THE ECONOMY (See Cover) The night of Blue Monday, 1962, was the grimmest evening on the New Frontier since the failure of the Bay of Pigs invasion. Measured by the Dow-Jones industrial average, the stock market was down 35 points in the deepest one-day plunge since the black year of 1929. Panicky drops had followed on European stock exchanges, and who could say just where and when it would stop? President Kennedy told staffers to prepare an agenda for a meeting next morning with his chief economic advisers.
The President met in the green-carpeted Cabinet Room with what New Frontiersmen call the "quadriad" of Administration economic thinkers: Treasury Secretary Douglas Dillon, Federal Reserve Chairman William McChesney Martin, Budget Director David E. Bell and Walter W. Heller, chairman of the President's three-man Council of Economic Advisers. Also present were officials from the Commerce Department and the Securities and Exchange Commission. What should be done? One possibility, quickly rejected, was to lower the margin requirement (the percentage of cash that a buyer has to put up to buy stocks) from the present 70%. The consensus was that any such move might be interpreted bearishly.
Also considered, and rejected at the forceful urging of Dillon, was an emergency tax cut to pep up the economy. Dillon argued that the economy does not really need any special pepping up, and a special tax cut for morale reasons would interfere with the plans for basic tax revision later on. Still another possibility was to speed up federal spending for public works and defense orders. But it was decided that such a step-up would not have swift enough effect to shore up the stock market. In short, the sense of the meeting was that for the moment the best thing to do was nothing.
It was sort of symbolic of the Kennedy Administration that Commerce Secretary Luther Hodges, the Administration's titular spokesman for business, was not present at the White House session. He had previously scheduled a press conference at the Commerce Department, and the White House feared that canceling it might be interpreted as an alarming sign. At the press conference, Hodges was asked what he thought should be done about the stock market. He replied that he "would favor an announcement by the Administration as quickly as possible that we ought to have, or that we are going to have, a tax overhaul." Shortly afterward, one of the officials who had attended the White House meeting got back to his office and found a wire-service report on Hodges' statement. Said he derisively: "Guess what I've just picked off the wires?" Near week's end, Minnesota's Democratic Senator Hubert Humphrey vociferously joined Hodges out on the tax-cut limb.