On August 3, Paul W. McCracken died at the age of 96 in Ann Arbor, Michigan, his home since he began working as a professor of economics at the University of Michigan from the end of the 1940s until his retirement in 1986. His impressive career there was accompanied by four ventures into public service, the best known of these being his work as the Nixon Administration’s first Chairman of the Council of Economic Advisors, from January 1969 until he returned to Ann Arbor at the end of 1971, to be succeeded by Herbert Stein (father of that Renaissance man and frequent Nixon Library speaker Ben Stein).
Before this, Professor McCracken had served from 1956 to 1959 as a member of the CEA, making him one of the last surviving figures to have served prominently under President Eisenhower. He also served in a task force under President Kennedy, and a commission under President Johnson.
But it was his three years heading the CEA that made McCracken best known in the public eye. He began work at the White House at the start of one of the most difficult economic periods in American history. Beginning in 1965, a number of factors caused inflation in the US economy to increase. At first the rise in prices and services was slow, and offset to some degree by a high employment level. But toward the end of 1968 it began to escalate, and by the middle of 1969 it was apparent that an upward spiral had begun that would be difficult to check.
And, indeed, inflation was the dominant American economic problem of the 1970s, not being brought fully under control until a sharp recession ended it in 1982. Dissatisfaction over high prices and diminished savings were major factors in limiting President Carter to one term and President Ford to part of a term, and an especially dramatic situation, the rise in fuel prices in 1973, played a substantial role in the shift of public opinion against President Nixon in his second term.
When Professor McCracken served in the White House, the opinion of economists about how to come to grips with the inflationary crisis was split between the arguments of the followers of John Maynard Keynes, who favored increased governmental intervention in the economy, and the monetarists led by Milton Friedman, who maintained that a conservative, noninterventionist fiscal policy could lead to a solution.
As Sewall Chan remarks in his New York Times obituary, McCracken favored a kind of middle approach, “which sought to slow inflation by reducing growth slightly, without causing a recession. [McCracken] hoped to slow price increases through a combination of a budget surplus, brought about when a Johnson-era tax surcharge was extended, and tighter monetary policy by the Fed, which would rein in speculation by the stock market and wage demands by unions. He warned the government not to ‘lock the brakes so severely that the economy would be thrown into the ditch.'”
However, the economy continued its difficulties. A short recession at the end of 1969 brought little relief when it ended the next year. Unemployment rose in 1970 to 4.9% – low by today’s standards, but comparing unfavorably to the 3.6% rate of two years before. Meanwhile, inflation, which had gone under 1% several times in the mid-1960s and rarely rose above 2% until the middle of 1965, varied between 5.5% and over 6% throughout 1970, and, as 1971 began, started to move even higher.
President Nixon had a high regard for McCracken’s expertise – as he wrote in 1985, “During the most difficult hours of my first term … I came to depend on Paul both for his incisive intellect and his hard-headed pragmatism. He was a key adviser during a crucial time in our nation’s history.” But as the fall of 1971 approached, the President decided to take dramatic moves in a Keynesian direction, ending the dollar’s direct convertibility to gold, terminating the Bretton Woods agreement which had governed the economic policies of the Western world since the end of World War II, and, in the action which caused the greatest public uproar at the time, instituting a nationwide wage-price freeze and then wage-price controls which extended through most of 1972.
Professor McCracken disagreed with these policies – still the most controversial decisions made by the Nixon White House – and quietly left his position to return to academia. Unlike many today who leave top positions in the executive branch over policy disagreements, he felt no obligation to write a tell-all book or give interviews; to explain why he had left the Administration, he waited until after his retirement fifteen years later.
In today’s partisan atmosphere, particularly when it comes to discussions about how to best handle our present financial situation, it’s useful to keep in mind the example of public service seen in the career of Professor McCracken.
Robert Nedelkoff is a writer for the Richard Nixon Foundation.