Kennedy: The Classic Biography (75 page)

“I know everyone else 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’s 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?” He also had some evidence to back his suspicions that the gloomy rumors which triggered the gold withdrawals of 1960 had been deliberately spread by American bankers to embarrass him politically, and he did not want to be vulnerable to the same tactic in 1964.

Aided by Dillon and his talented Under Secretary, Robert Roosa, the President chipped away at the international deficit and gold flow. Despite the reluctance of European nations to keep a larger portion of their reserves in dollars instead of gold, the outflow of our own gold reserves, in Kennedy’s first thirty-two months, was less than half as much as it had been in the previous thirty-two months. But the over-all payments deficit was more stubborn. The third quarter of 1963 showed the best balance of payments position of any quarter since the Suez crisis had given us a temporary surplus. But that particular quarter’s showing was partly due to the beneficial effects of the President’s proposing a special tax on foreign bond issues floated in our market. This bill, he said, was the kind of proposal he wished Treasury had put forward much earlier. The flow of American investments abroad was largely unrestricted, a policy he continued to doubt. “Sure they bring more in earnings in the long run,” said the President, “but by then this problem will be over. It’s a ridiculous situation for us to be squeezing down essential public activities in order not to touch private investment and tourist spending—but apparently that’s life.” Every time General De Gaulle and his aides talked menacingly about keeping American investments out of Europe, Kennedy secretly wished they would.

Nevertheless progress was slowly being made in other ways. American goods were kept competitive while foreign costs and prices rose. The Treasury constructed a complex network of arrangements with other countries and with the International Monetary Fund to protect the dollar with other currencies. The State, Defense and Treasury Departments persuaded other nations to buy more of their military equipment from us and to pay their old debts off in advance. Despite the Berlin build-up, a more modern military establishment led all other departments in cutting down on expenditures abroad. Federal civilian agencies, which had previously regarded it as a mark of prestige to open a branch office overseas, were discouraged from doing so.

The laws were tightened against Americans avoiding our income taxes abroad. Progress was made in getting other countries to pay their share of the foreign aid and military burden, and our own outlays in these efforts were tied almost wholly to purchases in America. In addition to higher short-term interest rates, new tax incentives helped keep more short-term foreign capital here. The President also pushed Treasury hard, although with limited success, to work with other nations in formulating a far stronger long-range international monetary system to finance future high levels of world trade.

These and other arrangements were generally approved by the Congress, whenever legislation was required, but they were generally unknown to most Americans. Two efforts did win wider attention. One was the effort to close the growing “tourist gap,” by attracting more foreign tourists to this country with a new United States Travel Service and simplified visa procedures and by reducing the duty-free amount our own citizens could spend abroad from $500 to $100. “If we’re restricting servicemen,” said the President, “I don’t see why these rich——can’t do with a little less—including my sisters.” Walter Heller suggested in the fall of 1963 that perhaps Jacqueline Kennedy, whose travels abroad were well publicized and by some unfavorably criticized, might take a “See America First” trip as part of our effort to get more Americans to vacation in their own country. “Next year,” the President laughed. “Next year I’ll ask her to do that.” At the same time he thought it unfair to restrict—or, as some proposed, tax—all overseas travel, with ill effects on teachers, students and other less affluent tourists, when those proposing such measures would not place equivalent restrictions on the movement of American capital.

The public’s attention was called even more strongly to the administration’s effort to increase our export trade. A variety of tools was employed, under the direction of Secretary of Commerce Hodges—including trade missions, market surveys and export promotion and education among American businessmen. A wholly new program of export credit insurance was developed. But the major effort—and one of the major legislative efforts of the Kennedy administration—was the Trade Expansion Act of 1962.

Like the antirecession program in 1961 and the tax cut in 1963 (and, later in 1963, civil rights), the 1962 trade bill became the centerpiece of all that year’s efforts—the subject of extra emphasis in the State of the Union Message, the subject of the year’s first special legislative message, the subject of a pep talk with charts to Democratic legislators, the subject of several Presidential speeches, and the subject of an intense White House lobbying effort with priority over almost all other bills. The new proposal would help our balance of payments, said the President, hopefully by increasing our exports faster than imports, and by enabling our businessmen to sell on more equal terms to the European Common Market instead of building plants within the Market.

But balance of payments considerations contributed only one of many long-range arguments for trade expansion. The Reciprocal Trade Agreements Act of Franklin Roosevelt and Cordell Hull had become outmoded and inadequate, as successive renewals narrowed the President’s negotiating authority. The remarkable growth and bargaining strength of the European Economic Community, known familiarly as the Common Market, and the application of Great Britain and her European trading partners for membership in 1961, produced new pressures for new legislation. If American business and agriculture could not share on suitable terms in the growth of that market, the President’s hopes for both greater Atlantic unity and greater American prosperity were clearly less likely to be realized.

The Reciprocal Trade Act expired in mid-1962. As we prepared in the fall of 1961 for Kennedy’s second legislative program, some advisers counseled merely a twelfth extension of the existing Act, with the usual minimum of amendments. That strategy would allow time to prepare the Congress and country and to await the EEC’s action on Britain’s application. But the President felt that the evidence was clear, that events might pass us by, and that the fierce fight which even a simple extension would entail might better be fought, and fought only once, for a wholly new trade instrument. “The United States,” he said, “did not rise to greatness by waiting for others to lead…. Economic isolation and political leadership are wholly incompatible.”

He established a special operation in the executive offices, headed by Philadelphia banker Howard Peterson, to help promote the bill in the Congress and mass media. Because his courtly Secretary of Commerce was better received by skeptical Congressmen than international lawyer George Ball, who was our trade and EEC expert, he directed Hodges rather than the Under Secretary of State to take the lead in all Hill testimony and negotiations. But he kept matters closely coordinated by the White House.

The Congress, accustomed to grumbling about even superficial changes in the old Reciprocal Trade Act, had been ill prepared for an unprecedented bill giving the President a five-year authority to cut all tariffs by as much as 50 percent and to cut tariffs down to zero on those commodities traded predominantly by the U.S. and the Common Market. The President never avoided the fact that, in order to sell more, we would have to buy more; and he proposed as part of the trade bill a measure (which he had first introduced as a Senator years earlier) to provide Federal “adjustment assistance” to firms and workers injured by any increases in imports deemed desirable. He did not expect that revolutionary provision to pass. It contained a variety of social welfare and economic aids which could never be passed on their own. Including it, however, helped our labor friends support the bill among their skeptical, traditionally protectionist members. It also served as a lightning rod to draw fire away from other sections, and as bargaining material if a compromise had to be made. The best evidence of the bill’s expert management and amazing success was the continued presence of those readjustment provisions when it came to the White House to be signed.

Democrats in every state, Kennedy had unsurprisingly discovered in his pre-1960 campaign travels, favored the traditional party policy of liberalized trade only if their own state’s products were protected. The fragmentation of Congressional power along state and local lines made that body protectionist by nature, as he knew from the pressures on him as a Congressman. And in 1961 three Lou Harris Polls—in Florida, West Virginia and Illinois—had failed to find a majority supporting trade expansion.

The President in 1962 set out to get a majority. It is time we recognized, he said, that trade is “no longer a matter of local economic interest but of high national policy.” He emphasized that the united Western economic might implicit in the bill would dwarf the Communists economically. “This bill,” he said, “by enabling us to strike a bargain with the Common Market, will ‘strike a blow’ for freedom.” Meeting frequently with those Senators and Congressmen concerned about particularly vulnerable commodities, he gradually built a majority in both houses without any compromise of principle or important loss of flexibility.

With the defeat of Republican attempts to strike out “adjustment assistance” and of all other crippling amendments, the bill passed virtually intact the same year it was offered. The following year, De Gaulle’s veto of Britain’s Common Market application slowed down progress toward Western unity and watered down the “down-to-zero” portion of the Act. Some insisted the administration should have fought for an amendment that took care of this contingency. But the President could not in 1962 have offered legislation assuming anything other than Great Britain’s acceptance, nor would he throw the whole subject open again in 1963 for a new set of Congressional pressures.

His authority over trade was still several times broader than any predecessor had enjoyed, and even as the new bargaining with Europe began—the “Kennedy round,” as the Europeans named it in 1963 somewhat to his discomfort—both our exports and our export surplus showed striking increases over their earlier levels. Nevertheless trade was only a long-range answer to the balance of payments problem. The Common Market was slow to lower its own tariff walls, particularly on agricultural products, where this country’s competitive advantages were great. (“Is the Grand Alliance going to founder on chickens?” the President asked one day in mock despair.)

In short, despite all his efforts, the payments “club” still hung over his head, limiting the size of his domestic economic program. In November, 1963, he weighed still stronger deterrents to the flow of American capital abroad, and talked of calling those of us working on the problem to an all-day planning session at Camp David.

BUDGET AND DEBT

But even had there been no balance of payments pressures, the President would not have felt free to unbalance the Federal Budget by as much as his liberal critics would have liked. He recognized that the “Administrative Budget” presented to Congress was not an accurate account of the government’s effort. He realized that a period of sizable Budget deficits would be required before the country regained its full potential of employment and growth, and he increasingly realized that the Budget was not merely a set of accounts but a powerful instrument of economic policy. Although he looked upon his increased domestic spending in 1961 primarily in terms of the benefits offered by particular programs, instead of the benefits of Budget increases in general, by 1963 he was fitting his spending and tax policies to economic conditions, appreciating the effect of all spending on prosperity and employment. Nevertheless his political judgment told him that a period of gradual re-education would be required before the country and Congress, accustomed to nearly sixteen years of White House homilies on the wickedness of government deficits, would approve of an administration deliberately and severely unbalancing the Budget.

His success with the Congress and country depended, he felt, on weakening the traditional Republican charge that Democrats were spendthrifts and wastrels who would drown the nation in debt. Nixon in 1960 had accused him of being fiscally irresponsible, a radical whose programs would invite runaway inflation. Had the young moderates in the suburbs and other independents who switched to Kennedy believed Nixon, Kennedy would have been defeated. He felt that he had to shed the “big spender” image to get his programs through, and that restraint was also required to keep some accord with Eisenhower and other Republicans whose support he would need on foreign policy.

The widespread acceptance of the sanctity of balanced budgets, moreover, made it politically impossible to convert overnight either the voters or the Congress to the merits of Budget deficits. Even in 1963, when his combination of a tax cut with a large deficit and rising expenditures represented the boldest fiscal move in a generation, he felt inhibited by the limitations of Congressional and voter opinion. Far more money could well be spent in many domestic areas, he knew. “But it still is a large budget, a large deficit,” he told his news conference, “and I think we have done about as much as we now can do. In other years we may have to do more.” And in other years he hoped the public and Congress would better grasp the wisdom of doing more.

He approached this problem of the nation’s fiscal re-education in three different ways: