A Foretaste of Economic Fascism: Kennedy’s Assault on the Steel Industry

The monetary revolution inspired by the doctrines of the new economics had another momentous influence on the thrust of U.S. political economy toward economic fascism. It was during the Kennedy administration that presidential power was brought to bear—for the first time during peacetime—in an attempt to obscure the effects of monetary inflation by politically dictating the prices that private citizens could charge for their wares. During the so-called Steel Crisis of 1962, Kennedy and other members of his administration harassed and threatened the executives of U.S. Steel and a few other steel companies into rescinding an announced price increase that Kennedy’s economic advisers considered to be inflationary.

In truth, the roots of the steel crisis lay not in any actions of the steel companies but in the doctrines of the new economics. For as Susan Lee points out:

Keynesians were always hectoring the Fed to be a little looser in providing money to the economy and hectoring business and workers to hold down prices and wages. In other words, at the same time they were encouraging inflation with a loose monetary policy, they were trying to limit its impact by forbidding management and labor to cope.[128]

The new economists institutionalized such hectoring and scapegoating of business and labor by devising a set of ostensibly voluntary wage and price guideposts that the Kennedy administration would apply in assessing the inflationary impact of private wage agreements and pricing decisions.

The steel crisis began in August 1961 when Walter Heller sent Kennedy an absurd memo “warning him that a steel strike or a sharp rise in the price of steel or steelworkers wages, or both, was the greatest single threat to economic stability during his presidency.”[129] Heller told Kennedy, “Steel bulks so large in the manufacturing sector of the economy that it can upset the applecart all by itself.”[130]

Agitated by Heller’s memo, Kennedy wrote an open letter to the major steel companies in September urging them to eschew any price increases after October 1, the date when wage increases negotiated earlier were scheduled to go into effect.[131] It seems the CEA, whose understanding of the technical aspects of steel production was derived from Popular Mechanics magazine, had calculated that the steel companies could absorb these wage increases without recourse to a price increase. Steel prices had not increased since the recession year of 1958, although cost pressures had been building and the industry’s average rate of return on equity had been substantially below the average for all U.S. manufacturing since that year.[132]

As if presidential interference weren’t bad enough, however, the steel companies were treated to economics lectures by the new economists. As Barbara Bergmann, a CEA staff member at the time, recollected, “We lectured them on whether they had made the correct investment decisions and told them they would lose market share [if they raised prices].” The enormity of this intrusion of the federal government into the pricing decisions of a particular industry was later remarked on by Roger Blough, chairman of U.S. Steel, the leader among the twelve major steel producers: “The president’s attempt to predetermine the prices of the steel industry was, to my knowledge, an unprecedented move in the history of our country at peacetime.”[133]

In late 1961, Kennedy also began to converse regularly with Blough and David McDonald, president of the United Steelworkers union. Kennedy’s objective in these conversations was to persuade them that their restraint in the upcoming contract negotiations was “the key to checking inflation.” In February Kennedy began to lobby both sides to initiate early negotiations for a new industry-wide contract that was to go into effect in June. He believed that an early start to negotiations decreased the probability of a strike and that an early contract settlement was less likely to be inflationary. Negotiations between the industry and the union began in February, broke down for a while in March, and came to a successful close on March 31. The contracts between the individual steel companies and the union were signed during the following week. Kennedy was elated because the agreement provided for no increase in wage rates and a rise in fringe benefits of ten cents per hour—overall a 2.5 percent increase in hourly compensation, well within the CEA’s productivity guidelines of 3 percent.

Kennedy’s elation over his perceived triumph was to be short-lived, however. In the late afternoon of April 10, Blough personally delivered to Kennedy in his White House office a mimeographed copy of a statement released earlier to the press announcing U.S. Steel’s intention of raising steel prices by about $6 per ton, or 3.5 percent, effective the following day. Despite the fact that Blough had made no promise to refrain from raising prices, Kennedy was furious and felt that Blough had double-crossed him, undermining his inflation policy, humiliating him personally, and damaging his relations with labor. But it was clear even to Kennedy-insider Arthur Schlesinger that Blough was not attempting to deliberately deceive Kennedy by withholding information about the impending price increase during labor negotiations. Indeed, as Schlesinger incredulously noted, “Blough’s whole demeanor suggested a genuine belief that an increase in steel prices was no more the business of government than an increase in the price of the lemonade a child might sell in front of his house.”[134] The behavior that Schlesinger interpreted as stemming from political naiveté, however, may have been attributable to Blough’s grasp of the fundamental economic principle that the height of prices, whether of steel or of lemonade, were not arbitrarily determined by sellers but crucially dependent on factors influencing market supply and demand, including the quantity of money created by the central bank. Be that as it may, Schlesinger tells us that Kennedy now “was coldly determined to mobilize all the resources of public pressure and private suasion to force steel to rescind the increase.”[135] Other commentators on the episode noted that Kennedy “took personal charge of a campaign against U.S. Steel” and “deployed every weapon conceivable at that time.”[136]

The next day, Kennedy learned that five more steel companies had matched U.S. Steel’s price increase. One of the first weapons Kennedy deployed was an all-out rhetorical assault designed to inflame public opinion against the steel industry. At a previously scheduled press conference that afternoon, Kennedy excoriated “a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility” and “a few gigantic corporations [that] have decided to increase prices in ruthless disregard of their public responsibilities.” He proceeded to attribute all manner of evil consequences to their actions, including higher prices for items purchased by every American family and every American business; an exacerbation of U.S. balance-of-payments woes and worsening of the gold outflow, and the threat of an inflationary spiral capable of “eating up the pensions of our older citizens.” He also contended that the rise in steel prices jeopardized national security by adding $1 billion to the defense bill, and he darkly and shamelessly insinuated that such an action was unpatriotic, if not treasonous, “when we are confronted by grave crises in Berlin and Southeast Asia . . . when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives—and four were killed in the last two days in Vietnam.” Kennedy concluded his remarks by using his famous inaugural exhortation calling for the sacrifice of the individual citizen’s resources and welfare to the purposes of the central government as a rhetorical bludgeon against the steel companies: “Some time ago I asked each American to consider what he would do for his country, and I asked the steel companies. In the last twenty-four hours we had their answer.”[137] During the question-and-answer period following his remarks, Kennedy continued to cynically play the patriotism card and “even answers to unrelated questions on service wives and Vietnam were related by the president to the actions of the steel companies.”[138]

Kennedy’s campaign of public vilification of the steel industry extended to arming journalists friendly to the administration with loaded questions for use at Blough’s press conference the following day. In addition, cabinet members were assigned statements to make regarding the effects of the steel price rise on their various constituencies. That same evening, Kennedy complained that the NBC Nightly News with Chet Huntley was being much too kind to the steel industry, and he reacted by immediately telephoning Newton Minnow, chairman of the Federal Communications Commission. After expressing his dismay at the report in the strongest terms, Kennedy ordered Minnow: “I thought they were supposed to be our friends. I want you to do something about that. You do something about that.”[139] In the midst of all this, the Bureau of the Budget prepared an analysis of the steel price increase on gross national product, tax revenues, and the overall budget, concluding that it “would increase GNP by (roughly) $2.8 billion to $2.85 billion. Very roughly, then, in fiscal 1963, Budget receipts would rise $900 million. Budget expenditures would rise $600 million. The Budget surplus would gain $300 million.”[140] Needless to say, the administration did not release these estimates to the public.

Kennedy, at the behest of his new economic advisers, also sought to exert economic pressure on the industry. Administration officials, including Kennedy himself, contacted their friends and acquaintances at steel companies that had refrained from raising prices, particularly Inland Steel Company and Kaiser Steel Corporation, and pressed them to continue to resist following the industry leaders. Defense Secretary McNamara ordered defense contractors to shift their purchases to companies that had not raised their prices and personally ordered that a $5.5 million order for a specialty steel product originally developed by U.S. Steel for the Polaris submarine program be given entirely to a small steel company that had not raised its prices. Walter Heller estimated that “the government used so much steel that it could shift as much as 9 percent of the industry’s total business away from the six companies that had announced price rises to six that were still holding back.”[141]

Not satisfied that the pressure of adverse public opinion and economic sanctions would achieve the goal of an immediate and unconditional price rescission and determined to completely crush their resistance to save face, Kennedy also unleashed on the defiant steel companies the awesome police powers of the federal government. Thus, at Kennedy’s behest, his brother, Attorney General Robert Kennedy convened a federal grand jury to investigate charges of price fixing against the steel companies and subpoenaed their records. The pretext of the investigation was a statement attributed by an AP report to the president of Bethlehem Steel at the annual stockholders meeting held just prior to the steel price increase that called into question the wisdom of raising steel prices in the near future. A day later, Edwin Martin, the company’s president, denied the report and announced that Bethlehem Steel was matching U.S. Steel’s price increases. The Kennedys alleged that Bethlehem Steel’s sudden about-face was evidence of illegal collusion. Robert Kennedy ordered FBI agents in Philadelphia and Wilmington to search for evidence of the alleged collusion. According to Robert Kennedy’s personal recollections, he told the agents:

We’re going for broke. Their expense accounts and where they’d been and what they were doing . . . I told the FBI to interview them all—march into their offices . . . subpoenaed for their personal records . . . subpoenaed for their company records. . . . We can’t lose this.[142]

The FBI agents responded by telephoning steel executives in the middle of the night. They also showed up at the doors of several reporters beginning at 3:00 A.M. on April 12 requesting that they turn over the notes they took while covering Bethlehem Steel’s stockholder meeting. The Federal Trade Commission suddenly decided to reexamine the industry’s compliance with a 1951 consent decree precluding price collusion, while Democratic Senator Estes Kefauver announced that his Antitrust and Monopoly Subcommittee would probe the pricing policies of the steel industry. President Kennedy himself implied later that the executives of the targeted steel companies were also blackmailed with threats of IRS audits of their expense accounts.[143]

The evening of April 12, Kennedy received word that Blough and U.S. Steel were considering surrender. Ironically, Kennedy was hosting a state dinner for the shah and empress of Iran when he learned of his impending victory over a handful of business firms that had the temerity to violate his futile price guideposts by peacefully exercising their rights to engage in exchange with buyers at a mutually agreeable price. The shah was the head of a U.S. puppet government that had come to power in 1953 as the result of a coup orchestrated and financed by the CIA. From 1954 to 1966, the U.S. government poured $1.3 billion of taxpayers’ funds into Iran to help sustain the shah’s government in power, a power that was based largely on the terror and torture tactics of SAVAK, his CIA-trained security police.[144] The next morning, April 13, Inland Steel and Kaiser Steel announced that they would hold the line on prices. One hour after Kaiser Steel’s announcement, Bethlehem Steel announced that it was rescinding its price increases. Finally, at 5:30 that evening, U.S. Steel issued a press release revoking its price increases.

Unlike Nixon’s much more thoroughgoing attempt to control prices through political dictation a decade later, Kennedy’s assault on the steel industry elicited politically discerning commentary from across American society. For example, George McDougal, the vice president of a construction company in Greenville, South Carolina, remarked, “I just figured that this is the way Hitler took over.”[145] Milton Friedman wrote, “It brings home dramatically how much power for a police state resides in Washington,” while David Lawrence, the editor of U.S. News and World Report courageously referred to the “‘quasi-Fascism’ . . . [that] had led the public into believing that price increases are sinful or unpatriotic.”[146] A cartoon published in the now-defunct New York Herald Tribune showed Kennedy Press Secretary Pierre Salinger reporting back to his boss after his recent trip to Moscow: “Khrushchev says he liked your style in the steel crisis.”[147] Finally, the president of Pittsburgh Steel, Allison R. Maxwell, Jr., incisively commented during a speech: “This administration is heading toward a form of socialism in which the pretense of private property is retained while, in fact, prices, wages, production and distribution are dictated by bureaucrats.”[148]

As one sympathetic commentator presciently concluded in 1969,

By the end of a momentous week in 1962, Kennedy had seemingly unleashed all the potential power of the presidency on the steel industry, and the reverberations of his attack may last for another decade. . . . [T]he political action itself established a precedent for direct intervention by the executive branch against highly concentrated economic power when that power is believed to threaten the public interest. In the months to follow, President Lyndon B. Johnson was to use this power repeatedly, it became part of the Kennedy legacy.[149]

Two years after these words were written, Nixon used presidential power on a grand scale to implement thoroughgoing wage-and-price controls that foisted a regime of economic fascism on U.S. society. Sadly by this time, the experience with the new economics and the accelerating monetary inflation it had loosed on American society had so changed the ideological climate that almost no one, with the exception of Murray Rothbard, protested or even recognized the radical change that was being perpetrated in the economic system.

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[1] Richard M. Weaver, “A Dialectic on Total War,” in idem, Visions of Order: The Cultural Crisis of Our Time (Baton Rouge: Louisiana State University Press, 1964), pp. 98–99.

[2] Ibid., pp. 72–73.

[3] Ibid., p. 73.

[4] For an insider’s account of his experience administering Phase II (November 1971 to January 1973) of Nixonian price controls, see C. Jackson Grayson, Jr., with Louis Neeb, Confessions of a Price Controller (Homewood, Ill.: Dow Jones-Irwin, 1974).

[5] Herbert Stein, Presidential Economics: The Making of Economic Policy From Roosevelt to Clinton, 3rd ed. (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1994), p. 175; and Arnold R. Weber, In Pursuit of Price Stability: The Wage-Price Freeze of 1971 (Washington, D.C.: The Brookings Institution, 1973), pp. 6–7.

[6] Quoted in Murray N. Rothbard, “The End of Economic Freedom,” The Libertarian Forum 3 (September 1971): 1.

[7] Weber, In Pursuit of Price Stability, pp. 5–6.

[8] See for example, Milton Friedman, “Why the Freeze is a Mistake,” Newsweek (August 30, 1971), reprinted in idem, An Economist’s Protest: Columns in Political Economy (Glen Ridge, N.J.: Thomas Horton, 1972), pp. 15–16, where Friedman emphasizes the unworkability and inefficiency of the freeze and its ineffectiveness in curing inflation. A few months later, Friedman published a far more vigorous denunciation of Nixonite price controls on political and moral grounds, but still failed to recognize the radical transformation of the U.S. political-economic system that it portended. See Milton Friedman, “Morality and Controls,” The New York Times (October 28–29, 1971), reprinted in ibid., pp. 31–34.

[9] Rothbard, “The End of Economic Freedom,” p. 7.

[10] Murray N. Rothbard, “Nixonite Socialism,” The Libertarian Forum 3 (January 1971): 1.

[11] In Charlotte Twight’s words, “The term fascism’ is an emotionally charged, vituperative label more often mindlessly affixed to one’s opposition than dispassionately analyzed.” America’s Emerging Fascist Economy (New Rochelle, N.Y.: Arlington House, 1975), p. 13.

[12] For a description of this movement, see Justin Raimondo, Reclaiming the American Right: The Lost Legacy of the Conservative Movement (Burlingame, Calif.: Center for Libertarian Studies, 1993).

[13] John T. Flynn, As We Go Marching (Garden City, N.Y.: Doubleday, Doran, 1944), p. 67.

[14] Ibid., pp. 67, 226–27.

[15] This felicitous term was coined by Murray Rothbard.

[16] Flynn, As We Go Marching, pp. 226–58.

[17] Ibid., pp. 252–53.

[18] Ibid., p. 228.

[19] Walter W. Heller, New Dimensions of Political Economy (New York: W.W. Norton, 1967), pp. 1–2.

[20] For a description of the central role played by Heller in the development of the “new economics,” see E. Ray Canterbery, Economics on a New Frontier (Belmont, Calif.: Wadsworth Publishing, 1969), pp. 139–52, and Susan Lee, Hands Off: Why the Government Is a Menace to Economic Health (New York: Simon and Schuster, 1996), pp. 80–99.

[21] Arthur M. Okun, The Political Economy of Prosperity (Washington, D.C.: The Brookings Institution, 1970), p. 23.

[22] Murray N. Rothbard, Making Economic Sense (Auburn, Ala.: Ludwig von Mises Institute, 1995), p. 55.

[23] Heller, New Dimensions of Political Economy, p. 2.

[24] John Maynard Keynes, Foreword to the 1936 German Edition of the General Theory translated and reprinted in James J. Martin, Revisionist Viewpoints: Essays in a Dissident Historical Tradition (Colorado Springs, Colo.: Ralph Myles, 1971), pp. 203–05. As Martin has pointed out,

One can read whole reams of economic literature written by both fervent followers of John Maynard Keynes and his attackers as well and never know that there was a German language edition of his profoundly influential General Theory late in 1936, for which Keynes wrote a special foreword addressed solely to German readers, (p. 197)

[25] As Susan Lee vividly puts it, “The Keynesian shock troops were bunkered in Kennedy’s Council of Economic Advisers” (Hands Off: Why the Government Is a Menace to Economic Health [New York: Simon and Schuster, 1996], p. 81). A complete list of the professional staff and outside consultants of the CEA for the years 1961–1964 can be found in Canterbery, Economics on a New Frontier (pp. 317–18). Capsule biographies of some of the more important economists associated with the Kennedy administration are provided by B. Hughel Wilkins and Charles B. Friday, eds., The Economists of the New Frontier: An Anthology (New York: Random House, 1963), pp. 14–17.

[26] John H. Makin and Norman J. Ornstein, Debt and Taxes (New York: Times Books, 1994), p. 119.

[27] Anthony S. Campagna, U.S. National Economic Policy: 1917–1985 (New York: Praeger, 1987), p. 277.

[28] John T. Flynn, “Eggheads through History,” The Freeman (March 1954), reprinted in Forgotten Lessons: Selected Essays of John T. Flynn, Gregory P. Pavlik, ed. (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1996), pp. 144–45. Flynn also says here that he adopted this definition of “egghead” from Louis Bromfield.

[29] For a biographical sketch of Harris, see John Kenneth Galbraith, “Seymour Edwin Harris,” in idem, A View from the Stands: Of People, Politics, Military Power and the Arts (Boston: Houghton Mifflin, 1986), pp. 397–99.

[30] John Kenneth Galbraith, A Life in Our Times: Memoirs (New York: Ballantine Books, 1982), p. 190.

[31] Ibid., p. 389.

[32] Despite their rhetorical differences, however, Galbraith was considered by the new economists as one of their own. See, for example, James Tobin’s description of the differences between himself, Heller, and Galbraith on fiscal policy during the Kennedy administration in James Tobin, Policies for Prosperity: Essays in a Keynesian Mode, Peter M. Jackson, ed. (Cambridge, Mass.: MIT Press, 1989), pp. 426–27. Also see Stein, Presidential Economics, p. 103.

[33] Makin and Ornstein, Debt and Taxes, p. 122.

[34] See for example, Abba Lerner, Economics of Employment (New York: McGraw-Hill, 1951) and Alvin H. Hansen, Monetary Theory and Fiscal Policy (New York: McGraw-Hill, 1949).

[35] Wilkins and Friday, eds., The Economists of the New Frontier includes programmatic articles by Heller, Tobin, Galbraith, and Ackley, among other new economists.

[36] See, for example, Gardner Ackley, “Administered Prices and the Inflationary Process,” in ibid., pp. 114–30; Galbraith, “Market Structure and Stabilization Policy,” in ibid., pp. 131–54.

[37] Herbert Stein notes.

[38] The Annual Report of the Council of Economic Advisers, written by Heller, Tobin, and Kermit Gordon, is excerpted in Council of Economic Advisers, “Toward Full Recovery,” in American Fiscal Policy: Experiment for Prosperity, Lester C. Thurow, ed. (Englewood Cliffs, N.J.: Prentice-Hall, [1962] 1967), pp. 29–50.

[39] Heller, New Dimensions of Political Economy, p. 26.

[40] For a discussion of the concepts of potential output and the GNP gap, see Arthur Okun, “The Gap between Actual and Potential Output,” in Paul A. Samuelson and Robert A. Solow, The Battle against Unemployment, Arthur M. Okun, ed. (New York: W.W. Norton and Company, 1965), pp. 13–22; and Council of Economic Advisers, “Toward Full Recovery,” in Thurow, American Fiscal Policy, pp. 29–41.

[41] Quoted in Arthur F. Burns, “The New Stagnation Theory and Our Current Economic Policies,” in Thurow, American Fiscal Policy, p. 58.

[42] Paul A. Samuelson, “Functional Fiscal Policy of the 1960s,” in Okun, The Battle against Unemployment, p. 104.

[43] As Samuelson lamented,

The real barrier to optimal fiscal policy is not procedural or administrative. It is ideological. . . .The American public simply cannot stomach budget deficits of the size sometimes needed for stability, high employment and growth. Or what is really an indistinguishable variant, the American public cannot be persuaded or persuade itself that such sizable deficits are truly needed and feasible. (Ibid., p. 103)

[44] Stein himself prefers the term “conservative macroeconomists” to designate those economists who, like himself, accepted Keynes’s basic thesis that the market economy left to its own devices was prone to destabilizing fluctuations in aggregate demand but also regarded inflation as potentially as much of a problem as unemployment and believed monetary policy was also an important policy tool in maintaining an optimal level of aggregate demand (Presidential Economics, p. 73).

[45] Ibid., p. 107.

[46] Rudiger Dornbusch and Stanley Fischer, Macroeconomics (New York: McGraw-Hill, 1978), p. 300.

[47] Quoted in George Terborgh, The New Economics (Washington, D.C.: Machinery and Allied Products Institute, 1968), p. 39. Terborgh characterizes the implications drawn by the new economists from the full-employment surplus doctrine as “a Nietzschean ‘transvaluation of values’ with a vengeance: deficits may be more restrictive than surpluses, surpluses more stimulative than deficits” (ibid., p. 40).

[48] Walter Heller, “The Future of Our Fiscal System,” in Thurow, American Fiscal Policy, p. 169.

[49] Ibid., p. 140.

[50] Heller, New Dimensions of Political Economy, p. 102.

[51] Ibid., p. 101.

[52] In response to the question posed by Buchanan and Wagner, I believe that this was the reason that the new economists chose to emphasize the “second-best” alternative of the issuance of public debt rather than the creation of money as the source of financing for budget deficits (James M. Buchanan and Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes [New York: Academic Press, 1977], pp. 32–33).

[53] Quoted in Terborgh, The New Economics, p. 53.

[54] Quoted in ibid., p. 55.

[55] Ibid., p. 19.

[56] Makin and Ornstein, Debt and Taxes, p. 122.

[57] Samuelson, “Functional Fiscal Policy,” pp. 108, 109.

[58] Ibid., p. 109.

[59] Ibid., pp. 109, 110.

[60] James Tobin, “Growth through Taxation,” in Economists of the New Frontier, Wilkins and Friday, eds., p. 263.

[61] Ibid.

[62] Ibid., p. 265.

[63] See ibid., pp. 268–70 for the general outline of this growth program.

[64] Ibid., p. 272.

[65] The charge of a “missile gap” leveled by Democrats against the Eisenhower administration indeed turned out to be bogus, although Kennedy continued to campaign on this issue even after he had been given classified briefings by the Eisenhower administration demonstrating its falsity. See Seymour M. Hersh, The Dark Side of Camelot (New York: Little, Brown, 1997), pp. 155–56; Richard Reeves, President Kennedy: Profile of Power (New York: Simon and Schuster, 1994), pp. 33, 37, 58–59; and Kenneth Weiher, America’s Search for Economic Stability: Monetary and Fiscal Policy Since 1913 (New York: Twayne Publishers, 1992), p. 120.

[66] James Tobin “Defense, Dollars, and Doctrines,” in The Economists of the New Frontier, Wilkins and Friday, eds., pp. 42–57.

[67] Ibid., p. 48.

[68] Ibid., p. 46.

[69] Ibid., p. 49.

[70] Ibid., pp. 51–52.

[71] Kenneth Weiher, America’s Search for Economic Stability: Monetary and Fiscal Policy Since 1913 (New York: Twayne Publishers, 1992), p. 120.

[72] A.W. Phillips, “The Relation Between Unemployment and the Rate of Change of Money Wages in the United Kingdom, 1861–1957,” in Macroeconomic Readings, John Lindauer, ed., pp. 107–19.

[73] Samuelson and Solow, “Analytical Aspects of Anti-inflation Policy,” in ibid., pp. 233–43.

[74] A discussion of these guideposts can be found in Canterbery, Economics on a New Frontier, pp. 239–41. For a debate between a new economist and a conservative critic on the efficacy of the guideposts, see Arthur F. Burns and Paul A. Samuelson, Full Employment: Guideposts and Economic Stability (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1967).

[75] For details of Kennedy’s education in the new economics, see Seymour E. Harris, Economics of the Kennedy Years and a Look Ahead (New York: Harper and Row, 1964), pp. 3–5; and Canterbery, Economics on a New Frontier, pp. 8–16.

[76] As quoted in Makin and Ornstein, Debt and Taxes, pp. 123–24.

[77] Heller notes, however, that at this stage Kennedy’s “economic thinking was still in its formative stage” (New Dimensions of Political Economy, pp. 26–27).

[78] Anthony S. Campagna, U.S. National Economic Policy: 1917–1985 (New York: Praeger Publishers, 1987), p. 283, and Canterbery, Economics on a New Frontier, pp. 104–05.

[79] Ibid., p. 105–06; and Reeves, President Kennedy, pp. 197–98.

[80] Quoted in Canterbery, Economics on a New Frontier, p. 106.

[81] Quoted in Lee, Hands Off, p. 85.

[82] For details of the bill and the controversy it engendered, see Makin and Ornstein, Debt and Taxes, pp. 124–28; and Stein, Presidential Economics, pp. 105–06.

[83] Makin and Ornstein, Debt and Taxes, p. 130.

[84] Ibid., p. 124.

[85] Campagna, U.S. National Economic Policy, p. 286; and Heller, New Dimensions of Political Economy, p. 72.

[86] Harris, Economics of the Kennedy Years, pp. 60–62.

[87] John F. Kennedy, “Commencement Address at Yale University, June 11, 1962,” in Canterbery, Economics on a New Frontier, pp. 331–39.

[88] Ibid., p. 332.

[89] Ibid., p. 334.

[90] Ibid.

[91] Ibid., p. 335.

[92] Ibid.

[93] Ibid.

[94] Ibid., p. 336.

[95] Perhaps that is why it has been hailed in such glowing terms by left-wing economists and planning advocates. Thus Seymour Harris characterized the speech as “perhaps the most brilliant address on economic issues ever delivered by a President of the United States” (Economics of the Kennedy Years, p. 61). Heller gushed, “President Kennedy’s landmark speech . . . stands as the most literate and sophisticated dissertation on economics ever delivered by a President” (New Dimensions of Political Economy, p. 37). Arthur Okun referred to it as “a memorable commencement address” (The Political Economy of Prosperity, p. 45); and the prominent historian of American planning, Otis Graham, acclaimed it as “his remarkable speech on the economy” (Toward a Planned Society: From Roosevelt to Nixon [New York: Oxford University Press, 1976]), p. 136.

[96] Canterbery, Economics on a New Frontier, pp. 338–39.

[97] Arthur M. Schlesinger, Jr., A Thousand Days: John F. Kennedy in the White House (Greenwich, Conn.: Fawcett Publications, 1965), p. 594.

[98] The quotations in the last two sentences are taken from Theodore C. Sorenson, Kennedy (New York: Harper and Row, 1965), p. 424.

[99] Quoted in Reeves, President Kennedy, pp. 332–33.

[100] Sorenson, Kennedy, p. 430.

[101] Abba Lerner, one of the forebears of the new economics, which he labeled “Functional Finance,” coined the term “topsy-turvy economics” in the early 1950s. According to Lerner,

In truth it cannot be denied that the economics of Functional Finance, in its application to a condition of unemployment, is topsy-turvy. . . . Topsy-turvy economics is just what is appropriate for an economy that is suffering from unemployment. (Economics of Employment, pp. 142–43)

[102] Quoted in Reeves, President Kennedy, p. 453.

[103] Quoted in ibid.

[104] Ibid., p. 452.

[105] Sorensen, Kennedy, p. 427.

[106] Reeves, President Kennedy, p. 452

[107] Ibid., pp. 452–53.

[108] Ibid., p. 458.

[109] Ibid., p. 136.

[110] Ibid., p. 457.

[111] Weiher, America’s Search for Economic Stability, p. 139.

[112] Ibid., p. 138.

[113] These monetary growth rates were computed from the data in ibid., pp. 97, 120, 137.

[114] Ibid., pp. 138–43.

[115] Ibid., pp. 145–46.

[116] Sidney Homer, A History of Interest Rates, 2nd ed. (New Brunswick, N.J.: Rutgers University Press, 1977), pp. 372–78.

[117] Harris, Economics of the Kennedy Years, p. 110.

[118] G.L. Bach, Making Monetary and Fiscal Policy (Washington, D.C.: The Brookings Institution, 1971), p. 119.

[119] Ibid., p. 114.

[120] Ibid., pp. 112–13.

[121] Ibid., p. 112.

[122] Ibid., p. 114.

[123] Ibid.

[124] Ibid., p. 115.

[125] For accounts of Operation Twist, see Campagna, U.S. National Economic Policy, pp. 284–85; Canterbery, Economics on a New Frontier, pp. 99, 163–65; and Dornbusch and Fischer, Macroeconomics, p. 303, n. 9.

[126] Weiher, America’s Search for Economic Stability, p. 144. Even the leftist Keynesian economic historian Anthony Campagna admits, “On balance, Operation Twist could be considered only a very modest success at best” (U.S. National Economic Policy, p. 285). The monetarist Phillip Cagan, however, “suggests that the Fed merely paid lip service to Operation Twist” (Dornbusch and Fischer, Macroeconomics, p. 303, n. 9).

[127] Harris, Economics of the Kennedy Years, pp. 120–21.

[128] Lee, Hands Off, p. 106.

[129] Reeves, President Kennedy, p. 294 (emphasis added).

[130] Walter Heller, quoted in ibid.

[131] The ensuing account of the steel crisis is based on the following sources: Campagna, U.S. National Economic Policy, pp. 294–96; Reeves, President Kennedy, pp. 294–304; Canterbery, Economics on a New Frontier, pp. 247–59; Lee, Hands Off, pp. 106–08; Schlesinger, A Thousand Days, pp. 583–88; Sorensen, Kennedy, pp. 443–59; and Harris, Economics of the Kennedy Years, pp. 141–43.

[132] Robert W. Crandall, The U.S. Steel Industry in Recurrent Crisis: Policy Options in a Competitive World (Washington, D.C.: The Brookings Institution, 1981), pp. 28–29; Canterbery, Economics on a New Frontier, pp. 243–44; Lee, Hands Off, p. 107.

[133] Roger Blough, quoted in Lee, Hands Off, p. 107.

[134] Schlesinger, A Thousand Days, p. 584.

[135] Ibid.

[136] Reeves, President Kennedy, p. 298; Canterbery, Economics on the New Frontier, p. 251.

[137] Kennedy’s press conference remarks are reprinted in Canterbery, Economics on the New Frontier, pp. 339–41.

[138] Sorensen, Kennedy, p. 451.

[139] Reeves, President Kennedy, p. 300.

[140] Quoted in ibid. (emphasis added).

[141] Ibid., p. 298.

[142] Robert Kennedy quoted in ibid., 299.

[143] Ibid., pp. 301–02, 304.

[144] On the deep involvement of the U.S. government in Iranian affairs after World War II, see Richard Barnet, Intervention and Revolution: The United States in the Third World (New York: World Publishing, 1971), pp. 225–29; and Jonathan Kwitny, Endless Enemies: The Making of an Unfriendly World (New York: Congdon and Weed, 1984), pp. 179–204.

[145] Quoted in Reeves, President Kennedy, p. 298.

[146] Quoted in ibid., p. 303.

[147] Cited in ibid.

[148] Quoted in ibid., p. 316.

[149] Canterbery, Economics on a New Frontier, pp. 247, 259.