‘Cruel Hoax of Humphrey-Hawkins’

It’s going to be fun to see how the New York Times comes out in respect of Humphrey-Hawkins. That is the law that gave the Federal Reserve an additional mandate beyond stable prices, namely the assignment to promote full employment. In the face of the contretemps over the Federal Reserve’s campaign of quantitative easing, the Wall Street Journal issued an important editorial last week calling for the repeal of Humphrey-Hawkins. The Financial Times followed this week, with its own argument in favor of repeal.

What puts us in mind of the Times is the fact that, back in February 1978, when the Humphrey-Hawkins was first proposed — by Vice President Humphrey’s widow, Muriel, who’d been elevated to replace him in the Senate — the Times came out with a withering deconstruction of the ill-thought-out legislation. It ran its editorial under the headline “The Cruel Hoax of Humphrey-Hawkins.” The Times acknowledged that the law had what it called “wide appeal,” partly in tribute to the late vice president and partly as a reassertion of a “faded commitment” to full employment.

The law, however, was “deeply flawed,” the Gray Lady warned, and would “legislate wishful thinking, not a reduction in unemployment.” It observed that an earlier version of the bill promised too much and that the final version promised too little. So the Times concluded: “It deserves a harder look from its boosters and rejection by Congress.” The Times editorial goes on to offer a fascinating glimpse not only of the inanity of Humphrey-Hawkins but of just how far the Times — and our times — have fallen from the days of what might be called “hard-headed liberalism.”

It noted that Humphrey Hawkins would proclaim a goal of “4 percent unemployment by 1983” (the rate at the time, the dark days of the Jimmy Carter presidency, was 6.3%) but “by itself, would not create one job; it would merely legislate a good intention.” The Times noted that the administration was offering a battle plan that included its “new tax cut proposal, its job program, and its voluntary anti-inflation initiative.” But it noted that the plan was encountering resistance from legislators who feared either inflation or wage and price controls.

Then the Times offered a paragraph pregnant with a sense of the malaise of the Carter era of which Humphrey-Hawkins is a monument: “The uncertain consequences of any policy decision also impede action. Numerous levers can be pulled. Taxes, interest rates, job subsidies, training programs, wages or price restraints — all can be put to work. But the riddle no one can answer is how to use these tools to drive unemployment down to the promised land of 4 percent without triggering worse inflation and, perhaps, an accompanying deep recession.”

It turned out that there were those who knew how to chart a way forward, one that involved taking a recession in the short run. One of them was Paul Volcker, who acceded to the chairmanship of the Fed shortly after Humphrey-Hawkins was brought into law. He promptly declared that dealing with inflation had been “elevated to a position of high national priority” and that success would require policy to be “consistently and persistently oriented to that end.” Quoth he: “Vacillation and procrastination, out of fears of recession or otherwise, would run grave risks.”

The other titan was Ronald Wilson Reagan, who ushered in the supply-side revolution. It combined Mr. Volcker’s anti-inflation regime with strategic tax reductions, particularly at the top margins, and a commitment to deregulation and free trade. The result, after at 14-month recession in 1981 and 1982, was the Great Reagan Boom that rolled forward and helped bring, among other bounties, victory in the Cold War.

Now we are in an era of in which the malaise and befuddlement of the Carter years is being echoed under President Obama. The nature of the stagnation is slightly different. Consumer price inflation hasn’t hit — yet. But the sense of frustration and malaise and policy indecision has hit. The questions are whether Congress will revise its mandate to the Federal Reserve or whether a new chairman with the capacities of a Paul Volcker will have to be brought in. And then the question of who will be emerge to rise, Reagan-like, to the presidency. How ironical it is that the debate is once again coming into focus over the cruel hoax of a law that required the soundness of our money to be compromised for the cynical promise of full employment.