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What went wrong in Arthur Burns' time as Fed chair in the 1970s


History remembers Arthur Burns as the 1970s Fed chair who let inflation run rampant. His name has been invoked recently in the financial press as a cautionary tale.


TED OAKLEY: I don't think Jay Powell wants to be the next Arthur Burns.

UNIDENTIFIED PERSON #1: He doesn't want to be Arthur Burns.

UNIDENTIFIED PERSON #2: Avoiding being another Arthur Burns.


KELLY: Clearly, that's the outcome that current Fed chair Jerome Powell wants to avoid. Wailin Wong and Darian Woods from our daily economics podcast, The Indicator From Planet Money, look back at the 1970s to figure out what went wrong.

ADRIAN MA, BYLINE: Arthur Burns was an Austrian-born, pipe-smoking economist.

WAILIN WONG, BYLINE: He was also friends with President Richard Nixon. The two men worked together in the Eisenhower administration, and in 1970, Nixon gave Burns a warm welcome as Fed chairman at his swearing-in ceremony.


RICHARD NIXON: You see, Dr. Burns, that's a standing vote of appreciation in advance for lower interest rates and more money.


MA: Is that Nixon making a joke about how the Fed should keep interest rates low?

WONG: Yes. And that wasn't the only joke he made about what he thought his new Fed chair should do.


NIXON: I respect his independence. However, I hope that, independently, he will conclude that my views are the ones that should be followed.


CHRIS HUGHES: You can see Burns grimace. You see it in the video.

MA: Chris Hughes is a senior fellow at the Institute on Race, Power and Political Economy at The New School.

HUGHES: To be honest, no one today thinks that Arthur Burns was a great leader of the Fed.

MA: But when Arthur Burns first took the job, he came in, and everybody expected him to be an inflation fighter. And Burns hated inflation.

WONG: And yet, the Fed under Burns eased up on rates in the early part of the 1970s, when U.S. inflation was already elevated - around 5%. There are some different theories about why Burns did this. One theory is political pressure from Nixon, and that brings us back to Burns grimacing at the president's joke about Fed independence.

HUGHES: The press laughs. Everyone in the room laughs because Nixon's touting the official line of Fed independence, but he's going to apply political pressure. And Burns knows the guy, and he understands that's going to be a challenge. And it is.

MA: But Chris doesn't buy the idea that Burns caved to Nixon.

HUGHES: In the absence of other government action, he'd have to raise rates to such an high level, creating a recession, throwing millions out of work, and the guy didn't want to do it.

MA: By 1974, inflation was in double digits, and the economy was in a deep recession.

WONG: Chris says in hindsight, even as an Arthur Burns defender, he can point to certain periods and say rates should have been higher. But he also thinks Burns was dealing with a couple of big economic forces that shaped his approach to interest rates.

MA: One of those is that the American financial system was in a fragile state. During his tenure, two important companies, including a major bank, ended up collapsing.

HUGHES: There's a generalized fear that if the cost of money increases too fast or too high, it's going to cause the financial system to shake, if not even potentially come apart.

WONG: The other big force was what was actually causing inflation. In the 1970s, there were big shocks coming from the supply side, like the Arab oil embargo of 1973. It wasn't clear that hiking rates, which would primarily affect demand, was the right approach for tackling this kind of inflation.

WONG: Wailin Wong.

MA: Adrian Ma, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.
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