Kennedy’s courting of business partly rested on doubts that the economy would hold up through the next presidential election. “On a number of occasions . . . you have expressed concern about the duration of the current business upswing,” the CEA told him in September. Kennedy wanted assurances that the economy would be “on the upgrade in the summer and fall of 1964.” Heller responded that to ensure against a recession then “would require action in 1962.” He saw the need for a bill promoting capital or infrastructure improvements and “a flexible tax proposal” triggering tax cuts. “Lord, that’s a tough one,” Kennedy replied. Kennedy feared that legislation requiring tax cuts in response to economic slowing would be seen as restricting congressional control over the economy or trampling on Congress’s “fiscal prerogatives.” Moreover, in the fall of 1961, Kennedy continued to worry that tax cuts would increase deficits and mark him out as a liberal Keynesian at odds with balanced budgets and fiscal conservatives.
Kennedy’s two greatest economic worries between September 1961 and June 1962 were the country’s balance-of-payment problems, which reduced the strength of the dollar, and inflation. With inflation running at only a little over 1 percent a year since 1958, most commentators were hard-pressed to understand Kennedy’s concern. But his worry, which the CEA shared, rested largely on the conviction that any sign of “upward price movements would tilt the Fed, the Treasury, and the conservatives in Congress against an expansionary fiscal policy and the reduction of unemployment.” As for balance-of-payment issues, the fear was that foreign holders of dollars might exercise their right to convert them into gold, causing a destabilizing drain on U.S. gold reserves and diminished confidence in the greenback. Sorensen recalled Kennedy’s near obsession with the issue: “‘I know everyone thinks I worry about this too much,’ he said to me one day as we pored over what seemed like the millionth report on the subject. ‘But if there is ever a run on the bank, and I have to devalue the dollar or bring home our troops, as the British did, I’m the one who will take the heat. Besides it’s a club that de Gaulle and all the others hang over my head. Any time there’s a crisis or a quarrel, they can cash in all their dollars and where are we?’”
Kennedy’s balance-of-payments concern was a case study in applying a lesson of the past inappropriately to a present dilemma. And the conviction that something had to be done about the problem presented, in Heller’s words, “a cruel dilemma.” Domestic economic expansion would increase imports and temporarily worsen the balance of payments. But checking the outflow of dollars by raising interest rates and taxes and cutting government expenditures would impede or stop the domestic recovery and increase unemployment. “The pressures to grasp the second horn of the dilemma,” Heller warned, “are going to be very strong. But we [at the CEA] urge you to resist them. We believe that it would be shortsighted folly to sacrifice the domestic economy for quick improvement in the balance of payments.”
Nevertheless, demands for action on the problem continued from Federal Reserve chairman Martin, Treasury officials, and Kennedy himself. At a meeting in late August, Martin described the balance of payments as the economic “cloud on the horizon,” and Dillon “agreed with Martin that we must be very careful to present a posture of responsibility in fiscal and financial affairs in order to keep our European friends from becoming jittery about the dollar.” It was apparent to those at this meeting that Kennedy was “greatly concerned about the future of the balance of payments and that this was the main economic problem that was really worrying both Dillon and the President.”
But despite his constant attention to the difficulty, requesting regular reports on estimated gold losses and discussing draconian reforms, Kennedy would not sacrifice domestic recovery for greater dollar stability. He signed on to several stopgap measures—increased foreign buying of military equipment, reduced reliance of U.S. agencies on overseas offices, mandatory use of American goods for foreign aid, more tourism to the United States, and systematic expansion of foreign trade—that helped reduce the loss of U.S. gold reserves from $1.977 billion to $459 million in the ten months after January 1961. But beyond joking that he might reduce the outflow of gold to France by keeping his father at home and encouraging his wife to see America first, that was all Kennedy would do until a more effective solution to the difficulty arrived with the Trade Expansion Act he put before Congress in his January 1962 State of the Union Message.
WHEN KENNEDY ASKED CONGRESS in July 1961 for increased defense outlays to meet the Berlin crisis, he had announced a potential tax increase in January 1962 if it were needed to maintain a balanced budget and low inflation. He gave especially close attention to steel prices, which he saw as the major threat to price stability. The industry bulked so large “in the manufacturing sector of the economy” that it could “upset the price applecart all by itself,” Heller told him. Between 1947 and 1958, Heller added, “forty percent of the rise in the Wholesale Price Index was due to the fact that steel prices rose more than the average of all other prices.”
Armed with statistics from the CEA, Kennedy began “jawboning” the steel industry not to raise prices after a scheduled October 1, 1961, increase. In September, he sent letters to the CEOs of the twelve largest steel companies and to the Steelworkers Union urging responsible price and wage actions in negotiations that were about to begin for a new contract. When the steel companies agreed not to increase their prices in the last quarter of 1961, Kennedy hoped that both sides in the negotiations would follow his lead on holding down inflation.
But reactions from labor and corporate chiefs to Kennedy’s pressure were more antagonistic than cooperative. When Arthur Goldberg lectured delegates at an AFL-CIO convention in December on the need for wage restraints and nonstrike settlements, they booed him publicly and privately warned him not to interfere in union negotiations with industry. Similarly, business chiefs applauded the administration’s pressure on labor but rejected any government say in determining prices in 1962.
Despite business-labor resistance, Kennedy refused to back off. If the steelworkers struck, half a million workers would be idle, plus thousands more in mining and transportation. Besides, Kennedy believed he could effectively press the case for a settlement. In December 1961, Goldberg met with Dave McDonald, the head of the steelworkers, and R. Conrad Cooper, U.S. Steel Corporation’s vice president for industrial relations. He urged a settlement as being in the national interest and warned that obstructionism by either side would antagonize the administration. At the same time, Kennedy addressed the AFL-CIO’s annual convention in Miami. Putting aside his text to speak more informally and passionately, he emphasized “the heavy responsibility” labor shouldered for the country’s well-being in this “most critical time” of global challenges. His praise for America’s free labor movement found a warm reception. “After your speech,” Arthur Goldberg told Kennedy, “President Meany stated: ‘. . . We are delighted that we have a Chief Executive in the White House who understands the ideals and the aspirations of our people . . . and merely say to you, Don’t worry about us. We will cooperate 1,000 percent.’”
In January 1962, Kennedy met secretly with Roger Blough, chairman of U.S. Steel’s board, McDonald, and Goldberg at the White House. He persuaded the two sides to enter into early negotiations to work out a noninflationary agreement. The discussions from the middle of February to the beginning of April produced a contract with a ten-cent-an-hour boost in pension contributions and steps to reduce unemployment among steelworkers but no wage increase.
Kennedy, Goldberg, and Heller were “jubilant.” The president publicly congratulated both sides for “the early and responsible settlement,” calling their contract “a document of high industrial statesmanship.” They had fully justified his belief that they would put the national interest ahead of any selfish interest. He also said that the agreement was “obviously non-inflationary and should provide a solid base for continued price stability.”
But on April 10, the st
eel companies broke faith with Kennedy by announcing a 3.5 percent price hike. Blough, who received an appointment to see Kennedy that afternoon, brought a copy of a statement on the increases that was being released as they met. Kennedy was understandably furious. “You have made a terrible mistake,” he told Blough. “You double-crossed me.” (Kennedy told Kenny O’Donnell that talking to Blough was like interacting with “a wet fish,” nothing but silence and formal responses.) The country now seemed likely to suffer inflation and an economic slowdown. In addition, the unions felt deceived and betrayed, and Kennedy looked weak and ineffective. Having worked so hard to repair the damage to his standing after the Bay of Pigs and the difficult exchanges with Khrushchev at Vienna, he found himself once more on the defensive—a Chief Executive unable to bend a formidable adversary to his will.
At a meeting of White House aides, Bobby, and the CEA following Blough’s departure, the president was seething. Those present had never seen him so angry. O’Donnell remembered Kennedy as “livid with rage—white with anger.” He let off steam by almost furious motion in his rocking chair, pacing the room, and scathing remarks about Blough and other steel executives who were falling into line with U.S. Steel’s increases. “He fucked me. They fucked us and we’ve got to try to fuck them,” he exclaimed. Steel had “made a fool of him.” “My father told me businessmen were all pricks, but I didn’t really believe he was right until now. . . . God, I hate the bastards.” He told Dave McDonald, “You’ve been screwed and I’ve been screwed.” He suspected a conspiracy with Nixon. Steel had promised Nixon “not to raise prices until after the election,” he told Ben Bradlee. “Then came the recession, and they didn’t want to raise prices. Then when we pulled out of the recession they said, ‘Let Kennedy squeeze the unions first, before we raise prices. So I squeezed McDonald. . . . And they kicked us right in the balls. . . . The question really is: are we supposed to sit there and take a cold deliberate fucking?” Goldberg was “terribly depressed,” and told Kennedy, “Shit, I might as well quit. There’s nothing I can do now.”
But their anger was a source of energy, too. “This is war,” Goldberg said. And Kennedy began plotting the campaign to force capitulation. The White House leaked Kennedy’s remarks about businessmen, but cleaned up the language a bit by calling them “sons of bitches” rather than pricks. (Kennedy himself never remembered whether he called them “sons of bitches, or bastards, or pricks.”) The next day Kennedy used a press conference to denounce the companies. He was determined first to bring public opinion to his side. His remarks were caustic. The price rise was “a wholly unjustifiable and irresponsible defiance of the public interest,” he said. Citing statistics to demonstrate that there was “no justification for an increase in steel prices,” he denounced steel’s “ruthless disregard of their public responsibilities.” The steel companies were not only playing fast and loose with the country’s economic health, they were also jeopardizing its national security.
“In this serious hour in our Nation’s history,” Kennedy declared, “when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives—and four were killed in the last two days in Vietnam—and asking union members to hold down their wage requests at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans.”
The public left no doubt where it stood. By a 58 to 22 percent margin, it approved of the president’s pressure to force the steel companies to reverse course. Not surprisingly, two-thirds of the nation’s blue-collar workers backed Kennedy. And even business and professional people came down on his side by 45 to 34 percent. His general approval rating stood at 73 percent. If Kennedy were running against Nixon now, Gallup asked, whom would you favor? Two-thirds of the respondents chose Kennedy.
Kennedy was not confident he could force a price rollback, but he felt compelled to try. “I can’t go make a speech like that . . . and then go sit on my ass,” he told Bradlee. Bobby agreed, seeing inaction as “bad for the country—it would have been bad internally—and it would have been bad all around the world, because it would have indicated that the country was run by a few manufacturers. I don’t think we would ever have reestablished ourselves.” Kennedy ordered Bobby to have his antitrust division investigate possible steel collusion, urged Congress to conduct its own investigation, and directed Solicitor General Archibald Cox to draft legislation requiring a rollback. Anyone in the administration acquainted with a steel executive was directed to pressure him. The Defense Department began shifting contracts to smaller steel companies that were holding the price line. Bobby turned loose the FBI to speak to steel executives and reporters about price-fixing. An FBI agent phoned an A.P. journalist at 3:00 A.M. and insisted on interviewing him an hour later at his house about a story he had written on the steel companies. Bobby later described how they went for broke in investigating the steel executives: “Their expense accounts and where they’d been and what they were doing. I picked up all their records and told the FBI to interview them all—march into their offices the next day. We weren’t going to go slowly. . . . All of them were hit with meetings the next morning by agents. All of them were subpoenaed for their personal records. All of them were subpoenaed for their company records. . . . It was a tough way to operate. But under the circumstances, we couldn’t afford to lose.”
Kennedy also enlisted Clark Clifford in the campaign. “Can’t you just see Clifford outlining the possible courses of action the Government can take if they showed signs of not moving?” Kennedy asked navy undersecretary Paul “Red” Fay. “Do you know what you’re doing when you start bucking the power of the President of the United States? I don’t think U.S. Steel or any other of the major steel companies wants to have Internal Revenue agents checking all the expense accounts of their top executives. . . . Too many hotel bills and night club expenses would be hard to get by the weekly wives’ bridge group out at the Country Club.”
Convinced that they were acting in the national interest and knowing the public was decisively on their side, the Kennedys felt free to pressure the steel executives by all possible means—even if it meant crossing legal boundaries. Since they believed that Blough and his collaborators had acted ruthlessly, they saw no reason to worry about legal niceties or be less than ruthless in return. Besides, as Kennedy’s jocular comments on Bobby’s actions demonstrated, he and his brother enjoyed the forceful response they gave the steel men. It was all reminiscent of their college sporting contests in which the toughest competitor won. And they had won.
The pressure was more than the steel industry could bear. Inland Steel, the most productive and profitable of all the companies, led by Joseph Block, a Blough adversary and a Kennedy admirer, declared that it felt very strongly about holding down prices. When Kaiser and Armco agreed, and Bethlehem, the second-largest company, fearing losses to competitors with lower prices, announced a change of policy, all the other offenders gave in. Blough tried to save face and profits by asking how Kennedy would respond to a 50 percent reduction in the price hike, but Kennedy insisted on a full rollback. He instructed his aides to guard against any public gloating. He would have enough difficulties with the hard feelings bound to surface in the business community and among conservatives over his take-no-prisoners approach to the steel executives. But in private, he could not resist some mirth over his victory. When Schlesinger asked him how a White House meeting with Blough on April 17, four days after the reversal, had gone, Kennedy, remembering Grant and Lee at Appomattox, joked, “I told him that his men could keep their horses for the spring plowing.” And at a private White House dinner wit
h family members and close friends, Kennedy offered a toast to Bobby. He reported a conversation with Republic Steel president Jim Patton: “I was telling Patton what a son of a bitch he was,” Kennedy said to much laughter, “and he was proving it. Patton asked me, ‘Why is it that all the telephone calls of all the steel executives in all the country are being tapped?’ And I told him that . . . he was being wholly unfair to the attorney general and that I was sure that it wasn’t true. And he asked me, ‘Why is it that all the income tax returns of all the steel executives in all the country are being scrutinized?’ And I told him that, too, was wholly unfair, that the attorney general wouldn’t do any such thing,” Kennedy said with mock horror. “And then I called the attorney general and asked him why he was tapping the telephones of all the steel executives and examining all [their] tax returns . . . and the attorney general told me that was wholly untrue and unfair. And of course, Patton was right.” To the further amusement of the guests, Bobby interrupted to explain, “They were mean to my brother. They can’t do that to my brother.”
In public, Kennedy tried to ease tensions with the country’s business leaders. At an April 18 press conference, he announced that the administration “harbors no ill will against any individual, any industry, corporation, or segment of the American economy.” He decried feelings of hostility or vindictiveness as destructive to economic growth and price stability. “When a mistake has been retracted and the public interest preserved, nothing is to be gained from further public recrimination. . . . And we agree on the necessity of preserving the Nation’s confidence in free, private, collective bargaining and price decisions, holding the role of Government to the minimum level needed to protect the public interest.” In a speech to the chamber of commerce at the end of the month, he discussed present and future government relations with business and tried to clear away “the dust of controversy that occasionally rises to obscure the basic issues and the basic relationships.” He assured his audience that he did not wish to add decisions about prices for particular goods to the burdens he confronted as president. He also assured them that no administration could survive if it were anti-business and anti-growth. Quoting the Bible, he described “‘a time for every purpose under the heaven . . . a time to cast away stones and a time to gather stones together.’ And ladies and gentlemen, I believe it is time for us all to gather stones together to build this country as it must be built in the coming years.”
An Unfinished Life: John F. Kennedy 1917-1963 Page 63
