Although former President Richard M. Nixon is likely best remembered for the infamous Watergate burglary and subsequent cover-up that led to his resignation, an economics professor has uncovered evidence of Nixon’s attempts to affect national economic policy for short-term political gain.

Burton A. Abrams, professor of economics in the Lerner College of Business and Economics, says he believes Nixon pressured the Federal Reserve, the central bank of the United States, to adopt policies that would work to his political advantage. In the long run, Abrams says, those policies proved extremely costly for the nation as inflation wreaked havoc on the economy through the 1970s.

In an article published recently in the Journal of Economic Perspectives, one of three journals published by the American Economic Association, Abrams draws upon archival audiotapes to focus on Nixon’s interference with monetary policy. The tapes contain conversations between Nixon and Arthur Burns, Nixon’s appointee to chair the Fed, and between the president and George Shultz, then director of the Office of Management and Budget.

Abrams says the conversations reveal how Nixon pressured Burns to adopt a highly expansionary monetary policy before the 1972 presidential election.

“The Nixon tapes permit a unique opportunity to overhear the actual conversations between a president and the chairman of the Fed,” Abrams says. “Burns was a longstanding friend of Nixon’s and a Republican loyalist, and the tapes reveal that Nixon felt comfortable in pressuring him to change monetary policy.
“Whether Burns changed policy because of pressures from the president or whether he just mistakenly thought it was in the best economic interests of the country is impossible to definitively determine, but the timing of the Fed’s actions in the run-up to the 1972 election suggests that short-run political motives played a role.”

Regardless of the motives, Abrams says, Burns supplied the expansionary monetary policy that Nixon overtly desired.

“The economy boomed and Nixon won re-election in a landslide, but the longer-run consequences of an overheated economy were disastrous,” he says. “After the election, the inflation rate soared, and it took nearly a decade, three recessions and millions of lost jobs to return the economy to reasonable price stability.”
Abrams says economists generally agree that a central bank such as the Fed performs best when it operates independently from political influences. The Nixon tapes reveal how Fed independence might be compromised in order to further short-run election goals, he says.

Abrams says he believes reforms that make the Fed even more independent or that restrict its actions through the imposition of policy or performance rules would help to prevent future politicization of Fed policy.

—Neil Thomas, AS ’76