Adroit Switch at Money Central

Miller pleases Burns' fans and foes; Mclntyre completes economic team

The suspense over who would replace Arthur Burns as chairman of the Federal Reserve Board--or if he would be replaced at all--began to build even before Jimmy Carter entered the White House. During his campaign, Carter made it clear that he felt each President should choose a Fed chairman whose views were compatible with his own--and he has chafed increasingly under Burns' open criticism of White House policy. But could Carter afford to dump the legendary and controversial Burns when his second four-year term as chairman of what has been called the nation's "Supreme Court of money" expires Jan. 31? At 73, Burns had become a rock-like symbol of resistance to inflation at home and a champion of a strong dollar abroad. He was trusted and admired by U.S. businessmen and foreign finance ministers, precisely the two groups most skeptical of Carter's own savvy as an economic manager.

Last week, though, Carter decided that, yes, he could drop Burns and life would go on pretty much as usual. In a move that surprised official Washington and caught Burns off guard while he was on vacation in Florida, the President picked as Burns' successor a man whose name had never come up in public speculation: G. (for George) William Miller, 52, chairman and chief executive of Textron Inc., one of the nation's first and most successful corporate conglomerates.

The appointment seemed as politically adroit as it was unexpected. It pleased the liberals who have long thought that Burns was strangling the nation's economic growth by being too stingy in doling out money, thus pushing up interest rates too much, and yet it did not seem to antagonize Burns' conservative admirers. Quite the contrary; Miller's long career at Textron and service on various business and government committees have given him a wide acquaintanceship in the financial community, and most businessmen and bankers hailed him as one of their own. Miller will have to be a miracle man to keep that universal favor; his cheering section includes both people who predict that he will be less tight on money than Burns, and others who assert with equal confidence that he will prove just as conservative and independent as the chairman he replaces. But for the moment the only discordant notes came from some American grumblers who think that Carter should have chosen a banker or economist rather than a corporate chieftain, and from the foreign exchange markets, where the dollar initially fell a bit further--not because money traders overseas distrust Miller, but simply because they know little about him.

In a far more expectable decision. Carter named James T. Mclntyre Jr. his onetime budget director in Georgia, as head of the Federal Office of Management and Budget, succeeding Bert Lance (see story page 45). Thus the President completed his economic team on the eve of his departure for a seven-nation tour.

Arthur Burns had not wanted to leave his post, and had been publicly deferential toward the President lately. Carter, in return, consistently flattered Burns, and throughout the fall kept insisting that there was no real dispute between them.

There was, though. Burns had been quarreling with the Administration almost from the beginning, criticizing last year's $50 tax rebate scheme, which was later dropped, and various White House proposals for tax reform. He also had been driving up interest rates to a point that Charles Schultze, Carter's chief economic adviser, felt was dangerous to the nation's economic recovery. Schultze, annoyed by the Fed chairman's lecturing to the White House, once lamented: "Burns talks about the independence of the Federal Reserve. What about the independence of the Executive Branch?"

Presumably, Bill Miller will get along better with Jimmy Carter, the man who hired him. A workaholic, lawyer and team player who helped Royal Little build Textron into a profitable, wide-ranging conglomerate, Miller is disciplined yet humorous, and pleasant to deal with. He refuses to compare himself with Burns. "Each of us has our own style," says he. "I've built up my personal way of doing things over a long time. I'm sure they'll be different from anyone's."

Miller's appointment almost surely will not mean any sweeping change in Federal Reserve policy, at least until he overcomes his newness. A Board chairman has only one of the twelve votes on the Fed's critical Open Market Committee: its decisions on the buying and selling of Government securities largely determine the rate of money-supply growth and the level of interest rates. The chairman eventually does rule, but by force of personality, which takes time to establish.

In philosophy, however, there appear to be distinct though hard-to-measure differences between the incoming and outgoing chairmen. Burns saw inflation as Public Enemy No. 1. Miller gives equal priority to reducing unemployment and has often said that price stability and full employment are not incompatible goals.

Further, Miller has advocated some ideas that Burns never would countenance. In a signed article in Business Week in 1974, he came out for a form of credit allocation: mandatory higher interest rates on, and higher bank reserves behind, loans for low-priority purposes; lower rates on, and smaller reserves behind, high-priority loans, such as those to finance housing or small business. Conditions, of course, were different then, and Miller was not talking last week about whether he feels the same way now. He interrupted a Bahamas vacation to accept Carter's selection, made some remarks about the importance of a strong dollar that sounded staunchly conservative, and then flew back to the Bahamas.

How was he chosen? Up until several weeks ago, Carter was considering keeping Burns on. The President finally was persuaded by Vice President Walter Mondale and Treasury Secretary W. Michael Blumenthal that the Fed needed new leadership. About seven weeks ago, a candidate search team headed by Mondale was set up. The group knew almost from the outset that its ideal candidate would be a progressive businessman, preferably a Democrat (which Miller is). A list of a dozen names was drawn up; eventually it was pared to five. On it were Du Pont Chairman Irving Shapiro, General Electric Chairman Reginald Jones, Brookings Institution Chief Bruce MacLaury and Bank of America President A.W. Clausen, in addition to Miller. Washington rumor has it that Shapiro, Jones and Clausen turned down the job.

That left Miller and MacLaury, 46. Miller clearly had the advantage. His sponsor was Blumenthal, himself a businessman (former Bendix Corp. chief) and an old acquaintance. Last Tuesday, the President talked with Miller and MacLaury in morning interviews, and in the end Carter's wish to appeal to the business community ruled out MacLaury.

Next came the touchy matter of telling Burns. Tuesday evening Carter himself reached Burns in West Palm Beach and asked him to come to Washington, without saying why. Mondale was dispatched in an Air Force DC-9 to pick up Burns. The flight to Washington was quite stilted with Mondale and Burns both knowing what they should be talking about but never mentioning it.

At the White House, Carter talked amiably with Burns. Carter told the chairman of his ideas about what the Fed should be doing. Not until the end of the hour-long exchange did the President get to the point: he would not reappoint Burns, but instead would choose Bill Miller, whom Burns knows because Miller for seven years has been a director of the Boston Federal Reserve Bank.

Burns, accompanied by Miller, returned to the Federal Reserve Building on Constitution Avenue. There, Burns hastily assembled a meeting of top staffers to break the news. Miller was then ushered in to be introduced. At 5 p.m., Carter went before newsmen to announce the switch, with both Miller and Burns present. Burns asserted: "Mr. President, you have chosen wisely and well," then returned to Florida without once passing through his office.

Businessmen promptly praised Miller's appointment as "imaginative" and "inspired." Peter Peterson, head of the newly merged investment banking house of Lehman Bros. Kuhn Loeb Inc. and a longtime friend of both Burns and Miller, said of Miller: "He's a highly sophisticated, aware, dedicated and mature business manager and human being." AFL-CIO Boss George Meany, an archenemy of Burns, praised Carter for dropping the old chairman and "moving away from the discredited policies that created the last recession. Wisconsin Democrat William Proxmire, chairman of the Senate Banking Committee, said that he might vote against Miller's confirmation because of his lack of banking experience. But he conceded that the Senate is likely to confirm Miller in view of the "glowing recommendations from all sides that this guy seems to have."

What now for Arthur Burns? The President asked Burns to stay on as one of the Federal Reserve's seven governors; Burns' 14-year term in that post does not expire until 1984. Burns replied in stratospheric fashion: "The good doctor is in the habit of thinking now and then, and he'll have to think this over carefully." His decision may well be no. He could make good money on the lecture circuit, in the manner of Henry Kissinger or Gerald Ford. He does not seem to regard Miller as a dangerous radical whose influence would have to be countered. And after having had the chairman's weight, Arthur Burns is not likely to settle for being just another governor Says Andrew Brimmer, a Reserve Board governor for more than half of Burns' eight years as chairman: "I cannot imagine his moving around to the other side of the table and just sitting there as the ranking member of the Board." Burns does not consider power to be a spectator sport.

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