Roundtable Remembrance of President Ford's Legacy
Tuesday, January 02, 2007
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SUZANNE PRATT: Robert Hormats is vice chairman of Goldman Sachs International and was an economic advisor in the Ford administration. Hugh Johnson is a veteran Wall Street market strategist and chairman of Johnson Illington, a money management firm. Susie Gharib sat down with both men to talk about Mr. Ford and his impact on the nation's economy.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bob, let me begin with you. President Ford took over at a very difficult time. There was the Arab oil embargo. There was inflation. There was a recession. What's your analysis of the way President Ford handled the U.S. economy?
ROBERT HORMATS, VICE CHMN., GOLDMAN SACHS INTERNATIONAL: I think he did as well as he could with a terrible situation, with double digit inflation and nearly double digit unemployment and he had the aftermath of this horrible Arab oil embargo and price increases. I think what he tried to do is to address at least part of it. He tried to keep government spending under control because there was an assumption that that was one of the causes of inflation. And he tried by pulling together the oil consuming countries in an effort to put pressure on OPEC, he tried to get oil prices down. But, of course, he did not have a very tough Federal Reserve at that point, which came later and that was really one of the problems.
GHARIB: Hugh, what is your assessment?
HUGH JOHNSON, CHAIRMAN, JOHNSON ILLINGTON ADVISORS: I would agree a lot with Bob. I think that really the real number one, the "A" marks that he gets is primarily because, you know, we had two big problems, as Bob has suggested, the unemployment rate was rising. You actually were losing jobs every month in late '74 and early '75 and the rate of inflation was at the same time very high. And he was first of all smart enough to recognize that inflation was really the biggest problem and then secondly, what he did is he resisted this very strong urge to sort of jump on the side of repleating the economy. Arthur Burns was there when he was at the Federal Reserve, replating the economy, growing the money supply too fast. The president kind of tried to resist that and the Democratic Congress, you know, he resisted their urge to spend a lot of money to get us out of the recession, recognizing that inflation was a really big problem. I think he was very good.
GHARIB: Let's talk about inflation because President Ford was ridiculed for his campaign of Whip Inflation Now and those WIN buttons. But was the problems with inflation the mishandling of it a problem of the president, Bob, or was it a failing of the Federal Reserve, which you alluded to in your first answer.
HORMATS: Well, there were several causes. First of all, we had terrible fiscal policy beginning in the middle part of the 1960s with the way we financed the Vietnam war. In addition to that, we had very lax Federal Reserve policy, not the kind of toughness you got when Volcker was appointed later on. And then, of course, you had the big oil price spike in '73 '74 after the Yom Kippur war. So all these factors were issues.
And the point that Hugh and I are both making about dealing with spending was critically important. In that time, Congress was on a big spending spree. The president vetoed bill after bill after bill to try to curtail spending. Some were overridden, but he vetoed them. He was an Eisenhower fiscal conservative, very different from people today who call themselves fiscal conservatives. He really was one in the Eisenhower tradition and he was very tough and vetoed bills. We could use a little of that today.
GHARIB: Actually New Yorkers remember very well those vetoes because he also turned down giving any financial aid to New York City during its financial crisis, right, Hugh?
JOHNSON: Yeah, that was another big part of it. And I think he did the right thing there. He didn't bail New York City out. In other words, give New York City a lot of Federal money. He did go through the process of guaranteeing about $2.3 billion in loans, but no outright grant of funds to New York City. That was absolutely the right thing to do. And another demonstration of the fact that, you know, when it came to fiscal policy, when it came to economic fiscal policy in Washington, he was very good and very much resisted strong pressures from all sorts of constituencies, political constituencies to join Arthur Burns in opening the spigots or to join the Congress in opening the spigots. He didn't do that; he was really sound.
GHARIB: Hugh, I want to ask you about the Wall Street view of President Ford because Wall Street was going through a brutal bear market when Ford became president, right?
JOHNSON: Yeah, we were going through a bad bear market in '73 and '74. Keep in mind that bear market ended in December of '74. He took office in August of '74. So we were coming out, we were starting a bull market in December of '74. And let's also keep in mind that the economy turned around in March of 1975. So, frankly, when it comes to those results, we started a bull market; we ended a recession. Wall Street was very much on the side of the president. Plus, Wall Street tends to be on the conservative side of things so they kind of applauded his fiscal conservative and reducing regulation policies. So I think Wall Street were big fans of the president.
GHARIB: Bob, what would you say was the most positive achievement, economic achievement, from the Ford presidency?
HORMATS: Well, I think he did several things. One, he brought Alan Greenspan in as chairman of the Council of Economic Advisors, bring him in the government and that helped him to get the Fed chairmanship somewhat later. Second, he understood that you needed solidarity among the oil consuming countries to deal with OPEC. He pulled that together. And, third, he's the guy we shouldn't forget who started the group of seven economic summits to create cohesion among the industrialized democracies to deal with the kinds of problems that they were facing: energy, low growth, and inflation. All these things were, I think, very important achievements and he started the process of deregulation. In a speech about whip inflation now, deregulation was a very important part of reducing inefficiency in government.
GHARIB: Hugh, what are your thoughts on that? Positive achievements?
JOHNSON: Well, I think the positive achievement really was that he resisted that urge to open the spigots. And don't forget, as Bob and I have both told you or suggested, the unemployment rate was rising. We were losing jobs every month, big urge to open the monetary spigots, very big urge to open the spending spigots and he resisted that. Remember, he vetoed 66 spending bills inside of two and a half years. So he was really a fiscal conservative and he needed to be or he needs now to be applauded for what he did then. That was real integrity.
HORMATS: I agree with that entirely.
GHARIB: Bob, as you look back on the Ford presidency, were there any economic lessons that came from that chapter of American history?
HORMATS: One is the one Hugh and I have been talking about. You can't spend yourself out of these things irresponsibly. You have to have a very solid fiscal policy. He understood that. I think that was critically important. Second, in a global economy, we didn't talk about a global economy as much then as we do now, but he understood you had to work with the other industrialized democracies to deal with exchange rate issues, to deal with energy issues and to deal with trade issues. He understood that very well. And he also was very tough on the oil producers by pulling the oil consuming countries together, he was saying to the oil producers, you're going to have some counterweight if you try to arbitrarily raise prices. All those were very important legacies.
GHARIB: Gentlemen, thank you very much. Bob Hormats, Hugh Johnson, we really appreciate your thoughts and analysis.
JOHNSON: Thank you, happy New Year.
HORMATS: Thank you.
