Nixon phone call with Shultz on Economy and Phase II

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Hello.

Yes, sir.

Hi, George.

Well, what do you want me to say on the economy from the optimistic standpoint tomorrow night?

Got any particular points?

It's a Q&A thing, but which, of course, will probably dwell on a great number of subjects.

But anything particularly that we ought to be sort of puffing?

Well, the things that we have...

talked about over and over, and of course in Detroit automobiles, housing, I think that a possible theme might be that through the winter and spring months, many people said that everything was just great with the economy, except somehow

there was a lack of confidence.

Our analysis is that consumers were buying so that

the lack of confidence didn't seem to be so much there but nevertheless that refrain was heard a lot and that did seem to be reflected in business inventories and it was particularly new plant and equipment you're quite aware their lack of confidence is in in the leader class right but the columnist and the businessman but that uh and but that in looking at the new economic policies and the way they've been received that there is of course a substantive

element that should make for expansion and make for expansion without inflation.

But beyond that, the way that these policies have been received and the attitudes of people toward them and the enthusiasm for them suggests that to the extent that there was this kind of problem, and without really having to say that there was,

that there's been this surge of relief and so on.

Do you think that's credible?

For example, I think we hear a lot of that, and of course you say something like, Sindlinger doesn't show it too much at some, not a lot.

No, the polls don't tell us a hell of a lot, do they?

Well, and they don't...

I was just looking at the Michigan survey, which shows a slight pickup in intentions to buy since the August 15th statement, but not tremendous.

At the same time, there's just no mistaking the attitudes.

We met this afternoon for a couple of hours with a group of agricultural people that represent different commodity classifications like wheat and cattle and hogs and so on.

And they kept referring to it all the time as what they felt and what the people that they associated with felt.

Connolly says when he runs into it, some of the congressmen and senators report that when they come back.

It's really curious about the...

The poll thing is a hard one to figure out, isn't it?

It is.

I don't know how much to believe it, how much not to.

We have a few things that have come in in the last few weeks that...

that are not too expansive in their character.

The new orders that you probably saw a couple of days ago in McCracken's memo, that turned down.

Unfilled orders have turned up just a little, so that's on the other side of it, but new orders turned down.

They were down just a bit.

So that... That's new orders for durable goods?

Yeah.

We continue to have this business of... What the hell is the reason for that?

Well, the defense goods seem to be down a little.

The aircraft and parts were down a little.

Yeah.

But other elements in the picture were up.

And in general, there's this emergence of a new mix emphasizing broad civilian type things.

Yeah.

The CPI thing, how do you handle that?

Well, it's just another number, I guess.

Well, I think that I would handle the CPI in terms of that it's better this year than it was last year by a substantial margin, and that it's the fact that things are going in the right direction that gives a chance for a breakthrough with the new policies.

I think that's a reasonable thing to say, and...

Well, I feel that.

This figure this month, it apparently didn't have, did somebody say it didn't reflect automobiles or something?

Well, automobiles did not go up.

The service areas are where you had the increases, medical, and these areas that we blithely say when we talk about Phase II that ought to be decontrolled are just the ones where the prices were going up.

Well, maybe we won't decontrol them.

But anyway, that'd be an area where you could easily just keep a freeze on.

Well, I don't know.

Well, what I mean is they deserve it.

What they are is that they're areas where you have very heavy labor content so that when you raise the wage, you almost automatically raise the price just as if you raise the wage of the barber.

He doesn't cut many more heads of hair, so you're going to raise the price there.

sure and that's the reason why those prices keep going up so much right interest rates where are they standing at the moment interest rates are still below the level they were at the time the freeze was announced and i think that um is arthur are there any plans at all george to do anything about them or as i understand none we've generally concluded it won't work

Well, Arthur made some noises about doing something in the consumer credit area.

I think your own moves in the mortgage area that were made before the freeze but have been effective holding the FHA rate at 7%.

Right.

Then there has been a fair amount of Treasury jawboning, and we did get this excess profits tax to banks line out.

You mentioned it, I noticed.

Yeah.

I went over it with Charlie Walker, and he...

I told him to get a study started, put it in charge of his leakiest bureaucrat.

That ought to be easy.

They had a meeting yesterday.

I haven't heard a report on it with some bankers over at the Treasury.

But I don't know of anything beyond that.

Well, you know, I think it is a legitimate argument in economics that a...

A decline in interest rates of the kind we've seen reflects a change in expectations about inflation.

Even the small decline?

Even these small declines, that it's the inflation premium that is fluctuating, not the real rate of interest in the sense of what over and above inflation the person who loans out money expects to get in return for that loan.

yeah do you see what i'm driving at i get it of course sure i know i got it i got it sure on the other hand uh yeah that's why the phase two thing comes in and so important i suppose because that'll reflect that then we've been working on the

the international monetary business a little bit.

I understand you'll have something tomorrow.

And trying to see what we might...

I don't want too long a statement.

I'd rather just say that Connolly's going to cover it next week myself.

And whatever I should say should be very general.

Very general.

Because, you know, we have too many people muddying the waters here.

It's bad.

I'll be conciliatory, but I'll say the Secretary's going to address that subject next week if he's willing to allow that to be said.

Yeah.

but we're working on the question of some substance that he might say and yeah we've gotten some material together on that and trying to well if you could also understand henry said that you're going to meet it tomorrow night yes we're going to meet tomorrow morning you give me a paragraph that i can throw in throw out when i get the question you know okay so i can be just a little conciliatory but i don't want to be very substantive at all well our thought was that what you would say would be tonal

whereas what connolly would say would get into details just as you just as you said i'm very very pleased that we've got this thing in this rather tight control now in other words let's see what you come up with we've got to have some and it's well other people can be thinking about arthur's got ideas you know he's running around and we also have the phase two business that um that we've got to

get right into focus and and get decisions uh beginning to be lined out and get your general stance on that because um well at the time between when you decide something and when we can get it into place and operating is fairly substantial so that so that the sooner we can begin to get a feeling for where you want to go on it why the better off we're going to be

well i have for example such things as i was thinking this starting uh that is a september 30th you see you've got next week there's no no reason to try then because everybody's going to be tied up with those damn bankers you know imf but by the time they leave town then i thought we'd go on this okay so i saved the week that weekend i mean all right the um i've briefed out that question of private holdings of gold you remember that we talked about

John has written me a note back on it saying that he agrees, except that he thinks that the timing isn't right right now.

So we'll fuss around with that some more, but that's an item in the bin that can be used.

We're also continuing our struggle with this west coast dock business.

Seeing if we, well they've made a lot of headway under Curt's

lashes, but they're not there yet.

We have one angle on farm products that we're trying to figure out and see if there isn't some way that you could make an appeal to the parties to move agricultural products and clear out a lot of the... Business does still not want Taft Hartley, is that correct?

Well, the Shipping Association doesn't.

They feel they're finally making headway.

They don't want to have any

They don't want to move any agricultural products, no nothing.

They want to keep as much pressure on the Union as they can right now and see if they can get a settlement.

Okay.

You remember I asked you about the October 1 date for the military pay raise.

and the recommendations of everybody that that not be allowed until November 15th, and you agreed with that.

So that's the way Ziegler has been putting it, except we haven't known how we wanted to do that.

Justice has had an opinion that the executive order and the freeze would supersede the law, or that statute would supersede this particular statute, giving an increase in pay.

and that we can simply say that the pay will not go up until November 15th.

We had that ruling looked at again this morning and see if they still would stick to it, and they do.

And so we can go forward with that, although some of the lawyers around the EOB think it's an odd ruling, but probably we could just go ahead with it and nobody will worry about it too much.

Because it's being retroactive here.

yeah i know just do it do it so what i have said was that we should get the ruling the justice department's ruling from john or clindy and have it sent to connolly rather than you and then have connolly on behalf of the cost of living council do it that would be sort of in line with the fact that that's the council that's been making all these detailed decisions and sort of keep it away from uh

from you that sounds all right much better than to have me do it yeah or ziggler which is the same thing as me much better to have it over there in that shop okay well on this uh on this incidentally phase two uh as i say i'm i'm ready to talk about it any time but i the way i look i see it say i'll be in detroit tomorrow and then i'll be in alaska and montana and oregon and washington over the weekend and when i get back

And I'll be flying all day Monday.

So then Tuesday, Wednesday, and Thursday, the IMS is in town.

And Connolly will be out of pocket.

And I guess soul burns.

It seems to me that if everybody can be ready by the 30th, I told Connolly this just to get the damn thing ready by that weekend.

I told him that we'd like to know by the weekend what they wanted to do.

So that's pretty good.

Don't you think that's pretty good?

Well, I think so, although if we can get some...

and get some thinking a little before that, it would be helpful.

I'm going to be out in Portland, and then go on up to Alaska and see what that looks like with you.

Great, great.

So I'll bring along material, and if there should be a time during the trip, if you'd like to just fuss about it a little bit, I'll bring the material with me.

If you like, you could bring...

you could come along if you look at like is it is stein doing stein is the fellow bring him to the work bring him be a nice trip for him bring if it'll be if he'd like to come and then then he could come and then you and stein and i can talk on the way back and i can give you the lines that i have fair enough uh okay i wouldn't want to prejudge what john or arthur may think and of course arthur has a special

role here, having been the advocate of this sort of thing.

I know, I know, I know.

But we can give you a good feeling.

I need to get a feeling about what really the options are, because then we'll have to sell Arthur on it.

I know the problems.

Yeah, sure, that's fine.

Okay, well, I'll see you about Stein.

We'll have a very long flight coming back, six, seven hours.

We have a chance to talk.

That'll be good.

Okay.

And I'll see you, and if you want to bring Stein, bring him, too.

Okay, sir.

Good.

Thank you.

Bye.

Nixon phone call with Shultz on Economy and Phase II

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Nixon Library Finding Aid

Transcript (AI-generated)

Also recorded on September 22, 1971

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Nixon phone call with Shultz on Economy and Phase II

AI Summary

Audio

NARA Description

Nixon Library Finding Aid

Transcript (AI-generated)

Also recorded on September 22, 1971

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Cite this conversation