AMERICA
Mr Nixon faces the music
WILLIAM JANE WAY
During his years in the political wilderness President Nixon wrote a book called Six Crises. If he ever sits down to write a second edition he has already amassed the material for expanding it, certainly by one-third and possibly by 50 per cent. In the past six weeks the President has stumbled into a crisis over Cambodia where none need have existed and into permitting the financial crisis at home. The combined impact of these two crises of policy may be generating a political crisis of major proportions.
On 29 April the President announced that American troops were invading the long- standing communist sanctuaries in Cam- bodia. At the heaFt of the announcement was confusion and, necessarily, it caused fear. What was in substance supposed to be only a tactical move with no implications of a 'wider war' was presented by the Presi- dent as comparable to Lincoln's decision to defend Fort Sumter, Woodrow Wilson's de- cision to enter World War I, and Kennedy's decision to oppose the introduction of missiles into Cuba. More than coincidentally during the weeks that followed the Cam- bodia announcement America's financial crisis simultaneously accelerated and became highly visible. Rising inflation and rising interest rates which both erode and measure the drastically diminished cash base of the American economy were dramatised by a plunging stock market.
The interaction of the Cambodian crisis and the financial crisis was demonstrated in early May. Before the Cambodia announce- ment the Treasury announced the terms on which it proposed to borrow some 8.5 billion dollars from the public. But when the formal offering was made—after the an- nouncement—the investing public, led by the major banks, was unwilling to accept the Treasury's terms. Only a last minute rescue operation by the Federal Reserve (America's central bank) saved the Treasury from the ultimate financial embarrassment: the in- ability to borrow in its own capital markets. The Treasury financing fiasco had three crucial aspects. The first was the Federal government's widely unsuspected need to borrow large sums of new money even before the possible spending consequences of the Cambddia decision were counted (only 5 billion dollars of the borrowing was to refinance outstanding debt). The second was the demoralisation caused in the finan- cial community by the Cambodia decision: in their own sphere and in their own way, institutional investors were as much on strike in protest as were the students. Third and perhaps most disturbing the fiasco, indicated that the Nixon administration might be re- peating the pattern-making error of the Johnson administration: formulating strate- gic decisions without gauging their financial implications and without relating those im- plications to the financial conditions and needs of the economy.
The political impact of the Cambodia crisis and the financial crisis was sudden and striking. It appeared that the adminis- tration was failing to take seriously the spread of financial distress while at the same time it was transforming the Vietnam war into the Indochina war. Leaderless Democrats and silent Republicans in Con- gress combined to challenge the President's war-making authority. Campus protests spread across the country, reaching the children of the silent majority in universities as far from the effete East as Kansas, Ala- bama—and Kent State. Not only New York lawyers turned to mass lobbying in Wash- ington against the war; members of that conservative profession made the trip from such Republican strongholds as Iowa. The administration was even threatened with losing support from the heart of the tradi- tional Republican constituency: smaller businessmen and retired men and women living on their investments. In compensation. the administration may have gained a new constituency among the blue-collar workers who despise both the students for their 'abuse' of privilege and the 'limousine- liberal' establishment for its high-minded support of civil rights from the safety of the proverbial penthouse. But even this new backing, from America's first 'king and country' mob since World War I. could not be counted as secure. The latest word is that George Wallace seems set to regain the Governorship of Alabama and to chal- lenge the administration for the mob's allegiance. Combining economic radicalism with the demogogey of racism and chauvinism, Wallace is well placed to do so —and to dish the administration's famous 'Southern strategy' at the same time.
Since the first impact of its misjudgments regarding Cambodia and the financial crisis, the administration has responded energeti- cally. Over Cambodia, there was the guaran- tee that all American troops would be out of the border areas by 1 July. (As Graham Green has noted with the mon- soon approaching the only alternative was for the us military to undertake a major 'experiment in underwater living') from jus- tifying the Cambodian operation as neces- sary for the defence of American troops in Vietnam. The administration has now raised its sights. Now the promise is that the opera- tion's success will cut the ground out from under its critics by permitting the withdrawal of more troops sooner from Vietnam itself.
The administration has also resporsird, at length. to the financial crisis. On 27 May the President held a White House dinner for forty-five 'business and financial' leaders. (It has been called the most expensive dinner in American history, as investors had to lose nearly 300 billion dollars before the invita- tions went into the post.) The President made clear his own concern with the financial situation and desire to communicate with those alarmed by it. More to the immediate point, Chairman Burns of the Federal Reserve, indicated that America's central bank would recognise its own responsibili- ties. in the event of financial panic—by making credit available even at the risk of adding fuel to inflation.
Despite the administration's welcome efforts to regain lost ground, serious ques- tions have been raised about its ability to formulate and implement politically prudent and technically effective policies to deal with problems that have suddenly surfaced as crises. Clark Clifford, LBJ'S Secretary of Defence and the senior official most respon- sible for ending LBJ'S escalation, has raised one such question—by asking whether American foreign policy is now being made in Washington or Saigon. For the enthusiasm with which Saigon has leapt into Cambodia raises the further question of whether a more basic political escalation of the war may be willy-nilly .taking place—a made-in- Saigon extension of America's political involvement with its clique to cover a new involvement with the clique in Phom Penh.
With regard to the financial crisis, one dinner and three days of a wildly rallying stock market do not add up to a basic change either in underlying financial conditions or in effective administration policy. Here the question is whether the administration will reorient itself from fighting a recession— which is not the threat—to heading off snow- balling liquidations and bankruptcies— which are the threat. The administration appears to be following the lead of many 'expert' observers in interpreting as a classi- cal recession what are in reality the effects on economic activity of the policy-induced failure by the financially weak to raise funds and the effects on unemployment of what has been termed a 'travelling general strike' in pursuit of unprecedented wage gains.
Thus the administration seems happy to tolerate a dramatic increase in the govern- ment deficit: the classical, Keynesian offset to a decline in the private sector's demands. But the administration's anti-recession policy is, in fact, intensifying the financial crisis, for it means that the federal government is again back in the capital market in a big way, bidding funds away from corporations and local governments teetering on the brink of insolvency.
Politica11Y, the effect of the crisis over Cambodian policy and economic policy is to thrust the President fully into the political arena for the first time since January 1969. The tactic of showing only a low profile,' and the strategy of seeking to avoid involve- ment in the dangerous business of attempt- ing to deal with intractable, emotion-ridden problems, are no longer viable. Even though no opposition leader has emerged as a direct contender for his office, the President is under pressure to perform effectively, not merely preside. His public standing may rally as stunningly as has the stock market. But, since the problems with which he must now grapple remain as intractable and emotion-ridden as ever, his standing is likely to prove every bit as volatile and subject to erosion as that of the stock market itself. As LW learned the hard way, ineffective re- sponse to crises of policy can, with explosive swiftness, touch off a basic political crisis of confidence and authority.
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