The MacNeil/Lehrer Report; New Fed Chairman

G. WILLIAM MILLER: I cannot profess to have the qualifications to step into Dr. Burns` shoes. But I do, Mr. President, assure you that all of the energy, drive, capacity that I have will be devoted to continuing the work that has been done and continuing the programs so that over time we can overcome both inflation and unemployment and return this nation to a period of economic growth and stability.

ROBERT MacNEIL: That was G. William Miller, the man chosen by President Carter to succeed Arthur Burns as head of the Federal Reserve Board. Tonight, the reaction.

Good evening. The value of the dollar fell on foreign currency markets today, apparently in reaction to President Carter`s sudden sacking of Arthur Burns as Chairman of the Federal Reserve Board. Analysts said the reaction indicated unfamiliarity with G. William Miller, the businessman named to succeed Burns, and uncertainty about his economic philosophy. On Wall Street stock prices fell initially, then rallied to a slight net gain. The Dow Jones industrial average rose 0.69 points, and closed at 830.39. Businessmen cautiously welcomed Miller`s appointment, while political reaction was mixed. Tonight, the firing of Arthur Burns, and what it means to the American economy. Jim?

JIM LEHRER: Robin, the President`s appointment of Miller was a surprise because it seemingly came out of nowhere. His name had not been on any of the "if Burns goes" possibilities lists circulated in the press and elsewhere. He was virtually unknown outside the business community itself. President Carter hadn`t even met him until he decided to give him the Federal Reserve job. As a consequence, most newspapers today carried lengthy biographies of the fifty-two-year-old Miller, most of them hastily written. The basic information on him is this:

He was born in Sapulpa, Oklahoma, a small town outside Tulsa. He graduated from the Coast Guard Academy with a degree in engineering. After serving as a Coast Guard officer he went to the University of California and got a law degree. He was a thirty-one-year-old lawyer in a Wall Street law firm twenty years ago when the head of Textron Corporation asked him to join the conglomerate at a relatively low level. Miller was told that within a year he`d either be a Textron vice president or he`d be out. He did become a vice president, then the president, and finally chairman of the board. He`s a Democrat who supported Carter for the presidency. Nobody who knows him has been willing thus far to categorize him as either a conservative or a liberal Democrat. He`s been active in civic affairs in Providence, Rhode Island, where he lives, arid has served in leadership positions in various business organizations, some of them at a national level. The record is silent on whether or not he, like Dr. Burns, smokes a pipe; but it is known that like President Carter, he does play tennis. Robin?

MacNEIL: President the chairman`s outspoken remained veiled. In his correspondents Mr. Carter was man he`d just fired. Carter`s reasons for sacking Arthur Burns, criticism of administration economic policy, interview last night with television asked to explain his lavish praise for the (Last night.)

PRESIDENT CARTER: Chairman Burns -- I think he`s served longer than anyone ever has before; he`s served two full terms. And I thought it was time for us to have new leadership there. I particularly wanted to bring someone in, Bob, from the business community. I think there ought to be some change in emphasis from time to time. I also wanted to get someone that would have the confidence of business and financial leaders here and around the world. As a matter of fact, when I informed Chairman Burns of my choice, he said that is a wise and worthy choice; and he has known Bill Miller for years, and he said that he had been making a list of those that he hoped I might consider, and he made a list of some he hoped I didn`t consider. Fritz Mondale said why don`t we share lists sometimes? And he said, well, I can tell you a few of those that I was hoping you might consider. And the first two or three names he mentioned were leaders in the business community. So these are the reasons I thought it was time for a change; it`s certainly no reflection on him.

MacNEIL: But surely Dr. Burns was the very symbol of what business wanted in that job. And if Mr. Miller`s philosophy is not very different from Dr. Burns`, it`s difficult to see why it was necessary to have replaced Dr. Burns.

CARTER: Well, that was not an easy decision.

MacNEIL: Was it for personal reasons?

CARTER: No, not at all.

MacNEIL: Personal antipathy?

CARTER: Not at all. I think it`s say -- and Dr. Burns would confirm this and I have a close personal friendship; had any sort of disagreements when we were together, I`ve never criticized Chairman Burns, either publicly or privately. But I`ve already explained the reasons why I thought it was time to make a change. I think two full terms there is adequate; that`s as long as a President can serve, and I think bringing some new leadership into the Federal Reserve System will be beneficial.

LEHRER: One of the most crucial Washington reactions to the Miller accurate to -- that he we`ve never appointment is that of Senator William Proxmire, Democrat of Wisconsin. Senator Proxmire`s Senate Banking Committee will hold confirmation hearings on Miller, and then deal with many of the issues the new head of the Fed must tackle. Senator Proxmire had been critical of Arthur Burns, and his initial reaction to Miller today has also been somewhat critical. Senator, what is your main concern about Mr. Miller?

Sen. WILLIAM PROXMIRE: Well, first let me say that I think Mr. Miller is obviously a successful businessman, and that`s very important. He`s been a success in everything he`s tackled, and I acknowledge that. He`s had some experience, but very limited experience in this extremely complex area of monetary policy. He had six years as the director of the Boston Fed; that isn`t enough really to learn to ropes. And I feel that in this job, which is so important, so vital, so complicated, that covers not only monetary policy -- which by itself, it seems to me, takes people who`ve had experience and background and training and education -in addition the bank regulation, international financial dealings and so forth, I think we should have somebody with experience, who won`t have to be a rookie who has to learn on the job.

LEHRER: Well, wouldn`t anybody except Arthur Burns at this point be a rookie in that job?

PROXMIRE: Oh, no; no indeed. In fact, I think at least three of the members on this panel tonight would be much better qualified. I think Jack Carlson would be better qualified; I think that Henry Kaufman, one of the finest economists in the country, would be better qualified; and I think that William Grant, on the basis of what I know about him, would be better qualified.

LEHRER: You`ve just given the roster of our other three guests.

PROXMIRE: That`s right, but I think there are hundreds of people who are better qualified than this gentleman, who`s a fine gentleman and may make a success of it; but incidentally, I think that if Arthur Burns stays on the board, it`s going to be a Burns board for at least a year or so because it`ll take that long at least for the new man to know his way around.

LEHRER: You mean you think Burns will still be running things?

PROXMIRE: Well, if he wants to. He may not stay on this; in fact, he won`t. But if he decides to stay on it -- after all, if you were going on that board, you would rely on a man like Arthur Burns, with his background, his experience and so forth.

LEHRER: Well, Senator, how serious a concern is this to you? Do you think that this is really going to foul up the works economically while Mr. Miller learns the ropes, or what?

PROXMIRE: Well, it`s a seven-man board, but by and large in the past the chairman has had a dominating position, and of course he`s a vitally important spokesman for the whole country in economic affairs, has been, should be; and I suspect that it`s very important that we have somebody who can take charge right away. Now, I may or may not vote for his confirmation. I should, and I will, wait until we`ve investigated him thoroughly, until we`ve had hearings before I decide how I`d vote on it.

LEHRER: Is there any question that he`ll be confirmed?

PROXMIRE: No question in my mind at all. He`s going to be confirmed, confirmed enthusiastically. I was the only Senator who voted against Bert Lance, and I was the only Senator who voted against Mrs. Harris, I voted against Jim Lynn and Carla Hill, all for the same reason: they weren`t qualified for the job they were appointed. It`s like appointing a great football coach to be head of the Federal Reserve or appointing Arthur Burns to be a coach of the Green Bay Packers. He wouldn`t make it. And I think this man is well qualified in some respects, but not for this particular job.

LEHRER: Do you feel the President was correct in replacing Arthur Burns, though?

PROXMIRE: Yes, I think Arthur Burns should have gone. However, I must say that Arthur Burns had many excellent qualities. Fine economist, no better economist that I know of in terms of his ability. Arthur Burns also was not a team player, which is to his credit, because the Federal Reserve Board should not be part of the President`s team; but I think he should have gone because his policies were just not working. Here`s a man who`s here for seven years, and in those seven years we`ve had the worst inflation we`ve ever had in peacetime, we`ve had interest rates which are sky-high. He just hasn`t gotten results.

LEHRER: Senator, thank you. Robin?

MacNEIL: Uncertainty about Dr. Burns` future was one of the factors inhibiting business investment. William R. Grant is vice chairman of Smith, Barney, Harris, Upham & Company, a New York firm of brokers and investment analysts. Mr. Grant is also a trustee of the Conference Board, the economic research association of which William Miller is chairman. Mr. Grant, will Miller`s appointment reassure the investment world?

WILLIAM R. GRANT: Yes, I think it will, Robin, in two aspects. One, he is well-thought of by the decision makers in the United States who are involved in commitments of capital to long-range investments; and secondly, I think it removes one of the uncertainties in the market -- I don`t want to say that Dr. Burns was the cause for the market uncertainty, but on balance I would say that compared to the alternatives that had been speculated on, that Bill Miller`s appointment will be favorably received.

MacNEIL: You`ve sat frequently on the Conference Board and seen Mr. Miller in action there. From what you`re able to discern of it, how does his economic philosophy differ from Dr. Burns`?

GRANT: Well, I don`t want to say that I`ve sat frequently on it, and I haven`t talked with Bill Miller specifically on that philosophy. But I think one could look at the kind of company he ran and determine some of his character. He has run a superb operation for ten years. If one looks at his board of directors, for example, he has the uniqueness of having two foreigners on his board, which shows his concern about the international scene, and there aren`t many companies in the United States that would have that -- an Italian and a Canadian. He also has -- and I brought the annual report with me -- on page one he talks about the private enterprise story and I think very aptly relates the proper balance between the private sector and the public sector, and there are many investors who have felt that recently the public sector was becoming the dominant force and there were those of us who also believe that that`s had a lot to do with the inflationary problems that the market has been concerned about.

MacNEIL: Following up on what Senator Proxmire just said, from what you`ve been able to observe is Mr. Miller personally a take charge, assertive personality like Arthur Burns, or a team player? In other words, will he dominate the Fed`s policy committees, or will they dominate him?

GRANT: I would say that Bill Miller is a very strong personality, that he has the reputation of having done a fine job, not only in the company but in the organizations that he`s been involved with, whether it`s been the National Association of Businessmen that were concerned with hard-core unemployment, or the Conference Board or the Business Council, what have you. He`s also run -- the reputation among the analysts is that Textron is a well-run company and a very tight ship that has had good labor relations over a period of time and good relations with the public sector. I would say that he will get along well with the staff in the Fed. As Senator Proxmire mentioned, not having as much background he might well look to the Fed for more advice than Dr. Burns did with his long, detailed experience.

MacNEIL: Would you, from what you know of Mr. Miller, expect him to have quite the obsession, if that`s the word, or putting the same priority, on fighting inflation as Dr. Burns did?

GRANT: I think that the chairman of the Federal Reserve, regardless of the background to which he comes when he addresses that issue, has to have that concern; he has to represent the independence vis-A vis the administration that happens to be in power at the time. So I would think that the chairman will be strongly opposed-to inflation, he is strongly opposed to the kind of unemployment that we have. Hopefully, with his experience in working on the structural concepts of unemployment, he could be very active; and that`s where the real unemployment problem is, in the structural side, not in the government pouring more money on the total economy and hoping some trickles down to the structurally unemployed. Yes, I`d feel very comfortable with his feeling for that.

MacNEIL: Thank you. Jim?

LEHRER: Let`s get another view now from the business community and its most potent lobbying and organizational arm, the U.S. Chamber of Commerce. Dr. Jack Carlson is the Chamber`s chief economist. Doctor, what is your feeling about this appointment?

Dr. JACK CARLSON: I think generally the business community think that it`s a good appointment because Bill Miller is known to have good judgment. Expertise is a secondary criteria, I think, in relationship to good judgment, and he ...

LEHRER: You mean in the monetary policy area that Senator Proxmire mentioned.

CARLSON: Well, he may not have as much experience as some other candidates, but he obviously has very good judgment. And I, frankly, would put good judgment first. As Arthur Burns himself said, he thought that this was a wise decision that the President made; and so I would discount the expertise somewhat to support the good judgment criteria that Bill Miller obviously has.

LEHRER: He was well-known within, say, Chamber circles and big business circles, was he not?

CARLSON: Yes, he is well-known; in fact, he has been chairman or vice chairman of some of our international trade and economic councils, U.S.- U.S.S.R. Council, for example, for this corning year. And from that vantage point it`s obvious that he has shown that he does have good judgment.

LEHRER: All right, let`s take it the next step. Based on your knowledge of him and what you`ve heard of him, how would you categorize his views as compared to those of Arthur Burns?

CARLSON: I think that everyone is somewhat uncertain as to his monetary policy positions, and that will have to develop over time. I think Senator Proxmire is quite correct inasmuch as we don`t know what positions he`ll take. But I am convinced that he does tend to provide information to himself, he`s open before decisions are made; also, one has to take into account that the Federal Reserve Board is made up by seven gentlemen, and there are many outstanding people there. So I don`t think that you`ll see any marked change in policy in the short run, especially during this period of time where you`d normally expect to have some transition, where everybody`s a rookie during a transition period.

LEHRER: Of course, as you said, there are seven members of that Federal Reserve Board, but the only one anybody ever heard about, or heard from, was Arthur Burns. That`s obviously going to be the case, is it not, with Mr. Miller?

CARLSON: If you`ve looked at the minutes, or the reports coming out of past meetings of the board and the Open Market Committee, you`d find out that there`s a diversity of opinion that takes place on those boards. And so one has to look at the fact that the chairman is first among equals; but nonetheless, he`s one of seven, and one of ten -- and one of twelve, I should say, on the important Open Market Committee.

LEHRER: I`d like to ask you the same question that Robin just asked of Mr. Grant: what does the appointment of Mr. Miller do to this whole question of business confidence that we`ve been hearing so much about in relationship to the Carter administration?

CARLSON: I was in Europe this summer, and I was impressed by the fact that the leaders there had great confidence, in most countries, with Arthur Burns; and consequently, I think you can understand why the markets internationally acted the way they did today, while domestically they tended to feel comfortable with the appointment. And I do think that there is this difficulty in terms of people getting to know Bill Burns -- Bill Miller and accept him in an economic policy role.

PROXMIRE: That was more than a Freudian slip; I think Bill Burns may be what it`ll be called.

(General laughter.)

CARLSON: I, like Senator Proxmire, do not think Arthur Burns may be there for an extended period of time, but I do think there will be a continuity of policy, that the Fed will tend to be independent and maintain that independence so it can lean against the inflationary forces more than we find the executive branch or, I might say, the Congress tends to lean against inflationary forces.

LEHRER: All right, thank you Doctor. Robin?

MacNEIL: Let`s look in more detail at what the switch at the Fed could mean to monetary policy, that is, interest rates, the money supply, and ultimately the value of the dollar. Salomon Brothers, the New York investment bankers, are considered expert in these matters. Dr. Henry Kaufman is a partner and member of their Executive Committee. Dr. Kaufman, is Miller a good choice?

Dr. HENRY KAUFMAN: That remains to be seen. I think the situation now in front of us will result in a period of uncertainty. A new chairman with limited background, as Senator Proxmire had indicated, will have to work very hard to integrate himself into a very complex area. For the near term it would seem to me that the new chairman will have to depend very heavily on staff for advice. That would mean in turn,, of course, that the remaining board members would have greater influence than heretofore. It would also mean to me that over the intermediate term monetary policy probably is in a great period of transition. I would assume that Chairman Burns will step down as governor, and therefore the President will soon have to appoint another member to the board. It also seems likely that the remaining five board members will not complete their term of fourteen years, and consequently the administration is in the process of changing the composition of the board. And therefore a new type, perhaps, of monetary policy may eventually unfold. This will...

MacNEIL: Excuse me. What would be the most obvious sign on that? A freer hand, for instance, on the money supply?

KAUFMAN: Well, the current policy approach is one called "practical monetarism," meaning controlling the supply of money while at the same time trying to look at the level of interest rates. The year ahead of us is a very difficult year, no matter who is going to be chairman of the Federal Reserve Board. Under those conditions that I envision for 1978, it would seem to me the Federal Reserve Board is going to be challenged very heavily in this approach concerning money supply expansion on the one hand, and interest rate levels on the other. Because we`re going to be entering a period of accelerating inflation, very strong credit demands, and therefore this will put great pressure on the Central Bank, particularly if our administration cannot come forth with a strong anti-inflationary program of its own. In other words, the Central Bank again in 1978 will probably have to shoulder most of burden in fighting inflation, which in a sense will be unfortunate.

MacNEIL: Let`s get to the nitty-gritty, as you might say, of this. Labor Secretary Ray Marshall said today, "We can`t have a Federal Reserve that is outside the political process." Does that mean, putting it perhaps in too simple terms, that Mr. Carter is now going to have a Federal Reserve chairman he can push around?

KAUFMAN: I think that remains to be demonstrated. In many ways this new chairman is going to be under greater scrutiny than Arthur Burns would have been, because he will now be the new chairman, the President`s man; and as a chairman of the Federal Reserve Board, by definition in order to do his job correctly he must be at least quasi-independent. He cannot be completely part of the political process. Political leadership tends to accomplish a lot. Many of these accomplishments can`t be attained in a short period of time and there has to be some perspective put on this, particularly by the Central Bank. So the key question for Mr. Miller and for the financial markets will be, will he to some extent demonstrate his independence, at least in a half-hearted way? My own feeling is eventually he will have to, one way or another.

MacNEIL: Thank you. Jim?

LEHRER: Senator, do you agree that he must demonstrate his independence?

PROXMIRE:I think we have to be clear on independence of what. The money power is a Congressional power by the Constitution. The Constitution, Article I, Section 8 gives the Congress the power to coin money and regulate the value thereof. The Congress has delegated that to the Fed, but the Fed is the creature of the Congress, and that should always be kept in mind. It is independent of the executive branch, independent of the President. Now, the Fed has been able to work very well with this, because there are 535 members of Congress; and Henry Reuss, as chairman of the House Banking Committee, or I as chairman of the Senate Banking Committee, speak for ourselves; but we don`t speak for the other members. Nevertheless, I think the Fed should work and must work, and I think will work in the future with Congress, and I hope better with Congress than it has in the past. But I think it should be independent of the executive, and I think we can have a policy in which if the chairman of the Fed and the seven members of the Fed feel the President`s going in the wrong direction, no question in my mind that they should do what they think is right and not just join the team and go whatever way whatever man is President wishes them to go.

LEHRER: How do you feel about Miller specifically, whether he can be as independent, say, as Arthur Burns was?

PROXMIRE: Oh, he can be, but I think it`s very unlikely that he would, because when you have a man who comes to a job without the confidence that only comes from having a firm sureness about your knowledge of the job and the job is this complicated, and when, as Mr. Kaufman said, you have to rely on staff a great deal, you have to rely on the advice of other members, it is a little harder. And furthermore, the fact is that he was appointed by this President; Arthur Burns was not. Arthur Burns was appointed, of course, by President Nixon. So there would be a tendency, I think, for him to identify a little more.

LEHRER: Are you concerned about that, Dr. Carlson?

CARLSON: Very definitely; in fact, very pleased to see that the Congress in the past has made sure that the Fed is independent not only of the executive branch but also from the short-term whims of the Con gress itself. Fourteen-year terms are long terms and tends to make the Fed independent. And hopefully, the Congress will not want to make the Fed more dependent upon the Congress through auditing techniques to get at some control over the policy side. And so I think the independence, both of the executive branch and the legislative branch, is very important in terms of the Fed carrying out its role of leaning against inflation.

LEHRER: Mr. Grant, you have actually worked with Mr. Miller and seen him in action. Is he the kind of man who could tell President Carter, "Buzz off, I`m the independent chairman of the Fed"?

GRANT: Well, as an individual, he`s a very strong human being, and he has run the company, as I said, in a very tight, compact way; and I would suspect that he has all the personal characteristics to be a strong chairman, stronger than probably we`re giving him credit for in this discussion.

LEHRER: Are you concerned at all about the possibility, to use Robin`s term, that the President could push him around?

GRANT: I think Bill Miller would be a difficult man to have that verb applied to.

LEHRER: All right. Robin?

MacNEIL: Dr. Kaufman, what action can we be looking for -- assuming that Mr. Miller is confirmed by the Senate and he becomes chairman -- over the first few months of that sort of testing time, what specific actions should we be looking for that will be a signal to people like yourself and people like Mr. Grant that there`s been a change there? How will we notice?

KAUFMAN: I think one way that we can notice in a very technical way is the extent to which our money supply will expand in the period ahead and how the Central Bank will respond to that development. Will it allow a very rapid expansion in money supply, which is supplied on a weekly basis to the markets and to the country at large, or will it continue to adhere to the current posture of setting moderate benchmarks for money supply expansion? That would be the most immediate response that we ought to look for in the period ahead.

MacNEIL: And one that would worry you, from the point of view of inflation.

KAUFMAN: That is correct. Secondly, I would assume that the new chairman will have to testify each quarter before Congress, as the outgoing chairman has been doing, and therefore he will have to declare himself not only formally but through a series of questions that are going to be put to him by Congress on his monetary posture, his economic philosophy; and a lot will unfold about the new chairman which we don`t know about at the present time.

MacNEIL: Do you agree with that, Senator? Are those the sort of signs you`ll be looking for?

PROXMIRE: Well, certainly on the latter point that Mr. Kaufman makes, I agree wholeheartedly. He`ll be testifying before my committee and the Reuss committee in the House, and we`ll do our best to challenge his policies when we think they should be challenged. We do our best, of course, to bring in those who would agree and disagree and get a debate on it. The difficulty, of course, is that it`s very, very hard to get members of Congress interested about monetary policy; it`s too complicated for them. And I think this does give and will give Mr. Miller a considerable amount of independence. But the difficulty, as I say, is that here`s a man who`s going to be operating without the kind of assurance that only experience and background and the opportunity to have made mistakes and learned from those mistakes in this field can operate on. So I`m very concerned about that.

MacNEIL: In a few words, Mr. Grant, what will you people in the investment community be looking for as signals?

GRANT: I would think pretty much as Henry has outlined it. Also, one of the functions of the chairman of the Federal Reserve System is to really act as an advisor, as Senator Proxmire said, to Congress -in essence, to the administration; and we would look for statements by the new chairman that relate to those other areas.

MacNEIL: I have to end it there, I`m sorry. Thank you, Senator and Mr. Carlson in Washington. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: Thank you, Dr. Kaufman and Mr. Grant. That`s all for tonight. Jim Lehrer and I will be back tomorrow night. I`m Robert MacNeil. Good night.