The Weekly Quill — The Greater Resignation

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Fed Leadership Forces a Policy Error

“We might as well be realistic. No government anywhere is going to step on monetary and fiscal brakes to the degree necessary to fully curb inflation of this order because of the inevitable jolt to the economic system.”

Bank of America President Clausen, May 1974


“Iconic” fails to capture the stature of Barbra Streisand’s “The Way We Were.” Released on September 27, 1973, the agonizing ballad about losing the most beautiful thing that life can offer and then rip away has no equal. The song won two Oscars for the movie of the same name and was No. 1 on Billboard in 1974, a year the United States found so painful, it too chose to quickly forget. At the time, Rolling Stone magazine’s Stephen Holden said the lyrics, “resonate in the current social malaise.” Again, the word “malaise” failed to fully portray the depth of the country’s discontent.

In the year to December 1973, the consumer price index (CPI), net of food and energy, rose by 4.6%. By March of 1974, the “core” CPI had skipped up to 7.7%; the next month, it spiked to 11.4%. These observations were noted in hearings before a special Joint Economic Committee of Congress convened to address the scourge of skyrocketing prices. The chair of this committee was Hubert H. Humphrey. In his capacity as witness to the proceedings, the Honorable John T. Dunlop, Director of the Cost of Living Council, warned that, “I know of no one who thinks this 1974 inflation rate is reversible because it is being built into wage rates, business margins, transportation costs and so on.”

Dunlops likened his characterization to that of Wilfred Lewis, Jr. of the National Planning Association who’d recently said, “We can no doubt look forward, if not in next year’s Economic Report, then shortly thereafter, to receiving an explanation of why 5.5% or maybe even 6% unemployment, rather than this year’s 4.9%, is really the definition of ‘maximum employment.’” Dunlop’s prescription entailed dismantling the regulatory strictures, “some within industry, some within labor, some perpetuated by government itself – that restrain price competition or limit supply…if the federal government provided a ‘central focus’ to direct a micro-economic attack on inflation, that is, a pinpointed approach to specific problems, it would not have to rely exclusively on the heavy artillery of monetary and fiscal policy.”

Dunlop then referred to the quote at the top of today’s Quill effectively denouncing the discipline of monetary and policymakers to do what must be done to tame inflation given the medicine often sickens the patient, as in sends the economy into a downturn. His conclusion: “The message that comes through loud and clear is that the nation needs a new economic policy, even more than it did in August 1971. It probably needs a new set of economic managers as well. But only an incurable optimist would place a bet on getting any significant changes.”

Dunlop was correct. The unemployment did rise, ending 1974 at 7.2% while inflation also peaked, at least for the five years that followed, at 12.4%. And there was a change in management, albeit not of the type he might have anticipated as the greatest resignation in U.S. history occurred on August 8th of that year, when Richard M. Nixon resigned, becoming the first president to ever do so, with the hope that he would, “hastened the start of the process of healing which is so desperately needed in America.”


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