THE NIXON TAPES AND SHORT RUN ECONOMIC POLICY.

THE NIXON TAPES AND SHORT RUN ECONOMIC POLICY. How can we know that a policy is only a short run expedient? Burton A. Abrams has an article based on the Nixon tapes in the Fall 2006 issue of the Journal of Economic Perspectives which shows that Nixon understood that the policy of gunning the motor with price controls in place was a policy for the short run. Abrams identifies the tape of a conversation between Nixon and Arthur Burns, the Chairman of the Federal Reserve, on February 14, 1972, as the critical conversation. In it, there is the following passage (Abrams, at page 184):

“Nixon: ‘Well, as my memory….[garbled]. You know the problem with it; you’ve always spoken of that time lag.’
Burns: ‘No, but you see, uh….’
Nixon: ‘I don’t much, I really don’t care what you do in April, but between now and April….[garbled] that can hurt us…[garbled] in November.’”

Abrams concludes from this that Nixon knew that monetary was thought to operate with a lag and thought that, “ Actions taken in April, given the lag presumed to be associated with monetary policy, wouldn’t have an effect on the economy until after the November election.” As Abrams comments after reviewing the data, “Thus, a monetary stimulus helped to boost the economy in time for the 1972 election, helping to deliver Nixon’s landslide victory. However, the excessive aggregate demand stimulation prior to the election created serious problems for the economy that took nearly a decade to resolve.”
(page 184)