Herbert Stein

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The Independent Culture
HERBERT STEIN, one of the most respected US economists of his era, is best remembered as an architect of the "New Economic Policy" which Richard Nixon unveiled on 15 August 1971. If Paul Volcker, Treasury Under- Secretary for Monetary Affairs (and future Chairman of the Federal Reserve), was the moving hand behind the decision to close the Treasury's gold window, which effectively floated the dollar on the international exchanges, Stein, a member of the President's three-man Council of Economic Advisers (CEA), was largely responsible for the domestic side of the strategy.

The measures were finalised during three days of top-secret discussions at Camp David on how to tackle the mounting difficulties of the US economy, overburdened by the cost of Vietnam. Inflation and unemployment were rising, the trade and budget deficits were huge, while foreign confidence in the dollar, the mainstay of the entire global financial system, was crumbling.

Stein's main contribution to a package which stunned the world was a flat 90-day wage and price freeze, followed by 13 months of mandatory controls. They were the first of their kind in the US in a time of peace - and the very opposite of what might have been expected from a party identified with free markets and a hostility to state intervention. But then again, though Herb Stein served solely under Republican administrations, most prominently as chairman of the CEA between 1972 and 1974 under Presidents Nixon and Ford, he was anything but a typical Republican economist.

First and foremost, he was a pragmatist. His outlook had been stamped indelibly by the Great Depression during which he grew up. Watching the misery all around, not to mention his own father's struggle to hang on to a job, he was convinced at an early age that the finest theorising is only as good as the practical results it brings. Stein was a brilliant student, winning a string of college prizes for oratory and essay writing, as well as graduating summa cum laude in his chosen discipline, before moving on to study for a doctorate.

But the Second World War disrupted his plans. Stein spent the years between 1940 and 1945 as an analyst, first for the War Production Board, then for the Office of War Mobilization and Reconversion. The experience was profound, imparting a Keynesian faith in the effectiveness of government. His views were crystallised in a 1944 essay which won a $25,000 prize offered by the Pabst brewing company for the best ideas on solving post- war economic problems. His remedy was a classic Stein mix of conservatism and interventionism: stimulation of private demand, measures to encourage risk capital and crack down on monopolies - but also countercyclical state spending when the economy weakened.

In the US more than anywhere, economists divide into rigid ideological camps. Not however Stein. He once wryly described himself as "the conservatives' liberal and the liberals' conservative" - a blend reflected in his peregrinations through the Washington think tanks, normally lifelong badges of intellectual affiliation. Stein was a senior fellow at the centrist-liberal Brookings Institution before joining the Nixon administration. He then held exactly the same post at the steadfastly conservative American Enterprise Institute after he left government.

The unpredictability persisted throughout his life. He was an anti-inflation hawk, who in the late 1940s helped elaborate the concept of the "full- employment budget" which would be adopted by the Democratic administrations of John Kennedy and Lyndon Johnson. Most recently, well into his eighties, Stein was warning against the Republican orthodoxy of using the massive budget surpluses forecast for 1999 and beyond for tax cuts.

As always, practicality took precedence over doctrine. In half a dozen books and countless newspaper articles after he left government, he made the dismal science accessible, most notably in his 1992 work An Illustrated Guide to the American Economy. He put his views across with simplicity and the odd flash of deadpan humour, as if mindful of Lyndon Johnson's immortal quip that such activity was "a lot like pissin' down your leg. It seems hot to you, but it never does to anyone else." The sign-off of one of his last articles, for the incorrigibly right-wing editorial pages of the Wall Street Journal a few weeks before his death, was typical: "Here are my own views . . . which I recognise may be wrong."

Rupert Cornwell

Herbert Stein, economist and government official: born Detroit, Michigan 27 August 1916; married 1937 Mildred Fishman (one son, one daughter); died Washington DC 8 September 1999.

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