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Interview of Kenneth Dam Conducted by Robert L. Hetzel September 1, 1998 Kenneth Dam: I went in the summer of 1971. Robert L. Hetzel: So, did you go to work with George Shultz? Kenneth Dam: Yes. I was the assistant director, they now call it associate director of OMB for National Security and International Affairs. So, as soon as I got there I got involved in the issues about closing the gold window. Robert L. Hetzel: The international policy was divided up–or I don’t know, maybe there just fractured among a whole different group of people at that time. You had Peterson, who was doing trade and commerce. And then you had Treasury of course with Connally. Kenneth Dam: Connally came later. Robert L. Hetzel: Connally came– Kenneth Dam: No no, I’m sorry. Connally was there. Robert L. Hetzel: –came in early 71. Kenneth Dam: Excuse me, Connally was there. Yeah, you’re right. Connally did not come at the beginning of the administration, but Connally was there when I got there, right. Robert L. Hetzel: The council was interested until the Treasury told them they weren’t interested [(crosstalk) unintelligible 0:01:22] Kenneth Dam: involved. And I don’t think Peterson ever got–was ever allowed to get Robert L. Hetzel: He was viewed primarily as an interface with the business community on trade issues. He always seemed like a fifth wheel. Kenneth Dam: Right. He really didn’t know much about it when he got there. He was very good at advertising. And he put out a publication, series of charts that were designed to show that if we depreciated the dollar it would generate so many hundred thousand jobs per percentage point. That was the way in which he thought he wanted to popularize the idea of a change in the exchange rate. But he didn’t play–no, he didn’t play in the actual internal workings to, so far as I could observe. For example, there was the Volcker group at Treasury. Treasury really has a lock on policy. There was the Volcker group in Treasury and I don’t think–well, Peterson may have thought he was too high ranking to go to it. But, I’m not sure that he even had anybody who was even involved in that. And that definitely was more designed to keep people at a distance than to really get them involved in the policy. It allowed them to discuss but not participate, in my view. Robert L. Hetzel: So, you just told me, but I’m surprised that OMB had a full section, you know, with international. I think of OMB and I think of the budget. Kenneth Dam: Well no that’s true, but we also had responsibility for legislation. We had two sections that I was responsible for. One was the national security section which dealt with the defense department and intelligence communities. International which was concerned with the budget and legislation, you–having to do with the state department, the AID, the export import bank, and so forth. So in that capacity, since George Shultz was a heavy hitter in the administration, I got myself into a lot of inner agency activities, including the Volcker Group. And then there was–after Camp David, there was a smaller group that got involved in what became Committee of Twenty activities. And I participated in that along with several people from the Treasury, Bob Solomon, who’s written about it in his book, International Economic. And I’ve forgotten where Solomon was–yeah, Solomon was on the– Robert L. Hetzel: He was at the Fed and then he went to Brookings. Kenneth Dam: Right. He was at the Fed. So he was a Fed participant, right. And I saw him a lot. And I still see him from time to time. I’d just forgotten where he sat at that time. I don’t think there was anybody from Peterson’s staff on that group. I think it was Treasury, Fed, myself as Shultz’s representative. And then suddenly Shultz–actually what happened was Shultz–I think when I got into that group Shultz had just gone to Treasury and he asked for me to participate because he knew I knew a lot about the legal issues and any trade related aspects. And that kept it on a close hold because I wasn’t really used as staff, I was there as an individual, not with an OMB section behind me because OMB didn’t know anything about this. Robert L. Hetzel: So– Kenneth Dam: Earlier there’d been one OMB person, but he left about that time. And that was Arthur Laffer. -2- Robert L. Hetzel: Yes. I’ve not talked to him but I think I should. He’d been at the business school. So you may have known him at that time. Kenneth Dam: Yes. That’s how I first knew him, but I knew him when he– when I went to OMB because he was the economist there. [0:05:05] Robert L. Hetzel: And– Kenneth Dam: But Shultz treated him with circumspection because he was a big talker. Shultz didn’t like talkers. So, for example, he was jealous out of his mind because I went to Camp David and he didn’t. He didn’t find out about it until later. Robert L. Hetzel: a big talker. That sounds–I’ve talked with him on the phone. So I–he’s still Kenneth Dam: Well we kept a very–it was very, very close to home. And, of course, you know, Volcker was always extremely discreet. Really, very discrete operation. Robert L. Hetzel: I’ve heard that in the meetings in his group he was the consummate bureaucrat. He never expressed an opinion of his own. When I ask people “What did Paul Volcker–what did he think, what did he want?” Nobody knows. He was this this leader. He was the Treasury’s representative. Kenneth Dam: Well he changed his mind. And when he–you know, I’ll tell you a little story, which is not for publication. [Comment removed at interviewee’s request] Robert L. Hetzel: Right. Did you have any association with Arnie Webber at that time? Kenneth Dam: Arnie Webber was the deputy director of OMB, I think. I think he was Connally’s deputy. He worked basically on the organizational side and had nothing to do with this. But yes, he was there. He had no involvement in these kinds of things. Robert L. Hetzel: So, you must have arrived in Washington after the term ended here. So you got there at the end of June, in 1971? Kenneth Dam: Yeah I got there was quickly as I could. There was a little transitional problem before I actually got sworn in. But I got to work on this right away. So I got there, yeah, in June. Robert L. Hetzel: And how much contact did you have with George Shultz? Did Shultz have an office in the White House? -3- Kenneth Dam: Well, yes he had an office in the White House because he was the director of OMB. But then after the election, then he went Treasury and had no office in the White House when he went to the Treasury, which would’ve been what, about May of ‘72, something like that. Robert L. Hetzel: Yes. That’s–yes. Kenneth Dam: Then, after the election there was this idea of having a super secretary in several areas who would be a local cabinet member, but have more general sway. And, actually there were only two of them that actually ever came about. One was Shultz on economic policy and the other was Kissinger, who became Secretary of State eventually in the foreign policy area. In the case of Shultz, that was in place by January or February of ‘73. And he had an office in the West Wing. And I had an office in the West Wing, because I was the executive director of that organization which just coordinated with economic policy. Robert L. Hetzel: Okay, so things really started to move when you got to Washington on two fronts. On one front, which was not in your area, the Council of Economic Advisers published its mid-year report of the economy and made a prediction of growth for the rest of the year. And it was clear that the unemployment rate was not going to get down to four and a half percent. They were not going to get 1060 GNP in that year. And apparently Connally, Shultz and Nixon then informally in the evenings began talking about wage and price controls in July. But it was–there was nothing. Kenneth Dam: With Burns. He was always for price wage controls and against anything, so far as I could tell. I wasn’t in those meetings, so I can’t–I don’t know exactly what happened with that. But later it became–I did go to the meetings with Burns, a lot of them. Robert L. Hetzel: Camp David. Kenneth Dam: That would’ve been–well, we’ll get into that. That was after After Camp David, right. Robert L. Hetzel: Right. And, so, but at that point it was just discussion. And Connally was putting together a re-election plan for Nixon. [00:09:13] This was still just being discussed, which put together wage controls for businessmen, which required price controls as part of the package. And also then if you were going to do something for the businessmen, you had to do something for the labor unions. And so Connally put together a protectionist package, which involved a surcharge and devaluation of the dollar, jobs, some fair trade, along with wage control. Kenneth Dam: Well, all I know is what the result is. I didn’t participate in those discussion. And I don’t think Connally ever published memoirs, did he? -4- Robert L. Hetzel: No. But Reston wrote a book on Connally and interviewed him fairly extensively. And I think that’s the closest– Kenneth Dam: Really? I haven’t seen it. Robert L. Hetzel: –the closest thing. Kenneth Dam: Well I’ve always wondered which drove which. Whether it was price and wage control is driving the devaluation or the other way around. Of course, the devaluation wasn’t put as a devaluation because Nixon knew how to handle–and Connally knew how to handle politics. And that wasn’t the right way to do it from their standpoint. I don’t think–there was even something in there for the textile industry if you go back. Robert L. Hetzel: Yes. Were you involved in all that analyst discussions with, was it Milliken? Was that the guy’s name? Kenneth Dam: Milken. No I never participated in any discussions. But I–that was the main thing I did at Camp David, was to figure out how to actually do something for the textile people, because that was a legal problem. And that’s why we declared it national emergency, because that was in the executive power to impose quotas, which I can’t remember whether it was every done. Robert L. Hetzel: It was not. Kenneth Dam: That’s the reason there was a national– Robert L. Hetzel: But the Japanese volunteering– Kenneth Dam: That was the reason–yeah, that’s right. We didn’t have to. But it gave us a leverage so [(crosstalk) unintelligible 00:11:21] Robert L. Hetzel: Right. Kenneth Dam: –we could. That’s normally the way it works. But I always thought that, you know, the historians got that all wrong. They thought the national emergency had something to do with the dollar. And I remember Nixon, at a meeting at Camp David on that weekend pretending that he didn’t have any interest in doing something for the textile industry. He said “What have they done for us?” Robert L. Hetzel: Who said that? Kenneth Dam: Nixon. Robert L. Hetzel: contrived (crosstalk) Because that was completely–I’m sure that that was completely -5- Kenneth Dam: But later Connally assured him that it was necessary to do it. But Nixon acted sort of angry. And, you know, he said “What have they done for us?” Or “What have they done for us lately.” I’m not sure which it was. But it took me aback because I was the designated hitter to explain to him what we were going to do. And he lashed right out at me. Robert L. Hetzel: The other lawyer– Kenneth Dam: Maybe he was just testing me to see how I’d react because I was the new boy. I don’t know. Robert L. Hetzel: Well they ultimately did a lot for him in the election. They donated a huge amount of money, like half a million dollars. Kenneth Dam: Yeah I always found that amusing part of it. The other thing I got involved in was negotiating. He needed an opinion by the Office of Legal Counsel and Justice Department. And I negotiated that over the–which I think had to do with surcharge, believe. I’m not positive of the exact subject. But I remember I negotiated it over the telephone with the head of the house of the legal counsel who was the Chief Justice of the United States, Rehnquist, who became Chief Justice. That was one of my few memories of Camp David. The other one was the feeling that Volcker was very, very unhappy with his task, which was to go around the world and explain this to people, what we were doing. He had to–he immediately took off on a trip. So, I think Volcker, I conclude that he went but Volcker was somewhat reluctant. Robert L. Hetzel: Oh yeah. He had come up to the New York Fed and the New York Fed was the bank that viewed itself as the protector of the Bretton Wood system. That had come out of their earlier tradition, and Robert Roosa. So, he had spent his career in the sixties keeping the Bretton Wood system together. So, this had to have been very painful for him. And it had to be that when he became Fed chairman in August of 1979, and the dollar began to depreciate again he said, you know, “Not again, not on my watch.” Kenneth Dam: Well you know the–also, I remember very, very well the meeting at which where they took the formal decision to do the second, you know, I don’t know whether they had any choice, but they took a decision to devalue again. That would’ve been about February of 73. And Volcker took off on another trip. Robert L. Hetzel: Right. [00:14:15] Kenneth Dam: I remember that Burns was there and quite unhappy about it. Volcker was more like a soldier. It was hard to read him. Simon was there by now, Bill Simon. He had very much of a market orientation. And I think he thought it was happening, so you might as well declare victory. -6- Robert L. Hetzel: But it was true, he came as head of the energy– Kenneth Dam: Well yeah, but he was deputy secretary of the Treasury. Robert L. Hetzel: Yeah. Kenneth Dam: And I was there and Shultz’s executive assistant was there. And that was about it, about five of us. Robert L. Hetzel: So, let’s go back to you got to Washington– Kenneth Dam: I don’t want to portray myself as a big figure, but I was very interested in those days, these issues. So I basically got myself into a lot of meetings that I didn’t really need to go to. I just wanted to see what was happening and how it was working. It also was, to a certain extent it was justification because I had to deal with a lot of details later that came about. Because I remember, I was executive director of the council on economic policy. And there were an enormous number of other things going on that were related to exchange rates. Like, remember the [unintelligible 00:15:22] on soybeans and problems involving export quotas. Robert L. Hetzel: Right. That came later with the– Kenneth Dam: It came later than the– Robert L. Hetzel: –in ‘73. Kenneth Dam: But I’m talking now ‘73. And about the meetings. The second stage in many ways was more important than the first one. Because in retrospect, I didn’t think so at the time, but I view in retrospect the first devaluation as being a, not really a move to generalize floating. Generalized floating was the consequence to the second devaluation. That’s at least how I view it today. Robert L. Hetzel: So– Kenneth Dam: So in any event, I’ll go in sequence for you. Robert L. Hetzel: So you got there in July of 1970. And that’s when the figures– the trade figures had been deteriorating since kind of late fall of the year before. But in July, we’d actually begun to run a negative trade deficit. So were you involved in discussions of these figures coming in, and, you know, kind of worrying? And Volcker had put together– Kenneth Dam: No, I wasn’t involved. I hadn’t been there long enough. Robert L. Hetzel: Volcker had put together a plan for devaluation, if we close the gold window, which involved wage and price controls– Kenneth Dam: I don’t know that for a fact. -7- Robert L. Hetzel: Yeah. He had talked that over with Connally and Connally had asked him to add the import surcharge. Which Volcker didn’t want to do because he thought it was overly aggressive and unnecessary. Kenneth Dam: Well I think you can view it as protection, because it surely was. But on the other hand I think that Connally thought he was just having an extra bargaining chip to give away, because he did. At least that’s how it was presented at Camp David to the worker bees. Robert L. Hetzel: Sure. Oh yeah, he was a negotiator, I mean– Kenneth Dam: Right. Robert L. Hetzel: Everyone says–you can correct me if I’m wrong–that he didn’t come in with ideas of his own, other than the general dislike for foreigners and willingness to wave the flag and that kind of thing. Very patriotic. Kenneth Dam: Very smart. Very, very smart fellow. And he had some interesting ideas about how to govern the [(mumbling very low) unintelligible 00:17:49] particular ideas in this area. Robert L. Hetzel: Right. Everybody says he was very charismatic in front of a group. Kenneth Dam: Very handsome guy. Though he had a simple way of speaking, I have a couple of Connallyisms I love. One of them is where he was–sort of felt he was a spokesman–and he was designated at one point as economic spokesman–says “I can tell it round, I can tell it flat, you just tell me how you want me to tell it.” And the other one I like was when he called these negotiations–how many people, how many countries were in the European community at that time? What was it twelve? Well it doesn’t really matter, we’re assuming there were twelve. Robert L. Hetzel: Yeah. Britain came in ‘73, so it was the continental– Kenneth Dam: So he said–he called it the twelve against one club when he went to have these monetary meetings. And the other one I like was on economic statistics. These people come in and brief him and say “Don’t give me all those numbers, I just want one number I can remember.” Robert L. Hetzel: Yeah another economist told me he would say “I can slice it and dice it any way you want it.” Kenneth Dam: That’s the round and flat. Robert L. Hetzel: In Volcker’s book, Volcker says when Connally went to the meetings in Munich, I guess it was in May, and announced we would never devalue and -8- Volcker said “Don’t you want to hedge that?” And Connally said “That’s my immutable position, at least until this summer.” Kenneth Dam: Shultz has this saying, not about himself but about people like Connally, but not specifically about Connally. And that is “My–I have one principle in politics, and that principle is flexibility.” Robert L. Hetzel: There were two giants in the domestic scene. There was Connally and Shultz. And Connally started in June, took over policymaking and temporarily pushed Shultz aside. So Connally and Shultz never clashed openly in meetings? Kenneth Dam: I never– Robert L. Hetzel: Shultz’s method was never to kind of confront people directly? Kenneth Dam: Well sometimes he would confront–typically he would confront them directly in the Reagan administration. I remember he and Weinberger in front of each other all the time. Not at huge meetings, but in meetings big enough for people to go out and talk about it and gossip about it. But my favorite story about Shultz in the Nixon administration is the one that Laffer talks about. That was a meeting that before I got there, there was some just God awful thing going to happen for political reasons. And Shultz just– who knew it was a terrible idea from an economic point of view, just sat there until 57 minutes after the hour while people are gathering up their papers. He said “Now–“Shultz said “Now before we do this, we ought to take a look at x, y and z because we don’t want to fall on our faces here.” And everybody would say “Well yeah. I guess we should.” And that was the end of it. They never had another meeting, it never happened. In other words, he was very adroit at derailing things. Robert L. Hetzel: So, let me ask you this. You probably have insights that I don’t have. Shultz started as Secretary of Labor, which is sort of a provincial position– Kenneth Dam: Right. Robert L. Hetzel: In the administration. And yet he became enormously important. So what do you know about how that happened? Kenneth Dam: I don’t. I don’t have any particular insight except he was obviously enormously capable. Robert L. Hetzel: Yeah. Kenneth Dam: He was loyal. Robert L. Hetzel: Yeah. -9- Kenneth Dam: had the links to labor. He was a good spokesman to the business community and he Robert L. Hetzel: Yes, he was good friends with [unintelligible 00:22:05]. Kenneth Dam: Right. So– Robert L. Hetzel: respected his intellect. Do you have any sense of how he and Nixon got along? Nixon Kenneth Dam: I never saw anything other than the substantial meeting where I never had any possibility of judging. I was a second level person. Therefore was never–was in a very small meeting with the President. Which was totally unlike my experience with Reagan. I was in many small meetings with Reagan, had one-on-one conversations with him occasionally. Not scheduled, but on the edges of other meetings. But I never had that experience with Nixon at all. I don’t think Nixon–Nixon didn’t like small meetings. And when he had meet more people he just sort of sat in peace. You didn’t see Nixon doing much. Robert L. Hetzel: Right. Yeah, the people I’ve talked to like Paul McCracken, have said that Nixon felt comfortable with a few advisors. Kenneth Dam: Right. Robert L. Hetzel: And he felt uncomfortable before huge crowds. He was very awkward in groups of twenty or thirty or or so. So in between he didn’t… Kenneth Dam: Exactly. Robert L. Hetzel: …do well. Kenneth Dam: That’s what I’m saying. Robert L. Hetzel: So when did you first hear that you were going to Camp David? Kenneth Dam: Thursday afternoon I was told to be ready to go the next morning at noon. I think it was night, I think it was Friday night. Robert L. Hetzel: David and–? So, what were you told? Just that you were going to Camp Kenneth Dam: I was told–I’d been working on this idea of an import surcharge and the question about the textile– Robert L. Hetzel: 00:23:39] The legal aspects, whether the [(crosstalk) unintelligible - 10 - Kenneth Dam: Yeah I was [(crosstalk) unintelligible 00:23:38]. Nor necessarily. I hadn’t done [(background noise) unintelligible 00:23:41]. Just a second. [tape cuts off] Robert L. Hetzel: So, you flew out in the helicopter. Kenneth Dam: Right. Robert L. Hetzel: Safire tells a story– Kenneth Dam: Will Safire. [0:24:43] Robert L. Hetzel: –tells a story of the Treasury man riding out with him in the helicopter. And the Treasury man says to him “Why do you think we’re going here?” And Safire says “Oh I don’t know. I think to close the gold window and devalue the dollar.” And the Treasury man cover his hand with his head and says “Oh my God.” Is that you or–? That’s the story in “Before the Fall”. I don’t know if it’s true or not. Kenneth Dam: No, I don’t know. I think that conversation occurred in the car from the helicopter. And I don’t know who the Treasury man would have been. It doesn’t make sense because there was no Treasury man thereRobert L. Hetzel: Yeah. Kenneth Dam: –other than Brad– Robert L. Hetzel: Who was in the Fed. Kenneth Dam: Bradford came later. Robert L. Hetzel: He was from the Fed. He was a lawyer. Kenneth Dam: That’s right. He was in the Fed, right. He came later. And he was called up because I was not, you know, I had almost no preparation time. You remember, I was scrambling then with the defense budget. And, I mean I was really working full time on defense budget. And this was just something I happened to be doing by the side. But I had some good general background. But it was clearly necessary to get somebody like Bradford up, because I couldn’t do what was necessary to be done. Because Bradford was a specialist in this area. So Volcker arranged for him to come up. So there wasn’t anybody else up Treasury but Volcker and Connally. I can’t think of anybody else. There’s a picture in Life magazine of everybody who was there. It’s in Life magazine the following week. So you can check to see who was there. Robert L. Hetzel: And the first– - 11 - Kenneth Dam: In fact, isn’t there a guest list of some kind? Robert L. Hetzel: Yes, in Safire’s book there’s–who ever signed the book is. Kenneth Dam: So there is no Treasury man. Robert L. Hetzel: Yeah. The first meeting, was that evening, Friday evening? Kenneth Dam: Yeah I guess so. I don’t know, we went to work right away. Robert L. Hetzel: But did it start with the general meeting with Nixon? Kenneth Dam: So how did it start? I mean, how did you first hear about the wage controls and the decision to–well the decision to close the gold window was argued out with Burns. But, the decision to– Kenneth Dam: No, I don’t know when I learned. Well, I may have learned about the wage and price controls. I knew it was rumored. I think I asked Herb Stein, and he said “Oh, sure.” I think that may have been maybe in that four-minute taxi, or four-minute car ride from the heli-pad to the first meeting. The first meeting was in one of the buildings where we just started working right away. I don’t–it’s all a blur to me is exactly what. But by Saturday, Safire was writing his speech. And it was basically all decided Saturday, we spent a lot of time on details, trying to figure out exactly what the parameters of each of the things like the import surcharge and, like that. Robert L. Hetzel: So, do you remember what questions were undecided? Was it decided that it would be ten percent and what you argued over? Kenneth Dam: No, because the way this worked was we were split into groups. One was working on wage and price controls. One was working on target import surcharge. What–I don’t know exactly–about four groups. And we were in one of the buildings at Camp David, in one of the lodges. We were each working in a small room and Connally kept going from one group to another. So, since I wasn’t really in the central group, it was always a little bit difficult for me to figure out what was going on. And I was new to government and I was just trying to be useful. So I didn’t have any overview. I can’t help you on that. I just don’t– I don’t think I knew. And to an extent, what I know I’ve basically forgotten because this is now– Robert L. Hetzel: Oh sure. Kenneth Dam: –Well over a quarter century ago. Robert L. Hetzel: Yeah. Let me ask you about the– Kenneth Dam: And also, I didn’t keep notes or anything like that. I was too busy to do that. I didn’t see–well yeah I didn’t really–I wasn’t trying to write a book or– - 12 - Robert L. Hetzel: Let me ask you about the debates that took place within the administration in the fall. There were initially basically three groups, Shultz wanted floating exchange rates. And then there was Connally and Volcker, it was basically Connally’s decision. He was the Treasury secretary after all. And then there was Burns and ultimately Burns and Kissinger. So, Volcker convinced Connally that we should try to–we should stay with Bretton Woods, but just with new exchange rates. Kenneth Dam: Who did it? Say it again? Robert L. Hetzel: Volcker. Kenneth Dam: Convinced Connally, yeah. Robert L. Hetzel: Presumably, yes. And then–so Shultz had lost that battle. So then Shultz joined with Connally and Volcker, because if you were going to devalue, you needed to do it by enough so that the problems didn’t come back. Kenneth Dam: Right. [00:29:00] Robert L. Hetzel: So at that point then, it was Burns against Treasury and Shultz. Shultz to the extent that he was involved. But then Burns got Kissinger involved. Does this sound right to you? Does this sound familiar? Kenneth Dam: I had no insight into that. Robert L. Hetzel: Okay. Kenneth Dam: For one thing, we were heavily in the budget season. This was my first defense budget. So I used to say I knew nothing about the defense budget except I’d gone to basic training twice. And so I had a lot to learn. Robert L. Hetzel: Okay. Kenneth Dam: So, my only insight into that was a meeting that I went to one morning with Shultz, Kissinger and–and this I think we mention in our book–with Shultz, Kissinger and myself. And Kissinger was just a basket case. God he was so tired he couldn’t stop yawning and I didn’t know why, but it was because he was flying back and forth to Paris for the Paris peace talks. He was just exhausted. But he was just out of his mind about Connally. Connally was destroying our relations with all of our allies and so forth. And so, I think there was an alliance there to bring this thing to an end and try to get a meeting. And so Connally engineered–and we even talked about this without much detail, this meeting with– was it Pompidou? Robert L. Hetzel: That was the Azores. - 13 - Kenneth Dam: That was the Azores, right. Robert L. Hetzel: Yes. Kenneth Dam: And that happened within ten days thereafter. So that was Kissinger’s [unintelligible 00:30:28]. He didn’t seem to know what was going on. He didn’t really care. He just knew it was not bad for his business. Robert L. Hetzel: But then you can see why he worked well with Burns. Because Burns was kind of very knowledgeable, but Burns had the same feeling. He had the feeling that floating exchange rates would recreate the depression and set [(crosstalk) unintelligible 00:30:49] Kenneth Dam: I think it was the surcharge that would bother Kissinger more than lowering our textile. I almost had the feeling he didn’t know the difference. I’m going to turn on a light here. Robert L. Hetzel: Well, that makes sense. It was an aggressive move and it was the first time we had move unilaterally without consulting our allies. So the US was always clearly the dominant player, but it had kept the others on board through consultations and then when a decision was made it was done–it wasn’t done in an embarrassing way. But the– Kenneth Dam: And, you know, and the other things that Kissinger was trying to accomplish with the allies, he was trying to–didn’t want to be too proactive. The French, they were the host for the Paris peace talks. He wanted more support for Vietnam policy out of the Europeans. I mean he had a lot of little fish to fry. Robert L. Hetzel: Do you have any recollections about the [unintelligible 00:32:02] meeting that took place before the Azores meeting when– Kenneth Dam: Nothing except that that’s when Connally came back discussing calling it the twelve against one club. And I don’t–see, I wasn’t there, so I don’t know, other than that comment, which I heard about. Robert L. Hetzel: Yeah. I won’t keep you too much longer. You were in Washington until early ‘74? Kenneth Dam: Until the end of ‘73. So, from February of ‘73 to the end of ‘73, I did this council on policy, then left. And Shultz left, I think in May of ‘74. Robert L. Hetzel: So with the– Kenneth Dam: Because I started teaching in the winter quarter here, the beginning of ‘74. I left at the end of December. - 14 - Robert L. Hetzel: So in ‘73 with the council of economic policy, you were involved in much more than– Kenneth Dam: What became the trade bill. Robert L. Hetzel: Right. Kenneth Dam: That became [unintelligible 00:33:00]. Minimum wage, workman’s compensation, and also trying to get idea of a trade rally started, I didn’t have–that was really why the Shultz issue than it was for me. But often I had to explain people bring second level people along and so forth. Then there was other, just organizational stuff. You know, all the problems beyond wage and price controls. There were lots of little–like I’d mentioned, export controls. I’d spent a lot of time on export controls. And also, we were– another thing I got involved in was bilateral discussions with the Russians, with the Soviets. I went with Shultz to Moscow in October of 73. It was the follow up stuff to that. Robert L. Hetzel: And that was preparatory. Because that’s when Nixon was going to meet with Brezhnev. Kenneth Dam: economic issues. Yeah it was about that context. But we were there just on [00:34:07] Robert L. Hetzel: Were you at all involved with the wage and price controls apart from the international ramifications? Kenneth Dam: Oh sure, sure. But, you know, I was more–I think you’ve aught to view it this way, I was kind of a–there was an eight o’clock meeting, which we discuss in the book, every day, which involved Stein and Dunlop and Simon, who was very much involved in all this stuff about controls on energy. He certainly had become a free marketeer since he had that experience, I must say. But at those times he was for the controls. Robert L. Hetzel: Simon, yeah. Kenneth Dam: And I went to those meetings. And sometimes I would get assignments coming out of them. But usually it was [unintelligible 00:35:03]. So I was on– this was a dreary, you know, open discussion at that eight o’clock meeting. So I basically knew what happening on everything. But I–sometimes there were things that I had to do to implement. I had quite a number of little groups, not many on wage and price controls, if any, that I got involved in. Sometimes they were little issues. I remember–I can’t remember what it was, but I had a little working group with Marina Whitman with somebody else. Robert L. Hetzel: Yes. - 15 - Kenneth Dam: about that occasionally. Robert L. Hetzel: I remember because I’ve seen Marina a lot and we’ve talked Yeah, I’ve– talked with her. Kenneth Dam: He worked very intensely on something and I can’t remember what it was, for just a couple of weeks. But it had something to do with wage and price controls, I think. Maybe not. We were shooting down something, I remember, so we were going to apply a little–a lot of what you do is say no and go figure out ways to stop the stupid ideas from taking root. And then occasionally there’d be something just involving the White House and I’d get involved in that, extricate myself. Because I had an office in the West Wing and sometimes got involved in White House staff activities. And I always tried to get out of those. They took too much time. Unbelievably stupid kind of things. A bunch of second rate politicos trying to find a role for themselves. Robert L. Hetzel: Okay, so I think we better–you’ve been very generous with your time. Do you have any final comments on– Kenneth Dam: No, except– Robert L. Hetzel: –on the Nixon people and how they could have–there was such good people like Stein and Shultz and then there were people that were sort of beyond the pale. Do you have any sense of how Nixon could have– Kenneth Dam: Well I think that they compare pretty favorably with every administration. I think this administration has a lot of quality. But, you know, even some of the people have gotten a bad name, like Earl Butz at agriculture. I found him very intelligent. Robert L. Hetzel: Well his son was a friend of mine when I was a graduate student in here. And Butz was very good. Although… Kenneth Dam: He knew agriculture. Robert L. Hetzel: He was an economist. He was a very good economist. But he, you know, later made the mistake of accepting… Kenneth Dam: Yeah I know. I know, the systems terms of equality. Robert L. Hetzel: He was very– Kenneth Dam: You had Kissinger. Robert L. Hetzel: Yeah. Kenneth Dam: `And Shultz. You had Stein I should say. Bill Simon was not very qualified for the job. He still was an enormously bright guy, really understands markets. Peterson, unfortunately was totally unskilled. Peterson is–I still see Peterson a lot because - 16 - he’s chairman of the board of the council on foreign relations and I’m one of the board members. And I observe him a lot. He does a very good job there. He’s enormously dedicated and hard working. So he’s a quality person. But a lot of the quality people there weren’t really prepared for the jobs. And then you had Connally. Well, Connally was weak on substance but strong in politics. And Connally was a guy who when Ehrlichman and Haldeman tried to exclude him from seeing Nixon directly. And Connally, the first time they tried that, Connally just ran right over them. So, I would have to say that that was a pretty impressive group of people. And I think they had all sat pretty well. I think the second level people, particularly on the political side, were very mediocre. But there were some good people–Rumsfeld, I remember was around. He went off to NATO. He certainly is a heavy hitter. Robert L. Hetzel: Yeah. Kenneth Dam: The guy who’s running Halliburton now, was there briefly, congressman from Wyoming, and he later became Secretary of Defense. I’m sorry, I can’t– It’ll come to me. Really, good group. In fact, Fred Fielden gave me the–and I don’t know where it is, I moved around so much, I don’t know where– Robert L. Hetzel: Caspar Weinberger was– Weinberger’s area? Kenneth Dam: The phone book. The 1972 executive office to the president phonebook. And it is incredible, the names in there. A White House fellow working for Weinberger was Colin Powell. He was at the White House around that time. There was just– a number of sensational people are on there. And, so I don’t quite–I think the problem, if there was a problem about economic policy, it was that we were at an inflection point. Because the Bretton Woods system basically ran out of gas. And there was no consensus or even thinking about what came next. And I see a little bit, like right now, everybody wants to do something. Robert L. Hetzel: Exactly. Kenneth Dam: But, yeah, we ought to regulate banks. We ought to regulate hedge funds. But what in the world are we going to do? So I think in this period right now we have people who very much–with great dissatisfaction with the system we have, but with no sense of where we ought to go. Robert L. Hetzel: Right. And all the international stuff, you couldn’t really set up an international monetary system without monetary policy. But that was the Fed, that was completely separate from the administration so you had to [(crosstalk) unintelligible 00:40:48] Kenneth Dam: unintelligible 00:40:48] Right. And that’s why I said to you on the phone [(crosstalk) Robert L. Hetzel: different. If Shultz could’ve set the whole thing up, it would’ve been very - 17 - Kenneth Dam: I had absolutely nothing– Robert L. Hetzel; Yeah. Kenneth Dam: No contact with monetary policy discussions. That was just totally off limits and no discussion on any opinion. (END OF RECORDING) - 18 -