Obituary writers were kind to G. William Miller. Most noted he was the only person who ever served as chairman of the Federal Reserve Board and as Treasury secretary, and that in this latter job he oversaw an unprecedented federally guaranteed loan to Chrysler Corp.
But none of the obituaries I read pointed out that he was the most inept Fed chairman since the position was created in 1935. Nor did any of them note that his leadership fostered a harmful surge of inflation that cost Jimmy Carter — the president who appointed Miller — re-election in 1980.
By all accounts, Miller was an intelligent, capable individual who distinguished himself in all the nongovernment jobs he ever held.
Coming from a small town in Texas, he graduated from the Coast Guard Academy at age 20 with an engineering degree. He got a law degree from the University of California at Berkeley. He helped make Textron Corp. one of the corporate success stories of the 1950s and 1960s and became its CEO at age 43. After his service in the Carter administration, he started a successful merchant-banking firm and served on corporate boards. He taught university courses and was regarded as an excellent professor.
The question is why such a capable individual failed at running the Fed. Miller, who served in 1978 as Fed chairman before being shifted to Treasury in 1979, failed because he misunderstood the fundamental responsibilities of his position.
I once talked to someone who took a college course Miller taught in retirement. This former student raised Miller’s Fed record in a private conversation.
Miller said he thought his job was to implement policies that the president and his economic staff desired. For Miller, chairing the Fed was a matter of loyal service to the boss.
Miller misunderstood the Federal Reserve Act. The structure of the board of governors and the process by which the chair and other board members are appointed were crafted to insulate monetary policy-making from political influence.
The duty of the chairman — and all Fed officials — is to manage the money supply for the long-term health of our economy. The one fundamental thing they can do is ensure there is neither inflation nor deflation. They must avoid bending to pressure from the president or Congress.
Under Miller, the Fed let money growth slip out of control because he understood the Carter administration did not want higher interest rates. High inflation resulted. That harmed the nation. And, it made the purging of inflation by Miller’s successor, Fed chairman Paul Volcker, much more painful for society.
The two most successful chairs in our history — Volcker and William McChesney Martin — recognized the importance of Fed autonomy. The two worst failures — Miller and his predecessor, Arthur Burns — were the most deferential to presidential wishes. Don’t forget the lesson in that.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.