Nixon's Domestic Policies
Nixon was far more interested in foreign affairs than domestic policies; however, he believed voters tended to focus on their own financial conditions. At the time Nixon took office in 1969, inflation was at 4.7 percent—its highest rate since the Korean War. The Great Society had been enacted under Johnson, and its expensive policies were, together with the costs of the Vietnam War, causing large budget deficits. Unemployment was low, but interest rates were at the highest they'd been in a century. Nixon thus perceived a threat to his reelection chances in the state of the economy.
The primary goal of Nixon's economic policy was the reduction of inflation rates. The most obvious means of reducing inflation was the cessation of the Vietnam War. This policy could not be implemented overnight, however, and the U.S. economy continued to struggle throughout 1970, contributing to a lackluster Republican performance in the midterm congressional elections, and Democrats controlled both houses of Congress throughout Nixon's presidency.
New Federalism
Nixon's broader philosophy on domestic policy was informed by the ideas of New Federalism, which proposed the decentralization of political power and the transfer of certain powers from the United States federal government back to the states. The primary objective of New Federalism, as opposed to the 18th-century political philosophy of Federalism, is the restoration to the states some of the autonomy and power which they lost to the federal government during the New Deal, including the power to administer social programs. Pursuing New Federalist policies, Nixon's budget included grants to the states and the sharing of federal revenue with states. These proposals were mostly rejected by congress; however, Nixon gained popularity from voters by advocating these policies.
The Nixon Shock
By 1971, the American money supply (the total number of dollars available in the economy) had increased by 10%. Due to both the excess printed dollars and the negative U.S. trade balance, other nations began demanding fulfillment of America's "promise to pay" – that is, the redemption of their dollars in exchange for gold. Meanwhile, European countries began leaving the Bretton Woods international financial system, which had based the value of foreign currencies on the value of the gold-backed dollar.
In 1970, Congress had granted the President the power to impose wage cuts and price freezes. The Democratic majorities, knowing Nixon had opposed such controls through his career, did not expect Nixon to actually use this authority. With inflation unresolved by August of 1971 and an election year looming, however, Nixon convened a summit of his economic advisers at Camp David. He subsequently announced temporary wage and price controls. He also suspended the gold standard, allowing the dollar to float against other currencies and ending the convertibility of the dollar into gold. The move had momentous consequences for the system of international financial exchange, and in turn, other nation's economies. Because Nixon made the decision without consulting any interested foreign parties, the international community deemed the new American policies the "Nixon Shock."
These policies essentially ended the Bretton Woods system of international financial exchange, which had been in place since the end of World War II. The "Nixon Shock" ended the direct convertibility of the United States dollar to gold, otherwise known as the gold standard. Nixon's policies dampened inflation through 1972, although their after-effects contributed to inflation during his second term and into the following Ford administration. The policies were more successful, however, as political maneuvers. By aligning himself with anti-inflation policies, Nixon appealed to voters and created a strong competition for Democrats.
Nixon's Second Term
After the 1972 elections, which Nixon won handily, inflation began to rise again. Nixon thus reimposed price controls in June of 1973, which quickly became unpopular with the public and businesspeople. Many saw the price board bureaucracy, associated with Republican policy, as more dangerous than powerful labor unions, which were associated with the Democratic party. The price controls produced food shortages, as meat disappeared from grocery stores and farmers drowned chickens rather than sell them at a loss. Despite the failure to control inflation, controls were slowly ended, and on April 30, 1974, their statutory authorization lapsed.
Richard Nixon at Opening Day of the Washington Senator's Baseball Season, 1969
Nixon was far more concerned with foreign policy than domestic policy, but viewed improvement of the economy as central to his popularity at home.