The New York Times: Washington ─ Confronting the demon of economic downturn, President Nixon extended his arms, flashed the ancient thumbs-up sign, and pronounced the mystic incantation: "There will be no recession."
Doing their bits to shoo out the dybbuk, advisers like Treasury Secretary George Schultz allowed as how bedevilled President's prophecy would self-fulfill, provided one accepts the Nixon definition of a recession, and economist Herbert Stein sturdily agreed, adding under his breath, "but we're sure gonna have the littlest boom you ever saw."
What must disturb these two believers in economic freedom is the President's willingness to make economic decisions for political reasons─that is, to listen to the populist demand to "do something!"
Last summer, popularity economics called for a wrongheaded price freeze; by satisfying the demogogic lust to "do something," the Presidentㅡoverruling Schultz and Stein, succeeded only in creating shortages and confusion.
This year, popularity economics calls for an evasion of recession at any cost, in a perversion of Keynesianism that says "inflation irritates, but recession infuriates." Some recession is surely necessary to restrain inflation and improve productivity, but the natural downturn would not help the President's plan for political survival.
When his back is to the wall, Nixon tends to adopt the economic suggestins of this Democratic opponents, and with a vengeance: taking "bold action" to freeze prices, or crack down on profits, or throw federal money at a possible recession. This frentic activity gives the illusion of leadership and temporarily answers the demands that he "do something."
But when Sen. William Proxmire ladled out the usual pap about "lack of vigorous, forceful economic leadership" to George Shultz last week at a congressional hearing, the mild-mannered witness did not grin and bear it. To everyone's surprise, Shultz banged the table and exploded: "I do not see why you just keep saying, saying, saying something that is not true... in the stampeded for 'action, action, do something,' you find yourself doing the wrong thing."
Shultz, a free-market man who fought against the kind of "vigorous," forceful leadership that caved in years ago to clamor for controlsㅡand denounced the senator's do-something fulminations as "a gross misrepresentation and I'm frankly tired of it."
Proxmire, ashamed at being caught in a demogogic posture by an economist he admires, said "So am I" and backed off.
What brings about this lust for government intervention, this dosomethingism, on the part of those who simultaneously decry excessive presidential power? Why can't "forceful leadership" ever be equated with unpopular self-restrain? Think of the economic mischief that could be avoided if voters were to say to elected officials: "Don't just do somethingㅡstand there."
For example, part of Proxmire's Complaint was with the way the independent truckers' strike had not been personally handled by the President. Presumably, the senator would have preferred the Lyndon Johnson method, with all-night bargaining sessions in the White House showing the President's personal concern.
That sort of stunting would have undermined the professional mediation which brought about a sensible settlement. It has taken five years to wean disputants away from Oval Office maternal careㅡand, of course, had the President injected himself into the settlement, the do-something set would promptly have berated him for grandstanding.
At the time when the President is especially tempted to take "the popular course," a special responsibility falls on those who airily call on him to "do something" about avoiding a recession and ㅡin the same breathㅡdemand he "do something" about rising prices, and "something" about shortages induced by price controls.
Such demogogic demands can no longer be made with impunity: the President is now all too likely to respond to them. (I had a small dog which, secure in the belief that my leash would restrain him, loved to lunge and snarl at a huge St. Bernard; one day I dropped his leash and the little dog looked at me as if I had lost my mind.)
Controls have failed; let's admit it. Heavy federal spending and a tax cut could avert a recessionㅡlet's admit that, toㅡbut at a cost in inflated prices and reduced real earnings that make it something that is wrong to do.
Instead, let's consider a capitalist's manifesto: Laissez-fairies of the world, unite! You have nothing to lose your Keynes.