GRANULARITY! ORG CHARTS! My nerd heart is loving all this. Great to see you back @Yes! Seeing a trend of Big is Beautiful among the Departments will probably lead to some byzantine bureaucratic warfare and infighting (especially in the Pentagon). Wonder if that's really more efficient than splitting everything up or not; have to wait and see I guess. If Education isn't spun off, is Sanford retconned to be a Deputy Secretary then? Can't wait to hear more about Jimmy's plans for nuclear and renewable energy and hopefully keep those CA oilmen out of there. As always, awesome job.
McGoverning
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- Start date
Glad to see more in thread content and my goodness you went deep with the org charts.
Well played in finding the creepiest photo of Bob Byrd possible for that..
Hi.
I am happy when I can warm the hearts of nerds, being a rather large one myself (in all senses, being 6'2" and built kind of like a retired linebacker - I did play tight end as a teen - and also the, "you mean I can do a deep dive into a subject unto relentlessly pointless levels of detail? ROCK THE FUCK ON" senses both.) Yes that's a retcon for Terry, though it does make him one of the most powerful DepSecs in DC at a time when that bureau within HEW expands rapidly so he can kind of set his seal on how it operates. We will see a bit more of JIMMEH in his National Grid Ride or Die role coming up so that is indeed something to look forward to. Thank you.
I laugh that much because I can take that one squarely on the chin - it's entirely right, and funny 'cause it's true. Thanks for the kind words about detail.
Yeah, I mean that's ... yeah. Just, yeah. Every photo I dig up of Robert Byrd in his alternate life as a Seventies fiddler has a deeply curated creep factor.
Actually, what I want is someone even nerdier than me to write a series of stories where Bob Byrd and his fiddle are the actual inspiration for "The Devil Went Down to Georgia" and in his spare time when the Senate's in recess, he fights supernatural crime. That would be a kind of pointless Skippy the Alien Space Bat cool I could really get behind.
Hard at it getting there on the West Wing With Sideburns and Macrame post. A number of folks to cover, but it's coming along. Might be tomorrow depending on a family obligation late afternoon but I'm pushing for tonight if I can make it.
Onward to 1975. Maybe you can make a post covering monthly events for 1975 and 1973, like you did for 1974 ITTL. Should be very helpful in acquainting newcomers to McGoverning.I am happy when I can warm the hearts of nerds, being a rather large one myself (in all senses, being 6'2" and built kind of like a retired linebacker - I did play tight end as a teen - and also the, "you mean I can do a deep dive into a subject unto relentlessly pointless levels of detail? ROCK THE FUCK ON" senses both.) Yes that's a retcon for Terry, though it does make him one of the most powerful DepSecs in DC at a time when that bureau within HEW expands rapidly so he can kind of set his seal on how it operates. We will see a bit more of JIMMEH in his National Grid Ride or Die role coming up so that is indeed something to look forward to. Thank you.
I laugh that much because I can take that one squarely on the chin - it's entirely right, and funny 'cause it's true. Thanks for the kind words about detail.
Yeah, I mean that's ... yeah. Just, yeah. Every photo I dig up of Robert Byrd in his alternate life as a Seventies fiddler has a deeply curated creep factor.
Actually, what I want is someone even nerdier than me to write a series of stories where Bob Byrd and his fiddle are the actual inspiration for "The Devil Went Down to Georgia" and in his spare time when the Senate's in recess, he fights supernatural crime. That would be a kind of pointless Skippy the Alien Space Bat cool I could really get behind.
Hard at it getting there on the West Wing With Sideburns and Macrame post. A number of folks to cover, but it's coming along. Might be tomorrow depending on a family obligation late afternoon but I'm pushing for tonight if I can make it.
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McGoverning Bonus Content: The West Wing, Sideburns and Macrame Edition
I blame Aaron Sorkin. Disclosure: that’s something I do not infrequently, since I belong to a generational cohort that both has cause to blame Aaron Sorkin for a lot of things and also gains practical and cultural advantage by doing so.
We’ll leave the long-form on that aside. Let’s just say that the kinda-sorta wildly inaccurate picture of who matters in what ways in an administration’s West Wing (occasionally hailed at the time for verité by the same sort of hacks who grossly inflated their own importance when they acted as advisors to the show) maybe needs a corrective.
So we’ll skip right past that. Let’s look at the real thing, specifically the real thing as it existed/operated in the early Seventies, as our brave band of scoobies took office. We have three good reasons to do that.
Thing One: It’s an excellent opportunity, through a specific example, to look at how a West Wing operation, aka The Executive Office of the President of the United States, could/would function around that period in time.
Thing Two: Because it gives us a good view of the real cast of decisive personalities in that Executive Office of the President. Humans make history: personalities have a big influence on how an administration creates and then does policy.
Thing Three: It’s the best way to get a look at what we really can call the Sociology of McGovernment, which is a crucial and kinda fascinating subject.
So. Let’s start.
We will back into it from that sociological angle. That is, fundamentally and as you’d expect, a political sociology. Over the decades a lot of political scientists, journalists, and historians have described George McGovern’s insurgent nomination campaign and the political fractures it generated in the Democratic Party a contest between “reformers” and “regulars.” It is of course more complicated than that, but that’s not a bad place to start: a contest between outsiders, upstarts, and innovators on one side, and folks who had well-established careers within the established Democratic Party order (sometimes back to FDR, certainly from Truman through Johnson) on the other. The most dramatic, heightened contrast there is often posed as the conflict between Our George and AFL-CIO boss George Meany, but that’s just the most polarized example.
I’d suggest that there are in fact three overlapping categories here that have valence, and we should note them down up front. They are
- Reformers, largely as described though we’ll get into the granular stuff as we go
- Regulars, likewise, and then also
- Retreads, which is an unkind way to put it but alliterative – this special but significant population in McGovernment consists of folks who had personal, significant roles in either or both of Jack Kennedy’s administration and Bobby Kennedy’s 1968 campaign
The other thing we’ll find, as we go along, is that – warts and all – the McGovern team was quite capable of building a West Wing operation of talented people who could take on the tasks before them. If there are faults or complications or internal conflicts or anything else like that, well, that’s in common with every single other administration there ever was, IOTL or in any ATL you’d care to propose. Let’s start in the neighborhood of the top, and at the center.
White House Chief of Staff
I
deserve to be
with somebody as fly as
me
somebody this
fly
- Silk Sonic, 2021
Hands off, ladies, he’s TTL’s.
In the McGNU it can be said fairly of Gary Warren Hart (née Hartpence) that he was a significant, perhaps even daring, architect of the unparalleled activist ground game built around George McGovern’s primary and presidential campaigns; that he worked at that like a driven man; that he adapted rapidly, fluently, and perhaps even intensely to the professional company of major political players especially in the liberal-to-left wing of the Democratic Party (but not just there: IOTL Barry Goldwater called then-senator Gary Hart one of the most honest and moral men he’d ever met, which tells you perhaps more than you wanted to know about Hart’s ability to suck to up to people with power and Barry Senior’s skill level at judging character); that he stepped into the administrative – and very, very much the media – role of “George McGovern’s whiz kid” like a man born to the purple.
Now there’s a Richard Ben Cramer sentence for you.
Several other things are also true. That Hart was really among a whole crew of whiz kids of genuinely remarkable political talent: like the greatest strategist among them, Rick Stearns; incomparable primary ground-game pit bosses like Joe Grandmaison and Gene Pokorny – GEEEEEEENE!! WHO LOVES YOU BABY?!?; ITTL political natural, media maven, and gateway drug for Hart Gary’s entree to the celebrity lifestyle, Warren Beatty; and seemingly endless numbers of precinct-level McGovernite entrepreneurs of diverse ages and backgrounds. A bit like Miles Davis in his quintet years, Gary Hart had real talent but he stood on the shoulders of giants in order to look like one himself. Also Hart was a lot better at organizing state and national-level organizations than he was at managing smaller offices closer at hand where he knew everyone – those were often a real mishegas if he was ostensibly in charge. He was determined to show off his smarts but sometimes undermined himself in the doing. He traded shamelessly on George Himself’s loyalty to a McGovernite of the first hour, which to be fair Gary Hart was. And Gary was never afraid to throw a proper snit when he felt someone had edged in on his authority or his bureaucratic patch within the campaign.
Those fact patterns, that tale, tells you a lot on the road in about what Gary Hart as White House Chief of Staff might be like. To that, we should add one more crucial point of data that one might already have teased from prior details but if not, we’ll spell it out here.
That data point is this. Based on all the evidence accreted over a nearly sixty year public life, it seems fairly clear that there are two things – one in his private realm, one in his public – that Gary Hart quite desperately wanted to be. Both certainly emerged out of the environment of his deeply awkward, dysfunctional, shame-driven upbringing, but probably also owe a real degree of something to the way Gary Hart’s wired. So, nature and nurture, both. The private thing is that he desperately wanted to be a man-of-destiny ladykiller. The public one is that he desperately wanted to be a Man of Ideas.
By some real measure he was more successful at the former than the latter, though even that was convoluted and sometimes tawdry. But Hart really, really, really wanted to be a Man of Ideas. The trouble there, ultimately, was twofold. First, that he was, in some meaningful degree, rather shallow when it came to it, and so too was his command of ideas and gaming out concepts and pursuit of chains of argument. He was bright, and driven, and given to fierce study of all sorts of subjects so that he could become that very Man of Ideas. But his takes were most often a mile wide and a few inches deep. His campaign book for his 1984 presidential effort IOTL, A New Democracy: A Democratic Vision for America in the 1980s and Beyond (see, even his idea of a grand, sweeping title falls kinda flat), is a few hundred pages of warm oatmeal, a run-on chain of platitudes. It’s Big Concepts that other people had come up with already that impressed him with his own cleverness for agreeing with them, that smarter people had already thought through into the detail and nuance of their fractals, occasionally disproving or offering alternatives to what he puts out as grand pronouncements. It’s very Gary of him. And it’s why, when Fritz Mondale asked Gary Hart “where’s the beef?”, that punch landed.
Second, despite the fact he was a reasonably accomplished lawyer and some of the time a pretty competent political campaigner, he wasn’t what you’d call intellectually agile. Which is not necessarily the best characteristic in a White House Chief of Staff, though it’s an acceptable one if you’re another powerful person in the administration hierarchy who thinks the Chief of Staff was poorly chosen and needs to be managed in order to prevent difficulties.
You may ask yourself (HI TALKING HEADS) what does Hart Gary’s actual job look like? Let’s borrow from the wiki (which borrowed from a book about White House Chiefs of Staff) and do a quick run down on major actual or potential elements
- Selecting senior White House staffers and supervising their offices’ activities (as we’ve seen and will see, efforts have been made to vest the first part of that in other authorities, though Gary will probably do what he can to satisfy his desire to do the second part of it)
- Managing and designing the overall structure of the White House staff system (again it’s a mix of the McGovernment transition team setting that in stone before Gary starts the job, to Gary surfing on top of the deeds of others so he can take credit)
- Control the flow of people through the Oval Office (you can believe he will get ya-yas from this – as we’ll see three jobs down, though, things other than people can flow through the Oval Office)
- Manage the flow of information to and decisions from the Resolute Desk (more the latter than the former – there’s a determined effort to vest the first part with the job three down from this one)
- Directing, managing, and overseeing all policy development (this is the part of the job Gary Hart really wants, and where he vests a lot of his effort, though even there there are other people who play essential roles)
- Protecting the political interests of the president (as we’ll see, a lot of this in McGovernment is vested with the Counselor to the President, which will come up when we reach FRANK)
- Negotiating legislation and appropriating funds with United States Congress leaders, Cabinet secretaries, and extra-governmental political groups to implement the president’s agenda (the other part of the job Gary loves best, his opportunity to suck up to/prove his worth with the power elite)
- Advise on any and usually various issues set by the president (again a part on which he’s dead keen)
As we go along, we’ll have a chance to see position by position how the presidential transition wise heads go about boxing Gary in to a manageable, defined space in order to contain what they see as potential negative effects of his central position in the Executive Office structure. Beyond that their hope is that like many Chiefs of Staff before him, the job will wear him out in time and he’ll search for fresh pastures. But that might underestimate the sheer ferocious drive of the Nazarene kid with the gawky smile …
Deputy White House Chief of Staff
(Yes that’s a photo from late in his life. But really, if you blow up some of the grainy, small images of him in his Vietnam days, a guy then in his twenties, it’s the same face, here just with white hair and a few extra lines. Hell he was even down to a widow’s peak in the Sixties – hairline’s not too different either.)
We bring up Douglas Eliot Coulter in this prosopography of the West Wing for two reasons. First, because he’s an example of “footnote history” at its finest – people obscure IOTL who, but for a chance here or there, would be much better known. Second, because he’s an important player in how everyone who is not Gary Hart in the McGovern administration’s West Wing manages the fact that Gary Hart is White House Chief of Staff.
If he were not one of the whiz-kid reformers – and he is – Doug Coulter would make a perfect retread, because he’s a child of their dominant culture. A minor scion of the Eastern establishment, in part Mayflower-descended (partly a Brewster by way of his paternal grandmother), Coulter was born in DC while his father had a cushy gig there, though the Coulters considered the inherited family manse in New Hampshire, where mostly they summered (belonging as they did to the culture that can use “summer” as a verb), as the family home. Doug was valedictorian of St. Alban’s School, then on to cozy Harvard College at the larger Harvard University, where he won a prize as the college’s outstanding sophomore in his year. He finished slowly, taking time off to travel as far as Europe and Madagascar, the latter doing volunteer work, then picked up an MBA at Harvard Business School.
After that, his life path took what we could call a very him turn. As the eldest of four kids in a hallowed WASP family, Doug had a deep sense of civic obligation, wedded to a taste for adventure. He didn’t believe he should avoid a war that poor hillbilly kids and people of color couldn’t, so he volunteered for officer candidate school – yes, you guessed, he was top of his class, and thus whisked off to the “Q Course,” e.g. the qualifying training for US Army Special Forces.
He then spent all of 1967 in-country with 5th Special Forces Group on Project DELTA (no not that one, one of the “Greek-letter” deep recon teams that beat the bounds of the Ho Chi Minh trail.) His immediate superior, another young officer named Captain Hugh Shelton – you know that name already or you should wiki it right now – reflected then (and in the acknowledgments section of his own memoir decades later) that Coulter was one of the two or three best officers of any rank he (Shelton) met in two yearlong tours in Southeast Asia.
Doug Coulter wasn’t a religious man but he inherited a strong cultural strain of left-hand Puritanism from his ancestors: he was deeply disillusioned by what he saw as the failure of political, civic, and moral vision in Vietnam, and much of American postwar culture generally. So he became an earnest and effective field organizer for the McGovern campaign, when it came time for that. (For an adventurous, curious, and ambitious guy Coulter also had that keen Puritan sense of personal failings, not just others’ but his own, that he carried with him through a lifetime. It was allied to a sense of “must do better” that made him strive to, but it’s an important personal characteristic.)
IOTL, of course, George lost. IOTL, Coulter went on to be a key Midwest organizer for the Carter campaign, for which he was awarded a post on a new regulatory board that governed US copyrights. He taught for a while in the Eighties, then saw another opportunity when the Berlin Wall fell. Coulter was an eager and adventurous world traveler, a lifelong francophile, and good at languages. He taught himself both Russian and Guanghua (Mandarin), and spent what turned into decades shuttling between Moscow and Beijing in what those cultures would call the “loyal liberal” role. Disillusioned with his own country’s downward arc from Vietnam through Nixon and Reagan, he played the missionary’s role trying to teach loyal-liberal types in Russia and China how to compete in the global economy and pull their societies in a more open direction. He married a Russian wife, had three kids of his own (still summered in New Hampshire though), and eventually died quietly at eighty-one.
Here, though? Here things are different. Here Doug Coulter enters the ranks of the administration’s new hires at not quite thirty-three, one of a cadre of late-twenties to thirtysomething whiz kids who helped make the improbable upset happen. More than that, as the McGovern presidential team sifts through resumes, Doug Coulter has an outstanding resume in the eyes of some powerful people who have a very specific concern.
The core of George McGovern’s presidential transition team – a fearsome foursome of Clark Clifford, Frank Mankiewicz, Ted Sorensen, and Larry O’Brien – was, to be direct, pissed off that George Himself wanted to reward Gary Hart’s loyalty and enterprise by making that same Gary Hart Chief of Staff. As we mentioned above, this resulted in an elaborate strategy designed to box Hart in, more of which we’ll see in operation as we go along. (Spoiler: pay special attention to the next three jobs right after this one.) But a box alone wasn’t enough: they also wanted Hart to have a minder.
Enter Doug Coulter, I say in parentheses. For the transition bigwigs, Coulter’s both the right sort of people and has a stellar resume for his age (including a pretty high-level security clearance from his Army days, readily renewable.) The transition team decides it would be a very good idea if Hart Gary (as opposed to Hart Phil) had someone of Coulter’s gifts and capacity shadowing him (Hart) one step behind and to the right any time he (Hart) walks into a room. Also someone (Coulter, now) with an administrative role that would make him an efficient cleaner and restorer after any messes that Hart happened to make. And there you have the Deputy Chief of Staff.
There are two specific facts about Doug Coulter that lend dramatic tension and character/plot-arc interest to the working relationship between Gary Hart and his deputy. The first is, broadly, what we might call Coulter’s keen and somewhat weary eye for sin – in many ways the original Anglo-Saxon usage, in which the root of our modern word referred to an arrow that missed its mark. Doug Coulter had an intuitive sense of human frailty and fallibility, from real ill intent to simply missing the mark, a sense that dogged him through life though mostly he managed it.
The other significant fact is that Doug Coulter is demonstrably more intelligent than Gary Hart. That’s not at all to say that Hart’s just some knuckle-dragging goon. But Doug Coulter is a good deal more intellectually agile, able to think much better laterally and further down multiple detailed logic chains from an original proposition, than Hart is. Between them any semi-conscious sense Hart has of that makes for a source of tension. For the brighter deputy who tidies up after a less clever and shall we say morally erratic boss, it can be a source of frustration. And – Doug Coulter would be the first to tell you this – it can be a temptation.
Counselor to the President
Now we get to Frank. Everybody loves Frank; that’s kind of his superpower. It makes him a mainspring of the McGovern White House: everybody loves Frank, so he can tether the whole operation together – even when other individual folk quarrel and feud with one another – through the common denominator of Frank-love. Also, so long as he holds some sort of demonstrably senior position within the organization, everyone feels like there’s at least one safe pair of hands close enough to the top that things will be ok (Gary Hart feels that too but that’s purely self-directed, even as he mostly gets along with Frank when they each stay in their own lane.) As a result of all that Frank can in effect write his own ticket as a player in the West Wing hierarchy, so he does.
There have been Counselors to the President before Frank, either by that title or a similar one. Sometimes there were multiple at once, sometimes they had greater or lesser importance. ITTL, in the McGNU, it is very specifically through Frank Mankiewicz’s personal and working relationship with President George McGovern that a singular Counselor to the President granted “cabinet rank” becomes the president’s consigliere.
What that especially means, in the ecosystem of McGovernment’s West Wing, is that Frank is very much The Politics Guy. Now, everyone in that environment thinks they’re The Politics Guy/Gal to some degree, that’s the lingua franca and the shared reality. Certainly Gary Hart, among others, likes to chime in on matters political. But when it comes to the classical smoke-filled-room, handshake, back-slapping, horse trading, optics for the voting blocs, etc., sort of stuff, what they mean by “it’s politics” or “look at the politics of the thing,” that is where Frank is The Politics Guy. That’s his central role as personal adviser, very much in keeping with a consigliere’s brief.
Also, that’s a very interesting role for Frank to take on because, in many ways, when you look at the political sociology of McGovernment, Frank is a rather interesting character. He likes democratization on principle. He grew up in a properly Leftist American Jewish household in Hollywood, in a mostly like-minded milieu (though he seems to have gotten on fine with a few prominent Hollywood conservatives, just not the one who went and made himself governor.) He has a sentimental fondness for left-of-center Latin American governments, on the somewhat pragmatic principle that they seemed more likely to take an interest in the welfare of their nations’ poor majorities. He was part of an abortive opening to Castro IOTL’s mid-Seventies (encouraged by Kissinger) and wrote a book about the trip.
At the same time, though, in a whole lot of other ways, Frank is really something of a Regular. He goes back a bit in Democratic politics. He’s worked among the biggest wheels in the party. He understands how the game is really played most of the time. He’s a bit fusty about a variety of things – indeed IOTL he and his strange-bedfellows reactionary buddy Lyn Nofziger (as Frank put it, nearly the only thing they agreed on was that they liked each other personally) played a key role sinking the effort to convert the US to the metric system. In practice, Frank could readily be called “a Regular with Reformist characteristics.” He does have those reformist characteristics, but he wants to play, and succeed, by big boys’ rules in the big-tent scrum of the Democratic Party. He’d be perfectly happy to tell the idealistic young longhairs (and at least some of the uppity women) to take a hike so that McGovernism gets taken seriously enough by the ward bosses and union chiefs and long-term Congressional backbenchers, etc., that it can become a permanent force in the party. He sees McGovernism, especially, as an acceptable successor to what the late martyred Bobby was trying to build (though, in practice, there are some important differences, among them the fact that George clearly really meant it.) So in that sense Frank is a sociological triptych – Reformer, Regular, and Retread all in one.
The Politics Guy thing, though, that’s key. In some ways it carries over from the campaign: Hart Gary does operational stuff, Frank finesses the grandees. But given time and the opportunity to entrench oneself into a role, there’s a very dialectical relationship that then builds up between those two personalities so close to George. A less emotionally private – even remote – man than George might really get pulled at from different directions by it. In practice we’ll have to see where that dialectic takes things.
Staff Secretary to the President
Meet the most important job in the White House that most people have never heard of.
Per wiki, the White House Staff Secretary “is a position in the White House Office responsible for managing paper flow to the President and circulating documents among senior staff for comment.” That really undersells it. The second ever, and one of the greatest, Staff Secretaries, then-Colonel Andrew Goodpaster, more or less invented how the postwar White House processed information and made himself, by management of sensitive documents and acting as editor for what and how key information reached Dwight Eisenhower, Ike’s real national security adviser (though Ike employed others at the same time. Goodpaster was also the longest-serving Staff Secretary IOTL, on the job for seven years.) Properly managed, the Staff Secretary’s office is the nerve center of the White House – a Chief of Staff might manage who goes in and out of the Oval Office, but in this data-rich era a gifted Staff Secretary takes a POTUS faced with too much information and not enough time and designs what information that POTUS receives plus how POTUS gets to use it. For a POTUS who’s a trained academic historian like George McGovern, who loves him some primary sources, that role then is practically the keys to the kingdom.
So. The transition brains trust makes sure it goes to not only the safest but also perhaps the most engaging set of hands they could come up with. Richard Goodwin was himself a whiz kid of the Retreads: a lower-middle-class Jewish scholarship kid to Tufts and Harvard Law, Goodwin clerked for Felix Frankfurter and became a junior speechwriter for Jack Kennedy on the eve of his presidential run. That made Goodwin, twenty-nine when JFK took office, one of the youngest of Kennedy’s own whiz kids, the “New Frontiersmen” – Ted Sorensen, Fred Dutton, Ken O’Donnell, Ralph Dungan, Goodwin himself, and Harris Wofford, all of them thirty-seven or younger when Jack started work.
Though Goodwin might have looked a bit like a clean shaven rank-and-file of Tolkien’s dwarves – or, as one columnist put it during Camelot, “a hungover Italian journalist” – he was possessed of deep, ready, electric charm, a renaissance man and raconteur. Besides speechwriting Goodwin became a utility infielder for the Kennedy and early Johnson administrations, the general of the generalists. He helped design a whole new program of inter-American (as in the American continents) economic and cultural relations. When Nasser built the Aswan High Dam, Goodwin mobilized international aid to relocate and thereby save the ancient temple of Abu Simbel and other classical Egyptian relics. He hung out at inter-American political conferences with Che Guevara. If it had dash to it and sounded a bit too novelistic to be true, Goodwin did it. At least until he wearied of Lyndon’s Vietnam policy, then taught at places like Wesleyan and MIT, before he managed Gene McCarthy’s New Hampshire operation in 1968 (when Bobby entered the race, Goodwin dutifully changed horses.)
He was out of the political loop in 1972 for bitter personal reasons – his first wife, Sandra Leverant, died that year. ITTL, Frank comes to him during the transition and says it’ll do him (Goodwin) good to have work to do, something to concentrate on, to fight for, that they’re getting the band back together to staff George’s administration, that the lost brothers would tell Goodwin it’s the right thing to do. And Richard Goodwin, to his lifelong credit, was nothing if not a sentimental fool, so he signs right on.
It’s good timing. Goodwin’s no dotard himself, just edging into his early forties at the time, still full of much of the old ebullience despite his long hard walk with grief, still the master generalist with the fairy dust of Camelot about him. And really Staff Secretary – curator and crafter of President McGovern’s knowledge base about absolutely everything, mastermind of the White House nerve center – is one of the jobs for which he’s best suited.
Also, he’s inherited the position at a time when it pulled a fair amount of additional bureaucratic weight within the Executive Office. After administrative changes to the Staff Secretary’s role during the Nixon administration, it took on additional tasks with personnel management, White House finances, access to the White House Mess (dining room for senior staff) plus the limousine fleet, facilities management, and oversight of the Executive Clerk and Visitors Office. It’s a whole handful.
It also shades in on multiple fronts on the role and bureaucratic potency of the Chief of Staff. This is part of that “box strategy” designed to contain any difficulties with Gary Hart. It also creates what we could call “narrative tea” for other reasons. For starters, Dick Goodwin already is the sort of person who Gary Hart aspires to be. Add to that this crucial and broad-ranging position, and Goodwin alternately becomes someone Hart wants to emulate and gain approval from, but also a rival for the power and influence Hart would like to aggregate to himself. Seems like time and familiarity will brew up a big ol’ pot there.
White House Cabinet Secretary
We’re not quite done with whiz kids yet. Born the same year as Gary Hart and Les Thurow (more on Les below), Morris Dees was the McGovern campaign’s direct mail small-donor fundraising genius. In the McGNU that’s even more true as he provides the continuous financial lubrication to get the computer-assisted guerrilla ground game over the finish line to victory.
Direct mail was Dees’ original gig, almost straight out of law school, and in the long run (some would say to the SPLC’s eventual cost) it was one of his most successful vocations. He sold up his original operation during the late 1960s for $1 million in that day’s money, because of its presumed market value. Even IOTL, his work for the McGovern campaign was the most successful small-donor political operation to date. As I say, even more so IMyTL.
So, come time for the presidential transition, Dees has an in for a solid reward from McGovernment. Possibly a substantive gig at DoJ, or his pick from a grab-bag of minor ambassadorships. But Morris Dees wants a job close to the center of power, where he can do well (advancing his own political connections and career prospects, both with the nascent SPLC and in the direct mail game more broadly) by doing good. Sure enough, there’s one of those available to him.
The White House Cabinet Secretary does what the job says on the label: coordinates the Executive Office’s administrative and working relationship with the Cabinet departments and similar federal agencies on a day-to-day basis. It’s the real sausage-making bureaucratic grunt work side of those relationships, yet also an exercise in understanding the players in that environment and keeping them on good terms with the White House. A fiercely quick study with empathetic Southern charm, Dees knows how to keep that bread buttered on the correct side. It also keeps him on a first-name, they-owe-me-a-favor basis with Secretaries, Deputy Secretaries, Undersecretaries, agency heads, public affairs officers, inspectors general, and other main players in the executive branch at all times and on all fronts. It’s a Rolodex wonderland for someone of ambition and if there’s something Morris Dees does not lack, it’s ambition. And unlike the perpetually quasi-dorky Hart Gary, Dees can lace it all with a genteel and genuinely understanding smile.
National Security Adviser
Let’s get on to some policy bigwigs – not just bigwigs, but folks who sit at nerve centers of their own for the creation and conduct of McGovernment policy. We’ll start with one of the two most important folks in that category who we can find in the West Wing. He occupies that position for two reasons that make total sense in the sociology of McGovernment: he’s a significant Retread who’s also a full-blooded Reformer, and he brings to his relationship with President McGovern himself a combination of uncommon personal friendship and political loyalty of just the sort that George liked to reward.
Paul Warnke grew up in smokestack-town Massachusetts – I could listen to his Eastern Establishment drawl for hours – where his father managed a shoe factory and from which he went on to Yale (other than a handful of Harvard folk, distinguished Yalies are a major demographic within the upper ranks of McGovernment), then served as a combatant Coast Guardsman during the war (on a subchaser in the Atlantic, a Landing Ship Tank in the Pacific). After he graduated Columbia Law he got a coveted spot with Dean Acheson’s pet firm, Covington & Burling, and shot up the ranks to partner by the mid-Fifties.
While he was not part of the Camelot crew, Warnke became General Counsel at the Pentagon under LBJ, then took on a crucial policy-level bureau as Assistant Secretary for International Security Affairs. He became a key member of an informal interagency task force set up on Johnson’s behalf by Nicholas Katzenbach, that looked at how to extricate the US from Southeast Asia, and played such a key role convincing Clark Clifford to pursue deescalation and the Paris Talks when Clifford became SecDef that, when Nixon entered office, Warnke became a partner in Clifford’s law firm.
Alongside Kennedy administration international law expert Abram Chayes, Warnke became one of the two foreign policy/national security advisers closest to George Himself during the McGovern presidential campaign. Here in the McGNU George would’ve liked it if Warnke could’ve become Secretary of Defense. But the transition team – notably Warnke’s other good friend and patron, Clark Clifford – recognized that Warnke would’ve faced furious, vituperative resistance from Senate hawks who saw Warnke as “the guy who convinced Johnson to cut and run.” So, instead, building on their authentic personal friendship, Warnke becomes now-President McGovern’s national security adviser.
Paul Warnke’s a fascinating and deeply engaging guy. You get the sense that you wouldn’t want to cross him or get his dander up, but the rest of the time he’s engaging (if just slightly self-satisfied, but it comes across as faintly arrogant self-assurance rather than dickishness), fearsomely smart, warm, cheerfully salty, and a heartfelt Reformer on the crucial Cold War issue of arms control. Really it would be hard for George to have a more capable national security adviser, or one more temperamentally suited to McGovernment. Warnke’s no peacenik – one might describe him as a dove with sharp claws – but he’s a very intelligent and fearsomely well-read (also well-argued) advocate for a comprehensive program of nuclear arms control, well ahead of conventional wisdom’s curve. And, ITTL, one of the reasons CART succeeds (at least so far, up to the point of drafting and signing the treaty itself, before the Senate takes up ratification) is because Warnke and Special Envoy to the Rambouillet Talks Clark Clifford work so well together.
There might be some temptation, in an administration like this one, for Warnke to trade on his special access and special relationship with POTUS to become the sort of be-all end-all policy formulator and implementer that Henry Kissinger became with Nixon, and IOTL Zbig Brzezinski tried to become with Carter. But, as we’ll see in the policy post upcoming, that’s dissipated by two key factors. One is Warnke’s own preference for a collegial decisionmaking process – provided it’s one where he can still aim his stingingly well-reasoned reformist barbs at conventional wisdom. The other is that the “big four” principals of McGovernment’s foreign and national security policy process – Warnke, Secretary of State Sargent Shriver (SARGE!!!), Secretary of Defense Cyrus Vance, and Director of Central Intelligence Pete McCloskey, joined sometimes depending on the issue by SecPeace Don Fraser or SecTreas Ken Galbraith – genuinely get on with one another like old friends, to a degree rare among presidential administrations.
One thing that is very much bureaucratically and administratively true, in terms of outsized influence for Paul Warnke, is that he collaborates effectively with Dick Goodwin about how paper flow on foreign policy and national security issues is sifted, edited, and provided to the Resolute Desk for George Himself’s consumption. That’s not the sort of thing that would make for witty banter on early-Aughts NBC – though if any two men could raise it to that level it’d be Paul Warnke and Dick Goodwin – but it’s an essential element of how the McGovern West Wing actually runs.
Deputy National Security Adviser
(I’ll say, parenthetically and up front here, that this period-accurate photo of Morton Halperin from the mid-Seventies looks a whole awful lot like a shorter version of my father at the exact same point in time. It’s a bit uncanny.)
Unlike the earlier mention of Doug Coulter, I don’t bring up Paul Warnke’s deputy here purely for his own sake, though Morton Halperin is a fascinating character and I’ll say why briefly. In this case, Halperin stands in for the small but powerful brains trust Warnke puts together on the National Security Council staff, folks key to the creation of a thematically well-reasoned and coherent McGovernment policy approach to foreign affairs and national security. (They do that alongside others too – Abram Chayes at Policy Planning in the State Department, the good DepPeace folk at the Arms Control & Disarmament Agency, John Holum at DoD, etc. – but Warnke’s NSC staff plays an outsized role.)
So, Morton Halperin. Like Dick Goodwin another bright Jewish scholarship kid from the boroughs, Halperin picked up a BA in international relations from Columbia at twenty then shot on through his MA and PhD at Yale by the time he was twenty-four. After both lecturing and think-tank work at Harvard, still in his late twenties, Halperin became a special assistant with International Security Affairs at DoD and soon after Paul Warnke’s direct deputy for policy, planning, and arms control for over two years.
Here’s where that gets so interesting it’s meta. While in that job Halperin supervised the team, led by Leslie Gelb, that compiled and created the Pentagon Papers. When news of the “secret” war in Cambodia linked in 1969, and a handful of years later the Pentagon Papers themselves, the Nixon crew suspected Halperin of a role. His name went on Nixon’s Enemies List and the Nixonians tapped Halperin’s phones, aggressively and illegally, for several years, but found no evidence of wrongdoing.
Beyond that, though: when he left DoD during Nixon’s first year in office, Halperin took a post with the Brookings Institution. His presence there, along with several other key former Johnson administration folk, and the possibility they held secret papers on more Vietnam shenanigans especially the “X File” on the Chennault Affair (actually with Walt Rostow in Texas), led directly to Chuck Colson’s plan to firebomb Brookings. Let’s chew on that for a bit.
Halperin’s the senior member of a small but highly select stable of National Security Council staffers who make up Warnke’s own team of whiz kids. The prominent members of that circle include
- Halperin himself
- Anthony Lake, whiz kid of national security policy during the Kennedy, Johnson, and early Nixon administrations, on topics from South Vietnam to SALT, until he resigned over the invasion of Cambodia (IOTL he’d go on to be Bill Clinton’s first-term national security adviser)
- Walter Slocombe, talented “white shoe” lawyer and Oxford-trained Soviet politics expert, who became a key NSC staffer during the initial SALT talks before he jumped ship to work for the McGovern campaign (IOTL a key Carter admin SALT II player)
- William Hyland, a Nixon holdover but of the old school who would work for any responsible administration as a public servant and another SALT savant especially good at working the big-department bureaucracies like State and Defense on arms control
- Strobe Talbott, dashing young correspondent, Sovietologist/Kremlinologist, and McGovern campaign staffer
- Robert Sherman, always spotted round the halls with his crutch due to a malformed leg, young international-relations gun and arms control autodidact who boostrapped his way up the campaign staff with smart policy papers (IOTL he played a key role as a congressional staffer in trying to ban space-based offensive weapons)
Director, Office of Management & Budget
(He’s facing away here, but this 1979 shot of Les in conference at the Sloan School of Management at MIT really lets you see the Thurow-fro in the full sunlit glory of its youth.)
If you thought we were quite done with whiz kids, we’re not. Time to cross paths with the West Wing’s big policy whiz kid, Oxford-and-Harvard-educated economist and MIT maven Lester Thurow. Thurow’s an interesting guy in his own right and more than that, in process and policy terms, he runs the biggest shop in the Executive Office of the President (in terms of personnel and budget lines), absolutely key to making McGovernment function – if we riff on a movie title – everywhere all at once.
We’ll move from office to man. The Office of Management & Budget is a keystone in the operation of the executive branch. I’ll just quote the wiki here for the short version of its sheer scope.
OMB prepares the president’s budget proposal to Congress and supervises the administration of the executive branch agencies. It evaluates the effectiveness of agency programs, policies, and procedures, assesses competing funding demands among agencies, and sets funding priorities. OMB ensures that agency reports, rules, testimony, and proposed legislation are consistent with the president’s budget and administration policies.
OMB also oversees and coordinates the administration’s procurement, financial management, information, and regulatory policies. In each of these areas, OMB’s role is to help improve administrative management, develop better performance measures and coordinating mechanisms, and reduce unnecessary burdens on the public.
Out of breath yet? For an administration (McGovernment) especially concerned to streamline and coordinate federal policy and administration, manage the budget closely (more in the policy post), and make sure everyone’s on the same page so reform efforts have the desired effect, this is an essential gig. So who takes charge of it?
Roughly the same age as Gary Hart and Morris Dees, Les Thurow is a Big Sky kid from a mining town in Montana, where the local mining company invested in what we’d today call the STEM elements of the local school system. From early one Les went at the theoretical side of those subjects, got a scholarship to Williams, then went on to Bailliol College, Oxford (MA in politics, philosophy, and economics) and Harvard (econ PhD). After that he took up soonish with the Sloan School of Management at MIT, a bit closer to the river. That puts him firmly in the Bostonian Nexus of McGovernment’s Justice League of Liberal Economists.
A 1989 (OTL) piece in The Atlantic, by a subsequently-famous science writer, called Thurow “The Man With All the Answers.” This was in part a dig – at Thurow’s energetic self-assurance that he understood how all of it fit together and what should be done – but also a mix of hope and awe at the thought that there was an outside chance Thurow actually might. Thurow’s comprehensive view of the economy, and his Reformer’s vision of a very different relationship between government and industry than the typical American approach, when combined with the policy implementation power of OMB, makes young Les one of the three or four most significant individual actors in McGovernomics (see more in that post when we get there.) He also guards rather jealously OMB’s outsized role in executive branch regulation and implementation through the yearly budget process.
United States Trade Representative
Meet the Regulars’ Regular. I don’t include Larry O’Brien here so much for his job as United States Trade Representative – we can give that role a mention but briefly – it’s really his Regularity that rates a short consideration.
The Office of US Trade Representative functions a bit like an Arms Control & Disarmament Agency for the global economy – it’s a coordinating entity and centralized negotiating arm that pulls together the many different departments and agencies involved in foreign trade negotiations, while the Trade Representative acts as whole-of-government representative during actual, specific trade talks. If you’re a left-curious reformist administration that just got elected during a chaotic political year rife with uncertainties, that’s a good job for a Regular – the optics alone are worth a small upwards bump or two on the Dow Jones.
Beyond that, though O’Brien is part of what you could almost call a Regulars College of Cardinals, bound up with the big AFL-CIO unions (especially the less “political” ones that backed George Meany) and a variety of “Catholic ethnic” political machines. Despite that he’d made his name running “statewide” campaigns, first for Jack Kennedy’s senate seat, then for Kennedy, Johnson, and Humphrey in succession at the national level. But he neutered Gene McCarthy’s delegate effort at Chicago in ‘68, scotched efforts to discuss – and critique – Humphrey’s Vietnam record in floor debates, then did all he could to rig the 1972 convention in the Regulars’ favor against the already extant, McGovern-Fraser Commission based, reformers as early as 1971.
But Larry’s also a complex character, in a complex situation. Here in the McGNU, O’Brien prosecutes the political case on Brookingsgate with as much vigor and as many resources as he did with Watergate IOTL. Also he’s in a delicate position – when he failed to find a way to let the Anybody But McGovern forces in the back door at the convention, he lost a lot of the political capital and good will he had with the big, old-line forces in the party, especially the Meany wing of the labor movement. His effort to both rein in the McGoverners and hold together the party in the face of Nixon’s criminality and Wallace’s burn-it-down insurgency means that he personally loses friends on both right and left inside the party.
His place in the machinery of McGovernment’s West Wing, then, is a sort of dual-facing normalization. On one hand, it serves as part of the process designed to normalize McGovernment in the eyes of key Regular gatekeepers and, for quasi-Regulars like Frank, to mend enough fences that the Reformers can get their feet under them enough to remain a viable force in the party. On the other hand, taking on that role of Regular gatekeeper inside the McGovernment tent offers O’Brien the chance to re-normalize himself among fellow Regulars, to say he’s always had their interests at heart, he’s just trying to make the unruly Democratic family function so it can govern in place of a criminal gang.
All of which is clever, as it goes. But there are plenty of folks in each factional camp with long memories about Larry. In fact, the next person on this list might like to have words with him sometime about Miami ‘72.
Director, Office of Policy Development
We’ll start this section with a pro tip about a case where the internet scores a win on open-source primary materials. Thanks to Utah State University’s Digital Commons, you can read the full .pdf version of Jean Westwood’s aptly titled “political autobiography” (with brief bits about the rest of her life front and back, it’s really about her political career in the Sixties and Seventies), Madame Chair. Here, have a link
https://veteranfeministsofamerica.org/wp-content/uploads/2021/06/Madame-Chair-Jean-Westwood-.pdf
Rather like George, Jean Westwood was a Westerner from a then-obscure state. A Utahn whose family went back to the early days of the state, the college-educated Westwood was a reformist LDS liberal who married a gentile (non-LDS in this case, as a Jewish dentist I once knew once said, “Salt Lake City is the only place I’ve ever been a gentile”), then became an entrepreneurial – and quite successful – mink farmer (you read that right) in Utah’s high country. Back when there was a Utah Democratic Party worth the name that won statewide offices, she joined its liberal wing and rapidly worked her way up the state organization with grit and skill until she became the state’s female Democratic National Committee member. She was involved with the nascent reform movement as early as 1968 on the road in to the McGovern-Fraser committee, then took on a key role at the top rank of the McGovern presidential campaign.
Connected with a few other sources that interweave with and complement it, Madame Chair tells us several valuable things
- She was as much, if not more, responsible for the specific organizational model and culture of the grassroots McGovern army as Gary Hart – borne out by the fact that it really did resemble (her idea) the way the LDS Church organizes its missionary operations
- Throughout the campaign even after she’d been elevated to DNC chair McGovern’s key field bosses, especially the top-level ones like Gene Pokorny and Joe Grandmaison, saw her as the architect of the ground game and bemoaned the fact she couldn’t return to run it rather than manage party-wide electoral matters
- She – as the floor boss, chief parliamentarian, and vote counter – together with Rick Stearns, the two of them, ran the parliamentary operation at the Miami convention that got the campaign back their full California slate and secured the nomination
- The senior guys (Gary, Frank, George) knew her value, complimented her often – Gary’s idle flattery, George’s heartfelt, Frank’s probably a mix of things – and elevated her to DNC chair, but often left her working in obscurity and, when the December ‘72 fight came against Bob Strauss for her to keep the DNC chair, it was the hesitance and sometimes desertion of McGovernites – when folks like Ed Muskie and even Richard Daley had decided to back her against the Connallyite Texan Strauss – that did her in (George was then largely AWOL during the depression he fell into for some months after the landslide)
The Director of the Office of Policy Development, essentially, runs the McGovern West Wing’s domestic policy shop. And in this we’ve seen her at times, and will see more of her both in future chapters and in rewrites. She’s an excellent manager, too, something not all of the mostly-male bureau bosses in McGovernment are, and never quits when she has a goal in sight. It makes her, together with Phil Hart, the two essential McGoverners in the creation and passage of MECA (the Medicare Expansion and Consolidation Act of 1974), and she’s the unsung hero of several other major policy fights, and wins.
The question, then, is just how long she’s ready to keep winning the day in obscurity for the administration. She believes in the principles, and the goal, so that even beyond personal loyalties keeps her engaged. But it’s not always easy to be the skilled, dutiful one who gets it done when other folks run around taking credit, or offer congratulations not always backed by substantive support.
Director, Office of Public Liaison
“Anne always loved the spotlight.”
Into that short sentence in her memoir, Jean Westwood packed a cargo hold worth of both admiration and distaste. One thing we can say, whatever our personal views about its significance, as a factual matter that’s demonstrably true. Throughout her long political career Anne Wexler both sought out public roles and leveraged them to advantage – whether that was more to the advantage of her candidates and clients or to herself could vary, but really that’s true for all flacks.
What made all that possible, to start, was Wexler’s own combination of genuine skill and fierce ambition. Like Jean Westwood, Wexler experienced an early-midlife full throttle shift from private life (where she was a self-described “Jewish princess” doctor’s wife) into the political arena. And she was sufficiently good at it that she shot up the Connecticut state party’s structure to manage her first United States Senate campaign within five years. (Her guy lost, but she ended up divorcing the doctor and marrying him.) Two years after that she was a principal senior campaign staffer for the Muskie campaign. When that crashed and burned she quickly shifted gears to the McGovern effort and became a key rep on party committees and a voter registration maven of the first order.
The Office of Public Liaison is a natural place for Wexler, where she can leverage her love of the spotlight and natural facility at working with political, civic, and business movers and shakers. The job is ostensibly that of “chief lobbyist-general for the administration’s agenda” with the world beyond Congress. For McGovernment, another key component is the practical side of open government – bringing in key interest groups from the public, state and local governments, corporations, and the rest to understand what McGovernment’s up to and how it operates, how it’s ready and willing to listen to the public. All things considered she’s more comfortable with the lobbyist part, but the administration wants a public face for open government and she’s happy to be it. Spotlight, indeed.
White House Communications Director
An Irishman and a poet, in roughly equal measure – that’s Dick Dougherty. (Also he was a novelist and a playwright, so “man of letters” is really about right.) IOTL he wrote the most intelligent, thoughtful, and heartfelt after-action memoir to emerge in the immediate wake of OTL’s McGovern campaign, Goodbye, Mr. Christian, one that gives to my view one of the most (possibly the most) accurate understandings of George Himself during that time. (Disclosure: I own a treasured, dog-eared copy in hardcover. Thanks, Powell’s City of Books!) A longtime and fairly distinguished police-and-city beat newspaper correspondent for several major papers of the day and for a while an NYPD public affairs officer, Dougherty had the most street cred with the “Boys on the Bus” of any McGoverner save Frank Mankiewicz (though Frank at times kinda-sorta undermined Dougherty’s position as press man in favor of Frank’s inexperienced protege Kirby Jones.)
Here in the McGNU Dick is the campaign’s comms guy right through the X File and all the harrows of October, and is really rather ready to be exhausted and hang up his spurs thereafter. But when Clark Clifford sits you down at a hotel bar and explains why you really need to take over Herb Klein’s Nixonian novelty the White House Office of Communications – while veteran and cheerfully salty fellow Irishman and Muskie flack Mark Shields acts as Press Secretary – you tend to listen to what Clark Clifford says to you because, well, you like working ever again. So – during the reasonable amount of time that Frank Mankiewicz will let him do it for himself – Dougherty becomes coordinator of McGovernment’s media operation. That he’s an old school press guy who’ll be straight with even the stringers is one of his most useful qualities. And I’m sure the book he writes about TTL’s experience – and he will surely write about it – will put Goodbye, Mr. Christian in the shade.
Well that’s it for this installment. I mean there are other fascinating folks in the Executive Office. We could talk about distinguished feminist lawyer (and co-author of a groundbreaking law review article on “Jane Crow” systems of legal discrimination by sex) Mary Eastwood who’s Director of Intergovernmental Relations, or why having Gordon Weil be the White House Personnel Secretary (in charge of vetting hundreds, if not thousands, of administration personnel appointments) is a very mixed bag. Or what job title they give George’s energetic, sentimental young body man Jeff Smith while his wife Amanda acts as Chief of Staff for the First Lady. But then we’d be here all week. There will be cameos, I’m sure. But now we need to move on to making the sausage – policy’s up next.
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For a little bit of Pancho-and-Lefty McGovernment national security policy action, please just enjoy this delightful CSPAN video of George Himself and Paul Warnke talking, both one after the other then together during Q&A, to Johns Hopkins undergrads about arms control in 1985. I sometimes watch it just to relax because I'm a disturbed individual.
www.c-span.org
Arms Control: Strategy and Diplomacy
Senator George McGovern and Ambassador Paul Warnke talked about strategic arms control negotiations and they answered audience questions.
www.c-span.org
McGoverning Bonus Content: Sideburns and Macrame Addendum
Good people! We missed our White House Counsel!
That's entirely my fault. Trying to juggle too many things in too many facets of life at once. But. Let's step in there and add to the mix.
White House Counsel
Giving big Jimmy Dale Gilmore energy - too look at, Clark was
one of the most Texan public figures of his era (and this is him
in 1974 still wearing his Sixties suit and tie because does he
give a crap about fashion? I think not)
The White House Counsel is a president's top personal legal adviser. We should stop and clarify "personal" there because the distinction matters. The White House Counsel is the personal legal adviser to the President in the sense of "the king's two bodies" - he advises the office-holder, really the presidency itself, not the human who holds the office in any private or personal capacity.
They cover a lot of ground: legal issues tied to legislation, ethics matters, financial disclosures, the legal difference between official and political activities, conflict-of-interest matters, the administrative/procedural management of presidential pardons, and a lot else. Notably, as we actually saw in a past chapter, the White House Counsel also acts as part of President McGovern's advisory conclave dealing with the prosecution of former president Richard Nixon - what charges to pursue, how to go about management of the legal strategy, negotiation towards a plea, etc.
Ramsey Clark might go in his own particular category in the sociology of McGovernment - a Retread Radical. Born to the legal purple (son of a former US Attorney General and SCOTUS judge, plus distinguished Texan legal types as grandfathers on both sides), Ramsey dropped out of high school to fight in World War II, then went to the University of Texas undergrad (HOOK 'EM) and picked up both an MA and a JD from the University of Chicago. He joined the family law firm in Texas, then became a New Frontiersman with the Kennedy administration where he worked his way up the Justice Department to Deputy AG 1965-67 and Attorney General the last two years of LBJ's full term. Clark was both Kennedy's and Johnson's frontline sonofabitch on civil rights enforcement, but enjoyed his time as AG less especially the prosecution of draft resisters, a process he privately found somewhere between personally distasteful and morally wrong.
Once he was out of government he taught at Howard University's law school and protested the war, going so far as to visit Hanoi in 1972, so he's a political hot potato entering McGovernment - good that he has one of those jobs in the presidential gift, rather than one dependent on Senate confirmation. But he's very much in line with the left-hand tenor of George's shop. And he has, besides his own "radical" progressive tendencies, an unimpeachably formidable legal background. Plus, perhaps, a yen for politics in his own right.
That's entirely my fault. Trying to juggle too many things in too many facets of life at once. But. Let's step in there and add to the mix.
White House Counsel
Giving big Jimmy Dale Gilmore energy - too look at, Clark was
one of the most Texan public figures of his era (and this is him
in 1974 still wearing his Sixties suit and tie because does he
give a crap about fashion? I think not)
The White House Counsel is a president's top personal legal adviser. We should stop and clarify "personal" there because the distinction matters. The White House Counsel is the personal legal adviser to the President in the sense of "the king's two bodies" - he advises the office-holder, really the presidency itself, not the human who holds the office in any private or personal capacity.
They cover a lot of ground: legal issues tied to legislation, ethics matters, financial disclosures, the legal difference between official and political activities, conflict-of-interest matters, the administrative/procedural management of presidential pardons, and a lot else. Notably, as we actually saw in a past chapter, the White House Counsel also acts as part of President McGovern's advisory conclave dealing with the prosecution of former president Richard Nixon - what charges to pursue, how to go about management of the legal strategy, negotiation towards a plea, etc.
Ramsey Clark might go in his own particular category in the sociology of McGovernment - a Retread Radical. Born to the legal purple (son of a former US Attorney General and SCOTUS judge, plus distinguished Texan legal types as grandfathers on both sides), Ramsey dropped out of high school to fight in World War II, then went to the University of Texas undergrad (HOOK 'EM) and picked up both an MA and a JD from the University of Chicago. He joined the family law firm in Texas, then became a New Frontiersman with the Kennedy administration where he worked his way up the Justice Department to Deputy AG 1965-67 and Attorney General the last two years of LBJ's full term. Clark was both Kennedy's and Johnson's frontline sonofabitch on civil rights enforcement, but enjoyed his time as AG less especially the prosecution of draft resisters, a process he privately found somewhere between personally distasteful and morally wrong.
Once he was out of government he taught at Howard University's law school and protested the war, going so far as to visit Hanoi in 1972, so he's a political hot potato entering McGovernment - good that he has one of those jobs in the presidential gift, rather than one dependent on Senate confirmation. But he's very much in line with the left-hand tenor of George's shop. And he has, besides his own "radical" progressive tendencies, an unimpeachably formidable legal background. Plus, perhaps, a yen for politics in his own right.
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What a fantastic deep cut, @Yes, always magnificent to read the inner workings of the White House.
I really like the little snippets showing the internal relations between the old Kennedy people, the young guns, and the Regulars inside the administration. O'Brien pleasing nobody, Mankiewicz functioning as George's alter ego, and the whole section of foreign policy with Warnke, Halperin, Lake and others is delightful to analyze.
Oh Gary Hart, you irritating, brilliant fuckup. I still find it so funny that a good chunk of the rest of the staff has to band up to restrain his influence over McG. One must wonder what his future shall hold, though he'd be just as equally capable of burning out too quickly like Icarus.
Anyways, as always, thank you so much for your effort and wit. The McGoverning universe is such a richly deep world to focus onto, and these snippets are great examples of why. Take care, and we shall wait patiently for the quickly approaching Bicentennial.
I really like the little snippets showing the internal relations between the old Kennedy people, the young guns, and the Regulars inside the administration. O'Brien pleasing nobody, Mankiewicz functioning as George's alter ego, and the whole section of foreign policy with Warnke, Halperin, Lake and others is delightful to analyze.
Oh Gary Hart, you irritating, brilliant fuckup. I still find it so funny that a good chunk of the rest of the staff has to band up to restrain his influence over McG. One must wonder what his future shall hold, though he'd be just as equally capable of burning out too quickly like Icarus.
Anyways, as always, thank you so much for your effort and wit. The McGoverning universe is such a richly deep world to focus onto, and these snippets are great examples of why. Take care, and we shall wait patiently for the quickly approaching Bicentennial.
John Fredrick Parker
Donor
So next we're getting a glimpse into policy mechanics, followed by an explanation of the McGovern Administration's economic policy; that right? Then a quick post on Nixon's trial. After that -- considering it's been 52 28 months now, should us readers be expecting the story to return?
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WIP it good...
A quick update in case anyone is actually breathless with anticipation.
More bonus content to drop soon - this weekend, if I don't have an opportunity to push on through and get it done tomorrow.
Not the expected bit, actually: chewed over the policy feature a couple of different ways but it just didn't want to come together the way I'd hoped. So, I moved directly on to the Big Damn McGovernomics Explainer, which is now the bonus content soon to drop. It covers a variety of things:
- A tour d'horizon of McGovernomics' doctrinal and personnel components
- A short explainer on OTL's macroeconomic situation in the US (with some broader Western-world aspects) 1973-76
- A look, referenced from OTL's circumstances, at what McGovernomics does differently
- Attention to how McGovernomics acts as both a center of gravity and a fulcrum for a different and, at least ostensibly, more coordinated "First World" approach to economic issues during the presidential term George McGovern has won off of firebug Tex Colson
HI. Would you like to hear about price controls? I thought so.
In news that might excite some actual interest, one of the things a detour past the mooted policy post has done is free up both time and mental imagery to push ahead with actual narrative - no, really, that unicorn has been spotted and tracked to its favorite meadow. Stuff's afoot, and once McGovernomics is posted into the thread I may put a pause on the Nixon indictment memo in order to get on with that directly. Joe Strummer might've said that the future is unwritten, but the imagined past is getting there.
Right. I'll see folks back here in the next couple of days.
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Ramsey Clark as White House Counsel is interesting. Hopefully he avoids going down the same path of lunacy he went down, IOTL.
McGoverning Bonus Content: The Big Damn McGovernomics Explainer
Any history – or plausibly alternate history – of the Seventies must be in large part an economic history, because economic change and disruption had so much to do with the decade’s fortunes generally. That trend was well underway by the time you inaugurate an American president in January 1973. Then, when it comes, the Oil Shock at the end of 1973 throws a big ol’ boulder into a body of water that was well churned up already.
What follows from there – what followed IOTL much less what might follow in an ATL – was not a single, uniform phenomenon labeled “stagflation and malaise.” There’s a powerful current of that in the big river but there were ebbs and flows and eddies and counter-currents, all sorts of interesting things. That’s especially true in this time window 1973-76, where for example inflation had already roughly doubled from 1972 levels before OTL’s Oil Shock, and where much of 1976 was marked by the strongest economic recovery of the entire decade, strong enough that it nearly bought Gerry Ford a second term.
There are mighty Trends at work in the macroeconomics of the Seventies, also. Through the Eurodollar market, or the creeping liberalization of credit and financial-trading controls in Western nations, and things like OTL’s inflationary international lending during the Seventies, you have key elements in what we might call the childhood of The Financialization of Everything IOTL. High-productivity – but especially low-cost – suppliers of coal, steel, and ships out of the Pacific Rim (and one or two other places) battered the market strength of those traditional heavy industries in Europe and North America. The Middle East became a political cockpit and center of geopolitical gravity when OPEC pulled off the largest single transfer of wealth up to that point in human history through the Oil Shock at the end of 1973 which entrenched structural inflation as a problem in the international economy right at a time when the overheated West found its growth in a secular slowdown.
Some of that inflation persisted in part because of a need to keep national economies growth-oriented enough to absorb both the massive cadre of Baby Boomers and adult women all entering the labor market together. (For some of those Boomers and a lot of the women, they ended up in service fields or as bureaucratic grunt workers in corporate organizations that mostly existed to shuffle paper for a living – the route from 9 to 5 to The Office is an express lane.) And as it happened, when inflation was finally, rather brutally, strangled out of national and international economies, those Boomers were able to acquire key assets (notably but not solely real estate) right at the start of a long era of unprecedented growth in value (or naked, untrammeled asset inflation, it sometimes depends how you look at it.)
So. Let’s get back to this specific period 1973-76. We’ll tackle the relationship between the McGoverners, swept unexpectedly into office in 1973, with what happened during this time window IOTL, then consider how McGovernomics tackles things differently. In order we’ll explore
All right, then. Are you sitting comfortably? Let’s do this thing.
Best and Brightest, Again?: The McGoverners of McGovernomics
One of the more important facets of McGovernment is the degree to which it reassembles the liberal-to-left portion of the Kennedy administration milieu, now shorn of its right wing – yer Dean Rusks, yer McGeorge Bundys, yer AG-era Bobbys – as the core of a new administration that, by its own lights, wants to pursue their old goals done right this time. That extends up, indeed, to the Kennedy administration’s former Food For Peace director, President George McGovern himself. It’s true throughout the administration, across a wide swath of policy subjects and administrative briefs. But it may be most the case in two specific fields within that swath – foreign policy as classically conceived, and macroeconomic policy. We’ll take on the latter here.
The core of monetarist economists (and to a lesser degree rational-expectations economists) have often been described over the decades as “the Chicago boys” for their ties to Milton Friedman and the University of Chicago’s economics and business departments more generally. By the same token, you could call the veritable Justice League of Keynes-adjacent economists (paleo-Keynesians, neo-Keynesians, a few vulgar-classical Keynesians, very-liberal-minded neoclassicists influenced by Keynes) that formed around George McGovern’s campaign and, IMyTL, his administration, the Boston Boys or alternatively the Mass Ave Gang. Let’s look at the policy-principals tip of the iceberg there.
That’s just a taste of the top end; it carries on from there. If McGovernment foreign policy is in large part run by Yalies (and it is), it’s a Harvard/MIT nexus – that Mass Ave Gang – that calls the shots on macroeconomic/fiscal/financial/industrial policy.
While it’s a mid-sized tent with some specific clusters therein, broadly speaking McGovernment’s masters of McGovernomics share a political, ideological, and cultural common ground. On one hand that creates much opportunity and great facility for common perspectives, common cause, and common effort to move policies forward, a unified face against opponents with an efficiency of execution. On the negative side, that common ground can sometimes lead to groupthink – Ken Galbraith’s old bugbear “conventional wisdom” for which he coined the phrase – while there can also, sometimes, be a tyranny of small differences where specific McGoverners can gain personal leverage and power within the administration if their slightly differentiated opinion carries the day.
The year 1972 saw not only the McGovern presidential campaign; it was also the year that David Halberstam’s probable magnum opus, The Best and the Brightest, reached publication. Besides the other factors involved, it described a clique of highly accomplished, perhaps even gifted, academics, business executives, and public policy veterans who came together during the Kennedy and early Johnson administrations with a shared intellectual/ideological perspective and powerful bureaucratic weight within those administrations’ policy apparatus.
Those “best and brightest” – a term Halberstam used ironically, in something close to the original Greek sense of that word – believed in and promulgated creeping, stair-stepped US intervention in Southeast Asia. Pretty well every significant figure in McGovernment down several steps on the ladder from policy-principal level was resolutely opposed to, sometimes revulsed by, the war in Southeast Asia. But one thing McGovernment does have in common with that Kennedy administration model is collections of like-minded, similarly acculturated, powerful, senior figures grouped together around specific fields of policy. That’s true of foreign policy as we classically conceive it (and true in lesser but still substantial degree with national security policy), and it’s very notably true with McGovernomics, also. The tyrannical small differences are largely matters of emphasis and priority; the big-picture goals, the “vision thing” as Poppy Bush put it, that’s largely shared. So while the McGovernomics crowd have an all-but-seething dislike for Halberstam’s “best and brightest,” the sociology of the two phenomena rhymes a lot more than maybe the McGoverners would like to admit.
So what did they envision – what did they want to do – on the way in? What was the plan, before they made first contact with governance? Let’s go over some of those hopes and plans before we get to the section on what OTL 1973-76 looked like in terms of US macroeconomics and the international economy.
All right. That’s most of the big stuff. That’s where the would-be McGoverners start out. You could say that their four big goals, their lodestars, are equity, security, sustainability, and productivity. This is what they bring to the table and much of what they hope to do.
Then, of course, life happens while you make those plans. Let’s look first at how that life played out IOTL during 1973-76. Then we’ll look at how McGovernment interacts with many of those same issues and forces. We won’t necessarily get into outcomes – that’s for a combination of future revisions and future chapters – but we will look at how the McGoverners, through McGovernomics, come at these things.
Talkin’ ‘Bout Stagflation Blues?: 1973-76 macroeconomics in the world we know
First there was drought, then bezzle; the rest followed.
For the United States specifically – to some degree also for the nations known in those days as “the Western world” – the economic crisis of 1973-76 (really 1973-75 but we’ll see it through this presidential term George McGovern has got himself) began from two sources and in time acquired two more (for the US; the fourth out of four is specific to the US though really most Western nations encountered some “fourth factor” downrange of the early problems.) We’ll take the first two issues in order.
It’s been a few years but we’ve rehearsed the circumstances of the “Great Grain Robbery” before in this very thread. Deep droughts scorched large swathes of the world in 1972, among them the Soviet Union. There, where a continent-spanning grain belt always should have been (alongside fossil fuels) the fundamental engine of the Soviet economy, instead its shambolic farm system saw the harvest fail. Soviet buyers, savvily, more or less cornered the US market on grain reserves before USDA really understood what was going on, and bought out American reserves from under the open market. In that specific moment, that year and the year previous, American cereals production was relatively constrained, so the Soviets bogarting the reserve had major consequences for the domestic US market.
Several things happened in consequence but, for us, the big one was a protein problem. Short supplies of cereal grains meant that the availability of animal feed took a brutal hit. By the end of 1972 and especially in 1973 related costs – meats and poultry, eggs, dairy products, to a lesser degree bread itself and other cereal grains – skyrocketed far above any food inflation Americans were used to. The food-related increase in the Consumer Price Index was about 5% in 1972, already showing danger signs late in the year. Over 1973, the food-related CPI increase was over 20%. It was a dramatic, damaging example of “special factor” inflation: a specific element of the wider price/inflation indices swings wildly out of whack, which causes ripple damage more broadly and can drag the core rate of inflation along with it. Even today a lot of economic studies (both historical and more narrowly, mathematically “economic”) underestimate the havoc this Food Shock (h/t Alan Blinder) caused.
Then we come to the bezzle and its siblings. “Bezzle” was one of John Kenneth Galbraith’s favorites among his many personal neologisms (the most famous of which is “conventional wisdom.”) Galbraith used it to describe the portion of growth in an overheated boom economy that we also might describe as “speculative froth” – asset inflation, more or less, whether through greedy exuberance or a deliberate con or both. It is also, then, the part of a boom that’s overshot which is often first to be wrung back out of the economy when more realistic asset valuations return. There was a lot of bezzle in the Burns Boom, especially in the stock market where a basket of maybe a dozen hot-tip stocks, whose value ballooned as some of the early modern-era pure speculators on the Dow Jones pursued them in hopes of record-breaking returns, really led the whole market.
There were other aspects of the Burns Boom that one could perhaps describe as bezzle-adjacent, or even more so as instances where the bezzle phenomenon and the kind of crisis of primary materials that triggered the Food Shock entwined. The firehose of loose money that Arthur Burns introduced in order to rig up a boom in time for the 1972 election cycle (there were similar phenomena in some other Western nations, most notably the Barber Boom in the UK, named for Ted Heath’s ornithological Chancellor of the Exchequer, Anthony Barber) produced real races forward in both productivity and commercial transactions, notably with materials-driven industries and also in sales of consumer durables, given that inflation was down over the previous several years (1972’s adjusted yearly inflation level was down 44% proportionally from a 1970 high in an inflationary cycle from the late Sixties to the early Seventies, the lowest it had been since 1967 and the lowest the yearly adjusted figure would yet be until 1983) and credit, such as there was, was on easier terms. Add into that the Nixon price controls and it was a hot time to buy.
One consequence of this, however, was that retail stores burned through inventory, and several key raw material-dependent industries – notably steel, paper, concrete, and one or two others – burned through ready market-available supplies of those raw materials. This set the stage for trouble.
In January 1973, the bezzle started to bleed out of the New York and London stock markets (some others as well, but the damage was worst there, and even worse on the London market than the NYSE). With some types of wound, the sheer hydraulic rate of blood flow tears the vein that much more open and speeds the bleed; something similar seemed to happen on the markets. Especially those very hot-property stocks that added such bezzle on the way up promptly collapsed on the way down, dragging stocks with more stable fundamentals down with them.
At the same, Food Shock inflation pushed up consumer prices despite the many other price-controlled goods for sale and nudged up what was already scarcity pricing for those raw materials some key industries were short of. Keep an eye on that, we’ll come back to it shortly.
Then, the most famous shoe of the bunch dropped.
Hi.
After OTL’s Yom Kippur War broke out, and the Nixon administration chose to resupply Israel’s military materiel shortfalls, OPEC seized an opportunity it had sought whether there was a convenient war involved or not, ratcheted down an embargo on oil supplies to major First World nations, and successfully executed what was, up to that point in time, the single largest transfer of wealth in human history. (To take a comparative case, Spain fully asset-stripping the gold and silver of Central and South America took a vastly longer time frame to execute.) Within a couple of months the result was a fourfold increase in the price of a barrel of oil on the open market; the gas/petrol-price hike passed on to consumers was in fact less steep in the US than in Western Europe or Japan, but it was grim all over.
Economies the world over had seen Food Shocks before, though for the US in 1973 it had been just over a quarter-century since the last one. An Oil Shock though – well, to quote anderson.paak from the lyrics of “Fly as Me,” that’s somethin’ different. This was a black swan event, sui generis, seemingly the birth of a new era. The world’s most politicized commodity cartel took the most globalized price-inelastic commodity and squeezed it until the pips squeaked. In combination with the Food Shock, the collapse of Burns Boom bezzle, and a landscape of key raw-material shortages, the Oil Shock really set the seal on a world-historical fucking meshiver.
What followed was … confusion. Disorientation. A lot of august and significant economic forecasting bodies, economic-intelligence departments of major corporations, working corporate, governmental, and academic economists, and others, just didn’t even know how to forecast in that environment. They did anyway because it was their job(s), but in 1974 those forecasts were almost invariably wrong and the tiny number that weren’t were down to luck rather than judgment. This was unknown country, and there were dragons.
In the very short term, in Q1 of 1974 the US economy saw what economists and stock traders pungently call a “dead cat bounce,” as certain kinds of economic productivity and transactions forged ahead on the part of people who wanted to get those deals in ahead of any further spiral in inflation, or sometimes by retailers trying to get in more inventory in hopes the inflationary bubble might burst and people would rush back to buy as prices dropped again. Like I say, confusion. Then the Oil Shock (1) settled in as a medium-term phenomenon and (2) rippled through the broader energy markets (for example, at that point oil was a larger component of the US heating market, also for power stations, so speculation on substitute fuels increased too).
We should pause there for a moment and take stock of a few things. First, the difference between the adjusted yearly rate of inflation in the US for 1972 and 1973 in succession. That rate jumped from 3.27% for 1972 to 6.18% for 1973, a proportional increase of 89% – nearly doubled. When we track monthly inflation rates plus key aggregates of price/transaction costs like the Consumer Price Index (CPI) and the deflator for personal consumption expenditures (PCE), the vast majority of that damage was done before the oil embargo pricing really started to bite home by the beginning of November 1973. Q4 of 1973 did inflect upwards, but it did that standing on very tall shoulders already: the Food Shock, related raw-material squeezes, and a few key wage increases in the easy-money environment.
Then, as the Food Shock started to ease its grip into 1974 the Oil Shock really set in as a “special factor” driver of inflation. That was especially apparent by Q2 of 1974 when it started to become clear that the Oil Shock wasn’t a radical blip but rather a phenomenon of some endurance. No sooner did that happen than we come on to our fourth big factor for the mess.
That fourth factor was the timing and circumstances of the end of the Nixon price controls. This, it turns out, had some fairly massive effects. We’ll turn back to Alan Blinder for a moment, from his “The Anatomy of Double-Digit Inflation in the 1970s” from the National Bureau of Economic Review’s volume Inflation: Causes and Effects. Chicago: U of Chicago Press. (1982) pp. 267-68
“If we study the detailed monthly time structure of the CPI purged of food and energy prices, it becomes quite apparent that double-digit inflation took place only during the nine-month period beginning in February 1974. During these nine months the annual rate of inflation was 13.4%. During the preceding nine months the annual rate of inflation [when purged of food and energy prices] was only 5.5%, and during the following nine months it was 6.4%. In a word, the rate of nonfood, nonenergy prices rose sharply and abruptly in February 1974, and fell almost as precipitously after November 1974. The symmetry of the rise and fall of the inflation rate is notable here, but is even more extreme if we look at quarterly data on the PCE deflator purged of food and energy. According to this index, the annual inflation rate during the period of peak inflation (1974:1 to 1974:4) was 10.4%, while the inflation rates of both the preceding and following three-quarter periods were 5.4%. If the end of controls was not the reason for this symmetry, we have quite a coincidence to explain.”
That holds pretty well, in fact. The leap in prices linked to a combination of post-control adjustment and naked profiteering was staggered over a period because the end of controls was similarly staggered. While most controls officially disappeared in late winter and early spring of 1974, the Nixon administration negotiated agreements with a number of industries – sales for new and used cars, also for paper (one of the industries affected by raw-material shortages) are good examples – to hold off on substantive price increases until the summer. (Through that window of decontrol, for example, the average price of toilet paper shot up 77% over its prior level.) In the end, as the baseline boost of the Oil Shock refused to budge, that only elongated the period of peak inflation, correlated so strongly with post-controls price rises.
Let’s turn to a final ingredient (“I’ll come in again! …”), namely interest rates. Low rates, along with old-school forms of what we’d now call quantitative easing, were an important part of how the Burns loose-money firehose juiced the US economy in 1972. By the end of 1972, from a low around 4% early in the year (around the time George McGovern overperformed in New Hampshire), by December the Fed’s bank prime loan rate was up to 6% as a basic hedge against inflation. By the end of September 1973, however, in response to the Food Shock and attendant wage/price rises, the bank prime rate stood at 10% in an effort to sledgehammer inflation back in place without a recession (Arthur Burns was not a man given to subtlety.) Over the next several months and through Q1 1974 prime rate actually dropped by a full couple of points as the Fed eased off, trying to not trigger a full recession under the dislocation of the Oil Shock. But as Oil Shock “special factor” inflation dug in and decontrol hauled core inflation ever higher, prime rate ramped back up through the spring into the summer until it peaked at 12% in July and remained there into the autumn.
A few key negative factors, meanwhile, aggregated themselves into a powerful recession. High interest rates (at times prime rate actually tagged along behind secondary, specialized rates driven higher in specific market circumstances), spiraling inflation driven by energy costs and profit-taking prices of consumer goods, durable goods especially, tanked demand as people chose to save (saving rates went up) so they’d have at least a small cash reserve for unavoidable purchases amid spiraling prices. Through the first half of 1974 employers, both in industry and services, kept employees on the books in hopes that the Oil Shock situation would self correct, but as those effects bled into the peak inflation of price decontrol, that became untenable. As a result, the first full-on “stagflation” in the US – unemployment tied to crashing demand while the Oil Shock and price decontrol pushed inflation higher – took hold.
As a result, the second half of 1974 and the first half of 1975 sucked. This was especially true of the front half of that period – the second half of 1974 – but high unemployment lagged changing trends in other factors to carry on sharply through early 1975. As Arthur Okun observed in a late 1975 postmortem, consumers – ordinary American citizens – were hit by a double blow as real income dropped due to inflation while taxes, based on nominal income (raw numbers rather than real purchasing value), went up on most people at the same time. Simultaneously the powerful housing sector, the steam valve on an overheated economy during the more economically-controlled postwar decades, cratered because of historically high interest rates.
Then some things began to change. The Nixon, then Ford, administrations’ approach to double digit inflation was a stiff dose of orthodoxy: nigh-punitive interest rates, tight budgets with small deficits (notably FY75, the budget enacted in the summer of 1974). In practice it did as much to prolong recession as it did to relieve it. But in the meanwhile, the “special factor” inflation of the Oil Shock and price decontrol peaked and the rate of inflation receded. Oil prices on global markets tapered back slightly from their late embargo period peak. New inflationary effects from decontrol wound down in early 1975. By the middle of the year, though the overall rate of inflation for a time lagged the contraction of those factors, inflation came down, substantively.
In the meanwhile, the heavily-Democratic Congress elected in the “Watergate midterms” of 1974 (also affected by people voting against a deep recession tied to the presidential party) enacted a large-scale tax cut aimed at putting money back in the pockets of rank-and-file citizen consumers. Interest rates cautiously tapered down, in a lag a month or two behind decreases in inflation. Together, all those changed conditions created opportunity for renewed economic growth by late spring and into the summer of 1975.
On the financial markets, for example, it triggered a “get in at the bottom” boom that produced greater real-value change in equity, up from where stocks had cratered in the long march down 1973-75, than many later bull markets. Traders still on the job in the 2000s recalled bigger real-value proportional. gains at the end of 1975 and through the first half of 1976 than at any other time in their career. The housing market recovered. Unemployment dropped by nearly a third. To be clear, compared to the good times of the Fifties and Sixties, both unemployment and inflation were relatively high even during the good times of 1976. But compared to the recent past? The annual adjusted rate of inflation for 1976 was roughly half the level (down 48%) of 1974’s rate. Indeed inflation during 1976 was both lower than predicted at the start of that year and at the lowest annual level between the end of 1972 and 1983.
That relative boom – certainly a measurable recovery from the miseries of 1974 and early 1975 – played a political role as well. Better economic conditions, entwined with a savvy autumn media campaign to emphasize his “good old Gerry” persona, boosted Gerald Ford’s nearly successful reelection effort during 1976 after his bruising, wounding primary battle against Ronald Reagan. Ford made up significant ground not only because liberals began to back off from Jimmy Carter’s “weirdness factor,” but because Ford could tout the recovery to moderates as evidence of a steady hand already on the presidential tiller.
There are other multinational and international factors to consider, though we’ll save much of that for the section on McGovernomics proper. Effects of the 1973-75 recession varied widely among Western nations. South Korea (then not fully recognized as “Western” as yet) hardly broke its breakneck stride. West Germany and Japan faced worse overall conditions relative to their “economic miracles” of the 1960s but, though briefly dented in 1974, carried on capably through the decade. A few other nations, for example the Netherlands and France, fared better than might have been expected though they did experience slowdowns and rising unemployment. Other places – Italy, the UK, Sweden – were especially hard-hit.
Major private lenders in the United States turned inflationary liability bulges in their holdings back into assets with breakneck – often highly dubious – lending in dollar-denominated loans throughout the “Second World” (Communist-bloc states) and the Global South, whose often disastrous circumstances of repayment defined many of the economic crises of the 1980s and had destructive long-term effects (among them the violent disintegration of Yugoslavia, for example.) Meanwhile, stupefyingly oil-rich OPEC states embarked on ambitious (occasionally megalomaniacal) infrastructure projects alongside multibillion-dollar buying sprees on high-tech weapons systems. What was an “age of limits” for some was anything but for others.
We’ll draw this section to a close here. That’s a good start on what happened in the world we know. Let’s back up to January 1973 and follow McGovernomics through its efforts to contend with a world ahead of them quite different from the one they expected on that election night in November 1972.
Best Laid Plans of McGoverners and Men: George versus the Seventies economy
We can divide what one could call policy eras for the McGoverners, as they get to grips with (alternate) realities 1973-76, into two: B.E. and A.E. – Before Embargo and After Embargo. During the BE period there’s definite concern with the international situation but a strong focus on the domestic American economy; once you hit AE the domestic and global economic issues are so entwined that it’s functionally a seamless garment, at least if you really want to get a handle on things.
The BE “policy era,” then, is brief – about ten months long from around the middle of January right before George McGovern actually takes the oath of office, into the middle of October as the then-newly minted OPEC embargo of MyTL’s October War takes effect (not the Yom Kippur War IMyTL because it was pushed back a day by weather though it is the Tishrei War in Israel and its Arab neighbors for the lunar month of its occurrence.) While any number of matters of detail may come up along the way in any policy environment, the McGoverners whose brief is McGovernomics really deal with five major issues, listed here in descending order of their urgency for those policymakers
There are two other things with which the BE McGovernomics mavens have to contend as well, both of which can be framed as expectations. The first is that, IMyTL, the McGovern campaign has stuck to its populist guns on tax reform and income redistribution, as a result of which the financial world views them with deep suspicion mixed with angry disdain and a light frisson of panic (“a dog run for lemmings” is not a bad description of the NYSE, or most stock-trading environments, not to mention a fair few futures markets.) Probably there’s been at least one big tremor on the markets after the election, and in the wake of that general gloom the bezzle-deflation of the Dow Jones may have started as much as a month or more ahead of OTL. The incoming McGoverners can work the messaging game on it – the Burns Bubble has popped, as it was going to, see what Nixonomics gets you – but from the Wall Street Journal on down to your Midwestern small-town-Babbitry banker all the moneyed harrumphers will blame The Goddamn Hippie Lovers before they’ve even clocked in for work. Likely this will have at least some (though not yet actually that many) ripple effects in what then could still legitimately be called the real economy.
The other expectations matter is how both Congress and the international community will receive the McGoverners once in office. With the same sort of naked disdain and mau-mauing that the Meany Wing of the Democrats displayed in Miami back in July of ‘72? With a “well it’s a liberal administration so let’s focus on getting policy done before they’re kicked out in ‘76” approach (call that “Righteous Tip O’Neil Thought”) ? With a wait-and-see attitude to figure out whether the fairly talented, often ex-Kennedy administration, folk with whom George surrounds himself in the transition, are up to the task, with whom business can be done? In practice it’s a mix of all three both at home and abroad.
In part because of George Himself’s own passion for and knowledge of agricultural issues (also Ken Galbraith’s – he grew up with farmers in Ontario and first started in agricultural economics), McGovernomics will waste no daylight re: the Food Shock. At the same time it’s a bloody difficult problem to work with. There is room, in refiguring a wage-price controls system to replace the Nixon model, to intervene against outright profiteering. But the bottlenecks and relative/localized shortages are real, so either the market has to bear the cost or you have – depending what sort of revenue hikes McGovernment can get and how fast – inflationary fiscal conditions instead as the federal government makes whole various parties to the disrupted supply chains rather than make Joe and Jane Six-Pack pay out of their wallets. You can take an edge off with a rigorously enforced control system, but only an edge. In the meanwhile concentration has to be on forward planning for grain farmers and the new national commodities reserves system McGovernment brings in with the Food & Farming Renaissance Act (FFRA). They can look good trying to be fair, work to prevent future problems, but only mitigate so much of what was already done before they were even on the job.
The often slow pace of legislative change is another source of frustration, complication, and delay. The McGoverners can only get parts of what they want on defense cuts (more on that later), MyTL’s HB1 of the 93rd Congress – what will eventually become the Revenue Reform Act – drags on past the FY74 budget cycle, and all that sort of thing puts an administration that prefers a fiscal approach to inflation control in an uncomfortable position in terms of what they can do to keep the federal deficit tamped down. This is one of the first places Les Thurow is likely to develop a reputation as a tough customer, and not always popular among McGovernment’s many impassioned interest-group supporters, dependent on what Les Thurow think is best for the medium-to-long term macroeconomic situation. (He’s a big believer in doing what’s necessary today, even when underwhelming or unpleasant, to secure a better tomorrow, is Les. A lot of folks who want George McGovern’s election to be the Rainbow Moment of new possibility won’t be as pleased with that.)
The war of memos with Burns is likely to be exactly that – outright war. Certainly the existence of McGovernment IMyTL will spur a variety of The Fed’s board members (like but certainly not only Andrew Brimmer) to be more openly rebellious against both Burns’ personal high-handedness and his naked conservative partisanship. It’s quite likely – indeed we can call it canonical – that Burns will push even harder than IOTL (where the Fed’s prime rate went from 6% in December 1972 to 10% by December 1973) to use rates as a tool to beat inflation, both to show he’s better at this economic-policy stuff than a bunch of namby-pamby academics like Galbraith and Thurow, and in a not so subtle effort to push the economy into a mild recession as a “cure” for his own boom’s overexuberance and as a political cost exacted from McGovernment. It likely will turn out that fucking with the likes of Ken Galbraith and Les Thurow is less wise than Burns envisioned.
Then of course there’s the whole wage-price control system itself. Ken Galbraith wants and will get a much more comprehensive system than the Nixon one, with to be fair much more of a thought-through plan for how it should work and what the goals/metrics are. At the same time the Powell Memo Gang will mount furious pushback, and even the Justice League of liberal economists will ask how they can achieve a transition out of controls towards a more stable market-clearing environment. In fact one of the difficulties there, surely, will be the sheer profusion of informed debate and opinions inside Ken Galbraith’s Treasury staff, on the Council of Economic Advisers, from friends and fellow travelers at Brookings and the Sloan School and so on. How you get on track to a decision amid all those efforts to argue to a conclusion, that’s a significant part of the difficulty.
On paper, at least, the international environment may be more favorable. Ken Galbraith is probably more well-loved abroad – most notably in Europe – than at home, while both he and his international-economics veteran deputy Paul Volcker can both project the air that finally there are adults in the room on the delicate situation of international finance rather than buccaneering Texans (hi, John Connally!) or grumpy, orthodox-economics nationalists (hi, George Schultz!) But there, there’s the question of what actually can be done with the situation dependent on the readiness of OECD partners large and small to work for a common goal. (Ted Heath will be grumpy, because he misses his pal Dick Nixon – but really, fuck Ted Heath. Tanaka won’t want to dance to an American tune unless he must, or he can use it somehow against domestic political opponents. The French will be, well, themselves.)
But just as all that seems, finally, either to take shape or to appear frustratingly beyond reach, the actual entire world changes.
The AE policy era is a stone cold fucker, but at least it concentrates minds. There will be blame, right up front and in long ripples thereafter – especially in Europe, where that blame will be couched as follows – blame based on the argument that a naive young American administration went far too hard in its support of Israel, all just for the sake of the Democratic Party’s control of Jewish-American votes. But very quickly that will be balanced by the reality that the world is in unknown territory, the price of oil on the open market has headed past the moon and turned left, crushing fuel costs will be even more disastrous in Europe and Japan than in the US, and everyone in “the Western world” both inside and outside the US wants the High Cold War-era American government to do what it’s supposed to (in their frightened minds) and save everybody from everything.
In its way, then, this is McGovernomics’ biggest opportunity. The reaction both at home and abroad is, generally, “well fuck – whether we wanted you in the job or not, you are, so fix it!” (McGovernment’s most implacable opponents will mercilessly and constantly attack them as fundamentally unsuited to that task and repeatedly mistaken in their choices, but most folks, even milder opponents, will want McGovernment to Do Something.) It transforms McGovernment’s position on the two specific issues of foreign and macroeconomic policy. And whatever their other flaws and virtues, this is a bunch of folks who really don’t intend to waste a good crisis. For better or worse, do something they will.
So now we’ll look at specific, categorical somethings, for the remainder of the post barring a brief conclusion. In order, those “somethings” will be
Ok then,
McGovernment’s approach to oil policy really has three elements, which blend McGovernomics and geopolitics: domestic, embargo-specific, and geopolitical.
The domestic element, in turn, really seeks to manage three things: oil demand, oil supply, and inflation. Because of the shared worldview among McGovernomics’ mavens about the relationship between the state and the market, as soon as it becomes clear (within a matter of weeks at most) that the embargo is neither momentary nor shambolic (a lot of analysts pre-October 1973 didn’t think OPEC could hold an embargo together), McGovernment does not hesitate to pull the trigger on this
McGovernment also approaches the domestic US oil industry with a mixture of carrots and sticks designed to manage stock levels and production rates with a specific eye towards two things, (1) market prices for oil and retail gasoline in the US and (2) supply availability for heating oil in parts of the country notably dependent on it. To some degree that’s a regional live wire – it’s really the Northeast that’s the heart of heating-oil country, while the Sun Belt is built around car culture. But McGovernment also sees winter ahead and knows where so many of its votes are counted. Gas coupons and exhortations to carpooling are a national effort, something of an attempt – very in keeping for an administration helmed by George McGovern – to recall wartime camaraderie and sacrifice during the 1940s, while sidestepping the fact that gas rationing back then was more subject to cheating and corruption than nearly any other form of wartime restriction.
As for how to manage demand – beyond short-term gas rationing – here McGovernment finds itself on home ground. Federal laws and industrial incentives for automotive fuel economy (hi, CAFE!) Comprehensive planning and funds for mass transit expansion.
The future is broadband, yo
Creation of a centralized, Cabinet-level Department of Energy fired with ambition for a national power grid, moonshot R&D on new energy supplies (plant those Jerusalem artichokes!), and comprehensive planning to substitute for oil-fired power generation nationwide, with those reins firmly in the hands of some ambitious hard charger or other.
In the near term, some months of gas rationing and a hard push for fuel conversion on low-hanging fruit like power plants can flatten the inflationary curve slightly by stabilizing demand over time. But only a little. The inflationary effects of profiteering – whether the direct shortfalls created by OPEC or other suppliers piggybacking market trends – as passed on at the pump or on heating bills, or otherwise as loose money put into the general economy to spend, that’s still out there. And it can be frustratingly hard to get at. That old liberal battle cry – to end the oil depletion allowance for domestic producers – would generate relatively little money in the grand scheme of things. Billions, sure, probably roughly enough for a really ambitious program of power conversion and energy R&D. But that’s a small portion of potential federal government debt dealing with the larger economic meshiver.
Gas taxes at the pump are notoriously unpopular. An oil windfall-profits tax is popular, even among some of McGovernment’s most vocal critics (hi, Scoop!) but it’s damned near impossible for two reasons. First because it is surprisingly complex to implement – in the swap-and-trade environment of the domestic oil market where barrels go back and forth between various outfits and it’s also a question whether it’s “old oil” (contracted before some major price change) or newer – figuring out what counts as “windfall profit” can get dicey. (It’s not impossibly dicey, but the Awl Bidness’s flacks are outstandingly good at flooding the zone with bullshit on the details.) Also, at the end of the day any such plan would have to go through one Senator Russell Long who would be entirely willing either to hold McGovernment’s full domestic agenda hostage or, in stages, burn it right on down to protect his beloved Awl Bidness from harm from a bunch of hippie-hugging one-term-wonder (he hopes) amateurs. That means ultimately that one has to find some other way(s) to contain the inflationary dent of the Oil Shock.
I’ll add here, briefly, that for McGovernomics’ brethren, the Oil Shock all but guarantees an extended lifespan for wage-price controls. The potential for this “special factor” shock to haul upwards core inflation through panicky wage-price spirals is too much to take chances with.
On to the international/geopolitical aspects. The McGoverners believe in collaboration and international cooperation – the Oil Shock is a global problem that requires a global solution, or at least a globalized resolution. That involves coordination with fellow OECD nations on energy conservation and conversion. It doesn’t mean striking backroom deals with Canada and Mexico on oil supplies, but it does mean a constellation of policies connected to America’s immediate neighbors that boosts Canadian and Mexican production on the global market, possibly even a North American, rather than just National, Strategic Petroleum Reserve. It means similar constellations of policies intended to get the North Sea nations onto the global market faster than they might otherwise get there (and in ways that encourage those nations to hurry up, e.g. more national profits for them even if that’s at the expense of US oil conglomerates.) McGovernment is also quite comfortable negotiating “arrangements” that link stable, steady processes for purchasing US grain in return for a lot more Soviet oil and natural gas on the world market. Because strange times call for strange bedfellows.
Privyet, tovarich’y.
(That last is quite in keeping with a baseline tenet of McGovernment foreign policy. Classical Cold Warriors assume that all the micro conflicts, rivalries and kerfuffles around the globe ultimately are manifestations of the macro conflict with the Soviet Union. The McGoverners, on the other hand, believe that neither superpower has nearly the level of global power and control that they wish they had, that they often stumble needlessly into local quarrels or get played by savvy locals who have their own agendas, and that the world would in fact be more stable if the superpowers first stabilized their relationship with one another, then exerted more real stabilizing influence around the globe.)
More producers on the market is a start to deal with the situation. So is a collaborative geopolitical atmosphere where a wide range of alphabet-soup nations from OECD to Comecon can find some common cause in tamping down the Oil Shock. But then there are the parts of the issue that are embargo-specific. One of the first of these is the direct conflict between Israel and its neighbors. There the McGoverners do take direct steps
That tackles the matter of Arab-Israeli conflict on the front lines. It shows willing, and helps end the direct embargo. But then there’s OPEC itself. In that case, the McGoverners decide to do a deal with a devil they know
I am the Light of the Aryans. ‘Sup?
in an effort to get some political leverage with OPEC’s decision-making process, tip over the first domino in what they hope will be a cascade of incremental national cheating on OPEC quotas by various non-Saudi OPEC states (underselling the rest of the cartel to seize more market share), and perhaps even gain some American leverage, in turn, towards adding fitful bits of democratization to Iran’s modernization. That’s the hope, anyway.
We’ll take this section in a more systematic fashion (hi, bullet points!) because it’s a lot to take in. That, we will do in three segments: the scope of the issues on the global economy due to the Oil Shock, then the goals the McGoverners – led here very much by Treasury Secretary Ken Galbraith – seek to realize, then the methods to which they guide the “Cambridge Group” and thereby, to greater or lesser degrees, other oil-importing nations around the world whether those are smaller OECD members, developing nations, or whoever.
(Quick factoid here. I’ve tossed around the Organization for Economic Co-operation and Development here and that will figure again. In 1973 the OECD’s members were the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, West Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. In other words it’s a pretty close correlate to what folks in 1973 would have considered “Western economies” as a shorthand. Yugoslavia had observer status with OECD.)
So, first the really significant issues attendant on the Oil Shock.
So that’s the sort of situation that arises globally from the Oil Shock. Now let’s consider how the McGoverners – led on this front by Ken Galbraith though we’ll see very important input from other players – approach the After Embargo policy world.
Now we get to the details.
Questions taken up in those last bullet points – how you deal with direct Oil Shock effects on national-level inflation and terms of trade, and how you retrieve a robust economy from this mess where special-factor shocks have clobbered Western economies in slowdown, that takes us to the next section.
Now we draw back into domestic elements of McGovernomics. They aren’t divorced from the international/geopolitical elements – they are as one says inextricably entwined – but we’ll focus more here on the domestic side. That has two principal elements, also entwined: how one manages inflationary effects (both the big “special factors” themselves and how they affect core inflation by driving wage demands and prices in other cost/transaction sectors), and how one manages the politically fraught phenomena of recession and economic growth/recovery.
We should offer specific mention of some top-tier McGovernomics players here who extend beyond Ken Galbraith – they have significant roles in some of those international/geopolitical issues too (we’ll give brief mention of that here) but they’re especially involved on the domestic side of things. First the money man
(this is a 1974 photo of him, so very appropriate)
Andrew Brimmer is McGovernment’s man at The Fed, brought in from its board of governors after Ken Galbraith et al. machinate circumstances (retcon in progress) where Arthur Burns can go “you wont push me out – I’ll jump!” and make himself the first official martyr to McGovernomics. Brimmer fits in culturally with McGovernment’s Mass Ave Gang, and also brings a couple of very useful specializations to the mix: his deep background with both “development economics” in developing nations (notably his Fulbright and doctoral work around India), and with black-owned businesses and industrial concerns in the US. He’s an accomplished economist across a range of fields and good at the big picture, but also those specific specializations have a meaningful influence on his service as Chairman of the Federal Reserve. Of special note on that front
Then there are a couple of fellows we should consider in relation to one another.
That’s Secretary of Commerce & Industry James Gavin and OMB Director Lester Thurow. Jim and Les are an important duo for compare-and-contrast purposes, because they have some key similarities and key differences, and both make themselves major players at what we could call the strategic (or at least strategizing) level of McGovernomics (Thurow is keen to exercise the “coordinate McGovernomics grand strategy” element of his fiscal-overwatch brief. Mostly Ken Galbraith’s OK with that but on occasion he finds the younger man’s fierceness of ambition and intellectual certainty kind of irritating.)
So let’s fire up that compare-and-contrast.
So that’s those guys, big wheels in McGovernomics’ move towards a deliberate industrial policy. Also some of the context for debates about what that policy could/should look like.
There’s another factor ITTL, not of the McGoverners’ own creation but very much in keeping with their original “total employment” intent, involved in the domestic economic picture and we should take a moment with it. That would be MyTL’s earlier and in some respects more robust Humphrey-Hawkins Full Employment and Balanced Growth Act. MyTL’s act will have some language differences – there’s some (chapter-revised) … vigorous discussion about managing expectations, not putting in Phillips curve language (as Ken Galbraith among others points out that it’s perfectly possible to have galloping cost-push inflation create a recession with higher unemployment, and will happen if controls disappear overnight without a managed landing), etc. But it will commit McGovernment to (1) detailed administration planning to coordinate sometimes-incompatible goals on employment, inflation, the money supply, trade balances, etc., (2) accountability to Congress on those matters, and (3) a robust approach to full employment that includes some measure of the federal government being an employer of last resort.
All of that, of course, makes Ken raise his eyebrow pointedly at George Himself and the assembled McGovernomics mavens, then say “all right then – how do we propose to make that level of direct intervention in the employment markets revenue neutral?”
There’s a lot afoot. The McGoverners have to, best they can, manage both public and private sector responses to inflation. They also have to manage efforts to create an economic rebound over the medium term (in political terms that constitutes a time frame of “during this presidential term”). And they have to do all of that in a frequently hostile domestic negotiating environment (where a combination of business leaders, George Meany lieutenants, and Southern grandees in the Senate all wish them ill), all while they try not to screw up the international/global efforts to create a flexible-but-workable new international economic system, which ultimately would damage America’s national interest while they ostensibly pursued it with too-nationalist policies. Let’s spit some beautiful bullets, then.
The great joy of McGovernment is that they want to do things; the great consternation of McGovernment is that they want to do things. There’s your dialectic. The second element exists because
It’s the second point there to which we’ll attend now. The McGoverners get their Revenue Reform Act in the end (well, in time for FY75 in the middle of 1974) though it costs them a few congresscritters in the midterms. That’s a fair pot of money. But with our last set of bullets we’ll attend to issues that face the McGoverners in their effort to pursue the federal-intervention side of McGovernomics without a substantial inflationary effect.
So you’re in a situation where
And you want, probably even need, to somehow pull that off without a ballooning deficit. How do you do that? That’s where things get interesting.
Right. We’ll stop there for now. Are there plenty of other things to cover? Surely. But that’s why follow-up questions are such a great thing. So we’ll close out the Explainer here, and really get into the weeds as folks raise matters of personal interest. Onwards!
What follows from there – what followed IOTL much less what might follow in an ATL – was not a single, uniform phenomenon labeled “stagflation and malaise.” There’s a powerful current of that in the big river but there were ebbs and flows and eddies and counter-currents, all sorts of interesting things. That’s especially true in this time window 1973-76, where for example inflation had already roughly doubled from 1972 levels before OTL’s Oil Shock, and where much of 1976 was marked by the strongest economic recovery of the entire decade, strong enough that it nearly bought Gerry Ford a second term.
There are mighty Trends at work in the macroeconomics of the Seventies, also. Through the Eurodollar market, or the creeping liberalization of credit and financial-trading controls in Western nations, and things like OTL’s inflationary international lending during the Seventies, you have key elements in what we might call the childhood of The Financialization of Everything IOTL. High-productivity – but especially low-cost – suppliers of coal, steel, and ships out of the Pacific Rim (and one or two other places) battered the market strength of those traditional heavy industries in Europe and North America. The Middle East became a political cockpit and center of geopolitical gravity when OPEC pulled off the largest single transfer of wealth up to that point in human history through the Oil Shock at the end of 1973 which entrenched structural inflation as a problem in the international economy right at a time when the overheated West found its growth in a secular slowdown.
Some of that inflation persisted in part because of a need to keep national economies growth-oriented enough to absorb both the massive cadre of Baby Boomers and adult women all entering the labor market together. (For some of those Boomers and a lot of the women, they ended up in service fields or as bureaucratic grunt workers in corporate organizations that mostly existed to shuffle paper for a living – the route from 9 to 5 to The Office is an express lane.) And as it happened, when inflation was finally, rather brutally, strangled out of national and international economies, those Boomers were able to acquire key assets (notably but not solely real estate) right at the start of a long era of unprecedented growth in value (or naked, untrammeled asset inflation, it sometimes depends how you look at it.)
So. Let’s get back to this specific period 1973-76. We’ll tackle the relationship between the McGoverners, swept unexpectedly into office in 1973, with what happened during this time window IOTL, then consider how McGovernomics tackles things differently. In order we’ll explore
- The folks who make McGovernomics happen and their early intentions on the road in to office
- What actually played out IOTL 1973-76, as a baseline to understand what’s different ITTL
- How McGovernomics approaches these things differently, and potential effects of that
All right, then. Are you sitting comfortably? Let’s do this thing.
Best and Brightest, Again?: The McGoverners of McGovernomics
One of the more important facets of McGovernment is the degree to which it reassembles the liberal-to-left portion of the Kennedy administration milieu, now shorn of its right wing – yer Dean Rusks, yer McGeorge Bundys, yer AG-era Bobbys – as the core of a new administration that, by its own lights, wants to pursue their old goals done right this time. That extends up, indeed, to the Kennedy administration’s former Food For Peace director, President George McGovern himself. It’s true throughout the administration, across a wide swath of policy subjects and administrative briefs. But it may be most the case in two specific fields within that swath – foreign policy as classically conceived, and macroeconomic policy. We’ll take on the latter here.
The core of monetarist economists (and to a lesser degree rational-expectations economists) have often been described over the decades as “the Chicago boys” for their ties to Milton Friedman and the University of Chicago’s economics and business departments more generally. By the same token, you could call the veritable Justice League of Keynes-adjacent economists (paleo-Keynesians, neo-Keynesians, a few vulgar-classical Keynesians, very-liberal-minded neoclassicists influenced by Keynes) that formed around George McGovern’s campaign and, IMyTL, his administration, the Boston Boys or alternatively the Mass Ave Gang. Let’s look at the policy-principals tip of the iceberg there.
- Treasury Secretary John Kenneth Galbraith: as indelibly Harvard as it gets, a modified G-5 IMyTL gets dubbed “the Cambridge Group” because they first meet at Galbraith’s home near campus
- Chairman of the Federal Reserve Andrew Brimmer: Harvard-educated at graduate level, at one point Ken Galbraith was one of his grad school advisers
- Chairman of the President’s Council of Economic Advisers Edwin Kuh: head of McGovern’s campaign-period economic panel, Harvard PhD and a permanent fixture at MIT’s Sloan School of Management down Mass Ave from Hahvud Yahd
- Director of the Office of Management and Budget Lester Thurow: Another MIT Sloan School maven, connected out the wazoo to corporate figures and the national-newspaper commentariat through his Sloan School role
- Secretary of Commerce & Industry James Gavin: Even for Jumpin’ Jim with his West Point CV and diverse background, at this point he was well ensconced as boss and corporate director of a high-powered consultancy firm headquartered in – yep – Cambridge, Mass.
That’s just a taste of the top end; it carries on from there. If McGovernment foreign policy is in large part run by Yalies (and it is), it’s a Harvard/MIT nexus – that Mass Ave Gang – that calls the shots on macroeconomic/fiscal/financial/industrial policy.
While it’s a mid-sized tent with some specific clusters therein, broadly speaking McGovernment’s masters of McGovernomics share a political, ideological, and cultural common ground. On one hand that creates much opportunity and great facility for common perspectives, common cause, and common effort to move policies forward, a unified face against opponents with an efficiency of execution. On the negative side, that common ground can sometimes lead to groupthink – Ken Galbraith’s old bugbear “conventional wisdom” for which he coined the phrase – while there can also, sometimes, be a tyranny of small differences where specific McGoverners can gain personal leverage and power within the administration if their slightly differentiated opinion carries the day.
The year 1972 saw not only the McGovern presidential campaign; it was also the year that David Halberstam’s probable magnum opus, The Best and the Brightest, reached publication. Besides the other factors involved, it described a clique of highly accomplished, perhaps even gifted, academics, business executives, and public policy veterans who came together during the Kennedy and early Johnson administrations with a shared intellectual/ideological perspective and powerful bureaucratic weight within those administrations’ policy apparatus.
Those “best and brightest” – a term Halberstam used ironically, in something close to the original Greek sense of that word – believed in and promulgated creeping, stair-stepped US intervention in Southeast Asia. Pretty well every significant figure in McGovernment down several steps on the ladder from policy-principal level was resolutely opposed to, sometimes revulsed by, the war in Southeast Asia. But one thing McGovernment does have in common with that Kennedy administration model is collections of like-minded, similarly acculturated, powerful, senior figures grouped together around specific fields of policy. That’s true of foreign policy as we classically conceive it (and true in lesser but still substantial degree with national security policy), and it’s very notably true with McGovernomics, also. The tyrannical small differences are largely matters of emphasis and priority; the big-picture goals, the “vision thing” as Poppy Bush put it, that’s largely shared. So while the McGovernomics crowd have an all-but-seething dislike for Halberstam’s “best and brightest,” the sociology of the two phenomena rhymes a lot more than maybe the McGoverners would like to admit.
So what did they envision – what did they want to do – on the way in? What was the plan, before they made first contact with governance? Let’s go over some of those hopes and plans before we get to the section on what OTL 1973-76 looked like in terms of US macroeconomics and the international economy.
- At the top level, right where George Himself views the scenery (and wrote a piece on tax policy himself early in 1972), the McGoverners would like to leverage a peace-and-anti-inflation-dividend model to their advantage
- The big-push version of the Alternate Defense Posture went after as much as $32.4 billion in savings against the numbers in the Nixon administration’s projected 1975 defense budget (that’s a nominal-dollar-value number based on 1972 modeling of future inflation; IOTL that’s probably what the nominal – not the real – value would be sometime in early 1974)
- A significant tightening of taxation, loophole closure, etc. rooted in the extensive Mills-Mansfield revenue review of OTL 1972 that would get the system back to something closer to the Eisenhower-era model, pre-Kennedy tax cut, as a fiscal brake on inflation and an effort to slow down overheating in economic sectors McGovernment doesn’t even like – finance and largely-opportunistic (rather than grounded in productive fundamentals) corporate profits
- All of which – if you take a nominal value based on that 1972 inflation model (soon blown out of the water by OTL real life) – would come to around $55 billion in available outlay to do very different things than Nixonomics envisioned
- Worth mention here that McGovernment pretty exclusively favored tax monies in hand to pursue programs and goals rather than tax credit systems
- Also, we should point out, the broader program for McGovernment at this point envisioned health care reform, if any should come, based on the Kennedy-Griffiths Health Security Act (HSA) which would replace Medicare/Medicaid with a whole federally-run health insurance system and – this bit is crucial – an entire legislated system for a federally-mandated-and-managed cost-control budget for damned near all of US health care expenses, controlling the market by saying what that federal system was willing to pay for services. The goal there would be to keep revenues for the program and expenditures for it broadly in line.
- An economic model that’s less a classical “full employment” model – where unemployment is largely just a low hum of people “between jobs” rather than truly adrift from the job market – and more a total employment model, where anyone who seeks a job can find one in either (1) a revitalized domestic economy or (2) public-sector employment
- A fundamentally redistributive economy in some key ways
- The push, in the 1972 Democratic Party platform, for a $2.50/hr federal minimum wage (that’s over $18/hr in today-OTL’s money) with much wider coverage of different classes of workers previously frozen out from receiving that baseline
- An “income security program” in place of existing welfare programs based on a universal negative income tax scaled to provide basic income security across the board (OTL’s much-derided Demogrant that both The Hump and Nixon falsely claimed would significantly jack up suburbanites’ taxes)
- “Structural compensation” (read investment in adjustment funds for individuals and government support for economic development) where jobs might be lost to defense reconversion or offshoring
- A big rise in the Social Security tax ceiling to secure its fiscal future and increase benefits
- Efforts to bring “family-type farm” producers back up to 1914 parity levels, an industry standard on real-value compensation that would make sure small producers made enough compensation for their harvests do prosper, modestly
- Purchasing power guarantees for savings bonds (one of the few investments available to most Americans who then were “passbook savers” – just had a savings account at their bank rather than other investments)
- Federal deposit assets/insurance in support of “socially useful lending” by banks
- Federal supports for key structural macroeconomic goals
- Legal and financial supports for that total-employment model (equal opportunity/access/education plus federal funding as government as the employer of last resort)
- Federal funds to localities intended to help roll back property taxes (for all sorts of locally-based resources but especially education)
- Federal investment in depressed areas and in defense reconversion (turning defense contractors into peaceful commercial industries)
- A big-picture approach to break inflation with minimal use of interest rates
- Much broader based and more equitable wage-price controls than the Nixon price controls
- The tax hikes/loophole closures on wealthy people and business, plus defense cutbacks, to (1) keep deficits to a minimum while simultaneously (2) transferring monies to people and projects designed to alleviate poverty and improve productivity
All right. That’s most of the big stuff. That’s where the would-be McGoverners start out. You could say that their four big goals, their lodestars, are equity, security, sustainability, and productivity. This is what they bring to the table and much of what they hope to do.
Then, of course, life happens while you make those plans. Let’s look first at how that life played out IOTL during 1973-76. Then we’ll look at how McGovernment interacts with many of those same issues and forces. We won’t necessarily get into outcomes – that’s for a combination of future revisions and future chapters – but we will look at how the McGoverners, through McGovernomics, come at these things.
Talkin’ ‘Bout Stagflation Blues?: 1973-76 macroeconomics in the world we know
First there was drought, then bezzle; the rest followed.
For the United States specifically – to some degree also for the nations known in those days as “the Western world” – the economic crisis of 1973-76 (really 1973-75 but we’ll see it through this presidential term George McGovern has got himself) began from two sources and in time acquired two more (for the US; the fourth out of four is specific to the US though really most Western nations encountered some “fourth factor” downrange of the early problems.) We’ll take the first two issues in order.
It’s been a few years but we’ve rehearsed the circumstances of the “Great Grain Robbery” before in this very thread. Deep droughts scorched large swathes of the world in 1972, among them the Soviet Union. There, where a continent-spanning grain belt always should have been (alongside fossil fuels) the fundamental engine of the Soviet economy, instead its shambolic farm system saw the harvest fail. Soviet buyers, savvily, more or less cornered the US market on grain reserves before USDA really understood what was going on, and bought out American reserves from under the open market. In that specific moment, that year and the year previous, American cereals production was relatively constrained, so the Soviets bogarting the reserve had major consequences for the domestic US market.
Several things happened in consequence but, for us, the big one was a protein problem. Short supplies of cereal grains meant that the availability of animal feed took a brutal hit. By the end of 1972 and especially in 1973 related costs – meats and poultry, eggs, dairy products, to a lesser degree bread itself and other cereal grains – skyrocketed far above any food inflation Americans were used to. The food-related increase in the Consumer Price Index was about 5% in 1972, already showing danger signs late in the year. Over 1973, the food-related CPI increase was over 20%. It was a dramatic, damaging example of “special factor” inflation: a specific element of the wider price/inflation indices swings wildly out of whack, which causes ripple damage more broadly and can drag the core rate of inflation along with it. Even today a lot of economic studies (both historical and more narrowly, mathematically “economic”) underestimate the havoc this Food Shock (h/t Alan Blinder) caused.
Then we come to the bezzle and its siblings. “Bezzle” was one of John Kenneth Galbraith’s favorites among his many personal neologisms (the most famous of which is “conventional wisdom.”) Galbraith used it to describe the portion of growth in an overheated boom economy that we also might describe as “speculative froth” – asset inflation, more or less, whether through greedy exuberance or a deliberate con or both. It is also, then, the part of a boom that’s overshot which is often first to be wrung back out of the economy when more realistic asset valuations return. There was a lot of bezzle in the Burns Boom, especially in the stock market where a basket of maybe a dozen hot-tip stocks, whose value ballooned as some of the early modern-era pure speculators on the Dow Jones pursued them in hopes of record-breaking returns, really led the whole market.
There were other aspects of the Burns Boom that one could perhaps describe as bezzle-adjacent, or even more so as instances where the bezzle phenomenon and the kind of crisis of primary materials that triggered the Food Shock entwined. The firehose of loose money that Arthur Burns introduced in order to rig up a boom in time for the 1972 election cycle (there were similar phenomena in some other Western nations, most notably the Barber Boom in the UK, named for Ted Heath’s ornithological Chancellor of the Exchequer, Anthony Barber) produced real races forward in both productivity and commercial transactions, notably with materials-driven industries and also in sales of consumer durables, given that inflation was down over the previous several years (1972’s adjusted yearly inflation level was down 44% proportionally from a 1970 high in an inflationary cycle from the late Sixties to the early Seventies, the lowest it had been since 1967 and the lowest the yearly adjusted figure would yet be until 1983) and credit, such as there was, was on easier terms. Add into that the Nixon price controls and it was a hot time to buy.
One consequence of this, however, was that retail stores burned through inventory, and several key raw material-dependent industries – notably steel, paper, concrete, and one or two others – burned through ready market-available supplies of those raw materials. This set the stage for trouble.
In January 1973, the bezzle started to bleed out of the New York and London stock markets (some others as well, but the damage was worst there, and even worse on the London market than the NYSE). With some types of wound, the sheer hydraulic rate of blood flow tears the vein that much more open and speeds the bleed; something similar seemed to happen on the markets. Especially those very hot-property stocks that added such bezzle on the way up promptly collapsed on the way down, dragging stocks with more stable fundamentals down with them.
At the same, Food Shock inflation pushed up consumer prices despite the many other price-controlled goods for sale and nudged up what was already scarcity pricing for those raw materials some key industries were short of. Keep an eye on that, we’ll come back to it shortly.
Then, the most famous shoe of the bunch dropped.
Hi.
After OTL’s Yom Kippur War broke out, and the Nixon administration chose to resupply Israel’s military materiel shortfalls, OPEC seized an opportunity it had sought whether there was a convenient war involved or not, ratcheted down an embargo on oil supplies to major First World nations, and successfully executed what was, up to that point in time, the single largest transfer of wealth in human history. (To take a comparative case, Spain fully asset-stripping the gold and silver of Central and South America took a vastly longer time frame to execute.) Within a couple of months the result was a fourfold increase in the price of a barrel of oil on the open market; the gas/petrol-price hike passed on to consumers was in fact less steep in the US than in Western Europe or Japan, but it was grim all over.
Economies the world over had seen Food Shocks before, though for the US in 1973 it had been just over a quarter-century since the last one. An Oil Shock though – well, to quote anderson.paak from the lyrics of “Fly as Me,” that’s somethin’ different. This was a black swan event, sui generis, seemingly the birth of a new era. The world’s most politicized commodity cartel took the most globalized price-inelastic commodity and squeezed it until the pips squeaked. In combination with the Food Shock, the collapse of Burns Boom bezzle, and a landscape of key raw-material shortages, the Oil Shock really set the seal on a world-historical fucking meshiver.
What followed was … confusion. Disorientation. A lot of august and significant economic forecasting bodies, economic-intelligence departments of major corporations, working corporate, governmental, and academic economists, and others, just didn’t even know how to forecast in that environment. They did anyway because it was their job(s), but in 1974 those forecasts were almost invariably wrong and the tiny number that weren’t were down to luck rather than judgment. This was unknown country, and there were dragons.
In the very short term, in Q1 of 1974 the US economy saw what economists and stock traders pungently call a “dead cat bounce,” as certain kinds of economic productivity and transactions forged ahead on the part of people who wanted to get those deals in ahead of any further spiral in inflation, or sometimes by retailers trying to get in more inventory in hopes the inflationary bubble might burst and people would rush back to buy as prices dropped again. Like I say, confusion. Then the Oil Shock (1) settled in as a medium-term phenomenon and (2) rippled through the broader energy markets (for example, at that point oil was a larger component of the US heating market, also for power stations, so speculation on substitute fuels increased too).
We should pause there for a moment and take stock of a few things. First, the difference between the adjusted yearly rate of inflation in the US for 1972 and 1973 in succession. That rate jumped from 3.27% for 1972 to 6.18% for 1973, a proportional increase of 89% – nearly doubled. When we track monthly inflation rates plus key aggregates of price/transaction costs like the Consumer Price Index (CPI) and the deflator for personal consumption expenditures (PCE), the vast majority of that damage was done before the oil embargo pricing really started to bite home by the beginning of November 1973. Q4 of 1973 did inflect upwards, but it did that standing on very tall shoulders already: the Food Shock, related raw-material squeezes, and a few key wage increases in the easy-money environment.
Then, as the Food Shock started to ease its grip into 1974 the Oil Shock really set in as a “special factor” driver of inflation. That was especially apparent by Q2 of 1974 when it started to become clear that the Oil Shock wasn’t a radical blip but rather a phenomenon of some endurance. No sooner did that happen than we come on to our fourth big factor for the mess.
That fourth factor was the timing and circumstances of the end of the Nixon price controls. This, it turns out, had some fairly massive effects. We’ll turn back to Alan Blinder for a moment, from his “The Anatomy of Double-Digit Inflation in the 1970s” from the National Bureau of Economic Review’s volume Inflation: Causes and Effects. Chicago: U of Chicago Press. (1982) pp. 267-68
“If we study the detailed monthly time structure of the CPI purged of food and energy prices, it becomes quite apparent that double-digit inflation took place only during the nine-month period beginning in February 1974. During these nine months the annual rate of inflation was 13.4%. During the preceding nine months the annual rate of inflation [when purged of food and energy prices] was only 5.5%, and during the following nine months it was 6.4%. In a word, the rate of nonfood, nonenergy prices rose sharply and abruptly in February 1974, and fell almost as precipitously after November 1974. The symmetry of the rise and fall of the inflation rate is notable here, but is even more extreme if we look at quarterly data on the PCE deflator purged of food and energy. According to this index, the annual inflation rate during the period of peak inflation (1974:1 to 1974:4) was 10.4%, while the inflation rates of both the preceding and following three-quarter periods were 5.4%. If the end of controls was not the reason for this symmetry, we have quite a coincidence to explain.”
That holds pretty well, in fact. The leap in prices linked to a combination of post-control adjustment and naked profiteering was staggered over a period because the end of controls was similarly staggered. While most controls officially disappeared in late winter and early spring of 1974, the Nixon administration negotiated agreements with a number of industries – sales for new and used cars, also for paper (one of the industries affected by raw-material shortages) are good examples – to hold off on substantive price increases until the summer. (Through that window of decontrol, for example, the average price of toilet paper shot up 77% over its prior level.) In the end, as the baseline boost of the Oil Shock refused to budge, that only elongated the period of peak inflation, correlated so strongly with post-controls price rises.
Let’s turn to a final ingredient (“I’ll come in again! …”), namely interest rates. Low rates, along with old-school forms of what we’d now call quantitative easing, were an important part of how the Burns loose-money firehose juiced the US economy in 1972. By the end of 1972, from a low around 4% early in the year (around the time George McGovern overperformed in New Hampshire), by December the Fed’s bank prime loan rate was up to 6% as a basic hedge against inflation. By the end of September 1973, however, in response to the Food Shock and attendant wage/price rises, the bank prime rate stood at 10% in an effort to sledgehammer inflation back in place without a recession (Arthur Burns was not a man given to subtlety.) Over the next several months and through Q1 1974 prime rate actually dropped by a full couple of points as the Fed eased off, trying to not trigger a full recession under the dislocation of the Oil Shock. But as Oil Shock “special factor” inflation dug in and decontrol hauled core inflation ever higher, prime rate ramped back up through the spring into the summer until it peaked at 12% in July and remained there into the autumn.
A few key negative factors, meanwhile, aggregated themselves into a powerful recession. High interest rates (at times prime rate actually tagged along behind secondary, specialized rates driven higher in specific market circumstances), spiraling inflation driven by energy costs and profit-taking prices of consumer goods, durable goods especially, tanked demand as people chose to save (saving rates went up) so they’d have at least a small cash reserve for unavoidable purchases amid spiraling prices. Through the first half of 1974 employers, both in industry and services, kept employees on the books in hopes that the Oil Shock situation would self correct, but as those effects bled into the peak inflation of price decontrol, that became untenable. As a result, the first full-on “stagflation” in the US – unemployment tied to crashing demand while the Oil Shock and price decontrol pushed inflation higher – took hold.
As a result, the second half of 1974 and the first half of 1975 sucked. This was especially true of the front half of that period – the second half of 1974 – but high unemployment lagged changing trends in other factors to carry on sharply through early 1975. As Arthur Okun observed in a late 1975 postmortem, consumers – ordinary American citizens – were hit by a double blow as real income dropped due to inflation while taxes, based on nominal income (raw numbers rather than real purchasing value), went up on most people at the same time. Simultaneously the powerful housing sector, the steam valve on an overheated economy during the more economically-controlled postwar decades, cratered because of historically high interest rates.
Then some things began to change. The Nixon, then Ford, administrations’ approach to double digit inflation was a stiff dose of orthodoxy: nigh-punitive interest rates, tight budgets with small deficits (notably FY75, the budget enacted in the summer of 1974). In practice it did as much to prolong recession as it did to relieve it. But in the meanwhile, the “special factor” inflation of the Oil Shock and price decontrol peaked and the rate of inflation receded. Oil prices on global markets tapered back slightly from their late embargo period peak. New inflationary effects from decontrol wound down in early 1975. By the middle of the year, though the overall rate of inflation for a time lagged the contraction of those factors, inflation came down, substantively.
In the meanwhile, the heavily-Democratic Congress elected in the “Watergate midterms” of 1974 (also affected by people voting against a deep recession tied to the presidential party) enacted a large-scale tax cut aimed at putting money back in the pockets of rank-and-file citizen consumers. Interest rates cautiously tapered down, in a lag a month or two behind decreases in inflation. Together, all those changed conditions created opportunity for renewed economic growth by late spring and into the summer of 1975.
On the financial markets, for example, it triggered a “get in at the bottom” boom that produced greater real-value change in equity, up from where stocks had cratered in the long march down 1973-75, than many later bull markets. Traders still on the job in the 2000s recalled bigger real-value proportional. gains at the end of 1975 and through the first half of 1976 than at any other time in their career. The housing market recovered. Unemployment dropped by nearly a third. To be clear, compared to the good times of the Fifties and Sixties, both unemployment and inflation were relatively high even during the good times of 1976. But compared to the recent past? The annual adjusted rate of inflation for 1976 was roughly half the level (down 48%) of 1974’s rate. Indeed inflation during 1976 was both lower than predicted at the start of that year and at the lowest annual level between the end of 1972 and 1983.
That relative boom – certainly a measurable recovery from the miseries of 1974 and early 1975 – played a political role as well. Better economic conditions, entwined with a savvy autumn media campaign to emphasize his “good old Gerry” persona, boosted Gerald Ford’s nearly successful reelection effort during 1976 after his bruising, wounding primary battle against Ronald Reagan. Ford made up significant ground not only because liberals began to back off from Jimmy Carter’s “weirdness factor,” but because Ford could tout the recovery to moderates as evidence of a steady hand already on the presidential tiller.
There are other multinational and international factors to consider, though we’ll save much of that for the section on McGovernomics proper. Effects of the 1973-75 recession varied widely among Western nations. South Korea (then not fully recognized as “Western” as yet) hardly broke its breakneck stride. West Germany and Japan faced worse overall conditions relative to their “economic miracles” of the 1960s but, though briefly dented in 1974, carried on capably through the decade. A few other nations, for example the Netherlands and France, fared better than might have been expected though they did experience slowdowns and rising unemployment. Other places – Italy, the UK, Sweden – were especially hard-hit.
Major private lenders in the United States turned inflationary liability bulges in their holdings back into assets with breakneck – often highly dubious – lending in dollar-denominated loans throughout the “Second World” (Communist-bloc states) and the Global South, whose often disastrous circumstances of repayment defined many of the economic crises of the 1980s and had destructive long-term effects (among them the violent disintegration of Yugoslavia, for example.) Meanwhile, stupefyingly oil-rich OPEC states embarked on ambitious (occasionally megalomaniacal) infrastructure projects alongside multibillion-dollar buying sprees on high-tech weapons systems. What was an “age of limits” for some was anything but for others.
We’ll draw this section to a close here. That’s a good start on what happened in the world we know. Let’s back up to January 1973 and follow McGovernomics through its efforts to contend with a world ahead of them quite different from the one they expected on that election night in November 1972.
Best Laid Plans of McGoverners and Men: George versus the Seventies economy
We can divide what one could call policy eras for the McGoverners, as they get to grips with (alternate) realities 1973-76, into two: B.E. and A.E. – Before Embargo and After Embargo. During the BE period there’s definite concern with the international situation but a strong focus on the domestic American economy; once you hit AE the domestic and global economic issues are so entwined that it’s functionally a seamless garment, at least if you really want to get a handle on things.
The BE “policy era,” then, is brief – about ten months long from around the middle of January right before George McGovern actually takes the oath of office, into the middle of October as the then-newly minted OPEC embargo of MyTL’s October War takes effect (not the Yom Kippur War IMyTL because it was pushed back a day by weather though it is the Tishrei War in Israel and its Arab neighbors for the lunar month of its occurrence.) While any number of matters of detail may come up along the way in any policy environment, the McGoverners whose brief is McGovernomics really deal with five major issues, listed here in descending order of their urgency for those policymakers
- They have to deal with the Food Shock, its dimensions and ripple effects
- The initial big push for McGovernment’s slate of economic legislation in Congress, designed to make the workings of McGovernomics feasible
- A debate over whether and how to handle wage-price decontrol, after a McGovernment wage-price control system substitutes itself for the Nixon system
- Wars of memos with Arthur Fucking Burns about the Fed’s prime rate and interest rates generally
- Preliminary efforts to build on the somewhat ramshackle Smithsonian Agreement of December 1971 – efforts to create a sort of “traffic control” system for free-floating currencies and international financial flows
There are two other things with which the BE McGovernomics mavens have to contend as well, both of which can be framed as expectations. The first is that, IMyTL, the McGovern campaign has stuck to its populist guns on tax reform and income redistribution, as a result of which the financial world views them with deep suspicion mixed with angry disdain and a light frisson of panic (“a dog run for lemmings” is not a bad description of the NYSE, or most stock-trading environments, not to mention a fair few futures markets.) Probably there’s been at least one big tremor on the markets after the election, and in the wake of that general gloom the bezzle-deflation of the Dow Jones may have started as much as a month or more ahead of OTL. The incoming McGoverners can work the messaging game on it – the Burns Bubble has popped, as it was going to, see what Nixonomics gets you – but from the Wall Street Journal on down to your Midwestern small-town-Babbitry banker all the moneyed harrumphers will blame The Goddamn Hippie Lovers before they’ve even clocked in for work. Likely this will have at least some (though not yet actually that many) ripple effects in what then could still legitimately be called the real economy.
The other expectations matter is how both Congress and the international community will receive the McGoverners once in office. With the same sort of naked disdain and mau-mauing that the Meany Wing of the Democrats displayed in Miami back in July of ‘72? With a “well it’s a liberal administration so let’s focus on getting policy done before they’re kicked out in ‘76” approach (call that “Righteous Tip O’Neil Thought”) ? With a wait-and-see attitude to figure out whether the fairly talented, often ex-Kennedy administration, folk with whom George surrounds himself in the transition, are up to the task, with whom business can be done? In practice it’s a mix of all three both at home and abroad.
In part because of George Himself’s own passion for and knowledge of agricultural issues (also Ken Galbraith’s – he grew up with farmers in Ontario and first started in agricultural economics), McGovernomics will waste no daylight re: the Food Shock. At the same time it’s a bloody difficult problem to work with. There is room, in refiguring a wage-price controls system to replace the Nixon model, to intervene against outright profiteering. But the bottlenecks and relative/localized shortages are real, so either the market has to bear the cost or you have – depending what sort of revenue hikes McGovernment can get and how fast – inflationary fiscal conditions instead as the federal government makes whole various parties to the disrupted supply chains rather than make Joe and Jane Six-Pack pay out of their wallets. You can take an edge off with a rigorously enforced control system, but only an edge. In the meanwhile concentration has to be on forward planning for grain farmers and the new national commodities reserves system McGovernment brings in with the Food & Farming Renaissance Act (FFRA). They can look good trying to be fair, work to prevent future problems, but only mitigate so much of what was already done before they were even on the job.
The often slow pace of legislative change is another source of frustration, complication, and delay. The McGoverners can only get parts of what they want on defense cuts (more on that later), MyTL’s HB1 of the 93rd Congress – what will eventually become the Revenue Reform Act – drags on past the FY74 budget cycle, and all that sort of thing puts an administration that prefers a fiscal approach to inflation control in an uncomfortable position in terms of what they can do to keep the federal deficit tamped down. This is one of the first places Les Thurow is likely to develop a reputation as a tough customer, and not always popular among McGovernment’s many impassioned interest-group supporters, dependent on what Les Thurow think is best for the medium-to-long term macroeconomic situation. (He’s a big believer in doing what’s necessary today, even when underwhelming or unpleasant, to secure a better tomorrow, is Les. A lot of folks who want George McGovern’s election to be the Rainbow Moment of new possibility won’t be as pleased with that.)
The war of memos with Burns is likely to be exactly that – outright war. Certainly the existence of McGovernment IMyTL will spur a variety of The Fed’s board members (like but certainly not only Andrew Brimmer) to be more openly rebellious against both Burns’ personal high-handedness and his naked conservative partisanship. It’s quite likely – indeed we can call it canonical – that Burns will push even harder than IOTL (where the Fed’s prime rate went from 6% in December 1972 to 10% by December 1973) to use rates as a tool to beat inflation, both to show he’s better at this economic-policy stuff than a bunch of namby-pamby academics like Galbraith and Thurow, and in a not so subtle effort to push the economy into a mild recession as a “cure” for his own boom’s overexuberance and as a political cost exacted from McGovernment. It likely will turn out that fucking with the likes of Ken Galbraith and Les Thurow is less wise than Burns envisioned.
Then of course there’s the whole wage-price control system itself. Ken Galbraith wants and will get a much more comprehensive system than the Nixon one, with to be fair much more of a thought-through plan for how it should work and what the goals/metrics are. At the same time the Powell Memo Gang will mount furious pushback, and even the Justice League of liberal economists will ask how they can achieve a transition out of controls towards a more stable market-clearing environment. In fact one of the difficulties there, surely, will be the sheer profusion of informed debate and opinions inside Ken Galbraith’s Treasury staff, on the Council of Economic Advisers, from friends and fellow travelers at Brookings and the Sloan School and so on. How you get on track to a decision amid all those efforts to argue to a conclusion, that’s a significant part of the difficulty.
On paper, at least, the international environment may be more favorable. Ken Galbraith is probably more well-loved abroad – most notably in Europe – than at home, while both he and his international-economics veteran deputy Paul Volcker can both project the air that finally there are adults in the room on the delicate situation of international finance rather than buccaneering Texans (hi, John Connally!) or grumpy, orthodox-economics nationalists (hi, George Schultz!) But there, there’s the question of what actually can be done with the situation dependent on the readiness of OECD partners large and small to work for a common goal. (Ted Heath will be grumpy, because he misses his pal Dick Nixon – but really, fuck Ted Heath. Tanaka won’t want to dance to an American tune unless he must, or he can use it somehow against domestic political opponents. The French will be, well, themselves.)
But just as all that seems, finally, either to take shape or to appear frustratingly beyond reach, the actual entire world changes.
The AE policy era is a stone cold fucker, but at least it concentrates minds. There will be blame, right up front and in long ripples thereafter – especially in Europe, where that blame will be couched as follows – blame based on the argument that a naive young American administration went far too hard in its support of Israel, all just for the sake of the Democratic Party’s control of Jewish-American votes. But very quickly that will be balanced by the reality that the world is in unknown territory, the price of oil on the open market has headed past the moon and turned left, crushing fuel costs will be even more disastrous in Europe and Japan than in the US, and everyone in “the Western world” both inside and outside the US wants the High Cold War-era American government to do what it’s supposed to (in their frightened minds) and save everybody from everything.
In its way, then, this is McGovernomics’ biggest opportunity. The reaction both at home and abroad is, generally, “well fuck – whether we wanted you in the job or not, you are, so fix it!” (McGovernment’s most implacable opponents will mercilessly and constantly attack them as fundamentally unsuited to that task and repeatedly mistaken in their choices, but most folks, even milder opponents, will want McGovernment to Do Something.) It transforms McGovernment’s position on the two specific issues of foreign and macroeconomic policy. And whatever their other flaws and virtues, this is a bunch of folks who really don’t intend to waste a good crisis. For better or worse, do something they will.
So now we’ll look at specific, categorical somethings, for the remainder of the post barring a brief conclusion. In order, those “somethings” will be
- Oil policy itself
- Global financial policy
- Inflation/recession management
- McGovernment’s fiscal conundrum
Ok then,
- Oil Policy
McGovernment’s approach to oil policy really has three elements, which blend McGovernomics and geopolitics: domestic, embargo-specific, and geopolitical.
The domestic element, in turn, really seeks to manage three things: oil demand, oil supply, and inflation. Because of the shared worldview among McGovernomics’ mavens about the relationship between the state and the market, as soon as it becomes clear (within a matter of weeks at most) that the embargo is neither momentary nor shambolic (a lot of analysts pre-October 1973 didn’t think OPEC could hold an embargo together), McGovernment does not hesitate to pull the trigger on this
McGovernment also approaches the domestic US oil industry with a mixture of carrots and sticks designed to manage stock levels and production rates with a specific eye towards two things, (1) market prices for oil and retail gasoline in the US and (2) supply availability for heating oil in parts of the country notably dependent on it. To some degree that’s a regional live wire – it’s really the Northeast that’s the heart of heating-oil country, while the Sun Belt is built around car culture. But McGovernment also sees winter ahead and knows where so many of its votes are counted. Gas coupons and exhortations to carpooling are a national effort, something of an attempt – very in keeping for an administration helmed by George McGovern – to recall wartime camaraderie and sacrifice during the 1940s, while sidestepping the fact that gas rationing back then was more subject to cheating and corruption than nearly any other form of wartime restriction.
As for how to manage demand – beyond short-term gas rationing – here McGovernment finds itself on home ground. Federal laws and industrial incentives for automotive fuel economy (hi, CAFE!) Comprehensive planning and funds for mass transit expansion.
The future is broadband, yo
Creation of a centralized, Cabinet-level Department of Energy fired with ambition for a national power grid, moonshot R&D on new energy supplies (plant those Jerusalem artichokes!), and comprehensive planning to substitute for oil-fired power generation nationwide, with those reins firmly in the hands of some ambitious hard charger or other.
In the near term, some months of gas rationing and a hard push for fuel conversion on low-hanging fruit like power plants can flatten the inflationary curve slightly by stabilizing demand over time. But only a little. The inflationary effects of profiteering – whether the direct shortfalls created by OPEC or other suppliers piggybacking market trends – as passed on at the pump or on heating bills, or otherwise as loose money put into the general economy to spend, that’s still out there. And it can be frustratingly hard to get at. That old liberal battle cry – to end the oil depletion allowance for domestic producers – would generate relatively little money in the grand scheme of things. Billions, sure, probably roughly enough for a really ambitious program of power conversion and energy R&D. But that’s a small portion of potential federal government debt dealing with the larger economic meshiver.
Gas taxes at the pump are notoriously unpopular. An oil windfall-profits tax is popular, even among some of McGovernment’s most vocal critics (hi, Scoop!) but it’s damned near impossible for two reasons. First because it is surprisingly complex to implement – in the swap-and-trade environment of the domestic oil market where barrels go back and forth between various outfits and it’s also a question whether it’s “old oil” (contracted before some major price change) or newer – figuring out what counts as “windfall profit” can get dicey. (It’s not impossibly dicey, but the Awl Bidness’s flacks are outstandingly good at flooding the zone with bullshit on the details.) Also, at the end of the day any such plan would have to go through one Senator Russell Long who would be entirely willing either to hold McGovernment’s full domestic agenda hostage or, in stages, burn it right on down to protect his beloved Awl Bidness from harm from a bunch of hippie-hugging one-term-wonder (he hopes) amateurs. That means ultimately that one has to find some other way(s) to contain the inflationary dent of the Oil Shock.
I’ll add here, briefly, that for McGovernomics’ brethren, the Oil Shock all but guarantees an extended lifespan for wage-price controls. The potential for this “special factor” shock to haul upwards core inflation through panicky wage-price spirals is too much to take chances with.
On to the international/geopolitical aspects. The McGoverners believe in collaboration and international cooperation – the Oil Shock is a global problem that requires a global solution, or at least a globalized resolution. That involves coordination with fellow OECD nations on energy conservation and conversion. It doesn’t mean striking backroom deals with Canada and Mexico on oil supplies, but it does mean a constellation of policies connected to America’s immediate neighbors that boosts Canadian and Mexican production on the global market, possibly even a North American, rather than just National, Strategic Petroleum Reserve. It means similar constellations of policies intended to get the North Sea nations onto the global market faster than they might otherwise get there (and in ways that encourage those nations to hurry up, e.g. more national profits for them even if that’s at the expense of US oil conglomerates.) McGovernment is also quite comfortable negotiating “arrangements” that link stable, steady processes for purchasing US grain in return for a lot more Soviet oil and natural gas on the world market. Because strange times call for strange bedfellows.
Privyet, tovarich’y.
(That last is quite in keeping with a baseline tenet of McGovernment foreign policy. Classical Cold Warriors assume that all the micro conflicts, rivalries and kerfuffles around the globe ultimately are manifestations of the macro conflict with the Soviet Union. The McGoverners, on the other hand, believe that neither superpower has nearly the level of global power and control that they wish they had, that they often stumble needlessly into local quarrels or get played by savvy locals who have their own agendas, and that the world would in fact be more stable if the superpowers first stabilized their relationship with one another, then exerted more real stabilizing influence around the globe.)
More producers on the market is a start to deal with the situation. So is a collaborative geopolitical atmosphere where a wide range of alphabet-soup nations from OECD to Comecon can find some common cause in tamping down the Oil Shock. But then there are the parts of the issue that are embargo-specific. One of the first of these is the direct conflict between Israel and its neighbors. There the McGoverners do take direct steps
- ITTL the US actually, loosely, collaborates with Moscow to enforce the October War-ending ceasefire – notably both the US and USSR post troops along the Suez Canal to help separate the belligerents there while the UN musters a peacekeeping force, while a stop in the Golan is down to superpower pressure on Israel and Syria
- American shuttle diplomacy (SARGE!) collaborates with the French (SARGE! AGAIN!) to develop terms for a lasting ceasefire and disengagement of forces
- The US develops a carrot-and-stick plan to get the Israelis to a multipartite table with their immediate belligerent neighbors (including Jordan) together with the superpowers and shops this around the various parties
That tackles the matter of Arab-Israeli conflict on the front lines. It shows willing, and helps end the direct embargo. But then there’s OPEC itself. In that case, the McGoverners decide to do a deal with a devil they know
I am the Light of the Aryans. ‘Sup?
in an effort to get some political leverage with OPEC’s decision-making process, tip over the first domino in what they hope will be a cascade of incremental national cheating on OPEC quotas by various non-Saudi OPEC states (underselling the rest of the cartel to seize more market share), and perhaps even gain some American leverage, in turn, towards adding fitful bits of democratization to Iran’s modernization. That’s the hope, anyway.
- Global Financial Policy
We’ll take this section in a more systematic fashion (hi, bullet points!) because it’s a lot to take in. That, we will do in three segments: the scope of the issues on the global economy due to the Oil Shock, then the goals the McGoverners – led here very much by Treasury Secretary Ken Galbraith – seek to realize, then the methods to which they guide the “Cambridge Group” and thereby, to greater or lesser degrees, other oil-importing nations around the world whether those are smaller OECD members, developing nations, or whoever.
(Quick factoid here. I’ve tossed around the Organization for Economic Co-operation and Development here and that will figure again. In 1973 the OECD’s members were the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, West Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. In other words it’s a pretty close correlate to what folks in 1973 would have considered “Western economies” as a shorthand. Yugoslavia had observer status with OECD.)
So, first the really significant issues attendant on the Oil Shock.
- IOTL, by the end of 1974 – which included the full period of the actual embargo (into April) and the greatest extent of cost-push inflation from the Oil Shock before new increases started to taper down, the OPEC nations gained a trade surplus with the rest of the world worth roughly $60 billion in 1974 dollars
- (that may vary IMyTL but is likely to ultimately be similar because lower figures in a given nation’s bilateral trade with OPEC may be matched by higher-than-OTL numbers for a different nation, etc.; that total amount for the global surplus is around $368 billion in 2023, as a matter of purchasing-power parity it’s probably even higher)
- The majority of that global surplus was with OECD nations, especially – as you’d guess – with some of the largest oil consumers
- Other parts of it however, small in absolute terms but quite large in the relative financial situation of those nations, were with less-developed nations whose ability to service the newfound deficits were poor, especially because they often faced spiraling costs for other primary commodities
- The Oil Shock’s “special factor” inflation in major national economies around the world (e.g. North America, Western Europe, Japan) varied in meaningful ways but was most damaging in those nations with the most vulnerable currency/current account situations, which raised the danger of desperate governments pursuing beggar-thy-neighbor financial policies that would damage the “First World” economies collectively rather than just individually
- The OPEC nations themselves, especially the Arab OPEC members plus Iran, faced a complex situation themselves: they had a high propensity to savings already within their own economies, and now would be hard pressed to spend their surplus back into global circulation through trade with the very importer nations now in deficit with the OPEC exporters – except in the case of arms sales, in which case burning through the surplus could create a potentially dangerous arms race in the already volatile Middle East
So that’s the sort of situation that arises globally from the Oil Shock. Now let’s consider how the McGoverners – led on this front by Ken Galbraith though we’ll see very important input from other players – approach the After Embargo policy world.
- Despite the shock and crisis atmosphere, the McGoverners see the post-Oil Shock landscape as an opportunity to help create a new global economic system, the deliberate creation of something that can replace the old Bretton Woods model for a new economic era
- They view collective action as the best approach to nearly every facet of the situation, at the very least collective creation of the new system (based on the McGoverners’ suggestions, of course – this is still High Cold War America we’re talking about)
- Ken Galbraith especially views price stability, across the world’s major economies and in the developing nations too, as a lodestone for a viable global economic ecosystem – he’s an inflation hawk just very much not of the austerity school
- Across and among the mavens of McGovernomics, in the modern era of the 1970s they view Big as Beautiful nearly always – solutions based either or both on the biggest players or the widest possible reach are preferred, judged to be the most viable approaches
- An aspect, a facet in there, is this: the McGoverners (and a fair few of their international partners) would like what we might call the transactional universe of this system to occur within its broad tenets and through official/semi-official channels that can be supervised and surveilled – among the things that means is, they’d like to minimize and offer alternatives to the lucrative but highly risky off-the-official-books Eurodollar market, and would prefer that major private lending institutions invest in the future productivity of their own economies rather than, say, hurl massive, risky, dollar-denominated loans at every tinpot dictator they see in order to turn said banks’ inflationary lucre from liabilities back into assets (hi, David Rockefeller!)
Now we get to the details.
- Ken Galbraith pulls together this core policy team of big economies, his “Cambridge Group” of the US, Japan, West Germany, France, and the United Kingdom, to set the models and the trends for OECD economies generally – start with the big players and either get the others to follow out of preference or necessity, or actively draw them in
- A central feature of Cambridge Group collective action is the “community float”: JKG sits down with his finance-minister opposite numbers and establishes a start line of what they see as viable base currency values relative to one another and then commit to float their currencies on a basis where (1) if exogenous circumstances (not just national advantage) dictate significant movement in a Group member’s currency value – beyond that member’s place in a preferred float range for the whole Group – either (1a) Group members can take supportive action to bring that member back within the general range of relationships or (1b) the Group as a whole can move, in somewhat variable ways, in that “leading indicator” member’s direction
- This would include collective lending and open-market purchases designed to support Group member currency values within the acceptable float range (note that in the last published chapter Helmut Schmidt had a private chat with Britain’s defen(c)e minister Tony Crosland to the effect that West Germany’s robust economy would offer supportive buying for sterling and UK debt paper in return for a robust version of Britains’ nuclear deterrent commited to collective European security)
- The other big feature, in this way perhaps an even more significant departure from OTL, is coordinated anti-inflationary action rooted in (1) nationally variable but coordinated wage-price control systems, (2) anti-inflationary fiscal measures, and (3) cautious, deliberate use of bank rates aimed mostly at currency stabilization (the other Group members are understandably worried that Tanaka’s Japan may just take the big inflationary hit of Japan’s deep energy-supply vulnerability in return for the ways it would make Japanese exports even cheaper on global markets, crowding out other Group members’ exports)
- A central feature of Cambridge Group collective action is the “community float”: JKG sits down with his finance-minister opposite numbers and establishes a start line of what they see as viable base currency values relative to one another and then commit to float their currencies on a basis where (1) if exogenous circumstances (not just national advantage) dictate significant movement in a Group member’s currency value – beyond that member’s place in a preferred float range for the whole Group – either (1a) Group members can take supportive action to bring that member back within the general range of relationships or (1b) the Group as a whole can move, in somewhat variable ways, in that “leading indicator” member’s direction
- Specific actions taken to support vulnerable Global South nations beset by effects of the Oil Shock and broader primary-resource/commmodity inflation
- Restructuring the International Monetary Fund’s system of Special Drawing Rights (these are units of monetary value – an SDR is a specifically-valued lump of potential liquidity – set aside by IMF partners in ratio to their contributions to the IMF’s assets) in ways that include both
- Sales of gold assets by senior IMF partners to generate liquidity put into an enlarged SDRs pool
- Shifting proportional rights to access SDRs away from established senior IMF partners towards vulnerable developing nations
- Creation of a facility (in this case a term of art that means “a structured system for doing a thing”) for oil-exporting nations to provide direct loans (or grants – lending into a national economy where the potential for return on investment is chaotic or simply poor is sometimes more expensive to the lender in the long run than a fixed-value grant) to endangered developing nations denominated in local currencies, on the basis that the oil-exporter lenders have more tolerance for foreign-exchange friction (losses in real value on their investments due to fluctuations in exchange rates) and prefer the security that borrowers will at least pay back a significant amount of their loans if there’s “give” in the terms/methods of repayment
- Restructuring the International Monetary Fund’s system of Special Drawing Rights (these are units of monetary value – an SDR is a specifically-valued lump of potential liquidity – set aside by IMF partners in ratio to their contributions to the IMF’s assets) in ways that include both
- Efforts to tackle the genuinely byzantine and messy business of “petrodollar recycling” – how you get these oil-rich, account-surplus OPEC states to (1) buy direct exports from the rest of the world and (2) otherwise invest/reintroduce those profits into circulation with the now-indebted rest of the world to further the cause of global economic stability
- We’ve mentioned the part with OPEC “petrodollar” loans and grants to vulnerable Global South states denominated in local currencies for repayment flexibility
- There will be conferences and collaborations – probably of decidedly mixed and sometimes underwhelming effects – to develop programs for oil-exporters’ purchase of imports from developed economies that are not weapons systems (though a brisk arms trade is still on the cards; we’ve mentioned that deal with the gilt-edged guy in Tehran, there are other states that need to be bribed into accepting that Israel will still exist at the end of any Arab-Israeli peace process, and varied OECD states who’ve used their defense-industrial sector as an industrial policy attracted by all that cash the Arabian Peninsula states can splash around)
- Then there’s the significant McGovernomics-driven effort to get (1) oil-exporters to invest in major OECD economies to (a) get a good return on their investments as added income while “recycling” profits and (b) to stabilize those now-indebted major trading partners, while also (2) upping domestic investment levels in those nations
- Basically, among the rock-star economists who float in consulting orbit around McGovernomics policy development, this is Franco Modigliani’s argument though he wasn’t the only one in the McGovernment milieu to make it (see his bit at the end of this thorough and very valuable 1975 article chewed over by the Brookings crew https://www.brookings.edu/wp-content/uploads/1975/01/1975a_bpea_solomon_whitman_salant.pdf) that “[a] country could run a deficit [with the oil exporters] and still be paying now if it curbed consumption in recognition of its lower real income from the worsened terms of trade and channeled the resources so released into increased domestic investment (rather than increased exports.) It would in effect be paying with the additional investment, offsetting the debt incurred and providing the extra income for servicing and amortizing it.” (p. 86 of that piece)
- As suggested above, that investment could be created from a mix of internal, national/domestic policy choices and the encouragement of direct investment – in hopes of both stable and profitable returns over the medium term – from the oil exporters whose current accounts are in surplus
- NOTA BENE: In practice Nixon/Fordonomics more or less did the exact opposite of this, getting the Saudis among others to buy copious amounts of public and private US debt paper to fuel domestic American consumption in return for sweet deals on US weapons exports
- Of course then there’s the question of how oil-exporter lending should be apportioned among the major OECD economies – besides the McGoverners’ natural inclinations it’s important to sort that out in advance – how to strike the balance between “nations make their own internal consumption-deflating investments for future productivity/profitability that will amortize deficits” and “petrodollars come in to provide that investment value in return for the best odds on returns from the most developed capital markets” – otherwise you can get into that outflank-thy-neighbor situation that would crack up the Cambridge Group and any of these efforts to create a durable, if looser and more flexible, global system
- Basically, among the rock-star economists who float in consulting orbit around McGovernomics policy development, this is Franco Modigliani’s argument though he wasn’t the only one in the McGovernment milieu to make it (see his bit at the end of this thorough and very valuable 1975 article chewed over by the Brookings crew https://www.brookings.edu/wp-content/uploads/1975/01/1975a_bpea_solomon_whitman_salant.pdf) that “[a] country could run a deficit [with the oil exporters] and still be paying now if it curbed consumption in recognition of its lower real income from the worsened terms of trade and channeled the resources so released into increased domestic investment (rather than increased exports.) It would in effect be paying with the additional investment, offsetting the debt incurred and providing the extra income for servicing and amortizing it.” (p. 86 of that piece)
Questions taken up in those last bullet points – how you deal with direct Oil Shock effects on national-level inflation and terms of trade, and how you retrieve a robust economy from this mess where special-factor shocks have clobbered Western economies in slowdown, that takes us to the next section.
- Inflation/recession management
Now we draw back into domestic elements of McGovernomics. They aren’t divorced from the international/geopolitical elements – they are as one says inextricably entwined – but we’ll focus more here on the domestic side. That has two principal elements, also entwined: how one manages inflationary effects (both the big “special factors” themselves and how they affect core inflation by driving wage demands and prices in other cost/transaction sectors), and how one manages the politically fraught phenomena of recession and economic growth/recovery.
We should offer specific mention of some top-tier McGovernomics players here who extend beyond Ken Galbraith – they have significant roles in some of those international/geopolitical issues too (we’ll give brief mention of that here) but they’re especially involved on the domestic side of things. First the money man
(this is a 1974 photo of him, so very appropriate)
Andrew Brimmer is McGovernment’s man at The Fed, brought in from its board of governors after Ken Galbraith et al. machinate circumstances (retcon in progress) where Arthur Burns can go “you wont push me out – I’ll jump!” and make himself the first official martyr to McGovernomics. Brimmer fits in culturally with McGovernment’s Mass Ave Gang, and also brings a couple of very useful specializations to the mix: his deep background with both “development economics” in developing nations (notably his Fulbright and doctoral work around India), and with black-owned businesses and industrial concerns in the US. He’s an accomplished economist across a range of fields and good at the big picture, but also those specific specializations have a meaningful influence on his service as Chairman of the Federal Reserve. Of special note on that front
- The international lending facility for developing nations, denominated in local currencies, is really his baby, one of his first big contributions as Fed Chair to the international economic situation
- He’s ultimately a mixed-economy-free-enterprise guy, but keenly aware of the specific dimensions of minority economics and so a voice for dealing with how those differ from the preferred Big is Beautiful models and methods of a Ken Galbraith or a Les Thurow, especially when that affects how to direct policies designed to reinvigorate urban economies or small/family farming (at this point in the 1970s a lot of the really smallhold farmers in the Southeast are African American)
- Brimmer has a clear and, really, prescient view that passing the price effects of (1) the Food and Oil Shocks plus (2) wage-price changes that have been restrained by controls will be necessary at some point and in some form; he does also see both the Food and Oil Shocks for what they are, and that their sharpest effects are likely to crest then decrease over time (that is their new, rather than existing, inflationary effects)
Then there are a couple of fellows we should consider in relation to one another.
That’s Secretary of Commerce & Industry James Gavin and OMB Director Lester Thurow. Jim and Les are an important duo for compare-and-contrast purposes, because they have some key similarities and key differences, and both make themselves major players at what we could call the strategic (or at least strategizing) level of McGovernomics (Thurow is keen to exercise the “coordinate McGovernomics grand strategy” element of his fiscal-overwatch brief. Mostly Ken Galbraith’s OK with that but on occasion he finds the younger man’s fierceness of ambition and intellectual certainty kind of irritating.)
So let’s fire up that compare-and-contrast.
- Both men are vigorous advocates for, and – as policymakers – practical agents of – a deliberate, thought-through industrial policy on the part of McGovernment designed to keep the US economy robust and competitive in the changing global circumstances of the 1970s with a rejuvenated Europe (led by the West German workhorse) and the rise of low-cost export abundance out of the Pacific Rim, plus commodity-cartel shocks like the OPEC embargo
- Both men could broadly be described as liberal economic nationalists – they want to safeguard and grow the United States’ own economic strengths in a competitive global environment, recognizing that the world will only get more interconnected but that the US will only fare poorly if it fails to recognize and adapt to the competitive elements in that interconnection
- Both men argue that one thing a healthy, competitive US economy requires is economic “upper ranks” who recognize the communal/national interest and make choices based on that interest rather than on rapacious greed or personal advancement or both: that it will take what Les Thurow calls “an establishment that serves the national interest, rather than an oligarchy that serves its own”
- They differ in some important details on Big is Beautiful
- Thurow believes that technological advancement is key to a healthy, competitive national economic future and that big corporations are inherently better equipped to do the necessary R&D; Gavin’s more supportive of more market competition and suspicious of the primary motives of the biggest corporations
- Thurow’s willing to tolerate a modicum of offshoring low-skill jobs and assumes low-skill American industries will wither through their natural lack of competitiveness; Gavin is anti-offshoring in pretty much all cases and believes there still needs to be room at the bottom for lower-skill industries/jobs as its own kind of social safety net and the bottom of a ladder upwards
- Despite his arguments against utility maximization as an economic metric/expectation, Thurow’s broadly utilitarian about the total national economy, that it will fare best when dynamic sectors thrive and bring others along even if noncompetitive sectors or locales wither; Gavin believes that a sound economy should serve social-justice ends as much as possible, and that directing revitalization towards depressed areas and populations – whatever that revitalization looks like – is key to a healthy political and social future
So that’s those guys, big wheels in McGovernomics’ move towards a deliberate industrial policy. Also some of the context for debates about what that policy could/should look like.
There’s another factor ITTL, not of the McGoverners’ own creation but very much in keeping with their original “total employment” intent, involved in the domestic economic picture and we should take a moment with it. That would be MyTL’s earlier and in some respects more robust Humphrey-Hawkins Full Employment and Balanced Growth Act. MyTL’s act will have some language differences – there’s some (chapter-revised) … vigorous discussion about managing expectations, not putting in Phillips curve language (as Ken Galbraith among others points out that it’s perfectly possible to have galloping cost-push inflation create a recession with higher unemployment, and will happen if controls disappear overnight without a managed landing), etc. But it will commit McGovernment to (1) detailed administration planning to coordinate sometimes-incompatible goals on employment, inflation, the money supply, trade balances, etc., (2) accountability to Congress on those matters, and (3) a robust approach to full employment that includes some measure of the federal government being an employer of last resort.
All of that, of course, makes Ken raise his eyebrow pointedly at George Himself and the assembled McGovernomics mavens, then say “all right then – how do we propose to make that level of direct intervention in the employment markets revenue neutral?”
There’s a lot afoot. The McGoverners have to, best they can, manage both public and private sector responses to inflation. They also have to manage efforts to create an economic rebound over the medium term (in political terms that constitutes a time frame of “during this presidential term”). And they have to do all of that in a frequently hostile domestic negotiating environment (where a combination of business leaders, George Meany lieutenants, and Southern grandees in the Senate all wish them ill), all while they try not to screw up the international/global efforts to create a flexible-but-workable new international economic system, which ultimately would damage America’s national interest while they ostensibly pursued it with too-nationalist policies. Let’s spit some beautiful bullets, then.
- In the near and even some of the medium term (again, read this against a four-year presidential term of office) inflation management for McGovernomics still involves significant measures of control and, even when their own collected wise heads say at some point the system has to move beyond that emergency measure, as controlled a process of decontrol (if you will) as possible
- At some point some significant McGoverner is likely to put it like this: “Look, the controls system, it’s a lot like flying a 747. Even when you approach ground level with the runway ahead – that would be an end to controls – you don’t just kill the engines and the instruments and hope it’ll glide in smoothly, or worse, hope that the crash of a big sturdy jumbo jet won’t kill very many people. You use the machinery and the instruments of the aircraft to bring it in for as safe and careful a landing as you can manage, in real-world conditions.”
- The McGoverners have at least some bargaining chips, especially with industrial employers, for support of and persistence with controls – if those employers start to say that they can’t afford to maintain workforces as big without additional financial resources (basically a threat to kill hostages if they don’t get a free market for predatory markups), McGovernment can argue that if industry plays along, final-level wage increases even after decontrol likely will be smaller in both nominal and real terms than they would be otherwise, and profits as a factor of price rises will be larger in real terms
- It’s good news – maybe? – for McGovernomics and the McGoverners’ political fortunes that one of the most powerful mavens of McGovernomics, Fed chief Andrew Brimmer, pretty well has the measure of the inflationary situation: he gets that the big blows are the Food Shock and the Oil Shock passing through the system, that the goal is to hold tight and mitigate as they carry through without triggering dangerous wage-price spirals, then things should calm down a bit
- Also, while Brimmer is more willing than Ken Galbraith to use some level of inflation targeting with interest rates, he too doesn’t think that big changes in the supply are more than vaguely correlated with this specific inflationary crisis
- That’s additionally a good thing because the damage done to the housing market IOTL’s 1973-75 recession was a significant blow in the de-unionization of housing construction work, so there’s potential for the McGoverners to make up some ground with the building trades here (not, in themselves, usually fans of The Goddamn Hippie Lovers)
- Also, while Brimmer is more willing than Ken Galbraith to use some level of inflation targeting with interest rates, he too doesn’t think that big changes in the supply are more than vaguely correlated with this specific inflationary crisis
- We should also consider the relationship between McGovernomics and the service sector, in two senses: at the sectoral level itself, and through the question of service-sector unemployment
- Though quite a few significant McGovernomics and McGovernomics-adjacent figures believe in the plan (read Bruce MacLaury here, then boss of the Minneapolis Fed, longtime Fed international finance specialist, and soon after boss of Brookings for nearly two decades: https://www.minneapolisfed.org/article/1975/the-limping-giant-the-american-economy-197475) the “dial back on consumption in favor of domestic investment that builds future productivity and amortizes trade deficits” approach is a dicey decision with the American economy even in the early-mid 1970s
- While there has not been a decisive shift from Make Shit to Buy Shit within the US economy as a whole, at this point (1970s) one could say that there was still a pretty robust Make Shit - > Buy Shit loop within that economy which could get wonky especially if you’re not allowed just to relentlessly devalue the dollar and export like hell (hi, Treasury Secretary John Connally!)
- Also, and already, the service sector – notably retail – is a big growth sector of the economy in terms of employment, so despite the effort to grow prosperous union jobs in productive industrial sectors, there’s a significant portion of American workers – especially young Boomers and women entering the workforce – who’ve flowed into retail and the broader service sector
- Zarnowitz & Moore’s classic in-the-moment postmortem on the 1973-75 recession points out that a lot of recent employment gains (prior to OTL’s big unemployment plunge of 1974) were in the service sector, where people often worked part-time and had spells of unemployment between more frequent job changes (they add that IOTL in that period higher levels and longer duration of unemployment insurance allowed more of those insecure workers to hold out for better positions while unemployed)
- On the one hand, preference for investment over consumption at a macro level puts a squeeze on the private-sector sector that had seen the biggest growth and tendency to absorb all those Boomer kids and adult women entering the workforce
- On the other if you want to replace that with something you consider more worthwhile (check the 1972 Democratic Party platform for some examples) that’s gonna involve some real Humphrey-Hawkins outlay for public sector employment, which is (potentially) an inflationary fiscal phenomenon
- Though quite a few significant McGovernomics and McGovernomics-adjacent figures believe in the plan (read Bruce MacLaury here, then boss of the Minneapolis Fed, longtime Fed international finance specialist, and soon after boss of Brookings for nearly two decades: https://www.minneapolisfed.org/article/1975/the-limping-giant-the-american-economy-197475) the “dial back on consumption in favor of domestic investment that builds future productivity and amortizes trade deficits” approach is a dicey decision with the American economy even in the early-mid 1970s
- Let’s step into the financial sector for a moment, not so much the NYSE or futures markets but rather banking and credit/debt markets
- Key McGoverners want banks (especially the big ones but also mid-sized) to move towards strengthened equity bases, to asset/liability mixes less volatile in case of interest rate changes, and improved surveillance (also increased reserve requirements) for banks that handle Eurocurrency (e.g. Eurodollars) and vanilla foreign-exchange also
- In his last OTL public address as a Fed governor, Andy Brimmer laid out what he wanted: a mixed system of Fed credits and supplemental reserves set on a differential basis and available to private lenders designed to “encourage banks to channel funds to areas of high national importance [housing, state/local govts, small business, finance companies, farmers] and away from areas of lesser importance [big business borrowers]”
- There’s a bit of clash there in priorities as yer Thurows and sometimes yer Gavins (also Big-is-Beautiful JKG) would like credit, lending, and solicitation of buyers for corporate debt paper to support big industries that they think will be “winners” in the innovation/competitiveness game – and this is 1970s America, so there’s not yet an infinite pool of credit available for American borrowers of any stature
- The Powell Memo Gang, led by a positively venomous Arthur Burns, will surely attack “the politicization of the Fed” (though some folks may say things publicly about ol’ Arthur that he’d rather they not, in return)
- As to credit, or opportunities for investment, the McGoverners would willingly raise interest ceilings on “time deposits” (your typical bank savings account) to stay with or ahead of inflation, and probably create conditions and methods for small investors to buy in on the debt paper of corporations and state or local governments
- Then of course there’s the question of what exactly it looks like in the United States’ super-developed and quite complex financial sector if major oil-exporter deposits do get put there as investments to clear trade balances and create more returns (on investments) for said exporters
- For now we’ll come last, for a moment, to food and farming
- The devil of it, always, on how a prosperous farm sector fits into a US economy that doesn’t over-inflate during the Seventies, is prices
- Big Ag is already pissed about the FFRA and will accuse McGovernment of any number of instances of “selling out American farmers” when they really mean “not allowing Big Ag to profiteer and crush family-type proprietors”, but you know which version gets printed closer to the front of the newspaper
- Also whether and how McGovernment can build up agricultural commodity reserves is an iffy thing during the 1973-75 climatic window (note for example the Midwest droughts of 1974)
- In all cases, what it will take to square what’s needed for “family-type farms” to prosper at wholesale/retail prices consumers can manage will be a differential of federal cash, and while it’s not a grand amount compared to a variety of other federal outlays, you still have to find a way to avoid inflationary effects as much as possible, in the federal budget and in its ultimate use by those same farmers and the economic networks of their communities
- McGovernment’s looming fiscal conundrum
The great joy of McGovernment is that they want to do things; the great consternation of McGovernment is that they want to do things. There’s your dialectic. The second element exists because
- Getting things done in the teeth of opposition is hard and sometimes unsuccessful slog, and
- Getting things done with an interventionist federal government costs real money
It’s the second point there to which we’ll attend now. The McGoverners get their Revenue Reform Act in the end (well, in time for FY75 in the middle of 1974) though it costs them a few congresscritters in the midterms. That’s a fair pot of money. But with our last set of bullets we’ll attend to issues that face the McGoverners in their effort to pursue the federal-intervention side of McGovernomics without a substantial inflationary effect.
- They’re not going to – really they never were – going to get the scale of defense savings that they hoped to
- Managing savings on that scale was always an extreme case, a bargaining position, really a pipe dream; they can get some substantive savings in part because in sheer personnel/materiel terms their 1970s military is a bit smaller than OTL’s 1970s military, but that’s on the lines of one-third the amount of savings the Alternate Defense Posture proposed
- They run into the very real issue/point that in many ways the defense-industrial complex was America’s existing industrial policy
- You can’t rationalize/nationalize that down to fewer entities quite like some major McGoverners (hi, JKG!) wanted because that will cost you more money in the end because you’ll destroy the capacity to keep prices at “appalling” rather than “unsustainable” through competition
- In a lot of cases efforts at “defense reconversion” in a global economy that’s actually competitive (rather than the late 1940s when the US owned the earth economically) is throwing money down a hole, rather than putting up with the fact that those industrial jobs go towards the war machine
- Then there’s the scope of things that they want to pay for
- Among others major intervention on behalf of rural America, major infrastructure improvements for freight/passenger rail, increased foreign aid (often in the form of food aid), major energy R&D, major federal outlays to buttress state/local budgets in bad years and roll back property taxes, etc.
- And then there’s the amount of revenue that will go back out in the form of McGovernment’s more robust EICP (Earned-Income Credit Program) negotiated with Russell Long (thanks, Phil!)
- None of those individually is on the scale of, say, the defense budget or anything like that – even cumulatively they’re only a portion of that much – but you still have to pay out for them without ballooning the deficit and that will eat a lot of if not all your Revenue Reform Act gains
- Then we come to the matter of health care
- The McGoverners went with MECA – there Democrat-ization of liberal Republican Jack Javits’ Medicare-for-all plan – because the votes were never going to be there for full metal Kennedy-Griffiths
- That means that, in the version of MECA they could get through Congress (especially the Senate) at the time, there’s not the built-in cost containment outlay structure there was with the Health Security Act proposal (Kennedy-Griffiths)
- In the short term, then, when MECA comes online as a system in 1975-76, health care expenses in the system will outstrip the payroll-tax revenue stream set up as part of MECA
- That was always expected – it was expected general revenues would make up the difference – but you’ve got a situation where there are a lot of other demands on any and all other increases in federal revenues, so that still leaves you with a deficit in that sector of the budget
- And we’ve only now arrived at Humphrey-Hawkins expenses
- That includes both
- Direct creation of sustainable (e.g. not ditch-digging) government job positions for a significant proportion of applicants
- Things like infrastructure programs designed to employ already-skilled (or trainable) people on government projects
- All of which costs yet more money
- That includes both
So you’re in a situation where
- McGovernomics kind of fumbled its way forward hopefully on the FY74 budget in 1973
- Probably the McGoverners have done pretty well on FY75 because they’ve tightened up wherever they can, taxes have gone up (RRA and some lesser-related increases) and so have taxes as a proportion of income (that hit where people made more nominal money though its real value had gone down, which bumped them up a bracket) so it’s likely that the FY75 budget is quite tight, perhaps even a smaller deficit than the remarkably small one of OTL that fiscal year
- But then – then you get to FY76 in 1975 as MECA comes on line, pushback continues against defense cuts, McGovernment wants to Get Things Done, infrastructure stimulus would really help matters, Humphrey-Hawkins demands costly employment efforts, all around the same time that you need for both political and macroeconomic reasons you need to start walking wage-price controls back down the branches of the tree to the ground
And you want, probably even need, to somehow pull that off without a ballooning deficit. How do you do that? That’s where things get interesting.
Right. We’ll stop there for now. Are there plenty of other things to cover? Surely. But that’s why follow-up questions are such a great thing. So we’ll close out the Explainer here, and really get into the weeds as folks raise matters of personal interest. Onwards!