As Richard Reeves writes in his excellent book on JFK, “Profile
of Power,” after the stock market dropped 6% on May 28, 1962,
“the joke of the day was that when old Joe Kennedy heard about
the drop, he began to speak again, for the first time since his
stroke, and his first words were: ”To think I voted for that son-of-
a-bitch.””
In Washington, however, it was no joke. Earlier in May, Allison
Maxwell, Jr., the president of Pittsburgh Steel had given a
rousing speech which said in part, “This administration is
heading toward a form of socialism in which the pretense of
private property is retained while, in fact, prices, wages,
production and distribution are dictated by bureaucrats.”
Actually, JFK wasn”t quite as anti-business as some of his critics
claimed. Today”s Federal Reserve Chairman, Alan Greenspan,
would appreciate a statement he made once when asked the
following by a reporter. “What exactly (can) the average
American do for their country?” Kennedy replied, “Restrain
their wage demands.”
Businessmen back in ”62 wanted, above all, reduced government
spending – at least non-defense spending – and a balanced
Federal budget. Walter Heller, chairman of Kennedy”s Council
of Economic Advisers, called for cuts in personal and business
taxes. Back then the corporate rate was 52%. Personal tax rates
were as follows. 20% on the first $2,000 of a taxpayer”s
earnings, to 50% on anything between $32,000 and $36,000, up
to a confiscatory rate of 91% on marginal income above
$400,000 a year.
Kennedy was hesitant to propose a tax cut, however. But he was
also under pressure in some quarters to say something about the
collapse on Wall Street, Blue Monday. A conservative adviser
of his, Robert Lovett, told JFK that the plunge was long overdue
because of bloated valuations. “Do nothing. Say nothing,” said
Lovett. McGeorge Bundy told Kennedy the morning of May 29,
“I”m strongly against a TV speech from you now on the stock
market flap. What we have at the moment is panicky selling and
if you take to a national TV hookup you can only add to the
panic. Be calm and let the calmness spread.”
Treasury Secretary Dillon, a Republican, was chosen to articulate
the administration”s story. “The drop in share prices was a
belated recognition by Wall Street that inflation had been
defeated by Kennedy. The U.S. steel confrontation was the final
proof that there would be no destructive wage price spirals while
JFK was President. Stable prices would make American goods
more salable around the world,” said Dillon. [Reeves].
The storm passed quickly though on Tuesday morning the Dow
had dropped from 576 to 554 before climbing back to 603 at the
close. By June 7th Kennedy announced that he would submit a
tax reform package when the next Congress convened in
January, 1963.
[In his book “Wall Street: A History,” Charles Geisst describes
the collapse of the Dow on 5/28/62 followed by the dramatic
rebound on 5/29 as a “new phenomenon that was a harbinger of
the future. Stock price fluctuations were possible without the
implications of a panic or a crash. The age of volatility had
begun.”]
In a speech to a business group, Kennedy asked for making the
kind of tax cuts that would stimulate private investments and
“reduce the burden on private incomes and the deterrents to
private initiative which are imposed by our present tax system.”
John Kenneth Galbraith called it the “most Republican speech
since McKinley.”
For the month of June the Dow was still cranky and by June 26th
it hit 535.76. After rallying back to about 610 by end of August,
the market meandered around until November 1st (after the
resolution of the Cuban Missile Crisis, to be covered at a future
date) when the Dow stood at 597; the last time the average traded
below 600 until October 3, 1974.
By the spring and summer of 1963, however, Kennedy had to
abandon most of his proposed tax reforms and settled for a
program of $11.1 billion in tax cuts for both individuals and
corporations. The projected $12 billion federal deficit was a
stumbling block but not enough of one to prevent enactment
early in ”64, an election year.
According to historian Henry Graff, “Retrospectively, the
Kennedy initiated tax cuts have been viewed variously as
triumphs of modern economic analysis and rational, technically
based public policy or as the beginning of the end of fiscal
responsibility and the start of an inflationary spiral.”
[Other sources than those noted above, “The Presidents,” by
Henry Graff]
Brian Trumbore
**Next week, a look at the Investors Intelligence Survey of
newsletter writers. I have lots of historical data to share with
you.
