Fed Powell delivers remarks at the Hoover Institution

Key Concepts

• George Shultz's Legacy: A remarkable man and policymaker known for strong principles, integrity, common sense, and a practical problem-solving approach.
• Market Wisdom and Intervention: A deep belief in the wisdom of markets, allowing them to work without government direction, but also recognizing market failures requiring public policy.
• Intellectual Rigor in Policymaking: Applying academic rigor to the practical, messy work of policymaking through multiple cabinet appointments.
• Commitment to Public Service: A lifelong dedication to public service, contributing to healthcare reform, climate change, nuclear disarmament, and other areas even after leaving office.
• Combating Racial Discrimination: Deep concern for racial discrimination and consistent use of authority to increase opportunities for minorities, citing both moral and economic justifications.
• Facilitating Agreement: Extraordinary ability to steer people toward agreement by letting parties reach their own conclusions, fostering ownership and adherence.
• Trust and Integrity: The belief that trust is the "coin of the realm" and that integrity is the foundation for good things and collaboration.
• Labor Economics and Collective Bargaining: Shultz's professional training and early career focus on labor economics, understanding the importance of collective bargaining in a different era.
• Free Markets and Individual Liberty: A fundamental belief in the foundational principles of the United States, including the free market and individual liberty, and their role in prosperity and global influence.
• Challenging Central Planning: A willingness to challenge the assumptions of centrally planned economies, particularly the Soviet Union, based on the principles of free markets and individual liberty.
• Government Intervention vs. Self-Reliance: The principle that government intervention can sometimes be an obstacle and that empowering individuals and parties to make their own decisions leads to better outcomes.
• Philadelphia Plan and School Integration: Shultz's role in implementing the Philadelphia Plan to increase minority hiring and leading the effort for peaceful school integration in the Deep South, achieving significant desegregation.
• Economic Policy Evolution: The understanding that economic understanding and policy approaches evolve, and that conventional wisdom can be challenged and overturned.
• Closing the Gold Window: Shultz's involvement in the decision to end the convertibility of the dollar into gold, moving towards a free market for the dollar and flexible exchange rates.
• Opposition to Wage and Price Controls: Shultz's strong opposition to wage and price controls, viewing them as detrimental, and his subsequent efforts to abolish them.
• Monetary Policy and Inflation Control: The shift in economic thinking towards disciplined monetary policy as the key to controlling inflation, as championed by Shultz and supported by Reagan.
• The Power of Ideas and Persuasion: Shultz's belief in the power of ideas and his skill in bringing together intellectuals and policymakers to debate and advance sound policy.
• The "Great Convenor": Shultz's role as a facilitator, bringing together diverse groups to discuss important issues and find solutions.
• Optimism and Engagement: An underlying optimism and a belief in the possibility of solving problems through persistent engagement and adherence to core principles.
• The Centrality of the United States: A strong belief in the indispensable role of the United States, founded on sound principles, in promoting global peace and prosperity.

George Shultz: A Legacy of Principled Public Service and Market Economics

This discussion celebrates the life and enduring legacy of George Shultz, highlighting his multifaceted career as a distinguished economist, statesman, and policymaker. Shultz is presented as a paramount role model, embodying strong principles, unwavering integrity, and a pragmatic approach to problem-solving. His career, spanning multiple cabinet positions and extensive post-public service contributions, consistently demonstrated a profound belief in the efficacy of free markets, tempered by a recognition of the need for public policy to address market failures.

Early Career and Foundation in Labor Economics

George Shultz's professional foundation was in labor economics, earning his doctorate from MIT in 1949 and teaching there for nine years before moving to the University of Chicago, where he served as dean of the business school for six years. This background was crucial in a mid-20th century era characterized by high unionization rates (around 30% in the US) and significant public debate surrounding labor's role. As Jay Powell notes, "In those days it was around 30%," and collective bargaining for major manufacturing unions was front-page news. Shultz's expertise in labor economics and collective bargaining made him exceptionally qualified for his role as Secretary of Labor under President Nixon. He understood the labor movement and its leaders, and his father, a labor lawyer, instilled in him a respect for workers and the collective bargaining process.

Integrating Free Markets with Policy

A central theme throughout Shultz's career was his deep belief in the wisdom of markets. As Mike Condoleezza Rice recounts, Shultz fundamentally believed that the United States' foundational principles, including the free market, were the bedrock of its success. He saw the free market as a mechanism to lift countries out of poverty and foster prosperity, inextricably linking it with individual liberty. This conviction informed his approach to various policy challenges, from collective bargaining to wage and price controls and exchange rates. However, Shultz was not an absolutist; he recognized that "there are sometimes market failures that do require uh being addressed by public policy."

Key Episodes and Policy Interventions

1. The Longshoreman Strike (1969): As Secretary of Labor, Shultz faced a significant Longshoreman strike shortly after taking office. Despite intense pressure for government intervention, he insisted on keeping the federal government out, forcing the parties to negotiate directly. This approach, as Jay Powell explains, set an important precedent: "government intervention sometimes can be an obstacle rather than a provider of successful outcomes." The strike settled within a month, demonstrating the power of allowing parties to resolve their own disputes. This episode underscored Shultz's belief that individuals, when confronted with direct consequences, are motivated to find the best solutions.

2. The Philadelphia Plan and School Integration (Nixon Administration): Shultz's tenure also saw him tackle significant social issues. In 1969, he issued the Philadelphia Plan, requiring federal contractors to hire minority workers. He famously stated he was not imposing quotas but ending a "quota of zero" for black workers. He also chaired the White House Cabinet Committee on Education, tasked with integrating schools in the Deep South. Shultz's methodology involved bringing together white and black leaders from each state to devise their own integration plans. He emphasized the importance of letting parties reach agreements themselves, stating, "when parties get this close to an agreement, it's best to let them complete their deal on their own. That way, the agreement belongs to them." By the end of the Nixon administration, a staggering statistic emerged: "more than 90% of black children in the South were attending integrated schools." This accomplishment, as Jay Powell notes, was an "extraordinary accomplishment" achieved by bringing people together, treating them with respect, and empowering them to solve difficult issues without violence.

3. Closing the Gold Window and Exchange Rate Policy (1971): As Director of the Office of Management and Budget (OMB) and later as Secretary of the Treasury, Shultz was involved in President Nixon's decision to close the "gold window," ending the dollar's convertibility to gold. This move, as Milton Friedman observed, "opened the way to a free market for the dollar where there was none before." Mike Condoleezza Rice explains that this was a significant shift from the post-WWII Bretton Woods system, which pegged exchange rates to the dollar and the dollar to gold. The move towards flexible exchange rates, supported by Shultz and others like Paul Volcker, was seen as a victory for a market-oriented approach, ultimately benefiting the world.

4. Wage and Price Controls (1971-1974): Shultz strongly opposed President Nixon's imposition of wage and price controls to combat inflation. Despite being overruled initially, as Secretary of the Treasury, he worked to abolish these controls, which were fully removed by April 1974. This episode is viewed as a clash between statist thinking (represented by John Connally) and the emerging Chicago School's free-market principles (represented by Shultz). Jay Powell highlights that economists debated the efficacy of "incomes policies" for decades, and while there was a consensus that something needed to be done about simultaneous inflation and unemployment, wage and price controls proved to be a "bad idea." Shultz's persistence in reversing this policy demonstrated his commitment to free markets and his ability to "play a long game," waiting for opportunities to correct what he believed was wrong.

The Reagan Era: Monetary Discipline and Intellectual Victory

Shultz played a pivotal role in shaping economic policy during the Reagan administration. Before becoming Secretary of State, he chaired President Reagan's economic policy advisory group, which included figures like Milton Friedman. This group emphasized that the "essence of the inflation problem is monetary policy" and advocated for disciplining the money supply. Despite warnings of a recession, Reagan's support for Paul Volcker's actions led to a significant drop in inflation, paving the way for economic revival. This period represented an "intellectual victory" for free-market principles over earlier statist approaches. Shultz's preparation for this moment included engaging with candidate Reagan, helping him develop a nuanced understanding of economic issues.

Diplomacy and the End of the Cold War

As Secretary of State (1982-1989), Shultz continued to apply his economic understanding to foreign policy. He engaged directly with Soviet General Secretary Mikhail Gorbachev, using his trips to Moscow to conduct "tutorials" on the benefits of market economies, even employing pie charts. While penetrating the Soviet system proved challenging, Shultz's persistence and belief in the principles of capitalism were unwavering. He supported small entrepreneurial experiments within the Soviet Union, seeing them as potential seeds of capitalism. His approach was characterized by a methodical and in-depth communication style, aiming for genuine understanding rather than sound bites, which he believed was crucial for effective diplomacy.

The "Great Convenor" and Lasting Lessons

Upon returning to Stanford, Shultz continued his work as the "great convenor," bringing together the brightest minds to discuss critical issues, from energy policy and climate change to national security and North American economic integration. His engagement spanned a wide array of public policy areas, often stemming from his economic perspective.

The enduring lessons from George Shultz's life, as articulated by his colleagues, are profound:

• Integrity in Service: Serve with integrity in all endeavors, public or private, and make the most of one's talents.
• Stay Engaged: Democracy is not a spectator sport; active and constructive participation is essential to making things better.
• Understanding Problems: Before attempting to solve problems, one must first understand them deeply, intellectually and experientially.
• Optimism and Perseverance: Maintain an optimistic outlook and believe that challenges can be overcome through persistent effort and adherence to core principles.
• The Centrality of the United States: Recognize the indispensable role of the United States, founded on sound principles, in promoting global peace and prosperity.

Shultz's life serves as a testament to the power of combining intellectual rigor with practical application, a commitment to public service, and an unwavering belief in the principles of free markets and individual liberty. His legacy continues to inspire those who aspire to serve their country and contribute to a better world.