Kennedy: The Classic Biography (74 page)

Nevertheless the major efforts of Kennedy and Freeman to fit food production to consumption encountered immovable opposition. It came from the larger and more prosperous farmers, who enjoyed being subsidized to produce crops for storage. It came from Congressmen opposed to the kind of controls needed to make this chaos manageable (although we called it “supply management” instead of “controls”).

Nor could there be any reversal in the trek of former farm workers and youth to the cities searching for work. The President was disturbed by the estimate that only one out of every ten boys growing up on our farms would find a living in agriculture.

In their search for work in the city, farm youths were joined not only by older men replaced by machines but by other young people crowding the nation’s labor market. This was the President’s special concern. He warned that the crest of the postwar baby flood, which for nearly two decades had crowded our elementary and then our secondary schools, was about to engulf the labor force with 26 million new workers in the 1960’s, of whom nearly a third would not have finished high school. The youthful, the untrained and the unskilled, he said, were the largest factors in our high unemployment rates—rates which were dropping far too slowly even after the recession had ended. He urged the nation’s youth to stay in school, emphasizing the difficulties facing dropouts. He pressed for enactment of his education program, his vocational education bill, and a young people’s Job Corps to take boys off the streets for training. He explored the use of existing Selective Service procedures to identify young men needing vocational as well as physical help.

The labor movement, impatient with the progress of Kennedy’s proposals, called with increasing force for a thirty-five-hour week at the same wages a forty-hour week could command. But the President cited the adverse effects these increased costs would have on American business competing in world markets, and on his own efforts to prevent inflation from eating up their gains in purchasing power. He recognized that in time a shorter work week might be standard, but his goal was to create more jobs instead of dividing up the too few already available.

He emphasized in particular the training of unskilled workers and the retraining of skilled workers for the new skills which industrial change demanded. This concept could be found in a whole series of Kennedy programs: depressed areas, public welfare, vocational education, civil rights, trade expansion, youth employment, literacy training and the first full-scale Federal program of Manpower Development and Assistance. The related technique which could not be used as boldly as desired, however, was worker relocation. Kennedy, when campaigning in West Virginia, remarked to me in his car that the best thing for many of the men in those deserted mining towns would be to help get them out of there. But Congressmen willing to vote funds for the retraining of their constituents were not as willing to relocate them elsewhere, and most of the unemployed were equally reluctant to move.

In 1961 the Area Redevelopment Act sought to move industry and help into these hard-hit areas. In 1962, to supplement that Act, Kennedy obtained passage of the first Accelerated Public Works program since the days of the New Deal. In 1963, even before completing work on his bill to aid Appalachia—the mountainous belt of abandoned coal mines and poverty which stretched across the Middle Atlantic States—he developed with state and local officials a coordinated Federal effort.

In the fall of 1963, moved by a
New York Times
story on the desperate plight of families in eastern Kentucky, he directed a special Federal program for their relief, and planned to tour the area himself. That fall he also gave orders for the formulation of a new Federal antipoverty program. In a November strategy session on the 1964 campaign, he was warned by one election analyst that the balance of political power was held by affluent suburbanites who did not identify with antipoverty, minimum wage and depressed area programs. After I passed this caution on to Walter Heller, he asked the President whether work should continue on the antipoverty bill. The answer was in the affirmative, and the bill passed in 1964, thanks to the leadership of Kennedy’s successor.

But it is true that, even when Kennedy took over at the low point of the recession, there was little public interest in his attack on unemployment. “The 94 percent employed,” he remarked more matter-of-factly than bitterly, “couldn’t care less about the 6 percent unemployed.” And once the recession was over, Congress balked at some of the big planks in his economic platform, especially a permanent strengthening of unemployment insurance and Presidential stand-by authority to lower taxes and speed up public works in case of a recession. The legislators went along with his proposals to strengthen housing and small business credit, to broaden the depressed area program and to revamp public welfare. But in our affluent society, remarked the President, major expenditures and innovations were resisted “by people who like it the way it used to be. Change is always pleasant to some people and unpleasant to others.” His own philosophy had been summed up in his Inaugural: “If a free society cannot help the many who are poor, it cannot save the few who are rich.” He did not apply that philosophy only to foreign countries.

THE BALANCE OF PAYMENTS AND TRADE

The tools of deficit spending and easy credit were not so readily available to President Kennedy’s fight on unemployment for economic as well as political reasons. The main economic reason was a problem of concern to few, comprehended by even fewer, and practically ignored by the party platforms and the popular press: the balance of payments. Yet few subjects occupied more of Kennedy’s time in the White House or were the subject of more secret high-level meetings.

The problem, essentially, was a chronic and mounting deficit in our international accounts as a nation. More dollars went out of this country than came in. What Americans spent or invested in other countries—as importers, tourists, investors and soldiers—was far exceeding the amounts we received from our exports, from purchases made by foreigners in this country, from dividends on our overseas investments and other sources. As a result, for a period of ten years prior to Kennedy’s inauguration, the quantity of American dollars held by foreigners mounted steadily; but until 1958 our reserves of gold, into which foreigners were permitted to convert those dollars, remained stable. The deficits in our balance of payments were moderate in size and helped provide war-torn economies suffering from a “dollar gap” with dollars for their own use.

But between 1957 and 1960 a combination of events raised this chronic problem to crisis proportions. In 1958-1959 the failure of high-priced American goods to penetrate increasingly competitive European markets sharply reduced our usual surplus of exports over imports, and it was this surplus which had helped offset our overseas military, foreign aid and other expenditures. Western Europe’s growing economy had become an attractive place for investment. More time and money were spent abroad by tourists, while relatively few visitors came here. Foreign governments also restricted the amount their citizens could invest in our enterprises, while short-term commercial credits inevitably grew with our export trade. As a result of all these factors, our balance of payments deficit, normally about a billion dollars a year, suddenly rose to nearly four billion; and those holding dollars abroad, now that they were no longer in short supply, decided to cash in some three billion dollars’ worth in those two years for American gold.

In 1960, although our export surplus improved, the other trends continued or worsened. Bonn and London raised their short-term interest rates, causing the transfer of foreign capital previously deposited in New York banks. European international bankers, concerned by charges that forthcoming Democratic deficits would cheapen if not endanger the dollar, decided not only to withdraw their American funds but heavily convert their dollars into gold. Aggravated by speculation on the London gold market and by unfavorable comparisons of our uncommitted gold reserves with foreign dollar holdings, gold left this country by amounts totaling almost two billion dollars in that year alone. Last-minute efforts by the outgoing administration failed to stem the tide, and there were widespread reports that America’s gold reserves would be insufficient to meet the demands of foreign dollar-holders unless the new President raised the price of gold and thus “devalued” the dollar.

But the new President had no intention of doing so. The balance of payments problem had been of little interest to him during the early stages of the campaign. As the gold outflow and speculation dangerously mounted, both sides sought to use it as an issue against the other, Kennedy blaming our lagging economy, Nixon blaming Kennedy’s attitude on spending.

“I must say,” Kennedy told a partisan crowd in Moline, Illinois, “the Vice President does show some signs of tension. Now he blames me for the increase in the cost of gold on the London Market…. Mr. Nixon, if you are listening, I did not do it, I promise you.” Kennedy requested his “Academic Advisory Committee” to work out a formal comprehensive public statement. He issued it in Philadelphia on October 31, after a long night’s work hammering out the final draft with Ken Galbraith at the other end of the telephone.

In the transition between his election and inauguration, he became far more concerned. In January the outflow of gold rose to proportions which could not continue without disaster. The need for world confidence in the dollar, and the danger of a “run on the bank” by dollar-holders turning them in for gold, dominated several of his conversations as President-elect. They were the decisive influence in his choice of a Secretary of the Treasury. They started us working on the balance of payments program he presented in February. In his State of the Union Message he emphasized the priority he was giving the problem, his refusal to devalue the dollar by raising the price of gold and his determination to do whatever had to be done “to make certain that…the dollar is ‘sound.’”

Some foreign apprehensions were heightened by the fact that two-thirds of our gold was officially untouchable because it was required as backing for our currency and Federal Reserve deposits. But no matter how strongly sophisticated bankers and economists assured him that this commitment should be repealed, that it represented merely an unnecessary inducement to foreign dollar-holders to scramble for the other third, the President was certain that any such proposal to the Congress from him in 1961 would be seized upon as “Democratic funny-money finagling.” Inasmuch as the Federal Reserve Board could suspend the rule, and certain that Congress would repeal it in an emergency, he preferred simply to pledge, in his State of the Union address, that
all
our gold reserves, plus our International Monetary Fund drawing rights, were “available” for use if needed. That pledge—and his pledge a week later in the Special Message on the Balance of Payments that the dollar would continue to be “as good as gold”—went a long way toward restoring confidence in the dollar and slowing the gold outflow. The gold speculation in London ceased almost completely, and the President reversed Eisenhower’s curb on military dependents overseas on the grounds that its small contribution to our balance of payments was more than offset by the loss of morale.

He had no intention of devaluing. Nor would he stop the outflow of dollars and gold by shutting off credit, imports or dollar convertibility. He refused to believe that he had to choose between a weaker economy at home or a weaker dollar abroad. But he did recognize that the crisis limited his full use of monetary policy—lower interest rates—in fighting the recession. His concern, in fact, was that the powerful and independent Chairman of the Federal Reserve Board, William McChesney Martin, might hamper recovery through higher rates. The traditional fear of the men at the “Fed” was inflation, not unemployment, and balance of payments pressures plus economic expansion called for higher interest rates in their book. Kennedy could not, by law, order Martin to do anything. But he talked privately and frequently with him, praised his work publicly and reappointed him to the chairmanship. He invited Martin to regular, confidential sessions in his office with the “Troika” (Heller, Dillon and Bell) in which the needs of the economy were stressed. For two and a half years long-term interest rates on bonds as well as mortgages were held down, in contrast with their record rise in the previous few years, while short-term rates were nudged high enough to discourage continued large outflows of short-term capital.

Kennedy’s Budget freedom was also restricted by the balance of payments problem. Too large a Budget deficit resulting from new Kennedy programs, said Dillon, could cause foreign bankers to believe, correctly or not, that the value of the dollar was in doubt and to take more American gold. At the first meeting of the Cabinet on January 26, the Treasury Secretary set forth the problem for his colleagues and warned of its effects on their budgets. During the months and years that followed, that same room would contain countless meetings on that same subject.

Almost to a man, Kennedy’s associates in the administration thought he was excessively concerned about the problem. Even the Treasury resisted his prodding for faster, more far-reaching solutions, opposing in particular any restrictions on American capital going abroad. (The Treasury, confided one nongovernmental adviser to the President, “is subject to the banker syndrome, which is to foresee disaster but prefer inaction.” And the President himself once remarked to Dillon in one of our meetings that “the Treasury is very skillful at shooting down every balloon floated elsewhere in the administration” on this subject.) The economic advisers, more concerned with the domestic economy, pointed out that the totals owed this nation by others far exceeded the claims upon our reserves, and that the wealthiest nation in history, possessing two-fifths of the free world’s gold stocks, was hardly in dire straits.

Privately some advisers told the President that even devaluation was not unthinkable—a drastic change in the system but preferable to wrecking it altogether. But the President emphasized that he did not want that weapon of last resort even mentioned outside his office—or used. By disrupting the international monetary system that we had done so much to create, devaluation would call into doubt the good faith and stability of this nation and the competence of its President.