The case for Fed Independence in the Nixon Tapes

Summary

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

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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.

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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."

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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.

Transcript

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[Burton Abrams]

In this episode, a former president curses a few times.

[Kenny Malone]

This is planet money from NPR. Secretly recorded audio from the White House. Specifically, 1527 hours of secretly recorded audio.

[Burton Abrams]

Yeah. By 2004, 1500 hours of oval Office visits, Cabinet meetings, phone calls were now available for the public to listen to the full unfiltered dump of the Nixon tapes.

[Kenny Malone]

Do you remember where you heard the announcement?

[Arthur Burns]

It was on the news.

[Burton Abrams]

This is economist Burton Abrams.

[Arthur Burns]

It was probably a newscast that talked about the Nixon tapes. And I said, this is what I've been waiting for.

[Kenny Malone]

Because, because obviously everyone wants to know about the dirty details. Watergate, the nonsense, the corruption.

[Arthur Burns]

Well, everyone else was interested in Watergate. I was interested in monetary policy.

[Kenny Malone]

Popular man. I bet you were. Yeah. See, ever since Burton Abrams was, was just a grad school whippersnapper, he had hoped that the Nixon tapes might solve a mystery that he'd been somewhat obsessed with. A mystery that begins with a famous economist named Arthur Burns.

[Arthur Burns]

Arthur Burns had a reputation of being an extremely cautious monetary economist who had written a book called Prosperity Without Inflation.

[Kenny Malone]

Prosperity Without Inflation. Burns discussed how inflation was caused by too much money flowing through the economy, too much money chasing too few goods.

[Burton Abrams]

And in 1969, Richard Nixon appointed Burns chairman of the Federal Reserve. And then Burns did things at the Fed that frankly, seemed like letting too much money flow through the economy and chase too few goods.

[Arthur Burns]

And all of a sudden we get the worst decade of inflation probably in US History. And the question I had was, why did he do that? Why did he abandon his prosperity without inflation ideas? And did Nixon play a role in that?

[Burton Abrams]

At the heart of Burton's question was this thing you may hear about from time to time, Fed independence. This is the idea that the Federal Reserve, our central bank, is too important to be a political tool and must be left alone to do what's best, best for the economy.

[Kenny Malone]

So Burton Abrams mystery was, did Richard Nixon use his power to bully Fed chair Arthur Burns into doing things that helps Nixon in the short term, but caused huge problems in the long term? And then, if so, how did Nixon do it? Like, literally, were there recordings of him doing it buried somewhere in the 1500 hours of now released recordings?

[Arthur Burns]

So I almost immediately headed down to Washington D.C. from Delaware.

[Kenny Malone]

Like, immediately, yes.

[Burton Abrams]

What Burton's quest uncovered would show why Nixon and Burns is the cautionary tale about Fed Independence.

[Kenny Malone]

Hello and welcome to Planet Money. I'm Kenny Malone.

[Burton Abrams]

And I'm Mary Childs.

[Kenny Malone]

A scandal like Watergate, well, that's the kind of thing they make movies about. Burglars, informants, etc.

[Burton Abrams]

Today on the show, one economist's quest through the Nixon tapes to find proof of Fedgate.

[Kenny Malone]

Yeah, Fedgate. It is the story of Richard Nixon and his Fed chair. It's more subtle than Watergate. It is more about monetary policy, but arguably had way bigger implications.

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[Burton Abrams]

Burns and Nixon. I will go out on a limb here and guess that we don't need to do too much background on Richard Nixon.

[Kenny Malone]

37Th president, elected in 1968. Famously claimed to not be a crook. He's been dead for 30 years and I would wager most Americans can still do a passable Nixon impersonation.

[Burton Abrams]

Do you have in your repertoire like a Nixon impression that you could do?

[Arthur Burns]

Pretend I'm Richard Nixon.

[Burton Abrams]

Yeah, yeah.

[Kenny Malone]

Full disclosure, it did take a little convincing. But of course, our intrepid economist Burton Abrams can do a Nixon.

[Arthur Burns]

Well, Nixon would have said Arthur Goose stack money supply. The economy needs to be rolling.

[Kenny Malone]

Yeah, you had it.

[Burton Abrams]

See? Pretty good. Now, our other main historical figure today, Arthur Burns, leading expert on monetary policy at the time, taught at Columbia, died in 1987. Obviously far less well known than Nixon.

[Kenny Malone]

I'm sure you could do an Arthur Burns impression. We wouldn't know if it was good or not. But if you were casting Arthur Burns in a movie, who would you have play Arthur Burns?

[Arthur Burns]

You have to have white hair.

[Advertiser 1]

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[Burton Abrams]

Okay.

[Arthur Burns]

Spectacles and a pipe.

[Kenny Malone]

Okay.

[Arthur Burns]

Apparently Burns would use the pipe to emphasize statements that he was making.

[Kenny Malone]

Oh, how does that work?

[Arthur Burns]

When he was asked a question, he would take time to restuff the pipe, make it more dramatic before he spoke. So that's a good trick.

[Kenny Malone]

So yeah. Burns and Nixon.

[Burton Abrams]

Nixon and Burns and our Nixon Burns story begins before either of them had fully ascended to power. This was back around 1960.

[Kenny Malone]

Nixon was vice President at the time to Eisenhower. Arthur Burns had been a member of Ike's economic council and, and noticed that the economy was slipping into a recession, unemployment was rising a little, and Burns actually went to then VP Nixon and said, this is, this is going to be a problem for your upcoming presidential campaign. Dick. The one against jfk.

[Burton Abrams]

Vice President Nixon then took that advice to President Eisenhower and essentially said, we need fiscal stimulus, we need expansionary monetary policy.

[Arthur Burns]

Eisenhower to his credit, said there's no way we're going to do that unless we have evidence that the economy is entering into a severe recession. We're not going to manipulate the economy for political gain. Nixon was very upset by this, lost the election and said that's not going to happen again.

[Kenny Malone]

Eisenhower and his economic advisors were upholding the tenet of Fed independence. And the reason it is so important for the Fed to be independent is because what is good for politicians, for the President is, and what is good for the country do not always align.

[Burton Abrams]

For example, when you are trying to fight inflation, the Fed might have to increase interest rates to slow the rise of prices and that is short term pain to wrangle that long term problem.

[Kenny Malone]

Now, Fed independence is not a law, it is a norm, an agreement. And our investigative economist Burton Abrams deeply suspected that the catastrophic inflation in the 70s and 80s might have begun because of Richard Nixon ignoring that norm. If so, perhaps the Nixon tapes could allow a kind of autopsy of the whole mess. Like how exactly might Richard Nixon have pressured his Fed chair Arthur Burns into disastrous monetary policy?

[Burton Abrams]

So in 2004, shortly after the Nixon tapes became widely available, imagine our economist Burton Abrams speeding or driving sensibly. Your choice. Down I95. He is headed from Delaware, where he is a professor, to College Park, Maryland, just outside dc. He has an appointment at the National Archives to start listening and investigating.

[Arthur Burns]

The tapes were not extremely accessible. They were available on reels. There were no transcriptions, or very few. They certainly didn't transcribe the monetary policy conversations.

[Kenny Malone]

Sure.

[Burton Abrams]

And you sit down, you put. You get the literal physical reel and you, like, put it on the thing and like play it.

[Arthur Burns]

It was a little cassette player. Yeah. And then you had to put on earphones and try to make out the garbled conversations that existed.

[Burton Abrams]

Yeah. So the first thing you learn the instant you listen to the Nixon tapes is that they are very often very hard to understand. Nixon installed this recording equipment through three years into his presidency.

[Kenny Malone]

Why did Nixon install this recording equipment three years into his presidency? Well, it's a good question. Nixon was a famously paranoid president and wanted exact documentation of his conversation. So no one misconstrued what he said. But yeah, it's an odd choice, for sure.

[Burton Abrams]

I wouldn't do it personally, but he had the Secret Service install the recording equipment. And this is the very first Nixon tape. It's a recording of a meeting in the White House Cabinet room. You can hear how people are really far away from the microphone. And plus, there are all kinds of unidentifiable noises.

[Arthur Burns]

People would knock and bang on the table, like, is that true?

[Kenny Malone]

Can you hear him banging on the table in the. Nixon.

[Arthur Burns]

Oh, yes. Oh, yes. And coffee cups hitting. You know, they serve coffee and the coffee cups would be clattering.

[Burton Abrams]

A sound engineering nightmare. So, yeah, Burton had his work cut out for him. And I'm imagining a big old research like montage here. He grabs a tape, he puts his headphones on, he hits play, rubbing his brow, you know, new tape, new tape, new tape, new tape, new tape.

[Kenny Malone]

So you're hearing them for the first time. And do they tell a story? Do they answer the question that you wanted them to answer?

[Arthur Burns]

Yes, indeed.

[Kenny Malone]

In the end, Burton discovered a handful of tapes that to him, tell the story.

[Burton Abrams]

And so we shall now walk through five of those tapes with Burton.

[Kenny Malone]

We begin with tape number one. The date is October 29, 1971.

[Burton Abrams]

Arthur Burns enters the Oval Office. Nixon is waiting.

[Kenny Malone]

Arthur, how are you? Nixon says.

[Burton Abrams]

Burns says, good.

[Kenny Malone]

Now, this meeting is a year before the 1972 presidential election. And Nixon was worried, likely, that over the last two years, unemployment had almost doubled. It was now around 6%.

[Burton Abrams]

And to deal with rising inflation, Nixon had helped implement a now unthinkable policy of wage and price controls. So, you know, fighting inflation by saying, you can't do it. No one is allowed to raise prices or salaries.

[Kenny Malone]

And in this meeting with Arthur Burns, Nixon seems concerned about the economy's effect on his reelection.

[Richard Nixon]

This will be the last conservative administration.

[Kenny Malone]

In Washington, will be the Last conservative administration in Washington. And then he adds, really what we.

[Richard Nixon]

Really want, I don't want, I don't.

[Kenny Malone]

Want to go out of town fast. Which I guess is Nixon slang for I don't want to be a one term president.

[Burton Abrams]

Very cool slang. And it appears that Nixon wants to get unemployment under control. And it appears that his solution to this is more money, more money flowing through the economy, more money being lent by banks, a hotter economy in general.

[Kenny Malone]

And that might make sense, but it might also contribute to inflation. And in fact, it seemed that Nixon had heard arguments to this effect. People thought there was already too much money flowing through the economy, too much liquidity. And Nixon in response to this argument says, how does he put it? Yes. It's quote bullshit.

[Richard Nixon]

This liquidity problem.

[Kenny Malone]

They're finding reasons rather than Nixon seems to be saying, Arthur Burns Fed Chair o mine, you should do something.

[Burton Abrams]

And our Nixon tape listening. Economist Burton Abrams says this meeting is hugely informative because Nixon's political career is not supposed to be the Fed's business. Fed independence.

[Kenny Malone]

Yeah. And as such, Arthur Burns seems to take a stand.

[Burton Abrams]

Yeah. Burns is like, no man, it is not bs. There is a lot of money sloshing around and Burns seems to worry that more could affect inflation and inflation expectations.

[Richard Nixon]

I don't want to see interest rates exploding.

[Arthur Burns]

Burns is making an appeal to Nixon that he doesn't want to stimulate anymore. He's still holding out. Yeah.

[Kenny Malone]

So I assume Nixon is not super jazzed about that meeting.

[Arthur Burns]

No. So I suspect that behind the scenes pressure is still to give Nixon the monetary policy he wants.

[Kenny Malone]

Okay, Nixon tape number two. This is about two weeks later. It is a phone call.

[Burton Abrams]

A fun old timey phone call with an operator and everything.

[Richard Nixon]

Hello, Dr. Barron. Yeah. Hello, Arthur. Yeah. How are you, Ms. Brett? Hi, how are you? Fine. Did you have a good trip? Oh, yeah, I just got back from Chicago. I know.

[Kenny Malone]

Yeah, yeah. Why do they, why do they talk like that?

[Arthur Burns]

I don't know.

[Kenny Malone]

Yeah.

[Burton Abrams]

A month before, Burns had seemed to push back against the idea of increasing the money supply. And yet with what news has Dr. Burns called the President on this fine day?

[Richard Nixon]

Look, I want you to know that we are reducing the discount rate today. Oh, I see. And be announced around 4:00. Right up to the market. Right, right.

[Kenny Malone]

Lowering the discount rate.

[Arthur Burns]

The discount rate is the interest rate that the Federal Reserve will lend to banks. So by lowering the discount rate they're telling banks, come and get it. You can borrow at a lower rate and then make loans. This tends to increase the money Supply?

[Kenny Malone]

Yeah. More money flowing through the economy, just like Nixon wanted.

[Burton Abrams]

And then exactly one month after the last call.

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Dr. Berenson?

[Richard Nixon]

Yeah. Yes, how are you? Oh, Arthur, how are you? I'm fine. Yeah, you called me earlier, but I had. I was in signing the tax bill. Yeah, I know. Look, I wanted you to know that was a good result, too. We reduced the discount rate today. Oh, yeah? Yeah, yeah. Good, good. What is it now? Four. Four and a what? We got it down to four and a half percent. Four and a half?

[Arthur Burns]

Yeah.

[Burton Abrams]

Hmm. Lowering the discount rate again.

[Arthur Burns]

It's more expansionary policy flooding the banks even more.

[Kenny Malone]

And do we know why Burns was willing to do this?

[Arthur Burns]

There's two theories, and one is that Burns thought that the inflation was caused by irrational inflationary expectations and that the stimulus that was going to occur would improve the unemployment situation without exacerbating inflationary pressures.

[Kenny Malone]

Right. So, okay, theory one. Inflation and unemployment had been ticking up during Nixon's first years in office. And it is possible that Burns thought the inflation part was largely caused by people freaking out about inflation.

[Burton Abrams]

Yeah. If everyone assumes everything will cost way more in the future because they expect inflation, they may start freaking out and buying lots of things today, which can create a surge in demand, which would then lead to a surge in prices going up, up, up.

[Kenny Malone]

So maybe Burns thought this inflation has less to do with too much money chasing too few goods and more to do with people thinking irrationally. Maybe he thought he had wiggle room and could add money to ease unemployment and not spike inflation. Maybe he thought now the President would push for less government spending. Plus there were literal price controls in place to artificially keep inflation down.

[Arthur Burns]

The other explanation is that he capitulated and gave in to the pressures imposed on him by Nixon.

[Burton Abrams]

Ah, yes, the pressures. Which brings us to our next Nixon tape. Christmas Eve, 1971. The election is less than a year away.

[Richard Nixon]

Hello, Mr. President. I thought you were taking off today. Well, I am at home right now. Great. I just.

[Kenny Malone]

Now, this Christmas Eve phone call is, I think, one of the most damning. The most damning that Burton found. Nixon is on the phone with one of his cabinet members named George Schultz, and we're just going to let this play for a bit. You're going to hear Nixon speak first.

[Richard Nixon]

You feel as far as Arthur and money supply, we've got that about as far as we can turn it right now, have we? I mean, as far as far as my influence on him, that's what I'm really asking. Well, you know, he said he that they voted to increase it. I know. And he said I. What was his. You. His words? He says. He said, and I'm on the line on that. I'm on the line that it increased. And that's what he said. I put that in my little note. All right. The. Well, you watch it and then remind me if, if I have to talk to him again and I'll do it. Well, I'm sure next time I'll just bring him in. What? I'm sure we'll have to keep after him, huh?

[Burton Abrams]

Yeah, we'll have to keep after him. Next time I'll just bring him in. This is not Fed independence.

[Kenny Malone]

No, this is as close to a smoking gun in the tapes as you will find for Fedgate. It lays bare that Nixon thought of the Fed as, as a tool at his disposal. The regular phone calls, the Oval Office meetings like none of that, Burton Abrams says, is what an independent Fed looks like.

[Arthur Burns]

The Federal Reserve should not be treated as a branch of the administration.

[Kenny Malone]

Are you saying the fact of the meetings alone is. Is troubling?

[Arthur Burns]

Yes.

[Kenny Malone]

I see.

[Arthur Burns]

When you get a personal conversation between the President and the Fed, there's too much possibility for a manipulation to take place.

[Kenny Malone]

After the break. The manipulation, the catastrophe, and the secret thoughts of one of their Burns.

[Burton Abrams]

This.

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[Kenny Malone]

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[Kenny Malone]

When you're listening to the Nixon tapes, what you are listening to are the Nixon tapes. Like you're listening to people come in and out of his world. Everybody other than Nixon is just an ancillary character.

[Burton Abrams]

And that is frustrating when you are trying to answer a question like why did Arthur Burns seemingly capitulate to Nixon? The only clues we get are these few moments when Burns visits the Oval Office or calls the White House. But even then he's talking to the President of the United States. He's not confessing his innermost thoughts and feelings.

[Kenny Malone]

No. But you know where he does confess his innermost thoughts and feelings? You can hear my post it notes. This is well marked up. This right here is the Secret Diary of Arthur Burns.

[Burton Abrams]

Well, it was a secret, at least until they published it in 2010 as Inside the Nixon administration. Colon, the Secret Diary of Arthur Burns.

[Kenny Malone]

Yeah, and just like a little excerpt here. February 23, 1969. Saw Prez off from Andrews Air Force Base on his trip to Europe. Rained hard.

[Burton Abrams]

I couldn't love it more. At one point, he explains to his Dear Diary that he hasn't written in a while because he's been working 16 hour days, seven days a week.

[Kenny Malone]

At another point, Burns wonders if Nixon has been drinking because he calls burns and then 30 minutes later calls again, seemingly forgetting about the first phone call.

[Burton Abrams]

But critically, this diary gives us a sense of what Burns might have been thinking when he was Fed chair. There are a series of entries in the months leading up to his decision to drop interest rates and expand money supply. And when you put those diary excerpts together, they do sound not great.

[Kenny Malone]

Yeah, yeah. Allow us to demonstrate here. So, entry from December 29, 1970. We have Burns writing a story about Nixon meddling, maybe meddling in a public speech that he was supposed to give at a college. Mary will. Will do her best. Arthur Burns now and read that entry.

[Burton Abrams]

The phone rings and Catherine announces the President wanted to speak with me. My heart sank, for I knew at once that he would want to advise me how to proceed at Pepperdine. And so it was.

[Kenny Malone]

Now, is that. Is that an Arthur Burns or is that a Katharine Hepburn?

[Burton Abrams]

Mary, that's an author. It's pitched lower, so that's okay.

[Advertiser 1]

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[Kenny Malone]

Arthur burns. Yes. Yeah. March 21, 1971. Burns is warned of enemies from within.

[Burton Abrams]

Recently a journalist came to see me and told me that some WH operatives.

[Kenny Malone]

WH that is his way of writing White house.

[Burton Abrams]

That some WH operatives had their bayonets out for me.

[Kenny Malone]

August 5, 1971. RN telephoned RN Richard Nixon. And apparently RN was calling to say he'd made a public statement to clear up a nasty rumor about Arthur Burns selfishly demanding a big pay raise. Nixon did not address what Burns deeply suspected about this rumor.

[Burton Abrams]

RN said nothing about this foul leak coming from the White House, nor did he refer to the report similarly leaked that the membership of the Fed board was to be raised from 7 to 14 and that the Fed was to be placed under the Authority of W House.

[Kenny Malone]

W House White House. That is a threat to pack the Federal Reserve Board and fully overthrow its independents. Big deal. November 3, 1971, I got a stern.

[Burton Abrams]

Letter from the President urging me to start expanding the money supply and predicting disaster if this didn't happen.

[Kenny Malone]

And then exactly one week later, this phone call.

[Richard Nixon]

Look, I wanted you to know we reduced the discount rate today. Oh, yeah, yeah, yeah. Good, good.

[Kenny Malone]

Yeah, yeah, yeah. Okay. Yeah. When you just listen to the Nixon tapes, it sounds like Arthur Burns suddenly one day changes his mind about expanding the money supply. But when you read his diary, you realize that this change happens after months of phone calls, after an alleged White House smear campaign, after a leaked threat to fully take over the Fed by the White House.

[Arthur Burns]

I think his lowering the discount rate is a capitulation to Nixon.

[Burton Abrams]

Again, our Nixon tape searching economist Burton Abrams.

[Arthur Burns]

Both the discount rate and the federal funds rate now begin their decline, exactly what Nixon had hoped for and wanted.

[Kenny Malone]

I wonder if a favorable interpretation with Burns is he knew that this was not the optimal way to run the Fed during this time, but if he didn't do a little bit of it, he was gonna somehow be ousted, somehow be run out of town and someone else would be put in place who would do it even worse.

[Arthur Burns]

Well, I think that's fairly accurate.

[Kenny Malone]

Here's why I ask. He doesn't comment on this stuff literally in the diary, but he does sound tortured. It doesn't sound like he enjoys being a Nixon hack. I mean, there's a quote specifically in his diary from, from November where he says the President's preoccupation with election frightens me. Is there anything he would not do to further his reelection? I am losing faith in him. My heart is sick and sad. That doesn't just sound like a crony to me.

[Arthur Burns]

No. He was a person that really wanted to do a good job with monetary policy, but he was being pressured by Nixon. Nixon wanted Burns to be afraid that he was going to lose control of his board. So now all of a sudden, Burns is worried that he is the odd man out.

[Burton Abrams]

This brings us to the final Nixon tape that Burton Abrams found that we're going to talk about. February 14, 1972.

[Richard Nixon]

I thought the program.

[Kenny Malone]

Nixon is in the Oval Office with George Schultz, that Cabinet member from the smoking gun phone call. Nixon is impatiently waiting for Arthur Burns to arrive. He's got to get his butt in here. But not.

[Burton Abrams]

But picture Nixon and Schultz in the Oval Office preparing for a meeting with Burns.

[Arthur Burns]

They're fixated on the election they need a strong economy and they're kind of panicking that Burns hasn't given it to him.

[Kenny Malone]

Burns has done the things they want. Like what do they want exactly?

[Arthur Burns]

Well, he was trying to parcel out a bit of benefit, but hadn't taken the full step yet.

[Richard Nixon]

This is the last time I'm gonna see him.

[Kenny Malone]

Nixon says, this is going to be the last time I see him. The last time he sees Burns, war.

[Richard Nixon]

Is going to be declared if he doesn't come around some.

[Burton Abrams]

War is going to be declared if he doesn't come around some.

[Kenny Malone]

Into the Oval Office comes Arthur Burns, presumably with a pipe.

[Richard Nixon]

Hi Arthur, come in. Sit down over here.

[Burton Abrams]

Nixon tells Arthur to come sit down.

[Kenny Malone]

Now Richard Nixon was pretty savvy about some economics. Burton Abrams says so, like Nixon knew that unemployment is a lagging indicator. This meeting is eight months before the election. And if Nixon wanted good unemployment numbers for election day, he needed Burns and the Fed to act now.

[Burton Abrams]

And this one's quite hard to understand, but best we can make out.

[Kenny Malone]

I really don't care what you do in April, but between now and April, something, something garbled that can hurt us. Something, something garbled in November.

[Arthur Burns]

Nixon actually tells him, well, okay, by April you can do whatever you want and you can reverse yourself. Try to reverse the expansionary policies in April and try to offset any damage that is done in the lead up to the election.

[Burton Abrams]

And Burns allows the relatively loose monetary policy to continue. Burton Abrams says maybe Arthur Burns was convinced that later he could reverse the policy, avoid a bunch of inflation.

[Kenny Malone]

But in the end there was no uncooking the economy. The next year inflation doubles. Then again by one point in 1980, it was 14.6%.

[Burton Abrams]

Yeah, it seems the wage and price controls were just temporarily keeping a lid on the building inflation. Those controls were eventually lifted and then inflation exploded.

[Kenny Malone]

The next Fed chair, Paul Volcker, gets credit for fixing all of this. It wasn't pretty. He raised interest rates so high to like 19% that it essentially caused a recession, but did eventually seem to get things under control. How do you walk away feeling about Arthur Burns?

[Arthur Burns]

Well, I'm disappointed in Arthur Burns. Unfortunately, as soon as Nixon was re elected, he started looking at the next two year election coming. And so I kept the pressure on.

[Burton Abrams]

It could not be stopped.

[Kenny Malone]

Well, Art, midterms are coming up in two years. Better get it moving again.

[Arthur Burns]

You know, it's a little bizarre because, you know, he won in a landslide in the election. But anyway, I think we could have avoided the 10 years of problems Burton.

[Burton Abrams]

Abrams took his investigation and wrote the paper the Bomb Drop on how Richard Nixon Pressured Arthur Burns. It is titled How Richard Nixon Pressured Arthur Burns.

[Kenny Malone]

Boom.

[Burton Abrams]

Evidence from the Nixon tapes.

[Kenny Malone]

Burton says there are people who will defend Arthur Burns. He is not one of them. Was Burns pressured? Yes. Should he have known better? Also yes.

[Burton Abrams]

The legacy of Arthur Burns is that he is now shorthand for a failed Fed chair. For a Fed chair susceptible to manipulation.

[Kenny Malone]

He has been invoked recently with the Trump administration taking over and Trump having explicitly said he'd like more control over the Fed. You will hear the question, does current Fed chair Jay Powell want to be an Arthur Burns or a Paul Volcker?

[Burton Abrams]

Right. Does he want to go down in history as the person who capitulates and does a popular thing now that's really bad in the long run? Or someone who does the hard unpopular thing but gets remembered as a hero?

[Kenny Malone]

I imagine Arthur Burns somewhere taking a long, meaningful inhale on his pipe, thinking, thinking, thinking. This episode of Planet Money was produced by Sam Yellow Horse Kessler and edited by Jess Jang. It was fact checked by Sierra Juarez and engineered by Cena Lofredo with help from Kwesi Lee and Jimmy Keighley. Alex Goldmark is our executive producer. Special thanks this week to, I mean, I guess, Richard Nixon for the inexplicable decision to record everything he ever did.

[Burton Abrams]

Big ups to Dick.

[Kenny Malone]

I'm Kenny Malone.

[Burton Abrams]

I'm Mary Childs. This is npr. Thanks for listening.

[Richard Nixon]

Oh, one other thing I told John to have put on, on the White House theater Monday night, the Brian Song. I don't know whether you saw it, you probably didn't, but it's an ABC hour and a half movie on Brian Piccolo and Gail Sayre. It's the best thing in race relations that's been done in my memory. And it's a beautiful movie. So be sure to have you, your kids, anybody that are around, go Monday night to the theater to see it. Will you do that? I'll do that. It's really wonderful movie. Okay, good. Bye. Bye.

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