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JFK Defied Samuelson, Setting Off Boom (BRIAN DOMITROVIC, 12/16/09, Investors Business Daily)

The paramount matter facing JFK after he won the election of 1960 was, as his own campaign slogan had it, to "get this country moving again." There had been four recessions in the previous dozen years, and departing President Eisenhower had supervised a yearly growth rate of 2.4% — the worst of any president in the latter half of the century. JFK wanted to eclipse that mark in a big way. He put together a dream team of economic advisers to tell him how, and he chose Samuelson to anchor it.

Samuelson said the government should raise taxes and loosen money. The idea was that Federal Reserve easing would make businesses invest and employ workers, and tax hikes would siphon off any inflationary pressures caused by the loose money. Samuelson called his policy mix the "neo-classical synthesis."

JFK was puzzled by the advice. After all, the marginal rate of the income tax, at the astronomical level of 91%, had clearly been at the root of the Eisenhower sluggishness. Moreover, foreign investors scared off by that tax rate had been abandoning the dollar, a problem looser money could only exacerbate. [...]

JFK ordered his advisers to start taking suggestions from the business community, and a bombshell came from the Chamber of Commerce: a permanent 26% reduction in the marginal rate. Kennedy promptly indicated that this should become law, and it essentially did in the Revenue Act of 1964, which took the top rate down to 70% for good. The Fed, for its part, reacted negatively and tripled the federal funds rate.

The boom started just as JFK indicated that he was dumping the neo-classical synthesis for its opposite. Indeed, one of Samuelson's former MIT students, Robert Mundell, was at the time a young staffer at the International Monetary Fund and urging just that.

As Mundell wrote years later, in the wake of his own Nobel Prize, "at first (my advice) wasn't popular. This was because it recommended a complete reversal of the ... neo-classical synthesis. . .. Fortunately for the United States (and me), President Kennedy reversed the policy mix to that of tax cuts to spur growth in combination with tight money to protect (the dollar). The result was the longest expansion ever ... unmatched until the Reagan expansion of the 1980s."