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Wall Street History
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08/04/2006
Gerald Ford, Part II
As we continue our story on the presidency of Gerald R. Ford
one thing is clear, he was dealt a miserable hand. The aftermath
of Watergate, retreat from Vietnam and a horrible economy all
conspired to put the American people further on edge, though at
the same time a majority liked Ford personally.
On the economic front inflation was running at a 12 percent clip
when Ford took over for Richard Nixon in Aug. 1974.
Unemployment was 9 percent (and would hit 11 percent the
following year). The overall gross domestic product would fall
in ’74, while in Ford’s first month in office the stock market
tumbled, helped in no small part by the Nixon pardon. [See part
I.]
Of course the country and other nations heavily dependent on oil
were still reeling from the impact of the embargo laid down by
OPEC, as oil rose from $3 to $18 a barrel. President Nixon had
offered “Project Independence,” which aimed at making America
energy self-sufficient (where have you heard this before?), yet it
never advanced much beyond the public relations stage. Plus
once oil began to retreat the public saw little incentive to pursue
it.
Gerald Ford, however, had a timetable he was up against in
1974, the mid-term elections, and after a series of “mini-
summits” across the country on the state of the economy, he
went before Congress on Oct. 8 with a plan to reinvigorate it.
The fiscal conservative Ford advocated a series of spending cuts
as well as a 5 percent temporary surtax on incomes (both for
corporate and high-income individuals) to combat the growing
budget deficit.
But the centerpiece of his program was a “Whip Inflation Now”
plan. Ford said, “There is one point on which all advisers have
agreed: We must whip inflation now” and he called on “every
American to join in this massive mobilization.”
From the book “The Presidents”:
“Ford thought inflation could be whipped by the simultaneous
efforts of little people to inhibit pressure on prices. He advised
volunteers in the WIN program to ‘take all you want but eat all
you take.’ Each family should also make a one-hour ‘trash
inventory’ to find waste. Within little more than a week after he
had introduced the idea, 101,420 citizens announced themselves
as recruits by mailing WIN enlistment papers to the White
House. By the end of the year that number doubled. Some 12
million WIN buttons were in production. All good intentions
notwithstanding, the program was soon viewed as more of a
public relations gimmick than a serious assault against inflation.”
From the book “Presidential Leadership”:
“Democrats could scarcely believe their good luck. The WIN
buttons became an instant laughingstock. And the proposed tax
increase yielded the high economic ground to the liberals on the
eve of an election. Just to make sure everybody got the point,
Democrats promptly proposed a tax cut (which they would just
as quickly forget after the election). Ford’s approval ratings
collapsed, and Democrats increased their majorities in both
houses of Congress to nearly veto-proof levels. The economy
ended the year down 0.5 percent.”
[Between 1973 and 1975, GDP fell a cumulative 6 percent.]
The congressional elections of Nov. 1974 were a disaster for the
Republicans with Democrats picking up five seats in the Senate
to move to a 61-37 (2 “others”) advantage. But the real damage
was in the House where the Democrats gained 43 (plus five more
in special elections) and now held a 291-144 margin.
By 1975, as he was telling Americans “the state of the union is
not good” in his January address to the people, President Ford
had a change of heart on some of his economic programs and he
dropped the tax surcharge idea (which was going nowhere) and
proposed in its place a $28 billion tax cut, though he continued to
look for offsetting spending cuts at every turn, a prescription for
gridlock.
Ford’s new mantra, as he told industrialists in those days, was he
wanted Washington “out of your business, out of your lives, out
of your pockets and out of your hair.”
The economy did start to recover and by 1976 inflation was
running at a 5 percent rate. Ford was a veto machine, 66 in all –
54 of which were upheld. [My research has varying figures for
the latter, such as one that says Democrats overrode nine, not
12.]
On the administrative front, Ford appointed Donald Rumsfeld to
be his chief of staff and George Bush as CIA director. Then in
Nov. 1975, Rumsfeld moved over to run the Defense Department
and Richard Cheney became the new chief of staff.
And just a few market statistics to put some of this in
perspective.
8/5/74: The “smoking gun” tape is revealed. Dow Jones closes
at 760.
8/8/74: Nixon announces resignation. Dow 784.
9/8/74: Ford pardons Nixon on a Sunday. 9/6 the Dow closed at
677. 9/9 it finishes at 662.
10/8/74: Ford announces Whip Inflation Now program. The
same day Franklin National Bank is declared to be insolvent, the
biggest bank failure in U.S. history. Dow is 602, or off 23%
from the 8/8 level.
12/6/74: Dow Jones bottoms at 577, a full 45% from the market
peak of 1051 set on 1/11/73.
The bad economic news continues for a while, including the
announcement on Dec. 18, 1974 of some 142,000 layoffs in the
auto industry. But by 7/15/75, the Dow has rallied to 881, a
spectacular 53% move from the 12/6/74 low.
Sources:
“A History of the United States: Inventing America,” Pauline
Maier, Merritt Roe Smith, Alexander Keyssar, Daniel J. Kevles
“The Growth of the American Republic,” Samuel Eliot Morison,
Henry Steele Commager, William E. Leuchtenburg
“America: A Narrative History,” George Brown Tindall and
David E. Shi
“American Heritage: Illustrated History of the Presidents,” edited
by Michael Beschloss
“The Oxford Companion to United States History,” edited by
Paul S. Boyer
“The Presidents,” edited by Henry F. Graff
“The Dow Jones Averages,” edited by Phyllis S. Pierce
“Presidential Leadership,” edited by James Taranto
Wall Street History returns next week. We’ll tackle the New
York City fiscal crisis of 1975, when President Ford told the Big
Apple to “Drop Dead,” in the words of a famous New York
Daily News headline.
Brian Trumbore
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