McNamara felt very much alone. George Ball and McGeorge Bundy were gone. While visiting his wife at the Johns Hopkins University Hospital in Baltimore, McNamara got the awful news that John McNaughton, his close friend and key adviser in the Pentagon, had been killed in a plane crash. He and his wife grieved together in the bare hospital room.
Twenty-two years earlier Margy McNamara had been at the Hopkins Hospital for polio. Now in July 1967 she returned for several ulcer operations, doubtless induced by the enormous stress the McNamaras were bearing. She said, “Bob has all the problems and I have the ulcer.” He said, “Margy got my ulcer.” She entered under an assumed name so the press would not accuse him of deserting her for a visit to Vietnam that the President had ordered. Thereafter he made the 40-mile trip to Baltimore each night and arrived at his office the next morning unshaven and haggard.
Shapley examined the old photos and listened to the old tapes to determine the physical impact of the strains on McNamara. They were shocking. A close-up on February 16 showed “the ragged, spotty pallor of the skin, the sleek hair flecked with gray. One eye only is visible; it is shadowed, catlike, rolled sideways. … His hand conceals his mouth in an uncharacteristic pose of doubt.” In the briefings he gave on the war he would put his hand to his mouth “to catch the confused tide of emotions surging within.” In a speech at Millsaps College on February 24 when he came to a line which upset him, “his face can be seen in a terrible convulsion—mouth open, eyes shut, grimacing as though a knife were twisting through him.”
McNamara received regular CIA briefings from George Carver, an extreme hawk. One day Carver was unable to come and George Allen, an old realistic Vietnam hand, arrived instead. Under agency policy he was required to give Carver’s line. McNamara said he was not interested; just let’s talk about the war. Allen said he must leave, otherwise he would have trouble with Director Helms. McNamara said he would take care of Helms. He asked, “What would you do if you were sitting here?” This led to a free discussion on the war for an hour.
William Brehm was in Systems Analysis in Defense and was talking to the secretary about an ammunition order for Vietnam. On the wall of the huge office hung a portrait of James Forrestal, the first Secretary of Defense, the highest official of the U.S. government in history to commit suicide. McNamara was pacing the floor and calculating the ammunition order. He looked up at Forrestal and shuddered violently. Brehm realized that he was weeping as though he could never stop.
On March 27, 1967, General Westmoreland asked for 210,000 more troops to bring his forces to 665,000, along with 10 tactical air squadrons for attacks in Cambodia and Laos. The Joint Chiefs supported the request. McNamara insisted on a careful review in the Pentagon. Both Systems Analysis and McNaughton (who would shortly be dead) strongly opposed the proposal and McNamara, of course, agreed. After many months of internal debate the President gave Westmoreland a total of 525,000. McNamara had pretty much prevailed. But his already frayed standing with the armed services was destroyed.
On June 17, 1967, McNamara made a remarkable decision. He called in a youthful Pentagon employee, Leslie H. Gelb, a recent Harvard Ph.D., and named him director of the Study Task Force. His assignment, as Gelb wrote later, was “to study the history of United States involvement in Vietnam from World War II to the present.” The report was to be “encyclopedic and objective.” Gelb received full access to the secretary’s files as well as to some CIA and State Department sources. He was assisted by six full-time researchers and thirty who worked intermittently. Gelb expected to be done in three months, but it took a year and a half. He submitted the massive report to Secretary Clark Clifford on January 15, 1969. There were 37 studies and 15 collections of documents in 43 volumes. “The result,” Gelb wrote, “was not so much a documentary history as a history based solely on documents—checked and rechecked with ant-like diligence.” Thus, the origin of what would come to be known as the Pentagon Papers.
Gelb never talked to McNamara during the course of the study. When it was done and 15 copies had been prepared, Gelb and a military officer carried one set to the World Bank and placed the boxes on a low table in McNamara’s office. Gelb pulled out one volume with a light blue binding and passed it to McNamara. He merely glanced at it and pushed it back. He said he did not want the documents in the bank and told Gelb to return them to the Pentagon. He did so.
On August 9 Senator John Stennis of Mississippi, an unrelenting hawk, opened hearings on the bombing of Vietnam. He called the military commanders first, who testified behind closed doors. They blamed Johnson and McNamara for tying their hands behind their backs, creating the military stalemate. The way to achieve quick victory, they argued, was with a massive strategic bombing campaign with no restrictions on targets. Johnson, worried, opened the door a crack. The next day the big bridge over the Red River in Hanoi was attacked and a few days later American planes bombed the buffer zone along the Chinese border.
McNamara testified in public and was subjected to grueling examination for seven hours on August 25. He argued forcefully against a widening of the air war. The bombing of the North had always been a supplement to the combined ground and air war in the South. The volume of bombs dropped on the North was now approaching the amount that fell on Europe during World War II. But Ho could keep his operation going on only 15 tons of imports daily. There were just 57 targets left that had not been attacked and they were trivial—a tire plant producing 30 units daily, fuel sites holding less than 6 percent of the country’s energy, a small repair shop. The bombing had already knocked out 85 percent of electric generating capacity. Haiphong’s port supplied little of military value, and there was the danger that a bomb might hit a Soviet vessel.
While McNamara’s analysis was correct, it damaged him severely. The President was angry and disavowed him. The Joint Chiefs met in secrecy the night he had testified and agreed that they would resign en masse the next morning at a press conference. General Earle Wheeler, the chairman, said the U.S. should “make an unambiguous stance in Vietnam—or get out.” He had suffered chest pains during the prior week and during the night was torn by the conflict between resignation and his military oath of obedience. He called off the press conference.
Under its charter the president of the World Bank was an American nominated by the President of the U.S. George Woods’s term would end in August 1967. He asked McNamara about becoming his successor, and McNamara said he would remain at Defense as long as the President wanted him. Johnson was extremely interested. But, as noted, neither spoke to the other. In November the President instructed Treasury Secretary Fowler to clear McNamara’s name with the other member nations. Shortly, the Financial Times of London reported that Britain had been asked to approve the nomination. McNamara rushed to the White House to speak to the President. When he returned to the Pentagon, he found Robert Kennedy, who had raced over to urge him to resign with a blast at the administration over the war. McNamara refused to make such a statement, but he accepted the presidency of the bank. He would prepare the next Defense budget and leave on February 29, 1968. When he departed Johnson presented him with the Medal of Freedom in, Joe Califano wrote, “a moving ceremony during which both men struggled to maintain their composure.” Clark Clifford succeeded Robert McNamara as Secretary of Defense.8
14
Launching the Great Inflation
ARTHUR Okun, who sat on the Council of Economic Advisers and was its chairman in the Johnson years, wrote in 1969 of “the agonizing balance between growth and price stability.” The Great Inflation began on Okun’s watch and its birth can be pinpointed to President Johnson’s decision to commit American forces to Vietnam in July 1965. It would continue for 17 distressing years. “The initial impact of the Vietnam escalation in the second half of 1965,” Okun wrote, “both directly and through its stimulus to business investment, generated a disruptive boom.” Real output leapt from 5.5 percent in the first half of 1965 to 8.5 percent in the following three quarters.
“Our price performance was unhinged. … The economy had especial difficulty adapting to the breakneck advance.”
The writing of history viewed as a path is strewn with pitfalls. Perhaps the most common may be called the hindsight syndrome. Every policy maker who has blown his assignment, or his apologist, hastens to point to the obvious, that it is easier to make a sound decision after the event than before it. A large number of those who write about the past ignore this truism. Another common pitfall is that, because a mistake was made, it must have been deliberate. This is the devil theory of history. The writer, therefore, must identify Satan and condemn him. While inflation has some beneficiaries, it has no friends. Johnson’s failure to confront inflation immediately, particularly with higher taxes to pay for the war, has drawn a number of hindsight authorities, and they have identified two devils—LBJ and McNamara.
During his years reporting from Saigon David Halberstam helped to invent the credibility gap and was pleasantly surprised whenever he discovered Lyndon Johnson telling the truth. Thus, he had no trouble identifying the devil.
Johnson, according to Halberstam, treated the cost of the war as a “public relations problem.” The true numbers were “kept partially secret from the press and the Congress and the allies.” The Joint Chiefs knew those costs and at the outset asked that the nation be put on a wartime footing with the necessary higher taxes. “Lyndon Johnson would not give accurate economic projections, would not ask for a necessary tax raise, and would in fact have his own military planners be less than candid with his own economic advisers.” The President’s reasons for this duplicity, Halberstam wrote, were familiar:
He was hoping that the worst would not come true, that it would remain a short war, and he feared that if the true economic cost of the war became visible to the naked eye, he would lose his Great Society programs. The result was that his economic planning was a living lie, and his Administration took us into economic chaos: the Great Society programs were passed but never funded on any large scale; the war itself ran into severe budgetary problems …; and the most important, the failure to finance the war honestly, would inspire a virulent inflationary spiral.
Wilbur Mills made the same point another way. He told the President that it was impossible to have both guns and butter. “I talked to him about it, but it didn’t appear to make a lot of difference to him. Lyndon Johnson always was a spender.”
The President waited two critical years before he asked Congress for a tax increase to pay for the war. When his economic advisers urged him to move, he refused. The reason he gave was that the public would not stand for it and Congress would not enact it. While his economic advisers had no choice but to defer to his political judgment, they questioned it. CEA chairman Gardner Ackley said he did not know how much the war was going to cost, but that did not matter. “What it was doing to the economy now was about all we needed to know, and it was clear that what it was doing to the economy at the end of 1965 already spelled trouble, and that it was time for policies to adjust to it.”
Charles Schultze, the Director of the Budget, favored a tax boost at the end of 1965, but, he later recalled, “I feel much more strongly about this from hindsight than I did from foresight.” Schultze observed that “deep down inside and intuitively, Johnson recognized the problem of fighting a limited war.” It would have been as “easy as the devil to sell an all-out war.” Play on hate, wave the flag, nothing too good for our boys. But it was very hard to “fight a limited war for limited objectives with limited means.” If he had wanted to go all-out, he could have whipped up the American people and slapped on a war economy, even wage and price controls. But that ran the risk of letting the hawks take over and that would be the end of the Great Society.
Deborah Shapley, his biographer, pointed her finger at McNamara for doing Johnson’s bidding. The secretary promised that the war would be financed by open and honest accounting and that it would be the “most economically fought war in history.” Both proved false. At the outset Westmoreland demanded an immense build-up of men and arms and McNamara and Johnson gave him everything he asked for.
McNamara hid and falsified the costs from the Council of Economic Advisers, the Treasury, the Congress, and the public. He ordered the Defense Department controller, Robert N. Anthony, to assume that the war would end on June 30, 1967. He raided other parts of his budget to pay for the war. In early September 1965 there were rumors of 500,000 troops and $10 billion. Ackley, who was making a speech on September 9, checked the cost with McNamara. He said that the figure was not even close to $10 billion. Ackley made the wrong speech and soon was told that the real number was $12 billion! Even this was not correct. At a meeting at the Johnson Ranch on November 22, 1966, McNamara admitted that the actual cost was $20 billion. The federal deficit, instead of being $1.8 billion, was $9 billion. Shapley summed it up this way:
Through 1966 McNamara was the President’s hard nosed servant. He deflected questions and speculation about the future scale of the war and its cost. He displayed an amazing ignorance of whether the war would get larger or smaller, whether it was likely to end sooner or later. Since he didn’t know, it would be “irresponsible” to name a figure. He answered questions on future troop numbers artfully, steering clear of any hint of a wider war. He avoided lending any credence to those who suspected—rightly—that Johnson was in deeper than he said and was going deeper still.1
The Kennedy administration had adopted a loose incomes policy to deal with mild peacetime inflation. The January 1962 Economic Report in the Council’s section, not the President’s, contained this sentence: “The general guide for noninflationary wage behavior is that the rate of increase in wage rates (including fringe benefits) in each industry be equal to the trend rate of over-all productivity increase.” Since man-hour output had been rising at approximately 3.2 percent annually, that number became the “guidepost” for wage advance. If the employer kept his wage increases within that figure, he would have little reason to raise his prices. Since there were no sanctions to enforce the guidepost, this was wage-price restraint by exhortation, or, as it was popularly known, “jawboning.” In 1965 the Council, consisting of Chairman Ackley and members Okun and Otto Eckstein, was generally responsible for informal administration of the system. But after the troops went to Vietnam they received extraordinary help from the President. The early problems arose in the metals—steel, aluminum, and copper.
In 1965 the Steelworkers insisted on a handsome wage increase. They had not had one since 1961 and during the spring I. W. Abel had defeated the high-living David McDonald for the presidency of the union. He wanted to show his members that they had made the right choice. USW had historically compared itself to the UAW and Walter Reuther had negotiated guidepost busting settlements with the auto companies in 1964. The steel industry was losing its export markets and imports were now pouring in. It insisted that profit margins were too low. The steel contracts had opened on January 1 and the ensuing bargaining had been fruitless. The deadline was pushed forward to August 1 for notice and September 1 for a strike.
On August 17 the President met with Abel, who demanded a big boost. Califano checked it with Eckstein, who specialized in the guideposts, and he said the demands were way out of line and would cause a big increase in prices. Johnson rejected the union’s demand. LBJ’s formula: no strike, a wage increase of not more than 3.2 percent, and no increase in prices.
The President distrusted Secretary of Commerce Jack Connor and Secretary of Labor Willard Wirtz because, he thought, they were prejudiced in favor of their constituents. He informed each of the deal he insisted upon. He then bypassed them by naming a mediation team consisting of LeRoy Collins, the conciliator of racial disputes, and Wayne Morse, an expert on labor relations. While the senator had bitterly opposed the President on Tonkin Gulf, he was a professional who did not hesitate to support him on wages and prices. But the team failed to produce an agreement.
On August 30 Johnson gave the nego
tiators an ultimatum: accept his deal or postpone the strike. He sent them to Room 275 in the Executive Office Building, which he had occupied as Vice President. He then named a new team, which he kept secret from Connor and Wirtz: Arthur Goldberg, who had long represented the Steelworkers, and Clark Clifford, who presently represented Republic Steel. “He indicated … ,” Califano wrote, “that he had no confidence in Connor and Wirtz, and at the same time told the secretaries that he was depending solely on them to settle the strike on his terms.” The parties extended the deadline for eight days.
After intense negotiations Clifford reported that the companies would improve the wage offer if LBJ would permit price increases in products that had no Japanese competition; Wirtz said the union believed it could get a better deal if the President “winked” at modest price increases. Johnson: “None. Zero.”
Connor and Wirtz then got into an argument over the cost of the fringe benefits. Johnson insisted that they agree and ordered Califano to mediate a settlement. After a number of exhausting sessions Connor and Wirtz on behalf of their constituents signed an agreement. Johnson, triumphant, called the negotiators into the Oval Office, congratulated them, and announced the agreement on national television. He sent word “to our soldiers out tonight in the jungles of Viet-Nam [that] it means a continued uninterrupted flow of the goods that are so essential to freedom and to his life, and even more, the assurance that those at home will never forget his sacrifice in the pursuit of their selfish ends.” CEA costed out the wage and fringe benefits at 3.2 percent, right on the nose.
“Johnson’s decision to hold off a tax increase,” Califano wrote, “… set us on a scavenger hunt to find money for the federal treasury.” A prime source was the sale of government stockpiles of strategic materials built up after World War II. “The big bucks were in aluminum: 1.4 million tons of excess aluminum could be sold for close to $700 million.”
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