When President Nixon came into office, he faced three major economic problems: inflation, balance of payments deficits, and spiraling federal government expenditures. His announced policy for dealing with inflation had three elements: (1) fiscal restraint, (2) monetary restraint, and (3) reliance on private markets to set prices and wages. In fiscal and monetary policy, the administration stressed "gradualism," the importance of slowing down gradually to ease the transition without imposing abrupt shocks on the economy. The announced policy for dealing with the balance of payments was to reduce direct controls on foreign investment and lending and to rely on the ending of inflation to expand exports and reduce imports. The announced policy for dealing with spiraling federal government spending was to produce fiscal restraint primarily by holding down government spending rather than by raising taxes.
The actual execution of policy falls into two sharply demarcated parts: before August 15, 1971 and after August 15, 1971.
Before that watershed date, there was no change in stated policies, although the actual execution of policy departed from the stated ideal. Fiscal policy was adhered to rather well: federal government spending rose less than 7 percent a year from 1968 to 1971--a sharp reduction from the more than 13 percent a year rise from calendar year 1965 to calendar year 1968. The departure was more significant in market policy. The President engaged in some "jawboning," notably by establishing a productivity commission and by having the Council of Economic Advisers issue "inflation alerts." More important, in the construction industry, the President, after temporarily suspending the Davis-Bacon Act, accepted an arrangement establishing joint management-labor councils to police