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Gerald
Ford, Part II
Brian
Trumbore
President/Editor, StocksandNews.com
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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