Planet Money: The Case for Fed Independence in the Nixon Tapes

Host: NPR's Planet Money
Episode Title: The Case for Fed Independence in the Nixon Tapes
Release Date: January 11, 2025

Introduction

In this compelling episode of Planet Money, hosts Burton Abrams and Mary Childs delve into the intricate relationship between President Richard Nixon and Federal Reserve Chair Arthur Burns. Centered around the recently released Nixon tapes, the episode explores how political pressures may have compromised the Federal Reserve's independence, leading to significant economic repercussions in the subsequent decades.

Background on Federal Reserve Independence

Fed independence is a cornerstone of American economic policy, ensuring that the central bank operates without undue political influence to maintain economic stability. This principle is critical because the objectives of political leaders often conflict with the long-term economic health of the nation. For example, politicians may prioritize short-term gains such as lowering unemployment to boost re-election chances, even if it risks triggering long-term inflation.

Arthur Burns and His Monetary Policy Views

Arthur Burns, an esteemed economist and author of Prosperity Without Inflation, was appointed by Nixon as the chairman of the Federal Reserve in 1969. Burns was renowned for his cautious approach to monetary policy, emphasizing the dangers of excessive money supply growth leading to inflation. However, under his leadership during the early 1970s, the economy experienced one of the worst decades of inflation in U.S. history.

Nixon's Pressure and the Nixon Tapes

Burton Abrams, a former professor driven by curiosity, seized the opportunity in 2004 to examine the Nixon tapes—over 1,500 hours of secretly recorded conversations from the Oval Office. His investigation aimed to uncover whether Nixon had exerted undue pressure on Burns to adopt expansionary monetary policies favorable to Nixon's political ambitions.

Notable Quote:

Richard Nixon [12:46]: "This will be the last conservative administration in Washington. And then he adds, really what we want, I don't want, I don't want to go out of town fast."
Interpretation: Nixon euphemistically expressed his desire to secure a second term.

Abrams discovered several key tapes that shed light on the president's attempts to influence economic policy:

1. October 29, 1971 [12:01]: In the Oval Office, Nixon urges Burns to lower unemployment by increasing the money supply.

   Richard Nixon [13:00]: "This liquidity problem."
   Context: Nixon dismissively refers to concerns about excessive money supply, indicating his preference for expansionary policies despite inflation risks.

2. Christmas Eve, 1971 [18:12]: A damning phone call between Nixon and Cabinet member George Schultz reveals Nixon’s frustration with Burns’ reluctance to increase the money supply.

   Richard Nixon [19:05]: "I’m sure next time I’ll just bring him in."
   Context: Nixon acknowledges the need to "keep after" Burns, highlighting ongoing pressure to conform to his economic agenda.

3. February 14, 1972 [27:15]: An urgent meeting where Nixon threatens economic "war" if Burns does not comply with his demands, emphasizing the manipulation of the Fed for political ends.

   Richard Nixon [28:16]: "War is going to be declared if he doesn’t come around some."
   Context: This blatant coercion underscores the erosion of Fed independence under Nixon's administration.

Burton Abrams' Investigation

Abrams' meticulous examination of both the Nixon tapes and Arthur Burns' secret diary, published in 2010 as Inside the Nixon Administration: The Secret Diary of Arthur Burns, provided a comprehensive view of the internal struggles at the Federal Reserve. Burns' diary entries revealed his growing frustration and the immense pressure he faced from Nixon to adopt policies that conflicted with his economic principles.

Notable Diary Excerpts:

• December 29, 1970: Burns anticipated Nixon's attempts to manipulate his public appearances, hinting at early signs of political interference.
• March 21, 1971: Burns documented threats from White House operatives, reflecting the hostile environment surrounding his role.
• November 3, 1971: A letter from Nixon urging Burns to expand the money supply under threat of economic disaster if he refused.

The Impact of Nixon's Actions on the Federal Reserve and Inflation

Burns' apparent capitulation to Nixon's pressures led to a series of expansionary policies, including lowering the discount rate—an action that increased the money supply by making it easier for banks to borrow and lend money. While these measures provided short-term economic relief and benefited Nixon's re-election campaign, they sowed the seeds for rampant inflation in the 1970s and early 1980s.

Notable Quote:

Arthur Burns [19:42]: "The Federal Reserve should not be treated as a branch of the administration."
Context: Burns underscores the importance of Fed independence, highlighting the dangers of political manipulation.

Eventually, the wage and price controls implemented during this period only offered temporary respite, as inflation spiraled out of control once the controls were lifted. The subsequent appointment of Paul Volcker as Fed Chair led to drastic measures, including raising interest rates to 19%, which, while effective in curbing inflation, induced a severe recession.

Legacy and Modern Implications

Arthur Burns' legacy is marred by his susceptibility to political pressure, making him a cautionary figure in discussions about central bank independence. His actions under Nixon's administration serve as a benchmark against which current Federal Reserve Chairs are measured, especially in light of recent political pressures.

Notable Comparison:

The episode draws parallels between Burns and contemporary figures like Fed Chair Jay Powell, questioning whether Powell will be remembered as an independent leader or someone who yields to political demands.

Conclusion

"The Case for Fed Independence in the Nixon Tapes" offers a riveting exploration of how political interference can undermine economic institutions designed to safeguard long-term stability. Through rigorous investigation of historical recordings and personal diaries, Burton Abrams and Mary Childs illuminate the critical importance of maintaining the autonomy of the Federal Reserve to prevent short-term political gains from jeopardizing the nation's economic future.

As Arthur Burns might have mused, securing Fed independence remains paramount to ensuring that monetary policy serves the nation's best interests, free from the vicissitudes of political expediency.

Notable Quotes with Timestamps:

• Richard Nixon [12:46]: "This will be the last conservative administration in Washington. And then he adds, really what we want, I don't want, I don't want to go out of town fast."

• Arthur Burns [19:42]: "The Federal Reserve should not be treated as a branch of the administration."

• Richard Nixon [28:16]: "War is going to be declared if he doesn’t come around some."

Produced by Sam Yellow Horse Kessler, edited by Jess Jang, and fact-checked by Sierra Juarez. Special thanks to Burton Abrams for his groundbreaking research.