Interview with William E. Simon

The former Treasury Secretary has sold all his stocks and thinks time is running out for America.


The political arena is nearly synonymous with irony. "Free market" presidents unleash wage and price controls, "Keynesian" administrators lob generous tax cuts to business, "liberal" politicians fight to bring back the draft, "civil rights" activists advocate government-sponsored racial quotas. Hardened Washington observers have grown so skeptical as to feel uncomfortably faint about any public issue or person until the true, paradoxical story has been surgically removed and made available for biopsy.

Paradoxical is exactly the thought for William E. Simon. Leaving a two to three million dollar a year partnership with Wall Street's Salomon Brothers, Simon joined the Nixon Administration's Treasury Department in January of 1973. It was just in time for Christmas of that year that "Simon Says" became the (in)famous cliche attached to the Arab Oil Embargo and to our government's "instructions" as to what we should do about it.

In April, 1974 the Simon plot deepened and the irony surfaced. As the new and vigorous Secretary of Treasury, "Simon Says" played a new tune. The syncopation was just as lively, but the lyrics had changed dramatically. Government was the dunce—rather than the damsel—of this ballad. Simon became the most outspoken defender of the free market within the federal government.

Bill Simon, age 50, is now something of a demigod to the Wall Street Journal crowd. With good reason. From $75 a week a quarter century ago to his well-endowed existence today, Simon has certainly attained a rare success in both the public and private spheres. Retired from government (he announced his resignation before President Ford was defeated in 1976), Simon works as an economic consultant in New York City. He is in top demand by the foundations, current issues magazines and the public speaking circuit. Rumors of future Simon political plans abound.

To conduct this interview, REASON dispatched to New York Thomas W. Hazlett. An economist, author, and radio commentator, Hazlett has followed Simon's career with interest. Their conversations took place both at Simon's New York office and his summer home in the East Hamptons.

REASON: "Simon" first became a household word in late 1973. Many of us have vivid memories of the ominous "energy czar" taking charge of the oil shortage in Washington. Our most recent memory, however, is of a ferocious fighter of big government warning the Republic of apocalypse should we fail to curb inflation and federal spending. Was there some sort of personal evolution in between these two, quite distinct, roles?

SIMON: No. Actually, while they were separate and distinct, they were very much connected. Because the very nature of the government and the direction it's been heading in for the past 40 years is one of contrived government solutions to all the problems in the United States. Energy is a prime example, and unfortunately the role that I had, as a devoted advocate of free enterprise, was one of supervising a regulatory bureaucracy, having to administer the laws passed by an irresponsible Congress, imposing the same type of solutions that brought the problem in the first place.

REASON: So you think that when you left government you had basically the same political beliefs as when you entered?

SIMON: I most certainly did. Only they had been strengthened as a result of my government experience, based on watching all the failures of government to solve our problems.

REASON: Let's go back to the Arab oil embargo of '73-'74. The United States at that time created the Federal Energy Administration (FEA) as a "temporary" agency to handle things with allocation controls, entitlements, a two-tiered oil pricing system, and the like. With the benefit of history, was the FEA a mistake?

SIMON: Yes, definitely. You're one of the few people, and you're to be congratulated, who recognize that it was proposed by President Nixon as a temporary agency, with a life of a year and a half, to take care of the energy crisis during the embargo—not knowing how long the embargo was going to last. One thing that that should teach us is that nothing is ever temporary in Washington and once created will just continue to grow and dominate the affairs of the citizens of this country. And that's what we're suffering from as an overgoverned society.

REASON: You came to the government shortly after President Nixon instituted wage and price controls. What was the feeling—within the bureaucracy—as to the efficacy of these controls? Did they actually believe in them?

SIMON: No, they most certainly did not. Indeed, at that point—I arrived in November of 1972 as we were moving out of Phase 2 into Phase 3—the recognition was quite prevalent then that they were doing a tremendous amount of damage to our economy, that the inevitable bulge in inflation after they were lifted, and the distortions to the allocation of the marketplace, were just horrendous.

REASON: In your estimation, how much damage did our experiences with Phases I, II, III, and IV cause to our longterm chances for minimizing inflation and unemployment?

SIMON: Well, I don't know. If those wage and price controls finally proved to the American people the fallacy of attempting to control or beat inflation by artificially bottling it up for a short period of time, then perhaps we learned something. But I'm not sure about that, because I just read that the Carter administration is talking about some sort of wage and price guidelines, which is the first step to controls, and every businessman in America knows it. Unfortunately, we don't have any statesmen in Washington willing to take the tough political steps that have to be taken to cure inflation, which will, if allowed to continue at this pace, destroy our society. We only have politicians who are concerned with being reelected. President Carter just continues to prove by his many actions that he has the capacity to rise above principle.

REASON: Alan Greenspan and you were well known, within the Ford administration, as free market ideologues. Yet we could also see that the administration was packed with individuals who were hired under Mr. Nixon's assumption that "We are all Keynesians now." How frustrating did it become, battling elements within your own administration?

SIMON: We never had any problem with that. You'll find that the Economic Policy Board, which I chaired—Alan Greenspan, Arthur Burns, Jim Lynn, Fred Dent, Bill Seidman—were all pretty dedicated—completely dedicated—to the principles of the free market as the best allocator of resources and to a reduction of the burden of government for the people. And the decisions made did not involve battling people outside of that group. The political types would make recommendations to the President, but fortunately the President didn't heed their advice most of the time.

REASON: Let me just give you an example of what I'm talking about. An interesting run-in, so-called, took place with Mr. Rockefeller during the New York City fiscal crisis. He made the statement that despite Mr. Ford's opposition, there existed a Democratic Congress and they could simply appropriate the tax monies to help a Democratic mayor and a Democratic governor. The implications of this sort of political reasoning are monstrous. Didn't they create enormous conflicts?

SIMON: No they didn't, because the president always has the ability to veto the legislation that Congress might pass to help a, quote, Democratic mayor. And I think we're all well aware of the success Mr. Ford had, with 85 percent of his vetoes being sustained by Congress.

That doesn't mean that we always agreed on everything. Disagreement on issues doesn't mean "dissension." All it means is that honest men can differ in their approach. You lay out your positions and president makes a decision.

REASON: Probably the greatest achievement of the Ford administration was in keeping monetary policy moderate in the '74-'75 recession, allowing the economy to rebound more gradually and more solidly. Was it harder to hold the line than you had imagined? What pressure came to bear upon you both favorably and unfavorably?

SIMON: Well, there are constant pressures. You have to understand that the basic law of economics is: More. Everybody in this society that has been lurching toward socialism and collectivism for 40 years has their hand out. And the propensity of Congress is to spend, spend, elect, elect. That hasn't changed, and it isn't going to change for a long time. But you resist those pressures. President Ford magnificently resisted those pressures at the expense of his election in November 1976. In my opinion, he could have done all the, quote, smart political things and, I think, have been reelected. But he chose to look out for the next generation rather than the next election.

REASON: During the difficult recessionary period, you advocated extended unemployment benefits and public-sector employment to cushion the pain of cutting down inflation. Don't these "remedies" exacerbate inflation and lead to their own disease?

SIMON: Well, it's not a matter of cutting down inflation. Obviously, government has a responsibility to help those people who cannot help themselves. In the severest recession in 40 years, where you had people running out of unemployment benefits, you had a responsibility to assist those people for a temporary period of time until the economy could gradually be brought back into balance again. As you said a minute ago, what we did was adopt moderate expansionary fiscal and monetary policies to promote a moderate growth that could be durable and balanced. So you help the people who are unemployed while you're experiencing the lag between policy implementation and achievement.

REASON: Of course, looking at history, it is very difficult to see where such benefits, once extended, have been revoked. Do you see some way of drawing a line to insure that the market will be restored as soon as the unemployment problem goes away?

SIMON: No. That's the unfortunate part about Washington. As I said a little while ago, it's wonderful at instituting all these programs, but they stay in place long after they should have been done away with.

REASON: Let's talk about politics. Your continued affection for President Nixon has been somewhat played up in the press. Doesn't it discredit the free market position to support politicians who implement wage and price controls, massive federal deficits, and OSHA?

SIMON: For the most part, I think you'll find that President Nixon was working toward less government for the people, that his budgetary policies were conservative. Remember the famous battle in the first year of his second term over a $250-billion budget expenditure ceiling? Everyone said it was going to be impossible, that we'd go to at least $265 billion. But we did hold at $246.7. Fine, wage and price controls were a mistake. There is no doubt about that one. But basically President Nixon's philosophy of how a country should be run—with reservations for the aberration of wage and price controls and perhaps one or two other things—was fundamentally conservative. He proposed the deregulation of natural gas, the removal of controls—all the things that President Ford went on to propose to the Congress—unfortunately, unsuccessfully. As far as presiding over massive deficits, hell, I presided over massive deficits. But presidents aren't dictators, and neither are secretaries of the Treasury. The president proposes and the Congress disposes, as Sam Rayburn once said. Congress is the one that passes the spending legislation. If it were up to President Nixon or President Ford or the Secretary of the Treasury, we would not have had them—that I assure you. Don't take the results of an absolutely irresponsible, socialistic Congress and blame them on the head of the executive branch.

REASON: On the subject of big government, the GOP excoriated the Democratic Party about big government in the 1968 campaign. During President Nixon's first term, however, federal spending rose 50 percent faster than it did under Kennedy-Johnson. Of course, the Congresses for all these administrations were similarly Democratic. From the standpoint of moving us toward a freer society, can the Republicans really deliver?

SIMON: They most certainly can. It's a matter of momentum. And the momentum that had built up under the federal budget—from 1962 and that famous $100-billion budget debate to all the programs of the Great Society, all the beneficiaries, the increased benefits that were voted every year by Congress—that's the kind of momentum that you inherit when you go into office. There were no new spending programs of any magnitude proposed when I was in Washington for those four-plus years. But a president isn't going to be able to do it unless we get Republican Congressmen. Unfortunately, that isn't going to happen to the degree it ought to happen in this country, because I rather believe that we're in a position where half the people in America work for a living and the other half vote for it.

REASON: Milton Friedman has raised an interesting point lately in regard to the concept of a federal deficit. He has said, basically, that the size of the deficit itself is nearly irrelevant and that it is the aggregate level of federal spending which is all-important. In other words, he would rather see a $200-billion budget with a $100-billion deficit than a balanced budget of $400 billion. What is your thinking on this?

SIMON: When you talk about freedom, which is basically what Milton is talking about there, you talk about government spending as a percentage of national income, which today is over 40 percent. That means you have to work over four months a year just to pay your taxes—state, local, and federal—before you can begin working for yourself. That's what Milton's talking about, and I agree with him 100 percent.

REASON: Extending this thought, conservatives always end up taking the "rap" for big government, trying to fill in the deficit by raising taxes, much as President Ford tried to do in his abortive WIN campaign.

SIMON: I don't agree with that. That's a myth. Let me refresh my memory on this. We were giving $5 billion—or $7 billion—in benefits and proposing a temporary surtax to pay for that benefit. It was not a fiscal measure, not a tax to try to balance the budget. It was an attempt to get the notion into some skulls in Washington that maybe we ought to think of how we're going to pay for some of the programs we legislate. I'm not for higher taxes. The Republican Party is the party of lower taxes. We're constantly proposing lower taxes. We proposed a $25-billion tax reduction for business and individuals across the board coupled with a $25-billion cut in spending. The Democrats wouldn't buy that. They're the party of higher taxes, bigger government, more government spending, more boondoggles, more inflation, more unemployment, and more suffering.

REASON: The thinking of many economists now is that the greatest economies of scale lie in the ability of very large corporations to deal with the regulatory agencies. In other words, government regulation encourages consolidation of industry. Is this correct?

SIMON: Oh, it's correct in the sense that government regulation is so burdensome on small businesses that it destroys their profitability and forces them to merge. When one looks at General Motors which, in 1974, had to pay $1 billion just to comply with government regulations, that's insane. I don't expect anyone to have tears for General Motors, but did you ever stop to think that that gets added to the price of your automobile?

REASON: It would not be an exaggeration to describe you as currently the foremost inflation-fighter in the country. Certain editorial writers are fond of describing your enthusiastic message in terms of "messianic zeal." Yet at the Treasury Department you worked to remove any relation between gold and our money supply. If gold isn't the answer to inflation, what is?

SIMON: Balanced fiscal and monetary policies. Gold has nothing to do with inflation in this country. It is a commodity like lead, silver, tin—although there are certain quarters here in the United States that treat it with a theological devotion that defies common sense.

REASON: Right now, the inflation statistics seemed to have cooled down pretty well to about 6 percent. Is this a stable plateau, or the lull before the storm?

SIMON: Isn't that horrible. You too think that 6 percent inflation—or 6½ or 7—is so much better than the 13 percent we experienced at the peak that it is now just fine. This society cannot tolerate this rate of inflation. No. The damage it is doing financially and to the poor, those on fixed incomes, the retired, the disabled—no, history is littered with the wreckage of societies that failed to cope with inflation. It's only those who choose to ignore history that, as Santayana said, are doomed to relive it. Unfortunately, that's the road we're traveling on.

REASON: Speaking of statistics, the economic statistics for August, September, and October 1976 were very poor. As soon as the election was over, they improved considerably and have appeared quite positive for the first few months of the Carter administration. Was this coincidence, or was this sabotage? Seriously, what are the politics of government statistics?

SIMON: There is such a single-minded focus on one or two months' economic statistics; I don't agree with you at all that the figures in late 1976 were poor. Poor by what standard? Do you think that each month the economic statistics are just going to be naturally better than they were the month before? No, they're not. We're going to have zigs and zags, but our real growth since March of 1975 has been far above the longterm level of activity that's sustainable. We're going through a very balanced and healthy expansion, and what President Carter has inherited during the early months is this balanced, healthy expansion as the result of President Ford's economic policies—nothing more. But don't worry, what he's doing right now is going to make sure we don't enjoy that terribly much longer.

REASON: In November 1974 you predicted a fall in the price of oil. With all the statistical resources of the federal government unable to tell us which way the price of oil is moving, what good are the government's predictive mechanisms?

SIMON: Well, number one, the first step toward wisdom, as Irving Kristol says, is to know that the future is unknowable. Number two, what the hell do statistical resources have to do with trying to make a prediction which is political in nature? Because that's what we have today: an oil price which is not based on financial and economic considerations but on political considerations. It's a market controlled by the OPEC nations. When I came home from the Middle East in 1974, I said the oil price would indeed fall if we adopted the proper policies in the United States. And if we did, King Faisal was going to auction oil which, at that time, would have brought the price of oil down. We did not, he did not, and the price kept going up.

REASON: You've had a view from the top. What is your thinking on Wassily Leontief's proposal for national economic planning?

SIMON: "Economic planning"—now that's a suggestion that, on the surface, would be quite appealing: "Why shouldn't we have planning?" But, you know, that's not what Leontief means. He wants to make the plans and then he wants to implement them. He wants to make the decisions, in other words, destroy the freedoms of the American people who have always made their individual decisions in our society. All they want to do is destroy the free enterprise system so they can substitute their elitist, intellectual decisions for those of the millions of Americans that have always made them. And that will take away the rest of your freedoms, when they've already taken away a good portion of them.

REASON: While you were at the Treasury Department some very "bold and imaginative" plans were circulated within the administration with regard to energy. Most interesting was Vice-President Rockefeller's plan for a $100-billion federal energy corporation, a sort of "Energy Amtrak".…

SIMON: What's bold and imaginative about that?

REASON: I was just quoting what some of the news media said.

SIMON: They would.

REASON: Well, if these ideas were seriously forwarded by a Republican administration, can we really be surprised by Mr. Carter's "moral equivalent of war"?

SIMON: Well, that's two different questions. Number one, just because it was proposed by a Republican administration doesn't mean that I agreed with it. I violently disagreed with it, as did Alan Greenspan and several other members of the Economic Policy Board. But, again, one doesn't expect to agree on every single issue with the president. Nor would a president—certainly not President Ford—want somebody to agree with him all the time. The President welcomed dissent—intelligent dissent.

REASON: We know that the Carter energy plan is somewhere between a mistake and the end of all things. What is the worst of the plan?

SIMON: Well, the worst of the energy plan is that it doesn't direct itself to production—at all. It totally ignores the productive dynamism of the American free enterprise system. It shows a total lack of faith in the American people, in our ability—which has been proven time and time again throughout our history—to produce our way out of crises. As far as conservation, instead of relying upon the free market price, all it does is levy upon the American people the largest tax increase in our history, on an already overburdened people. And that's going to be used for further redistribution of wealth.

We're careening down the same road that Great Britain has traveled on, and the result is going to be predictable. Financial collapse and the loss of your freedom.

REASON: President Ford, at the end of 1975, chose to abandon the advice of many of his economic consultants: deregulate the price of oil and natural gas. He came up with a so-called compromise bill which extended controls for years. Wouldn't this spell disaster for us even without Carter's new proposals?

SIMON: No, that was a judgment that President Ford made that he believed was the best that he might be able to get as far as deregulation of oil and gas. I disagreed; as a matter of fact, I told him I thought it was the worst mistake he made. I still believe that.

REASON: James Schlesinger, who is a well-trained economist, is now making all sorts of idiotic statements about energy. Doesn't he know better?

SIMON: Well, I certainly thought Mr. Schlesinger knew better, but obviously he doesn't. He is another example of the intellectual elitist who wishes to make all the decisions, who has no confidence—indeed, a deep-grained animosity toward business in the United States—and wishes to have the energy industry run by the federal government. He's proposing the very solutions that brought the problem on in the first place.

REASON: There seem to be quite a few free market proponents popping up in various nooks and crannies of the federal bureaucracy. We've seen them in the Agriculture Department, the Federal Trade Commission, even in Defense. Do these troublemakers have any effect? What is their nuisance value?

SIMON: Obviously, we left behind some converts. I don't know that I'd call them troublemakers, because I happen to believe that what they're preaching has the judgment of history on its side. As a result, all I can do is urge them to hang in there, because they're on the winning side. And for the sake of our country and my children, it's terribly important that they continue to preach those doctrines.

REASON: Are you familiar with libertarian writers such as Robert Nozick, Ayn Rand, Murray Rothbard, Ludwig von Mises, Friedrich Hayek, and Thomas Szasz?

SIMON: I most certainly am. As a matter of fact, Dr. Hayek, as well as Professor Friedman, two Nobel laureates, have written forwards to the book I just completed.

REASON: Then your opinion of at least some of these writers is very high?

SIMON: It is.

REASON: Do you have positive thoughts on the Libertarian Party, or should free market proponents work with the GOP?

SIMON: Oh no, my goodness sakes, you know we're talking about our basic freedoms and a way of life—not a political party. The Republicans, in my judgment, come closest to espousing the philosophies of freedom and free enterprise. And indeed, the Libertarians are on the same track. But I don't think that it necessarily follows that it is all done under the principles of the Republican Party.

REASON: Twenty years ago your predecessor, Secretary of the Treasury George Humphrey, predicted that if the big-government trend were not reversed we would face imminent collapse. Why has his prediction not been realized?

SIMON: We've been going through mini-collapses ever since Humphrey made that statement—going through exaggerated boom-bust cycles, with ever-increasing unemployment, ever-increasing inflation, and ever-increasing miseries for the people. If you're looking for the grand collapse that ultimately is going to come as a result of all these shocks, don't worry, it'll come if we just continue to follow these insane policies.

REASON: At the moment, where is our economy headed? The money supply has been rising at an annual rate of over 8 percent in the first seven months of 1977, the stock market is very shaky about Carter. Are you going short or long?

SIMON: When I left government I studied the situation very carefully in the first few months of the Carter administration. I listened to the rhetoric and then watched the contradiction of the action as opposed to the rhetoric—and I sold every stock I owned. And I wouldn't buy a stock right now with your money. That requires confidence.

REASON: What about inflation?

SIMON: I think the basic rate of inflation today is approximately 7 percent and rising.

REASON: Unemployment?

SIMON: Unemployment is going to remain a problem. Inflation is the greatest enemy of capital investment and business expansion—and employment. So, if we're going to see rising inflation, we're not going to see any gains on the unemployment front.

REASON: The balance of payments?

SIMON: The balance of payments is going to continue to be absolutely horrible. Unfortunately, the policies—most especially the energy policy—are going to make sure that it is going to go on for much longer than necessary.

REASON: The United State currently has the lowest rate of capital investment of any major industrial nation in the entire West.

SIMON: It has for the past 15 years.

REASON: What are the causes and what are the solutions?

SIMON: We've been having government policies, through the tax system and through the deficits, that promote consumption at the expense of savings and investment. It is correct that we have the lowest rate of capital investment, the lowest rate of productivity. And we wonder why our standard of living doesn't increase sufficiently to provide for greater employment. It's no secret.

REASON: How far are we behind Great Britain?

SIMON: Milton Friedman thinks we're 20 years before we'll reach the fate of Great Britain. I must admit that, while I agree with so many things that Milton has said, I think it's going to be sooner than that.

REASON: What would be the effect if Carter were to replace Arthur Burns at the Federal Reserve?

SIMON: It would be an absolute disaster. Arthur Burns is the last bastion of fiscal and financial sanity in that city.

REASON: What positive things can businessmen do to promote the free enterprise system?

SIMON: The one thing they have to start doing is to stop being hypocrites and every time an economic storm cloud appears on the horizon run down to Washington for some protection—a tariff, a subsidy, some bit of regulation that protects them from the very competition that made this system so dynamic.

REASON: Your name is being mentioned as a likely choice for the Republican presidential nomination in 1980.…

SIMON: I am not focusing any attention on Bill Simon, 1980, or Bill Simon, 1978. I'm concentrating my energies and my activity on going around the country and expressing to as many people as I can, with an emphasis on colleges and universities, my deep concerns for the direction in which my country is headed. And I don't want that to be confused—my sincere concerns—with any political desires on the part of Bill Simon, because he doesn't have any. His major concern is that his children have the same opportunities and freedoms that he enjoyed.

REASON: The intellectual climate seems to be very much better for free market advocates than at any time in a half century, yet our institutions are heading us inexorably to bankruptcy. Can we turn the tide fast enough to survive the mistakes of the welfare state?

SIMON: We will not know that until we can look back at the results. All I can say is that time is running out.

REASON: Thank you very much, and we do appreciate your time.

SIMON: It's a pleasure.