Vietnam: A Television History; Interview with Henry H. Fowler, 1981

If you were a part of the stats for the day that were right what do. You do. Well leaving the figures to one side which are primarily a function of the Defense Department analysis. Short of that I told Mr Clifford that the. Additional costs in the fiscal year sixty seven and sixty eight would increase then already alarming deficit. In the budget that it would. The. Build up proposed would also. Increase significantly the balance of payments deficit which was projected in that particular year at several times the size of the of the rather minor

deficits that characterized the nineteen sixty six and sixty five and that the increase in 67 was alarming and that a further increase in 68 we would hope could be avoided. We were trying desperately to bring our balance of payments back into equilibrium as a result of President Johnson's Jan. 1 balance of payments program which had been announced a few months before. There were problems that even though they were. Related. Well you don't relate a budget deficit or a balance of payments deficit necessarily to any one aspect of federal activity. It's a totality that it's related to. And since. The costs of the war both

budgetary and balance of payments costs were significant and you could say that they were related but you didn't break apart the deficit and say this part of the deficit is because of the defense program. It's the totality of the national effort that you have in mind. I. Told her it was going to be a problem. Yes and for example that we had been pressing since the previous August for a substantial increase in income taxes in order to more adequately fund the federal effort and to avoid any further increase in the deficits in the budget and also in the balance of payments.

And that of course we were having great difficulty in getting that tax bill through the Congress and I dish no outlays of the character and magnitude that were contemplated. It would mean we would have to increase further our request for taxes or accept reductions in civilian expenditures on the civilian side of the budget in order to achieve the financial goals that we had set for ourselves in maintaining a stability and in our economy and avoiding a serious threat of inflation and some serious international concern about the dollar. It is. Traditional to talk about the problem from the presence of guns. In. That way.

There are no I don't think so I think the use of the word butter has a certain implication. What the president was anxious to do was to deal with both. The military aspect of our of our problem and call that guns and social progress achieve a degree of social progress that had been besieged by his so-called Great Society programs which had been enacted in 1964 and 1965 in which he was still is still pursuing. So there's no question but what he wanted. To make progress on both fronts bringing back peace and stability in Southeast Asia without a cave in to a communist takeover. And at the same time to continue. To forward the programs that had been initiated and we're just getting on the way. So in that sense he was trying to accomplish two objectives.

And. Yes I think he was trying to do it in a in a balanced way because he felt that both were highly desirable and necessary in the national interest at that time. He made it raised that. The. Standing. That. He cared. Right right. Well I he was right at that time had become fully and irrevocably committed to a very substantial tax increase. Going back to his State of the Union message in January 1967 when he had asked for a 7 percent surtax which was reinforced the following August by a further message because we had a bit of a downturn in the economy in the spring of 1967.

Softness in certain of the sectors such as automobiles and housing and he'd come back in August of 1967 with a full scale all out effort for a 10 percent sac tax surcharge which if you recall there were daily briefings in which every member of the House and Senate was brought over of the White House and the blackboard drills went along hour after hour and day after day. Following this message in August. Then there was a difficulty in getting the Congress to adopt that surtax it was held up in the House Ways and Means Committee. All during the fall there were two sets of hearings and in 67 and then I reiterate of the necessity for this tax increase in the president's State of the Union message in January 68. It was a key element in his balance of payments program as he had announced in Jan on New Year's Day 1968.

And so he and let me say all of the forces at our command bigger as they were were being devoted almost. Exclusively to getting this tax surtax so-called bills through your tax bill. Well I would more say of being held by Wilbur Mills but there was an unwillingness on the part of the House Ways and Means Committee to report out. The surtax and one of the reasons Assan was that they had not been able to work out a an adequate arrangement with the House Appropriations Committee and with the administration to reduce the level of expenditures that the Ways and Means Committee quite honestly felt was a necessary and a desirable accompaniment of any increase in taxes

they would put it. These are their words not mine they would say we are about to increase surtaxes So those fellows over in the House Appropriations Committee and the administration can increase six expenditures that much more so we want to accompany the tax increase with a substantial reduction expenditures. And it was all that particular question that the legislation had been held up. The. President. Is considering that. Yeah that's right. That that's the implication and then in the memorandum to the Clifford committee chair the Clifford group there were specific questions addressed to what are the consequences of this proposal for the budget. And what are the consequences for the balance of payments. So it

was my job to take the figures that were given to me from other sources Defense Department and try to read from those figures the impact that this act would have on both the legislative situation on Capitol Hill and the attitude around the world in the financial markets towards the dollar and our balance of payments. President what. Would you rate. One or the other I mean if if the figures as I recall them at that time from the Defense Department were that this would cost an additional 10 billion dollars in the in the budget for the forthcoming fiscal year beginning July 1 1968 going to June 30 1969. So if you're going to have 10 billion dollars more of

expenditures you've got to find some additional increase in taxes and some additional reduction in expenditures or a combination of the two in order to bring what was then a very sizable deficit would seem so at this time in the current circumstances. We viewed it as very serious at that time. That basic. OK. What I want to get in is if I didn't have discussions with him relating these things to his decision my input was with the task force.

He was fully aware of all this I'm self I would bring many news but he thought the people on the taskforce ought to be made as aware of the fiscal and balance of payments consequences as he was. So it was it was it was me saying we must press you all to do this or you ought to do that. I was I didn't as I told you earlier in our discussion here I didn't ever assume a political or military judgment yet. Well let's just go back again. Well giving the faults of memory and the fact that you will have access to versions of what Fowler said to the Clifford group and its early meeting on February 28 and perhaps one or two

meetings thereafter. My recollection is that it would be in character with my basic attitude was it. I simply tried to educate my colleagues on the political consequences. On Capitol Hill of the adoption of this particular program causing in a very difficult legislative situation. Irrevocably the need for an increase in the level of taxation requested from the 10 percent surtax to whatever would be equivalent to match this 10 billion dollars of extra expenditures or a reduction in the expenditures on the civilian side of the program or some combination of the two. And then on the balance of payments to relate to them the. Temper and attitudes in the international financial

markets the fact that we. The dollar was a keystone of the system and anything that threatens to increase further the deficit the balance of payments it was characterizing had characterized 1967 was dangerous and indeed we had to carry through on the Jan. 1 program to bring that deficit back into into equilibrium. You know something. Five hundred million dollars for that. No it's related to the totality of your efforts in matter of fact one of the real sources that used to concern me very greatly but I was never able to do anything about was the appetite of the American truck foreign travel there was civilian aid program. There was the lending of our financial institution

sending dollars outside for all kinds of purposes banking and world financial markets. So there were a lot of elements that entered into the balance of payments but the. Military expenditures outside the borders of the United States where you buying materials and equipment and facilities and paying for them out of dollars had its balance of payments consequences. It was a goal and a cost. It would cost more to equip and maintain in service two hundred six thousand man. In addition to those already there that would if you stayed with your presence for it was a big lie about that. Yes this. Frenzied activity in the area.

Oh yeah well it's a very complicated question but what it meant was that the United States and four or five other friendly countries through their central banks were trying to maintain a stability in the gold price a single gold price by buying and selling on the London gold market. And. Some of our didn't bother us particularly at that point because we had we were well-equipped to continue the program but some of our friends from the countries who were participating in this program were quite concerned that as there would be a demand for gold we would all have to put more gold and the gold and actually on March 15 meeting with the central banks the participating countries in the gold pool in Washington John and William Chesney

Martin of the Federal Reserve Board worked out a program for dissolve ing the gold pool and setting up what was called the Terra system which would mean that central banks would exchange gold at the stable figure of thirty five dollars and fourteen cents an ounce. And you let the market determine what private transactions and gold were that action was taken nothing much happened for another several years because the price of gold and private transactions hovered. Maybe a little bit above or actually if anything it went below the $35 an ounce figure for quite a period of time it was only in 1971. That the gold scare came back again because our balance of payments in 1970 and 1971 was again getting out of hand and we were in an era of

so-called benign neglect. That topic which caused the dissolution of the gold and the dollar. The link between a gold dollar and August of 1971. But wait. Why was it. Well the the the two main currencies that were the reserve currencies at that time were the dollar and the pound and the pound had been devalued substantially in November of 1967. And as the words that I use it is time the dollar was in the front line. So in order to maintain the stability of the international monetary system it behooves us to be sure that our balance of payments was under. Perceptive poll control. And that was of course the reason for the Jan. 1. Johnson balance of payments program

and having set forth on that program in which incidentally the surtax was one of the centerpiece elements. We didn't want to take any steps involved with balance of payments consequences without amending further the program or doing those things that would be necessary to bring that three and a half billion dollar deficit down to zero or a few hundred million either which as a matter of fact I should add we did accomplish because in the calendar year and I teamed 68 we had a surplus in the balance of payments for the first time since nineteen fifty seven was being responsible and very accurate. There you go. Well I felt that he was yes he was being responsible and as he saw the situation

from my point of view I would have much preferred to have had a hard bitten negotiation with the House Appropriations Committee and with the administration and get a bill that would include a six substantial reduction in expenditures along with a surtax and that's finally actually what happened in a very secure this way in April and May of 1968 which is a part of the legislative history of that bill I doubt that you want to get into in this program. You are getting it done. How do you feel vending. Tell me how he evaluated. I don't remember how he would have and we would not suspect they have discussed those options I think he would have agreed that we had to take the necessary

action to get the budget deficit back down to minor proportions. But mine would be just a guess as to whether he preferred the additional increase in the projected surtax or to what extent he was ready to to accept reductions in the civilian side of the program as later events developed. He was quite quite reluctant in an April to accept a coupling of the 10 percent surtax with a 6 billion dollar reduction in spending he preferred 4 or 3. But the compromise as it was finally worked out and acted by the House and the Senate was at 6 billion dollar reduction figure. And my recollection is that he didn't. He thought that was a little excessive. These are painful.

Sure one of them. Well it's I think put him in a very serious decision making area as to whether or not he would risk adding to the tax bill. Which was undergoing Verdes great

difficulties and delays and. And it was at that time dubious as to whether or not we would we would get it. And it. Would have an impact on our balance of payments to which he had just made a very dramatic appeal to the country for a program to correct the deficit in 1967 on national television on New Year's Day. Then on the other hand if you looked at the Chari of reducing. Civilian expenditures in the budget as a price you might say of getting a tax bill he would be cutting down or cutting all some of the measures which he had sincerely felt

were necessary due to further social progress in a decade which as you recall was a troubled decade as far as minorities and less privileged elements in our society. I mean you liked him. Yeah. What effect it will be having. Well I think you're creating a situation in which it would be inevitable that the Congress would insist upon a much more major reductions in civilian expenditures and he President Johnson wanted to have at that time. Well what I what I've taking an objection to the normal thing is that

the use of the term guns and butter quite familiar with that having been involved the War Production Board in World War 2 and what was of concern there was the guns and butter effort was cutting down and cutting out on the production of a lot of luxury items in the economy in order to make available the materials and the work work force and the tools to to make guns or to provide essential civilian supplies. And President Johnson thought that the measures that he had the great society measures were not bought or they were not luxuries they were not they were essential items to to strengthen the fabric of society that as he saw it from his point of view at that time was was in trouble. I was surprised.

I don't recall how Clark reacted to it you have to have to ask him that. I was by people. Well it depends on who the people were. If you talk about bankers or bankers thought that we were under very considerable strain. You don't about the average person or all the political chiefs of state ministers in other than the ministry of finance ministers of finance or the central bankers. I doubt that they are terribly concerned but among the financial community abroad there was a concern about our financial posture. Indeed I was engaged in a very heavy negotiation at that time which for the latter part of March kept me out of the country a good deal trying to

finalize an agreement to create a new reserve asset which was a negotiation we've had on the way for about four years three years time and the willingness of our friends in other countries to collaborate in this new and rather adventurous exercise which led to the creation of what is now called special drawing rights. It was you would get a certain amount of static from them about why don't you get your house in order and let's not take any chances with the dollar and that that kind of attitude. Which incidentally I never would accept and never would tolerate. If I felt it was an effort on their part to affect our conduct of our war which they were not helping with. And in particular I should add I did not in relating

these. Financial and economic aspects to Clark Clifford and his colleagues on the committee. I did not attempt to draw a conclusion that because of the circumstances there should not be an additional force of two. I did not consider that to be my function nor did I think I had the competence to make that kind of judgment. It was my role to simply give them a reading on what the economic and financial consequences would be. It was their first sponsibility to pull that together with a number of other factors which we can't go into here political and military and make a final judgment. As a matter of fact I think what really happened and I get some support from President Johnson's own book the vantage point on this is that between February. 28 in the aftermath of the Tet Offensive and later on in March to the end of March when he made his address to

the nation indicating there would only be a small increase in the force in Viet Nam. I think during that period. The situation on the ground with our military forces in Vietnam and with the South Vietnamese army improved substantially insofar as the information was coming to him is concerned and that probably as I read what he says in his book it was the improvement of that situation which was which was determinative more determinative them I suspect the economic and financial consequences but I have no way of knowing that that's simply a reading I give to what he says in his book. We need to. Know now. As I say I was away a good deal of the time from in the latter part of March and I actually return to this country only the day before his

address to the Nation on Sunday night that he would not run again and fall on stating his three reasons three circumstances which caused him to come to that stage. Well the estimates I had no way of calculating that so I had to take my information from the events department and I don't recall the precise figures but in the book the vantage point of the 10 billion dollars is is the figure that floats around as the cost budget wise for the fiscal year that would begin on July 1. If Unless you are going to allow it to.

Increase the deficit at a time when we were doing everything we possibly could to reduce that deficit and I might add just as a minor footnote for history that as a result of the increase in the taxes and in the spring of 1968 and a reduction in the civilian expenditures of about six billion dollars in the fiscal year that began July 1 1968 and ended June 30 1969 we had a surplus of about three billion dollars in the deficit as against the budget as against a deficit of twenty five billion in the preceding year. So the objective that we were concerned with at that time was accomplished and incidentally that's the only surplus we've had in the budget since that time. John like that very

much. And his as an agonized man I don't think I want to be clear. I don't think it was an agony for himself or for the tough decisions he was having when I was in the business of feeling sorry for him so I think his is agony as I saw very close range and this is a little private meetings in his little side room to the Oval Office in the evening when I had to have a custom one like to have me come over a couple times a week just to chat. It was what was happening in terms of the killing and and the death and the wounding and whatnot to our troops and to the civilians that were caught up in this in this maelstrom. And Viet Nam I give that some.