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Nixon tapes research unearths surprises

UD researchers find evidence that Nixon knew economic policies were dangerous

While some might suspect that politicians put personal ambition ahead of the nation’s best interests, rarely can such an accusation be objectively proven.

But a new article by University of Delaware economics professors Burton Abrams and James Butkiewicz provides what the Washington Post recently called “a rare example of smoking gun evidence of this kind of behavior.”

Reviewing the Nixon White House tapes, Abrams and Butkiewicz found that President Richard Nixon was aware his 1971 New Economic Policy would likely harm the economy. However, he felt the policy’s favorability in the public eye would help him to win re-election in 1972.

Specifically, Nixon made it clear that he did not support the policy’s wage-price controls, which would prevent businesses from changing wages or prices for 90 days in order to counter inflation.

The team’s article in the academic journal Public Choice reported that in February 1971, Nixon said, “In my view… wage-price controls in peacetime on a broad basis will not work.” He added that they would “lead to a terrible smothering” of the economy.

A few days later, however, Nixon said, “Here’s my concern about the freeze… There is strong support for... wage-price controls,” even though they “will not work.”

‘‘I know the reasons, you do it [wage and price controls] for cosmetic reasons, good God!” Nixon continued. “But this is too early for cosmetic reasons.’’

“Nixon doesn’t believe that controls will work, but is now apparently willing to do something ‘cosmetic’ that would help his re-election,” the article by Abrams and Butkiewicz explained. “A freeze or controls likely would be effective for only a short period of time and thus, if imposed, Nixon thinks they should be imposed close to the 1972 election.”

The article further described these “cosmetic” political reasons: “At the time of the wage and price freeze, Richard Nixon’s presidential re-election bid was less than 15 months away. Any political gains that might be made in the run up to the election from reducing unemployment might be negated if the inflation rate accelerated. Temporary wage and price controls would conveniently disguise inflation until after the election.”

By June 1971, the team found, Nixon said on price controls: “I’m not going to say never.”

In July, Nixon said, ‘‘I’ve never seen anybody beaten on inflation in the United States. I’ve seen many people beaten on unemployment.’’

In August, Treasury Secretary John Connolly urged Nixon to consider the political ramifications of his decisions.

“To the average person in this country this wage and price freeze — to him means you mean business,” Connolly said. “If you take all of these actions…you’re not going to have anybody…left out to be critical of you.”

During this same conversation, Nixon enquired about “Just do[ing] some stuff for symbolism.”

“Nixon wants the public to think he is doing something about inflation,” the article explained. “But his only real concern is unemployment, so a symbolic action against inflation is enough.”

Nixon then announced his New Economic Policy to the nation on the evening of Aug. 15, 1971, with wage and price controls included.

The result? “The wage and price controls failed miserably — as Nixon predicted,” Abrams said. “Following the end of controls, inflation roared on and worsened in the 1970s.”

This was an unprecedented move, the first and only peacetime wage and price controls in U.S. history, and Butkiewicz said the controls’ negative consequences demonstrate the impact of wage and price freezes like it.

It also demonstrates, Butkiewicz said, that, “Politically expedient policies often cause more harm than good.”

These weren’t the only interesting findings to come from the team’s work with the Nixon White House tapes. Abrams and Butkiewicz have written two papers on the tapes’ evidence that Nixon pressured Federal Reserve chairman Arthur Burns on economic decisions and the creation of a beneficial political business cycle. They are now considering a book on the subject.

In the future, the team will continue to study Nixon’s decision to end the convertibility of the U.S. dollar into gold – the “gold standard” – and floating the dollar exchange rate.

“This was a unilateral decision by the Nixon administration that ended one of the key features of the Bretton Woods system that the United States created in 1944,” Butkiewicz said. “The world was shocked. There are some interesting aspects of this decision that we continue to investigate.”

Image: National Archives and Records Administration, Public Domain

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