The Kennedy Half-Century (21 page)

5
Steel at Home and Abroad

On March 13, 1962, Secretary of Labor Arthur Goldberg briefed the president on the status of a contract dispute between workers and executives at the United States Steel Corporation. “I have spoken privately with both parties,” Goldberg wrote, “and at my request they are meeting privately to determine if an agreement in principle can be concluded before the formal negotiations resume on Wednesday.” A week later, the secretary reported that there were still unresolved “differences” but that the two sides were “not too far apart.” The breakthrough came on March 31 when David McDonald, president of the United Steelworkers union, agreed to a ten-cent increase in wages and benefits for his members, a modest amount well within the government’s wage and price guidelines. In return, Roger Blough, the chairman of U.S. Steel, tacitly agreed (though never explicitly) to hold the line on prices. Kennedy was delighted; Blough’s and McDonald’s selflessness would help keep America’s factories humming and check inflation. The president praised his secretary of labor—a former steelworkers union lawyer—for brokering the deal. “Terrific, Arthur. Terrific job,” he gushed after learning about the agreement. Goldberg predicted that the settlement would lead to “comparable settlements in iron ore, aluminum can manufacturing, and steel fabricating.”
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On April 10, 1962, JFK “was surprised to note that his appointment calendar included a 5:45 P.M. appointment for Roger Blough.” He phoned Goldberg, who told the president that he didn’t know what Blough wanted. The suspense ended when the steel executive waltzed into the Oval Office at the appointed hour and handed the president a copy of a press release announcing a $6 per ton increase in U.S. Steel prices. JFK’s initial shock over the announcement quickly changed to anger. “You have made a terrible mistake,” he told Blough. “You double-crossed me.” White House aide Kenny O’Donnell had seen the president equally furious on only one other occasion, when a scheduling mix-up during the campaign had put him in the wrong state at the wrong time. The president’s wrath surprised Blough, who explained that he “had never said he would not raise prices.” After the chairman left, Kennedy
summoned Goldberg to the Oval Office. The president paced the floor, venting his spleen: “He fucked me. They fucked us and we’ve got to try to fuck them.” The labor secretary offered to quit, but JFK insisted that he stay. Next, the president phoned McDonald and explained what had happened: “Dave, you’ve been screwed and I’ve been screwed,” he said. He had put his personal prestige on the line in order to stabilize steel prices and received a slap in the face in return. Blough was putting his bottom line ahead of his country’s best interests. “My father always told me that all businessmen were sons-of-bitches,” he remarked, “but I never believed it till now.”
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When the comment leaked to
Newsweek
, Kennedy denied that he had meant all businessmen. “His father had referred only to steel men, he protested.” Nevertheless, Kennedy was determined to fight. If Blough wanted a war, then the president would give him one.
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The next day, as other steel companies began raising their own prices, Kennedy held a press conference and told the assembled journalists that the industry’s actions represented “a wholly unjustifiable and irresponsible defiance of the public interest.” “In this serious hour in our nation’s history,” he lectured, “when we are confronted with grave crises in Berlin and Southeast Asia, when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives—and four were killed in the last two days in Vietnam—and asking union members to hold down their wage requests at a time when restraint and sacrifice are being asked of every citizen, the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans.” It was the most forceful presidential assault on a private company since Teddy Roosevelt had ordered the dissolution of the Northern Securities Company sixty years earlier.
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Kennedy warned that the steel price hike would “increase the cost of homes, autos, appliances, and most other items for every American family.” Rather than let that happen, he had instructed the Justice Department, the Federal Trade Commission, and the Defense Department to take action.
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The Pentagon canceled its contracts with U.S. Steel. When Secretary of Defense Robert McNamara discovered that a $5.5 million steel plate order had been split between Blough’s company and a smaller firm called Lukens Steel, he turned over the entire order to Lukens. At the Justice Department, Robert Kennedy skirted the edges of legal and ethical behavior by ordering his underlings to harass the offending steel executives and their allies. FBI agents stormed into corporate offices and subpoenaed corporate and personal records. One agent “phoned [an Associated Press] journalist at 3:00 A.M. and
insisted on interviewing him an hour later at his house about a story he had written on the steel companies.” Once the steel executives assessed the situation and realized that the federal government had the power to audit their books and rescind their tax depreciation allowances at any time, they caved.
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One by one, the companies fell in line and withdrew their price increases. The president appeared to have jawboned an entire industry into submission in only three days.
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Not every observer agreed that JFK bested the executives; some thought that market considerations (i.e., low steel prices) were the real reason the crisis ended when it did.
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Kennedy’s critics had a field day. The
New York Herald Tribune
published a political cartoon showing Pierre Salinger, the White House press secretary, telling JFK, “Mr. Khrushchev said he liked your style in the steel crisis.” Another cartoon showed two executives in a private club with a caption that read, “My father always told me that all presidents were sons-of-bitches.” Conservative businessmen wore buttons identifying themselves as members of the “S.O.B. (Sons of Business) Club.” Senator Barry Goldwater accused Kennedy of trying to bring socialism to the United States. The din of criticism grew even louder in late May when the stock market tumbled. Shares trading on the New York Stock Exchange on May 28 lost more than $20 billion in value. It was the worst day on Wall Street since the infamous 1929 crash that had ushered in the Great Depression. Kennedy’s critics claimed that his attack on the steel industry had precipitated the crisis by undermining public confidence in the American economy. The president’s supporters scoffed, arguing that he had been acting “in the progressive tradition of strong presidents since Jackson” and that his handling of the steel crisis had nothing to do with the temporary drop in stock prices.
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While insisting he had done the right thing, JFK worked hard to overcome the criticism and improve his standing in the business community. He invited prominent business leaders to black-tie dinners at the White House and forged closer ties with the conservative Business Council. In July he approved new depreciation allowances for machinery and equipment, a tax favor for business. In October Congress passed his investment tax credit bill, which provided industry with a 7 percent tax credit on new investments. Kennedy also pushed for a general tax cut, telling the American people that federal tax policy represented “the single most important fiscal weapon available to strengthen the national economy.” “The right kind of tax cut at the right time is the most effective measure that this government could take to spur our economy forward,” he announced on TV. “For the facts of the matter are that our present tax system is a drag on economic recovery and economic
growth, biting heavily into the purchasing power of every taxpayer and every consumer.”
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This statement was controversial in 1962. Today, tax cuts of various kinds are a popular and oft-used fiscal tool, especially prized by Republicans but also employed frequently by Democrats, regardless of the impact on the federal budget deficit. But in the early 1960s, many people, including a sizable proportion of Republicans, opposed lowering the tax rate too much because that action could produce higher national indebtedness as well as runaway inflation. At the same time, tax rates were far higher than they are today. In the early 1960s, people who made $4,000 paid a 20 percent tax, while those with incomes of $400,000 and over paid as much as 91 percent in taxes—at least theoretically, since there were many tax shelters and dodges for the well-off, just as there continue to be in this century. Under Kennedy’s plan, tax rates would be lowered to 14 percent for small incomes and 65 percent for large ones.
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Kennedy’s support for tax cuts stemmed in part from his conversion to Keynesian economics.
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John Maynard Keynes, a British economist who taught at Cambridge earlier in the twentieth century, believed that governments could moderate the effects of economic downturns by cutting taxes and running temporary deficits. On June 11, 1962, the president explained the reasons for his newfound Keynesian faith at Yale’s graduation ceremony: “The myth persists that federal deficits create inflation and budget surpluses prevent it. Yet sizable budget surpluses after the war did not prevent inflation, and persistent deficits for the last several years have not upset our basic price stability. Obviously deficits are sometimes dangerous—and so are surpluses. But honest assessment plainly requires a more sophisticated view than the old and automatic cliché that deficits automatically bring inflation.” The president believed that past economic shibboleths were insufficient to meet the economic demands of the 1960s, and this potential abandonment of traditional principles caused consternation in parts of the establishment. According to Arthur Schlesinger, the “old Elis [Yalies] had listened” to the president’s words “with acute discomfort” while the deficit-averse business community regarded it as almost blasphemous.

In response to the criticism, Kennedy tweaked his plan, but he was determined to achieve an across-the-board tax cut. The House of Representatives passed the administration’s tax cut bill two months before JFK made his final trip to Dallas, and it likely would have cleared the Senate in 1964 if the president had lived. Lyndon Johnson was able to shepherd a variation of the bill through Congress that trimmed tax withholding rates, increased the child care expenses deduction, and dropped the tax rate on marginal incomes over $400,000 from 91 to 70 percent. The latter was a significant reduction in taxes
for the wealthiest Americans, engineered by a Democratic president and Congress.
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Kennedy’s tax cut proposal was radical for its time and is one of JFK’s least remembered yet most lasting initiatives. Modern proponents of supply-side economics, many of them Republicans, have frequently invoked the Kennedy viewpoint over the years in an attempt to disarm their critics. For example, in 2010, the Massachusetts Republican senatorial candidate Scott Brown ran a television ad that included an excerpt from Kennedy’s tax cut speech. The image gradually dissolved into a picture of Brown, who shared the tax cut outlook of the Bay State’s political patron saint. It was considered a turning point in Brown’s successful upset victory in capturing the Senate seat of the late Edward Kennedy.
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While few recall the tax cut proposal of 1962, no one will ever forget the most serious confrontation of the Cold War, the Cuban Missile Crisis. On the morning of Tuesday, October 16, 1962, JFK was still in bed reading newspapers when his national security adviser, McGeorge Bundy, arrived with urgent news: A U-2 spy plane flying over Cuba two days earlier had detected Soviet medium-range missiles that could be fitted with nuclear warheads and fired on U.S. cities.
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The president was genuinely stunned—were the Russians trying to start a nuclear war? None of his Kremlinologists had anticipated the move, and in September JFK had made it clear that if Khrushchev tried to supply Cuba with offensive (rather than just defensive) weapons, the “gravest issues would arise.” How could the Soviet leader engineer a provocation so threatening it was certain to invite the most serious possible response from the United States? Kennedy told Bundy to schedule an 11:45 A.M. meeting with his top intelligence, military, and foreign policy advisers. A dozen or so men joined the president in the cabinet room at the appointed hour to decide how to respond. (The press would later dub the group Ex Comm, short for the Executive Committee of the National Security Council.) For once, a hackneyed phrase proved completely true: The fate of the world hung in the balance.
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As the meeting began, JFK switched on a secret taping system that he had ordered installed in the cabinet room over the summer. A devoted student of history, the president knew that future generations of scholars would want a record of the group’s conversations—and no doubt he himself saw immediate and long-term personal uses for these transcripts, from holding his advisers accountable to writing his memoirs.

Arthur Lundahl, head of the National Photographic Interpretation Center, began the meeting:

“This is the result of the photography taken Sunday, sir.”

“How do you know this is a medium-range ballistic missile?” asked Kennedy, who thought that the tiny images on the photos resembled “little footballs on a football field” instead of Russian weapons.