George Shultz and John Taylor discuss economic policy lessons
Distinguished Fellow GEORGE SHULTZ and Senior Fellow JOHN TAYLOR recently discussed their newly released book from Hoover Institution Press, Choose Economic Freedom: Enduring Policy Lessons from the 1970s and 1980s.
The two Hoover economists discussed the economic choices facing policymakers today based on their experiences at the highest levels of policymaking in the White House; the reasons behind the Nixon administration’s decision to impose national limits on wages and prices in the 1970s; and how the Reagan administration changed course and adopted free-market-oriented policies in the 1980s.
Why the title Choose Economic Freedom?
Taylor: Economic freedom conveys three indelible principles: reliance on markets as a determinant of prices, less government regulation and intervention and a strong rule of law that ensures predictability in the economy. This is a book about history and experience. Its lessons are universal and relevant to current times.
What were the origins of this collaboration?
Shultz: From 1969 to 1974, I served in three cabinet positions focusing on economic policy during the Nixon administration: secretary of labor, director of the Office of Management and Budget and secretary of the Treasury. I then served President Ronald Reagan in the 1980s as secretary of state. I saw a great contrast in the way each administration handled economic matters. In contrast to that of the Nixon administration, the Reagan administration’s policy was to create conditions that allowed for market forces to set the course of the U.S. economy. John Taylor and I share this view. So, we wrote the book together.
In the appendix of Choose Economic Freedom, we featured two documents that have never been published before. One is a letter dated June 22, 1971, marked personal and confidential, from then chairman of the Federal Reserve Arthur Burns to President Richard Nixon. Burns argued that the economy has changed in a variety of ways, and therefore classical economic policy will not work anymore. He called for government intervention in the private sector to combat high rates of inflation and unemployment. Burns said monetary policy alone would not work. As a solution, he advised President Nixon to impose wage and price controls.
Burns was formidable. Helmut Schmidt, the chancellor of Germany, called Burns the “pope of economics.” In other words, he seemed infallible. In addition to his prowess as an economist, he had a very powerful personality. When he spoke, you paid attention. The other document was advice given to the incoming Reagan administration following the 1980 presidential election by a group of economists, which I chaired. It called for a reduction in individual tax rates, the removal of unnecessary and overburdensome regulations and advising the Federal Reserve to implement a pro-growth and anti-inflationary monetary policy.
Taylor: These documents tell a very important part of this story. They reveal the theme that leaders can receive good and bad economic advice. Sometimes the bad economic advice can come from people like Arthur Burns, a respected economist. This is a lesson that pertains for all times but comes out so clearly in the June 1971 memorandum that Burns wrote to Nixon.