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Never a Note. The key man in changing Nixon's mind was Secretary of the Treasury John Connally, the Texas tornado who moved into the job early in the year and quickly developed an amazing rapport with the President. A Democrat who had impressed Nixon by helping him find oil money in his 1968 presidential campaign, despite his own belated support of Hubert Humphrey, Connally had earlier turned down Nixon offers to become Secretary of Defense, but did serve impressively on a committee studying reorganization of the Executive Branch. The acquisition of Connally was another Nixon surprise and success, giving his generally gray Administration new lift and bounce.
Nixon and Connally began conferring on the inflationary economy and the unstable world money markets for two and three hours at a time. Unlike other aides, Connally never took a note, but remembered all. Keeping their plans secret for fear doubts would seep out, they began to sketch out the options open to the President. Yet publicly, they both sounded adamant against controls. Nixon was not at all certain that he actually would bite that bullet. He told a group of editors in Kansas City, Mo., as late as July 6: "You cannot have wage and price controls without rationing. They do not work in peacetime." About the same time, Connally was telling newsmen that there would be no wage-price freeze, no wage or price review boards, no tax cuts.
Despite Nixon's budget deficit —currently estimated at $28 billion for fiscal 1972, the largest since World War II—the economy was not responding, and inflation continued. Unemployment was not decreasing. The highly wishful estimate made in January of a $1,065 billion gross national product for calendar 1971 was out of reach; it is now expected to be $1,050 billion. By August, Nixon had an outline of potential controls ready. But Congress had adjourned and Nixon wanted to await its return in September before acting.
There was not that much time.
Connally, vacationing in Texas, was brought winging back by a telephone call on Aug. 13 from Under Secretary for Monetary Affairs Paul A. Volcker. Volcker told Connally that more than a billion dollars had shifted on the European monetary markets the day before, another $500 million in the morning. "It's a Friday and it ought to be a calmer day," advised the worried Volcker. The Bank of England was pressing for a guarantee that some $3 billion that was held in reserve would not be devalued. A panic seemed possible. "I'd better get up there," said Connally.
When Nixon called all of his top advisers to a climactic conference at Camp David, Connally clearly was second-in-command. Nixon laid out the problem in a crisp, 20-minute talk; Connally detailed the steps. Action would have to be fast. A dramatic impact was deliberately sought. "Much of the problem was psychological; much of the solution had to be psychological," Connally recalled. So Nixon went on TV on Aug. 15 to announce the historic policy shift to controls. He followed with the outlines of his longer-lasting Phase II machinery three months