Writing 📍

With this week’s appointment of Kevin Warsh to Federal Reserve Chair by President Trump, it seems fitting to look back at another President who was not afraid to put his thumb on the scales of monetary policy. While 2026 is not 1970, we can learn a lot from studying the history books. Arthur Burns’ chairmanship of the Federal Reserve from 1970–1978 remains a definitive cautionary tale of how political encroachment can compromise central bank independence. Driven by fear of political defeat, President Richard Nixon utilized personal ties and systemic leverage to force the Federal Reserve into an expansionary stance. The result was short-term political triumph for Nixon, but long-term economic disaster for the United States, cementing the era of “stagflation”.

Richard Nixon’s obsession with economic metrics stemmed from the 1960 presidential election. He blamed his narrow loss against John F. Kennedy on the Federal Reserve’s refusal to ease monetary policy during a pre-election recession. To secure control over monetary policy, Nixon appointed his long-time economic adviser and personal friend, Arthur Burns, as Federal Reserve Chairman in early 1970. While Burns was an accomplished economist, his personal loyalty to Nixon fatally compromised his institutional neutrality. Archival evidence from the Nixon White House Tapes reveals an aggressive campaign of intimidation. Nixon routinely brought Burns into the Oval Office, demanding faster expansion of the money supply. When Burns hesitated, the administration planted false stories in the press and threatened to expand the Federal Reserve Board to dilute his voting power. Burns ultimately capitulated, shifting the central bank to a highly expansionary stance throughout late 1971 and 1972.

Burns’s capitulation was not entirely forced; it was also enabled by flawed economic theories. Burns held a non-monetary view of inflation. He argued that rising prices were driven by the monopoly power of labor unions and corporations rather than excessive money printing. Because Burns believed monetary policy was powerless against structural inflation, he endorsed Nixon’s August 1971 “Nixon Shock”. This policy temporarily froze wages and prices and broke the dollar’s link to gold. With artificial price ceilings masking underlying inflation, Burns felt justified expanding the money supply to achieve full employment.

The short-term political calculation achieved exactly what Nixon wanted. The economy boomed just in time for the 1972 election, allowing Nixon to win a historic landslide. However, the bill arrived immediately afterward. When the unsustainable wage and price controls were lifted in 1973, the suppressed inflationary forces burst into the open. This internal monetary imbalance was further aggravated by the 1973 OPEC oil embargo, pushing the U.S. economy into double-digit inflation and a deep recession by 1974.  By continuously blaming “special factors” like crop failures and energy prices rather than his own monetary expansion, Burns allowed inflation expectations to become deeply entrenched in American society.

The Nixon-Burns era proved that central banks cannot effectively combat inflation if they are micromanaged for short-term electoral gains. Subsequent research confirms that political pressure shocks increase long-term inflation without providing any lasting benefit to real economic growth. This historic failure permanently altered the architecture of global central banking. It underscored the absolute necessity of institutional independence—a principle later utilized by Paul Volcker to finally break the back of the inflation that Burns and Nixon unleashed.