeting type arrangement .

It got to be a very good group,

I think, because we worked through the issues, and we did them when they
weren't crises .

We did a lot of contingency planning .

We developed a

very close relationship which transcended agency positions .
report regularly to the principals or ask for authorization .

We didn't
Then when I

became Chairman, that took me out of the Deming group ; and Jim Duesenberry
became the Council representative there .
But this is where the SDR posture and negotiating position and plan
got hammered out .

It was where we talked and defined gold policy .


Did the two-tier system come up in your meetings?


Yes .

Interestingly enough, we pretty much rejected that in our contingency

planning .

We talked about what would happen

if the gold market blew up

after a sterling devaluation, and the general position of the group was
that the contingency plan ought to be to stick with it and pay it out with
a smile and lose the gold if necessary .

We did this for awhile .

As you

know, in December of '67, January and February of '68, it looked at one
point as though the outflow had stopped, and then there was another meeting
at which unfounded rumors came out and Fred Deming was taking a pasting in
the journalistic history of the period for indiscreet remarks at a meeting,
some of which he never made .
But anyway, for whatever reason, the second meeting that Fred Deming
went to on the gold crisis, which was really supposed to reaffirm and
celebrate the victory of the first meeting in curbing the outflow, just
triggered off another outflow that got up to hemorrhage proportions .


was at that point, I think, that the negotiability of the two-tier system
first became clear .

I don't think we could have gotten the other countries

onboard if we had opted for that earlier .

They had bled a little, and they

knew that some accommodations had to be made .
losses of gold .

They wanted to stop their

They didn't want to keep paying it into the gold pool,

and they became very enthusiastic about this .
My own position right at the end was "keep paying it out and try to
keep a stiff upper lip ."

Bill Martin shared that view, too .


Why did you take such a position?


I was not as optimistic as I should have been about how well a two-tier
system would work .

I felt that perhaps a crisis would have been a way to

demonetize gold, and I think the sooner that happens the better off we'll
be .

It wasn't that I was really eagerly looking for crises .

I think there's

no doubt that much would have been made politically about the horrible

gold outflow and the departure from that under Johnson and such .
In retrospect the two-tier system, which was really worked out with
the Deming group, was originally an idea of Carli, the Italian central
banker .

That turned out to be a good idea .

decision that was taken was a wise one .

I guess I would say the

In all perspective I don't think

we've postponed indefinitely the more fundamental question of the role of
gold in the monetary system.

We've postponed it long enough, and this

seems to be holding together well enough so that it was a good idea .


will confess error in not seeing it at the time .
There was a meeting in the President's office on this issue

when the

decision was made really to close the London gold pool, and to call this
conference at which the two-tier system was negotiated over a quick
weekend in Washington .

The only flaw in the whole operation was that the,

British insisted on announcing that we had instructed them to close the
gold pool .

This was not intended .

It was supposed to be--in fact it was

a coordinated decision in which they took as much responsibility, or they
played as much of a role in making the decision as the U .S . did .

Yet they

said, "Upon the advice and request of the United States government," which
was rather irritating .

Did you have anything to do with the decision to lift the gold reserve
requirement off of SDR's?


Yes .

There too was

urging it all along .

something participated in the Deming group .

We were disappointed that on the previous round

Secretary Dillon had compromised with the Congress .
that a bigger
once .

We'd been

We were convinced

fight wouldn't have brought the whole thing off all at

As you recall, at that point the gold requirement was removed on

Federal Reserve credit ; that is, on the number of bank reserves in the Fed,

but not currency .

It was just an illogical position .

It was one of these

half-way compromises of deciding to perform an amputation, one finger at
a time .

It was clear we'd have to come back for the rest of the package .

But when the President moved, there was unanimity on it .

There had

been some timidity on Treasury's part on taking on the legislative burden .
It was a burden .

We certainly did contribute to putting thatithigh on the

priority list for action.

There are always--well, Joe Barr particularly--a

kind of joshing relationship as if he was saying, "You guys are always
full of great ideas that I have to sell ."

Was that idea hard to sell?


It didn't create as much of a problem as might have been anticipated .
sailed through fairly readily .


As a matter of fact, it was inevitable

that it would provide an opportunity for some speechmaking about how we
got to the sorry state and why we lost all that gold ; and if this
Administration had done the right thing, we'd never be facing this sorry
prospect .

So the Republicans made some good speeches in which they really

didn't tally-M:

Did the Deming group also work on

the idea of the SDR's, the Special

Drawing Rights?

Yes .

I was trying to remember--maybe the vote wasn't quite that lopsided .

At one point I guess there was a fairly close vote in the House .
sure I remember the history of it .

I'm not

It would give some indication that

once the legislative battle began, we were not

in the thick of it .

Probably my memory of it's being easy is not the same as Joe Barr's .
The SDR thing--yes, this was the job of the Deming group .
stage in the long negotiations and studies, we were in on it .
devising and working out what the U .S . position ought to be .
very cooperative venture .

At every
We were
This was a


Does the SDR itself make sense to you?

0 :

Oh, yes .

The only rational solution to the growth of world liquidity is

a managed international money .

You know, there were lots of compromises .

The right solution of the problem is you print paper and you say, "For all
intents and purposes, we view this as gold," and all the countries who are
party to it say, "This is gold, paper gold ."
kind of thing negotiated,

Now, you couldn't get that

and you had to put a lot of trappings on this

to control its use and assign it particular ways, and give some of the
concessions that would enable people who wanted to say, "This is really
credit," to still say that it's credit and not money . Thee~ffort was always
to try to be reasonable in such a way as to isolate the French and not give
the other Common Market countries an excuse or a rationale for saying that
the U.S . was being so extreme that they were forced into the French camp .
A lot of it was a combination of trying to make the cosmetics and the
substance fit together as well as possible so it would be negotiable and
still do the job .

Did you get in on any of the negotiations?


I never made a trip--let me put it this way .

I was in the Federal Reserve

Building the weekend of the big Washington gold accord conference and
looked at some papers and revised them .

Treasury mainly carried on the negotiations .


Yes .

The SDR--the Treasury, and the Fed exclusively .

Well, Francis Bator

and his successor Ed Fried got into a couple of the trips .

This was sort

of maintaining the tradition that the Council is not a negotiator and not
an operating agency .

It would never have occurred

to me to ask whether I

could accompany Deming--no reason to do so .

The Council also apparently had the responsibility of setting guidelines?


Yes .


Did you get in on this--guidelines


Yes .

for labor and also business

A very major responsibility--I don't know where to begin .

It begins

of course in the Kennedy Administration where the guideposts were set
forth in 1962 .

The major purpose of the guidelines being to control inflation, is that


Yes .

But I think recognized always as being a kind of backup against

cost-push inflation in a time in which the economy was not overheated .


one ever thought of the guideposts as an alternative or a substitute to a
reasonable fiscal-monetary policy ; rather as a supplement to them--and in
the early days, as insurance that you wouldn't get inflationary pressures
arising out of the highly concentrated areas of the economy, big labor and
big business, at a time when the economy as a whole had

lots of slack .

Now, I think the amount of emphasis on this initially was certainly
conditioned by the experience in the mid-'50's where the monopolisitc
sectors of the economy had been very important
inflationary pressures of that time .

initiating forces in the

There was the big confrontation

between President Kennedy and Roger Blough in April 1962 .

Then there were

continued negotiations and conversations and consultations with the steel
industry under President Kennedy .

There was discussion with the automobile

industry, I think initially in 1964 and then every year thereafter on a
strictly off-the-record basis of trying to discuss with them what the
importance to the country was of the prices they set on their new models
each year ; how this would price out in terms of a rather complex procedure
that the Bureau of Labor Statistics has of trying to credit them with
quality improvements when they make them, and they fold formerly optional

features into standard features ; to try to distinguish that from a price
increase .

There was quite a wave of confrontations and battles in late

'65 and into 1966--aluminum, copper, steel--on a Bethlehem move .

Was the threat of the use of the
distributors effective?

stockpile, say, against the aluminum

Was that an effective way for the Chief Executive

to work?

Yes, I think where there are stockpiles--I don't think we want stockpiles
for that purpose--but where there are, they ought to be used
purpose, and they help .

for that

I think the use of government procurement for a

bargaining lever on prices is entirely appropriate and has some effect .


was rather uncomfortable with that role being played by the Council--I
think that's true of my two predecessors as well--in terms of the adversary
procedure and the kind of rhetoric and invective that often got used and
which the White House staff and the President encouraged, really trying
to use

the patriotism and public image issue .

That's really the only

weapon you have other than stockpiles and such .

It would seem that in the case of the automobile industry the stockpile
would not have much effect at all .


Oh, no .

There was no lever on the automobile industry .

There was never

any attempt to point to any action that the government would take .

How responsive would they be then to an appeal to patriotism?


Well, this varied among people .

I think Roche of General Motors was very

responsive and very concerned about General Motors'

image .

No one ever

said, "We're going to break General Motors up if you don't do this ."


I think General Motors probably recognizes that it lives by the grace of
the Antitrust Division ; that if anybody really wanted to bring a monopoly
suit on a firm that big, there was a fair chance that it would win in the

courts and it would force dissolution ; that at minimum it would be very
disruptive to them for a considerable period of time while this was all
pending .

In their procurement in the safety area and every other area

they've got a lot of links with government, and it's important for them to
have good relations .

It's also important to them to have a good public

image if they don't want to be painted black in the eye of the American
consumer .
There was one specific instance where there was no question that
General Motors rescinded a planned price increase because Ackley asked them
to do it and made clear that it would be strongly criticized if it went
through .

[Ralph] Nader got some pieces of that story and has totally

distorted it into an accumulation .of sorts--that Ackley gave them permission

to raise prices by some amount .

I felt this in talking to Roche last summer .
conversations :
request .

one, he brought his people to my office essentially at my

The conversation went :

conversations with my predecessor .
things .

There were several

What do you think?"

"I know that in the past you've had some
I think these were helpful to clarify

By the time we'd finished, he'd volunteered

to bring his people to my office .

It was clear what I wanted, and that I

wasn't going to say, "Appear at my doorstep!"
It seems to me the basic issue is, one, that you can't draw a line
between perfect competition and complete monopoly in the United States
economy .

There's just a lot of shadings in between .

Where you can say

there has got to be monopoly, sure, you can create public utilities and
have formal regulations ; and where you can say there is completely effective
atomistic competition in the market automatically and impersonally determind
supply and demand, then the government has got nothing to say about it .

But in the whole range in-between, there is a certain measure of discretion
on prices and wages,

and how people behave does make a difference .

To say,

"These are important, you ought to make laws," really says you ought to
turn 80 percent of this economy into a public utility .

I guess you can

look at guideposts as asking businessmen to behave to a degree as selfregulating public utilities and recognize that there is a public interest
in what they do ; that they do have some power, that they ought to use it
in a responsible fashion .

The obvious implication is if they don't, there

will have to be some kind of a structural

reform in the U .S . economy to

reduce the power of big business and big labor .

Did the President ever talk to you about these guideposts?


Sure .


Did they look to him like a useful tool?


Yes .

In many instances .

He always encouraged their

use .

Sometimes I think he had more faith

in what they could do, or more of a picture of individual misbehavior rather
than general market conditions affecting our price behavior than we did,
and hence was always encouraging us to go out and crusade for more restraint
by business and labor .

I don't think he or anybody else in the Administration

ever thought that these were a substitute for good fiscal-monetary policy .
I don't think he ever made that mistake .
used .

But he certainly wanted them

And he wanted the good guys-bad guys patriotism-unpatriotism issue

made as clear as could be to the public .
You know, you're talking about business firms which spend millions and
millions of dollars on public relations advertising, and you're asking,
"Now, why do they do that ;"

Well, they do think that their image is

important, and that in addition to all the concrete ways in

which they have

linkages to government and feel that a general sense of amicable relationships-there are some dangers in this, you know, of too much chumminess between

powerful business and powerful government .
I think from the Council's point of view we felt that some of this
had to be done .

We were sorry that we were the guys who had to do it .

It's awfully hard to play policeman .one day and be blowing whistles, and
another day, try to make pronouncements where we're really trying to be in
the posture of the scientific technician speaking professionally . It was
totally out of keeping .

This was an operating role which we never had in

any other direction .
Okay, why did we do it?

The answer is nobody else was there to do it .

The Secretary of Labor wouldn't do it ; the Secretary of Commerce wouldn't
do it .

There were some ill feelings about this, or certain frictions in

the interagency relationships reflecting the feeling on part of, I guess
most particularly Jack Connor, that we'd been too tough on business .


Wirtz was critical of our statements or actions and behavior toward labor .
The President's stillborn proposal on a merger of Labor and Commerce looked
to us that it might have some hopeful implications of producing somebody
who would be less tied to a clientele relationship who might be willing to
assume the nasty job of blowing the whistle .
You know, if you are operating moral suasion and if really, apart from
the very specific government stockpile procurement links, your only weapon
is to, if the guy does something irresponsible, you'll brand him as
irresponsible in the eyes of the American public, and somebody has got to
be ready to do that .

I always wondered whether there would be some way

of trying to get a more nonpolitical group with a great deal of stature-maybe even nonpartisan--that would be willing to respond informally to
price increases or wage

settlements, make statements that these seemed to

be consistent or inconsistent with the public interest ; and wondered

whether they would have more influence

on public opinion than anybody would,

than the Administration could have ; and whether they might give it a
bipartisan flavor .
Yet on the other hand, we were never too enthusiastic about Congress
getting into this act .
associated with that .

We felt there were more dangers than benefits
It was just. really out of character, I think--out

of the character of everything else the Chairman of the Council did for
him to be the guy getting out and saying, "While our boys are fighting in
Vietnam, it's wrong for the aluminum indistry to be fattening its profits
in an unjustified price increase ."

Yet that's the kind of language that

once in awhile we found ourselves involved in .

Did you in your position as Chairman get involved with any of the reorganization that went on, such as formation of the Department of Transportation?


Peripherally .

Charlie Zwick had a very major role in that planning on the

Transportation department .

He talked to us about some issues .

We had

a couple of meetings with the first Heineman Commission on Government
Organization, whose report has never been made public and which really ought
to be, and I'm sure is being preserved in the Archives .

I've heard of this Heineman report .


I never saw that full report .

Was it a useful. report?

I saw sections of it that related to us in

economic matters, and it was a damned good job .

Yes, it was .

Did you have anything to do with legislation such as Medicare O r the Model
Cities program?


the Council have to give evaluation of the impact of


Right .

All legislative matters relating

to anything that could even vaguely

be called economic came to us by a routine procedure through the Budget
Bureau ; but usually that had been preceded by, if it was a major program,

participating in an interagency task force and by meetings in Califano's
office .
so .

We had lots of opportunities to influence legislation, and we did

The whole pollution area was one where

there were quite fundamental

differences of view between Interior., Treasury, and other agency people,
and we got .stuck in there as a kind of arbiter .

Ackley had to, for one

year, spend a lot of his time on the pollution area .

Was this fairly well settled by the time you took over as Chairman?


Yes .

The pollution had been pretty routinized .

We were always involved

in some kind of a task force on social security or income maintenance or
education-welfare programs, which took us into contact with HEW and HUD
programs .

Is there any of this legislation that you were particularly concerned with?

0 :.



Yes .


You see, most of the program areas were not in my jurisdiction as a member
of the Council .

As Chairman, let's see .


Let me change tape .


Sure .





April 15, 1969
Tape 2 of 2

I'd asked you before

if there were any particular programs or legislative

matters you were personally involved with that come readily to mind .

Yes .

Every piece of tax legislation that went up was something in which I--


Such as the surcharge .


Like the surcharge .


That's something we can talk about .


The Maritime was one program area that I had responsibility for as a member
of the Council .

And I was involved in that task force that was supposed

to dream up a Maritime program, and we did dream up

what we thought was a

good one when Alan Boyd was still Under Secretary of Commerce .
to the press and

Did you ever have


No .

got killed .

That leaked

It kept popping up in one form or another .

to deal with the Hill on that?

I dealt just internally .

Labor and some elements of Commerce were

ready to go much farther in meeting the desires of the maritime industry
than the Budget Bureau and the Council wished, or than Alan Boyd wished .
There was always negotiation within the Administration on this .

I think

collectively we had a major role in never selling out to the damned pressure
elements .

There's a very powerful pressure group, considering the numbers

of workers and firms involved, which are really quite small .
I remember more the fish that got away than the ones we caught on the
legislative front .

We pressed hard for a presidential recommendation to

repeal resale price maintenance legislation .

There was the so-called fair

trade laws which are really--the States can have, but they can have it
only because there are two pieces of legislation--Millard Tydings and McGuire,
which specifically exempt this from the bounds of the Antitrust legislation,
Without those two pieces of legislation it would be a violation of the
Antitrust laws .

There had been pressures

the other way in which a lot of

the congressmen wanted to make this federal legislation which would no .
longer be enabling to the States, but rather mandatory on the States to
permit fair trading .
I think we influenced the President in always taking a firm stand
against such legislation,

We wanted to go in the other direction and kill

the enabling legislation .

I guess January of '66, maybe it was, that he

told Ackley that if he could be sure that this would get as far as the
hearing stage on the Hill, even though he felt convinced that the legislation
wouldn't pass, if it would get even that step of the way, he'd make that
recommendation .

But he wasn't prepared to make the recommendation, unless

he felt there'd be at least some legislative action .
He said, "Would you go up to Wright Patman and try to sell him that?"
Gardner took me along and we walked into Wright Patman's office, and one
of the things I noticed on his wall was a little certificate from the
National Association of Retail Druggists for meritorious service .
wouldn't budge on this .


We never did get the proposal .

Did the President often operate this way when a group such as yours would
be pushing for a type or piece of legislation?

Would he say, "Go talk to

people on the Hill and see what they say,"
It was rare for him to say it to us .

Indeed, in many more instances we'd

be preparing papers for somebody else to do the job .
But this was the way he would test--?


Yes .

Almost everything had some kind of a testing of the waters up on the

Hill .

Was there other legislation of this kind that you got involved in?


I was thinking of pilgrimages to the Hill . There was one on the investment
tax credit--I guess two--that both Ackley and I talked to Wilbur Mills on
early in '66 .

And then later in '66, maybe June and August, may have been

the two dates .

In June he was very much opposed to it ; in August he was

much more receptive to it
You know, I can think of particular instances where we had a marked
influence on the provisions of a piece of housing legislation, indeed,
the whole big Housing Act, where we cooperated with the Budget Bureau .on,
say, a constant battle going on between the Budget Bureau and the Council
on the one hand, and Agriculture on the other, in which I would guess-M:

Over Agriculture policy?


Yes .


Did President Johnson have any particular interest in Agriculture?


He had obvious political interest in Agriculture, and a lot of muscle up

We probably lost three battles out of four .

on the Hill over it .
bargaining initiative .

We worked very hard to slow down the so-called farmers'
Gee, I'm trying to think of one thing, the IAE--an

effort to get an egg program devised in which there would be some authorization
for cooperative purchases to hold eggs off the market .

And the

agricultural staff effort just 'way oversold the benefits to the
egg farmers
and understated the cost to the American consumer in a very blatant way .
We staffed this out--as a matter of fact, it's Hank Houthakker, who was


my staff at the time and is now a member of the Nixon Council, who did a
really good analytical job of just tearing apart their estimates and that
destroyed the credibility of the proposal and really killed it .

There are a number of things on the oil front, too, where when residual
fuel oil regulations were relaxed we played a role in it .

We worked with

the Budget Bureau in really implementing Charlie Schultz's idea for
auctioning off oil import quotas .
That was another example of things that went
find out quite why .

astray, and we could never

The President signed on to a statement that he would

do something in unveiling a plan for auctioning off oil import quotas, and
for providing a special provision for petrochemical exporters in terms of
oil imports, both of which would have relaxed the oil import program and
were strongly opposed by the oil industry .
in '67, nothing happened thereafter .

Having made that statement late

Efforts by the Budget Bureau to get

the program implemented just somehow got lost in the White House, and we
never found out quite what happened or why .

But we did succeed in some

areas on oil .
The President was just great in backing up anything--most things on
free trade issues .

There were constant efforts to get him to sign on to

bad trade legislation, to water down the good trade legislation .

We worked

with Bill Roth on that--resisting the pressure on textile quotas,


quotas .

Was the economics involved with the Vietnam War a continual problem with


Did this

come up all the time?

There's no dimension of the American economy in the last three-and-a-half
years which hasn't been touched by Vietnam .
budget posture .

Vietnam changed the entire

It took all the elbow room away.

It just obviously made

the task of overall economic policy tremendously more complicated .


exacerbated the balance of payments costs .
Let me emphasize that those are not the considerations that ought to

be primary in whether a war is worth fighting .

If it's worth shedding

blood for, then it's worth a couple of points on the price index and the
other headaches on the economic side .

What was your position on the Vietnam War when you were Chairman?


I assume you'd have an economic position, and maybe personal views as well .
What was your economic position?

Yes .

Was it purely a professional one to--?

Throughout the period our main professional concern was seeing that

the war was financed responsibly and sensibly, and Litewasn't financed
responsibly and sensibly until we got the surcharge enacted .

It was also

to make sure that we were saying sensible things about our posture and
watching the guns-and-butter kind of statements to make sure that they were
responsibe to the actual circumstances .

We were never asked and we would

not have been expected to have a vote or a say or an opportunity to advise
the President on what were essentially national security military decisions .
There were times, for example, back in March of last year when there
were three or four alternative programs before the President, some of them
very large escalations in the war .
implications .

We were asked to staff out their economic

And basically what that means is that, "if you take option A,

Mr . President, then unless you want more inflation and still higher interest
rates, you have to consider either an additional 10 percent surcharge or a
$5,000,000,000 budget cutback and another 5 percent surcharge," essentially
telling him ways of neutralizing the economic impact of those decisions .

This was strictly an economic analysis on the war implications .


It was strictly an economic analysis

that sort of told him the hard things

he had to do to add to the defense budget .
Personally, the war was a headache and from that point of view, like
everybody else, we wished it would go away .

I had no reason to be critical

of the President's decisions through '66 and

into '67,

And like everyone

else, when the war looked like a big sink that seemed to have no end to
it, where all the optimistic forecasts of victory seemed to turn sour, then
I think we became more and more concerned about it .

Our feeling was always

that--in the period in late '67 and into '68--rooting for the doves and
hoping that the President was paying more attention to them than worrying
about what Walt

Rostow was telling him--but never really engaging in any way .

I remember a conversation in the Council in which Jim Deusenberry
raised the question of whether we were meeting our responsibilities and
obligations, whether we shouldn't send him a memo or staff paper trying to
make clear just how big the economic costs were, and the sense in which
this did interfere with other objectives .
I was strongly opposed to that course of action .

I felt that we had

in one way or another, without really underlining it, conveyed to the President
a recognition of these things .

I felt that he would not at .all be receptive

to such an obviously hortatory position on the part of the Council ; and that
this might very severely prejudice

his confidence in us and his relationship

with us in things where we did hope to influence him more directly .
Basically we have to take the National Security decisions as given .
There's really a completely different channel of communication where
rarely would we even pick up what was going on, and only to the extent of
seeing things in terms of economic implications--for example, seeing the
alternative programs and getting a feeling of how big an escalation some
generals must have been recommending in March of 1968 .

It was very clear

on many occasions how emotionally involved the President was in the war ;
how much this upset him ; how concerned he was about it .

Let me ask you about

the transition and Nixon .

What did you do to prepare

the way for the new Administration?

I knew Paul McCracken--have known him for many years .

I got on the phone

as soon as he was appointed, and said, "Can I help?"

He was in four or

five times, and we had sessions ranging anywhere from an hour to three
hours on Council operations, procedures, manpower, budget--everything from
secretaries to White House liaison problems .
very anxious during this period .

The staff of the Council was

We were staffed, as we hake been in recent

years, primarily with academics on one-year leave--about two-thirds of the
professional staff on that kind of temporary basis .
needed to make plans promptly if they weren't going
January 20 .

Here were people who
to have a job after

It took awhile before McCracken came down to a blanket

invitation for everyone on the staff to stay on, one and all .
such an invitation and most

He did make

of them accepted it .


There was no clash in the economic philosophy?


Oh, there are differences in economic philosophy to a degree .

Sort of

liberal-conservative spectrum ; there's some distance between us in the
expected direction .

This wouldn't bother the staff that stayed on?


Not decisively .

I doubt that there was more than one vote for Nixon in

the Council staff--maybe two .

But the people at staff levels are doing

more or less a technical job ; and while they're trying to influence policy,
they can live in a variation of political environment .

Moreover, while

there's a difference between Paul McCracken and me in political philosophy
to a degree, there's likely to be a much wider difference between Paul
McCracken and other people

in that Administration which would be in the

direction that the staff would favor.

Basically, I would see McCracken

as one of the more liberal elements, as well as the conveyor of those things
which are professional consensus among economists .


He could take over the staff without any great difficulty?


Yes .

There are a few places where he will be staffing with people whom I

would not have been staffing with for the year ahead .

I'm not suggesting

that we'd have exactly the same preferences and attitudes toward staff
people .

Perhpas in terms of economic methodology the question of how you

look at monetary policy is the biggest difference, where McCracken has more
sympathy and interest in a Chicago view of money supply than I do--or the
whole Kennedy-Johnson Council tradition does .

There, for example, his next

staff man will be Phil Cagan who is a Milton Friedman protégé . Now, I
wouldn't have thought of recruiting Cagan to be my-M:

How does Cagan spell his name?


Cagan .

Also, a man named

[Leonall] Anderson, who's at the Federal Reserve

Bank at St . Louis, is now consulting for the Council on monetary policy .

Are you impressed that the transition was relatively smooth then?


Yes, I would say so .

McCracken had been a member of the Eisenhower Council,

so he wasn't new to the Executive Office Building .
problems .

Things had changed a great deal .

He knew a

lot of the

Yes, I think that went very smoothly .

I think it's predictable that there will be the same battles over
agricultural policy in which Mayo and McCracken will be allied against
Secretary of Agriculture .


There will be the same battles over maritime

policy where the attitudes of the Transportation department may be less
predictable, but the attitudes of the Budget Bureau and the Council are
entirely predictable .

Just as we had much less enthusiasm for increases

in the minimum wage than Secretary Wirtz did, McCracken will have less
enthusiasm than Labor people do

now--although George Schultz may be different

on that now .
And there's a wide area, particularly in the microeconomic areas .

I was saying there is some professional consensus among economists which
usually in the political process comes to defending the consumers' interests
against special producers' interests .

[On] every one of these trade policy

issues, I can guess where the Council will be coming out .

In other words, many of the problems remain the same.


Yes .


Regardless of the Administration .


No question about that .

I think there is a difference in the attitude toward

the size of the government budget, where I think the considerable skepticism
is the first reaction of a Republican administration--anything that adds
to the size of the budget .

The whole scrapping of guideposts in a very

blatant way seems to me to. b e a mistake that they're paying for .

I don't

think you would have gotten the oil price increase and as many of the nonferrous metal price increases as we've had in recent months if not for a
feeling that the White House is never going to raise its voice ggainst such
business decisions .
There's a very considerable difference of view on activism--what
sometimes gets caricatured as fine-tuning in economic policy where the
Republican CEA would like to find a policy strategem that's good for all
seasons and doesn't need to be changed, and where they can talk about
pursuing a steady course and not whether the steering wheel is turning or
not .

That's much less significant a matter .

Sometimes it takes a lot of

turns of the steering wheel to keep the car on a steady course .
A lot of the posture in the Administration, of course, fits in with
Nixon's "lower your voice, don't make waves ; don't shoot until you see the
whites of their eyes ."

There's no doubt that the revolution of rising

aspirations and rising expectations

is the best caricature and single summary

of the problems of social unrest, dissatisfaction, and so forth, that were
stimulated during our years .

We wanted to do things .

always setting forth goals and lifting his sights .

The President was

A lot was accomplished .

In many cases the whole posture of selling programs had to emphasize their
great possibilities, and perhaps we oversold at times ; perhaps inevitably
when we swept some of these problems like the whole Negro oppression in the
economic field out from under the rug, it was inevitable that you'd get a
lot of ferment over it .

So far this effortL-to consolidate forces, to slow

down the expectations, is the dominant difference between the administrations
and their domestic policies .
The other element of the transition was, of course, this whole question
of what the Nixon people's response to the budget would be, and there was
a lot of behind the scenes negotiation between the outgoing and the incoming
Troika on what they would say and what the statement would be .

The President

had a very strong conviction that it made absolutely no sense for him to
recommend the extension of the surcharge unless Nixon was prepared to give
some kind of qualified support to it .
on this .

We were rather distrubed at his decision

I say "We"--all three of the Troika--Joe Barr, Charlie Zwick, and

myself .
And he couldn't quite understand .
concerned about credibility .
and Nixon announces
proposal .

He said, "You're the guys always

If I say I want extension of the surcharge

that he's cutting taxes, then I've made an incredible

I've just compromised the position of the Democrats on the Hill

without doing.anything for the country except increasing divisiveness,
making our fiscal policy into a political football ."

He was very eloquent,

very convincing on this ; and yet we were very upset at the prospect of
coming out with a budget program which we knew was on a bad piece of economic

policy .

Near the end of this series of discussions, the President was

prepared, if he couldn't get the kind of assurance

that he wanted, to

essentially say that he was recommending a bad budget and letting us say
whatever we wanted about it, but saying that he had been forced to operate
under the assumption that there could be no extension of the surcharge
since the incoming President was against it ; hence, he'd done the best job
he could do, given that constraint, and it still wasn't a good job ; and
what it really proved to him was there had to be an

extension of the surcharge .

At an earlier date it looked as though he was prepared

to not only present

a budget without a surcharge, but also to defend it ; and I think that was a
matter of considerable concern to us--that we would be trying
indefensible .

I think we did influence him on that .

to defend the

It was really at the

very last minute that the Nixon people came through with a sufficient
indication of their willingness to back up this budget, to put the whole
thing together .

Joe Barr had a fair number of conversations with Dave

Kennedy on this ; I with McCracken ; Charlie Zwick with Mayo .
It was rather interesting .

The President did not want us to meet with

them as a Troika--as two Troikas .

Why was this?


He said, "You guys will sell me out .

You're just so gung-ho for that

extension of the surcharge that you'll take whatever they give you ."


was a pretty frenetic experience right until Friday evening that the thing
fell into place, and that Charlie Zwick was able to go with the budget
that was coming out the next Tuesday .

Up to that point, he'd really had

two budgets ready to go, one with and one without ; and I had to have the
President's section of the economic report and one section of our report
held in abeyance to see which way it came out .

It was a kind of brinkmanship

tactic on the part of the President .

It worked out very well .

I don't

know how Nixon would find a way to eat his words if he hadn't eaten them
then .

This has been an incredible aspect of

this administration--its

ability to ignore anything that it said in September or October and the
first week in November .

The country has much to be grateful for, that Nixon

feels absolutely no commitment to anything that he said during the campaign .
He said some terrible things during the campaign, really very frightening .
Sixty million Americans heard him say on election eve, "If you want the
surcharge ended, vote for me ; if you want it continued, vote for Humphrey .
That's the biggest single economic issue in this campaign ."
to explain or justify--it's wonderful!

No need even

We used to have a credibility gap

when things like that happened .

Let me ask you one last question .

Is there anything that I should have

asked you and I didn't ask you, or any statement you want to make or comment
you want to conclude with?

It occurs to me

that we sort of got into the relation between the Federal

Reserve and the Administration last time near the end, and I don't think
we went into that as much as it probably deserves .
who will fill that gap .

I'm not the only one who can testify to it, but I

think it's fairly important .
as though we

Maybe there are others

Maybe when we see the transcript, if it looks

ought to supplement that--


Whatever you wish to do .


It strikes me that as I talk my recollections and references are, usually
to fiscal-monetary policy because they were always the closest to my heart,
and they were the things in which I directly participated most .
don't give enough emphasis to the Council's activities on other fronts .
We paid some attention to it .

A couple of other things that struck me .

One thing--it seems to me that the economic policy decision that's
going to get the most scrutiny from the historians is the whole question
of why there wasn't a better fiscal policy early in 1966 .

I'm not sure

I've told you everything I know about it .

There are two, I think .

was Chairman .

Somebody ought to really detail

He was in on the meetings .


that rather--there are some elements to that story which are going to have
to stay confidential a long time that I know about ; there are probably lots
more .

Really, it was an uncomfortable experience because we were so--you

know, we were there obliged to defend the policy that we weren't happy with .
I think that's about all .
We could go on to the whole question of relationships with the
Treasury .

We worked very closely with them .

friendly and worked together very well .

Joe Fowler and I got very

But there were some naturAl

problems, inevitable frictions, some of it just the point that the Treasury
is expected to maintain in defending the dollar .
that things went

I think indeed the fact

so well between the Council and Treasury while Fowler was

Secretary was a remarkable event .
Is that a tribute to Fowler or to the Troika or what?
I think we all deserve

some credit for being reasonable men--Fowler, yes .

Fowler--the one place where I don't really understand, never have, Just
what Joe's role was was in

that late

'65 and early 1966 experience where

he was the one presidential adviser who was saying, "You don't need a tax
increase ."

I don't know whether he was guessing what the President wanted

to hear and feeling he had an obligation to do so, or whether that was just
a bad calculation on his part, or what .

never quite understood that .

The whole area of guideposting in terms of these off-the-record sessions
with businessmen and such, I don't know how much interest there

is in them .

There isn't a hell of a lot of written material on them, for obvious reasons .
It seems to me if you feel that they deserve high priority in preserving
some kind of a record of them, probably you ought

to be sure that Ackley

testifies in some detail on the meetings held in his period .
number of other sessions that I could go into .
being terribly interesting .

There were a

I wouldn't think of them

We had a lot of meetings with oil company

executives last summer about their pricing of gasoline and fuel oil .


did exert some pressure on them in terms of a plea which was actually
delivered by C . R . Smith for them to roll back a fuel oil increase and
they did .

Again, was this an appeal to patriotism?


Moral suasion .

Moral suasion?

You know, the oil industry gets so much support and help

from government ; the whole oil import program, the depletion allowances-from soup to nuts .

Sure, you talk about patriotism, but I don't think

there's any question that the industry people are thinking in terms of
prejudicing their general relationship with the government of with the
President of the United States .

In that sense, there is an obvious threat .

A number of times we tried to plead with some labor leaders .

We had

sessions with AT&T during the telephone strike in which I was playing a
very dangerous game, and would have just brought labor down on my head,
of trying to stiffen their resistance to a settlement .

Again, to hold to a guidepost?


Hold to some reasonably low figure .

We were no longer talking about 3 .2 .

percent, but trying to hold to S and not 6 .

It's a role that made you uncomfortable though?


Yes .

Some.of these cases we checked with Califano, and he'd say, "Go ahead,

the President doesn't want to know what you're doing ."

Now whether that

meant that he was taking responsibility for telling the President or not,
I don't know .

But you didn't


No .

get into trouble on that?

Never saw any indication of displeasure from the President for a too

aggressive role on either labor or management privately .

Quite the contrary .

He'd always be egging us on--"Why did they have to get that settled?
Couldn't you have done something about it!
to take place?


Why did that price increase have

there somebody you can talk to?

way to roll it back, something we can do ."

Maybe somebody, some

absolutely necessary to get into the act .

But never eager himself unless
Joe Fowler had a session with

the President on the steel case in which he made a personal plea for the
President to issue a statement himself which the President asked me to get
out, as a Cabinet Committee statement .

Did you do that?


When Joe heard that it was to be issued as a Cabinet Committee statement,
he said, "I want to talk to the President ."
fifteen minutes

He raced in and came out

later, and next the President--whether he called me or

whether he called Joe Fowler, Joe Califano--he changed the signals and
said, "Okay, I'll issue the statement ."

There's a lot of unwritten history

and episodes in this whole area of the moral suasion operation on prices
and wages .

Maybe we can leave it at this .

It could well be that when we learn more,

I'll want to come back and talk to you about this .

And when you get the

transcript, you may want to add some to it which you're free to do .

There was--I think of another kind of thing .

All through the Vietnam

period we've been subjected to a flood of rumors on impending wage and
price controls .

They really had no substance whatsoever--never close, and

never really any work on it at all .


How about rationing?


Except for materials allocation for particular defense items, there was
never a starter .

Yet for some reason the President would never make as

unqualified a statement as to his opposition to these as we wanted him to
make .

We felt that he really should sort of say, "Cross my heart and hope

to die," and try to head off these rumors once and for all .

Indeed, there

was one speech which--this was back at the time when I was a member--Gardner
had given me

to look at where Jack Valenti had written in something that

looked like an implied threat, that if prices and wages didn't behave we
might have to go to controls .

I sent back a screaming memo saying, "The

President surely doesn't want to say this .
effects ."

Then Valenti called me back and

It will have very unfavorable
said, "I've been working with

the President and we've toned it down in the following way .
meet your objection?
it ."

Does that

He asked me to be sure that you were satisfied with

He read it, and I was still not satisfied .

I tried to make the

case that the reaction to the threat was not to behave better but rather
to make sure that you got your price and wage increases in there before
the controls took effect .

I know Valenti was very skeptical as to


prediction of the economic behavior, and I don't know whether this
reflected the views of the President .

He did tone it down much further--in

fact, virtually eliminated the reference in the speech that was given .
He made some statements on our recommendation indicating his opposition to

I remember his kidding me

last spring some time about,


Gardner used to say he had all the nasty experiences of trying to run
price and wage controls in Korea .

What's your excuse?"

We weren't terribly happy about the mandatory investment controls,
just as a precedent that pointed toward other kinds of controls .

I think

the statutory powers of the President in this regard were, according to
lawyers, a little fuzzy . [I] would have liked to see, even after they were
put in place, some kind of a ratification by the Congress of these just
to make it clear that it was being done with legislative as well as
executive powers being used .

This recommendation didn't float .

There was somebody--I never found out what the source was--who was
urging the President to use executive authority to control tourism last
year .

And, boy, that excited us terribly .

One of Gardner's last memos

as Chairman indicated--it must have been last January--one of Gardner's ' .


last memos as Chairman took a very strong position on this .
Occasionally one got the feeling that the President was letting
these ideas float around even though he wasn't taking them seriously as a
little bit of a goad to get better alternatives .
this way of doing it, you come up with something .
what's the right way?

If this is the wrong way,

Here, this guy tells me we can cut back tourist

expenditures by half-a-billion dollars .
that way ."

"Okay, you don't like

Now, you admit that you can do it

I think there was an element of that kind of thing which is

a way that the President would operate--sort of make everybody else's case
against you and stimulate you to greater and greater achievement .
Those are some of the missing links I think of .
look it over, maybe we'll think of some more .

Very good .

I think you for your time. .

[End-of Tape 2 of 2 and Interview II]

As you say, when we