The reactions of politicians and the media to the death of Gerald R. Ford, the thirty-eighth president of the United States, were almost universal in their predictability. Terms such as "accidental" or "caretaker" president were widespread, while most agreed with President George W. Bush that, "For a nation that needed healing and for an office that needed a calm and steady hand, Gerald Ford came along when we needed him most" (Bush 2006). Though much has been made of Ford's integrity and honesty, there has been little discussion of his significance in terms of policy or even his legacy. But, as Fred Greenstein has argued, "Presidents and presidential advisers who dismiss the Ford experience will miss out on a rich set of precedents about how to manage the presidency. More fundamentally, they will fail to take account of the personal strengths of a chief executive who had an impressive capacity to withstand the pressures of office" (2000, 193). No more so was this true than with regard to economic policy.
This paper examines the Ford administration's reaction to the deepening recession of the mid-1970s and the unprecedented challenges of stagflation. This includes an analysis of the decision-making process within the White House, the administration's relationship with Congress, and the abandonment of almost 40 years of Keynesian orthodoxy that would see President Ford introduce a new conservative economic agenda as he sought to adapt traditional Republican economics to deal with new economic circumstances.
Most studies of post-World War II economic policy in America have defined a number of key stages in the development of the political economy, beginning with President Franklin D. Roosevelt (see., e.g., Hibbs 1987; Morgan 1995; Stein 1994; Spulber 1989). The Roosevelt presidency is significant because of its response to the Great Depression, which dramatically increased the role of the federal government in the management of the American economy as it sought to reverse the waste of human and material resources by deliberately creating an expansion of output, employment, investment and consumption. A major factor in Roosevelt's approach was the theories of British economist John Maynard Keynes, and particularly his General Theory of Employment, Interest, and Money, written in 1936. (1) Keynes rejected the classical nineteenth-century laissez-faire notion of a self-adjusting economy and argued that government had to intervene to correct market problems by manipulating aggregate demand to prevent unemployment and inflation.
As economist Herbert Stein noted, Keynes influenced politicians, economists, and intellectuals, as his theory appeared to offer the promise of economic prosperity and growth. This helped make expansionist fiscal policy the basis of an economic consensus that would last for 40 years. This was institutionalized and supported by the 1946 Employment Act, which committed future governments to seek "maximum employment." Observed Stein, "Without Keynes, and especially the interpretation of Keynes by his followers, expansionist fiscal policy might have remained an occasional emergency measure and not become a way of life" (1994, 39).
From 1945 through the early 1970s, the U.S. economy enjoyed international preeminence, and economic policy generally was successful at maintaining a strong growth rate, high employment, and low inflation. Such was the apparent success of Keynesianism that by the 1960s, economists and politicians alike believed that the economy could be fine-tuned to eradicate economic imbalances and make the business cycle obsolete (for insightful comments on this era, see, e.g., Okun 1970; Stein 1994; Tobin 1974). By the early 1970s, however, increasing competition from abroad, the economic consequences of the Vietnam War and the Great Society, and the oil price inflation that followed the OPEC price hike of 1973 had severely weakened the economy.
The postwar dominance of Keynesianism began to be undermined by slow growth and the emergence of stagflation, which simultaneously produced unprecedented high inflation and rising unemployment. …