Following a terse email from the management of The Gazette, warning about recent shrill, ill-informed market comment, the Editorial team have attempted a more measured tone, turning the gaze to one of the most influential money-men of the post-war era.
In the shadow of a jumbo cut to interest rates, the chatter around the camp fire continues to focus on the near-term wanderings of financial assets, and how they perform in subsequent months. Despite low unemployment, steady, if unspectacular economic growth, ripe corporate profit margins and falling inflation, the Federal Reserve decided to go big. The market reaction was scatty, reflecting an insecurity perhaps, over current valuations, wet-lipped retail enthusiasm and a brittle structure imposed on it by a price and, valuation agnostic, passive industry that so dominates day-to-day trading. Might then, whisper the cheap seats, in the face of monster interest payments on an unsustainable but growing pile of debt, the rate cuts be politically motivated?
Given the cross-party fiscal incontinence, might it be a move driven not by economic factors, but one in which the breathless WhatsApp message yelled in capital letters, that something needed to change. Interest payments, and other non-productive fiscal spend, has started to crowd out spending on stuff that keeps the GDP machine rolling. With little political will to pare spending, or hike taxes, there are few other options left. Cut rates. Paper over the cracks. Give the narrative a bit of spit and polish before voters hit the ballot box. It’s happened before. Suggestions of a Fed Chair being overly influenced by political masters, with accusations of running lines that actively supported wider government policy. Not many investors will remember the spice of the 1970s, but history is perhaps where they should now turn.
Arthur F. Burns was the Chairman of the Federal Reserve for much of the decade, a decade defined by the Bee Gee’s mega-hit “Staying Alive”. Given the story book of economic and political woe, the oil shocks and labour strikes, many people tried to do just that. Now Burns was offered the job by the salty Richard Nixon, after he snuck the 1968 election from the Democrat Hubert Humphrey and the well up-for-it Independent, one George Wallace, a politician whose views today might well blow up Twitter, or whatever it is called. Following his election as Governor of Alabama in 1963, he thumped the lectern and with spittle flying, told all those still listening that he stood for “segregation now, segregation tomorrow, segregation forever”, a phrase that would become a rallying cry for those opposed to integration and the wider civil rights movement. That he carried five states suggest America was in a different place back then; albeit the vitriol today is no less incendiary.
As you might imagine, given how it all ended, Richard Nixon had a bit of form. The background is the 1960 election where Nixon narrowly lost to JFK, a defeat that Nixon blamed, not on his own personal and political shortcomings, but on the Federal Reserve who, under the Truman-appointed William McChesney Martin Jnr, was tightening the straps and raising rates, moves that ultimately tipped the economy into recession. The economy matters to voters, and so they kicked out the Republicans and elected JFK, the youngest President in US history. Roosevelt, before you mutter, was indeed younger, but he was inaugurated after William McKinley ran into an anarchist on a rally, so was not technically elected. But there you go, we digress.
Come the 1968 election, one that Nixon nipped, he shortly afterward named Burns Chair of the Federal Reserve, with explicit instructions to keep things loose in the run up to the 1972 vote. Burns, as you might imagine, resisted, claiming that monetary policy should be separate, as intended, but soon woke up to find the morning papers full of negative headlines about him and his Board. After quiet warnings that legislation was being drafted to dilute the Fed’s influence, the mood changed. Burns and the Governors fell into line. After the oil shocks of 1973, the failure of price controls, inflation would run wild.
Arthur Burns was born in Stanislau, which was then part of the Austro-Hungarian Empire, in 1904, a town that is now a City in the Western part of Ukraine. Given the CV he would later lay down it’s no surprise that, as a child, he had a spark. Pre-Beano days, he had little choice but to translate the Talmud – the Central text of Rabbinic Judaism and the primary source of Jewish religious law – into Polish and Russian by the age of six. Six! By nine, he was earnestly debating the ins and outs of socialism with wide eyed visitors. After moving to America with his parents, by seventeen, Burns had slipped into Columbia University on a scholarship where he graduated Phi Beta Kappa, a kite mark for high-brow academic excellence.
Given such raw potential, Burns was drawn to academia, and taught at Rutgers University, one of the nine colonial colleges that were chartered before the American Revolution, and named after Colonel Henry Rutgers, who came in with a cheque to keep the show going during a particularly sticky patch for admissions. He also gave the college a bell, that is still in use today; a fact that is largely irrelevant to everyone bar current students. Perhaps them, too. Anyway, whilst at Rutgers, Burns continued to burn the oil, pursuing graduate studies at Columbia and assuming the role of ‘protégé’ for the founder of the National Bureau of Economic Research, one Wesley Clair Mithcell. Indeed, it was Mithcell who inspired Burns to begin a life-long study of business cycles, study that had no small part in establishing the credentials of the NBER which is, today, still considered one of the more authoritative bodies sweating out economic comment. It’s no surprise to learn, a few short years later, Burns would become a professor at Columbia. Later still, he would be pulled into Nixon’s orbit, and end up with one of the most high-profile jobs in America, and a place in economic history.
Given the rampant inflation that his tenure is associated with, his legacy is somewhat mottled. Some conservative economists suggest that he either didn’t fully understand the mistakes he was making; or he did understand, but was under such pressure from Nixon and his cronies that he had no choice. It’s not clear which one is correct, but neither explanation is particularly flattering.
Indeed, it’s widely accepted that the Nixon era, as a whole, is not the blueprint of good politics.
On many levels.
Arthur Burns would later become Ambassador to West Germany under Ronald Regan’s front-footed administration. He died two years after returning from Bonn, in June 1987.
With global money supply now rising at the fastest pace in two years, up more than $7 trillion over the past twelve months alone, and Central Banks cutting rates, it’s not inconceivable to think inflation is not yet beaten.
Not by any means.
“History doesn’t repeat itself, but it often rhymes“
Hatherden Gazette 