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With one bold thrust, Anderson undercut the tax-cut advocates in both the Administration and Congress: he worked out with Rayburn and Johnson an informal understanding that neither side would push for a tax cut without first discussing it with the other side. That understanding, dubbed the "Treaty of the Rio Grande," effectively fenced off the tax-cut issue from partisan politics. Despite widespread clamor, there was no tax cut. The U.S. soon began to pull out of the recession. Anderson believes this was one of the key economic-policy victories of U.S. history.
"If we had taken massive government action and then business had improved." he says, "we might have convinced the people that this was the only way out of a recession. But by leaving it essentially alone, we established a basis for belief in the resiliency of the economy. In their economic decisions, people operate on the basis of belief—belief in what is going to happen. We must not impair their confidence in the future or in the capacity of their economic system to deal with most of the problems that will arise."
Fight Against Upcreep. As the economic indicators started climbing, Anderson's prestige climbed with them. That autumn he set off on another soft-spoken crusade: his fight to get the Administration firmly committed to balancing the fiscal 1960 budget that the President would send to Congress in January 1959.
To nearly everybody but Robert Anderson, a balanced 1960 budget seemed a hopeless undertaking. Over the prosperous Eisenhower years, the Administration had achieved a budget surplus only twice, in fiscal 1956 and 1957 (see chart), despite all the balanced-budget promises of the 1952 campaign. With the 1959 budget a gaudy $12.5 billion in the red, and the economy still convalescing from the recession, sober heads in the Administration argued for aiming toward a practical goal, e.g., holding the 1960 deficit down to a few billion.
But Anderson argued that a balanced budget was urgently needed for its symbolic value. If the chronic price upcreep of the mid-1950s came to be tolerated as inevitable, he warned, it could inflict severe damage on the economy by eroding the confidence in the future that is essential to the workings of a free economy. By taking a stand for a balanced budget, the Administration would show that it intended to fight against price upcreep.
Democrats, and some Republicans too, have charged Anderson with overstressing sound money at the expense of economic growth. A little inflation, the argument runs, is a cheap price to pay for rapid growth. But as Anderson sees it, price stability is the friend of economic growth, not its enemy. What counts, he holds, is "sustainable growth" (a favorite Anderson phrase), which requires capital investment out of savings. "A high rate of saving," he argues, "is indispensable in achieving a high rate of economic growth." And since inflation is the enemy of thrift, it is in the long run the enemy of economic growth.
Anderson's case for a balanced budget left some of his fellow Cabinet members unconvinced. But by this time, Anderson had thoroughly won over the ally who really counted: Dwight Eisenhower.