(b. 27 August 1916 in Detroit, Michigan; d. 8 September 1999 in Washington, D.C.), economist and adviser to President Richard M. Nixon.
Stein was born the son of David Stein, an automotive machinist, and Jessie (Segal) Stein, a homemaker. He attended Williams College in Williamstown, Massachusetts, on scholarship and earned an A.B. in economics (magna cum laude) in 1935. He then began work on his Ph.D. at the University of Chicago, though he did not actually receive the degree until 1958. Stein married Mildred Sylvia Fishman on 12 June 1937, and they had two children, Rachel and Benjamin. Benjamin became famous as a pundit, actor, and television game show host.
In 1938 Stein became an economist at the Federal Deposit Insurance Corporation (FDIC) in Washington, D.C., where he lived for most of his career. With war looming, he went to work in 1940 for the National Defense Advisory Commission, and in 1941 he took a job with the War Production Board. He remained on the board until 1944, the same year he received first prize in the Pabst Postwar Employment Awards, a national contest to devise a plan for full employment after the war. He had joined the United States Naval Reserve after the attack on Pearl Harbor and in 1944 reported for active duty. By the time his service was over, in 1945, he had attained the rank of lieutenant junior grade.
Following his wartime service, Stein began a long and important relationship with the Committee for Economic Development (CED), an organization that is engaged in research on matters of national economic policy and is funded by business rather than government. He served on the CED for twenty-two years, successively as economist (1945–1948), associate director of research (1948–1956), director of research (1956–1966), and vice president and chief economist (1966–1967).
At the CED Stein distinguished himself with a 1947 paper on national economic policy in which he recommended setting tax rates in such a way as to provide for small surpluses at times of full employment; otherwise, budgets should not be tampered with in response to short-term economic needs. This was a keystone concept for Stein, later embodied in "Stein's law," an example of his pithy wit: "If something cannot go on forever, it will stop." The "law" was a response to observers who maintained that efforts should be taken to stop unfavorable economic trends that they believed could not continue.
From 1965 to 1966 Stein was a fellow at the Center for Advanced Study in the Behavioral Sciences in Palo Alto, California. After leaving the CED in 1967, he served for two years as a senior fellow at the Brookings Institution in Washington, D.C. Meanwhile, his ideas attracted the attention of President Richard M. Nixon, who in 1969 appointed him to the Council of Economic Advisors (CEA).
In taking a position on the three-member council, Stein found himself in the midst of an ongoing debate involving the greatest economic minds in America. Robert Mundell, chief international economist for the International Monetary Fund and pioneer, with Arthur Laffer, of what later became known as supply-side economics, published a seminal text in 1960. According to Mundell, for every economic target, there is an economic instrument: for the employment target, fiscal policy was the instrument, whereas for inflation, monetary policy was the instrument. However, James Tobin, a member of the CEA under President John F. Kennedy, took an opposite and more conventional position, holding that monetary policy should be targeted toward employment and that fiscal policy should be the instrument against inflation.
Tobin's ideas, known among economists as "the policy mix," fell out of favor in the administration of President Lyndon B. Johnson, but Nixon and Stein revived them. As a CEA member, Stein recommended that Nixon raise taxes in order to balance the budget, a measure that would supposedly put the brakes on inflation. Stein and the other members of the CEA also advised Nixon to tighten credit and reduce the money supply. They predicted that unemployment would remain low and that inflation, then at 4 percent, would drop. Acting on this advice, Nixon in 1969 proposed an increase in the capital gains tax, which Congress passed. Recession soon followed, fueled by a number of factors, not the least of which were the continued costs of the Vietnam War. However, the capital gains tax increase, which served to discourage investment, certainly had a share of the blame.
With unemployment on the rise, Nixon took a measure that Stein had expressly warned against, ordering an increase in the money supply. The president's thinking was that, in keeping with the policy mix approach of using monetary policy to address employment problems, an infusion of dollars would expand the economy. This, of course, meant that the value of the dollar itself would have to drop, and in 1971 the Nixon administration severed all remaining links between the value of the dollar and that of gold. Nixon's advisors, including possibly Stein, had recommended the devaluation measure, probably as a corrective to problems resulting from the increase in the money supply.
On the advice of the Federal Reserve Bank chairman Arthur Burns and others, in August 1971 Nixon instituted wage and price controls, meaning that wage increases would be contingent on gains in productivity. Stein later described this as "Nixon's one serious mistake in economic policy." This may have been a generous statement, considering that Nixon's economic decisions probably did more damage to the nation than did the fallout from the Watergate scandal. At any rate, wage and price guidelines were certainly the worst aspect of Nixonian economics, and even though Nixon lifted them on the advice of Stein and others, inflation soared to 11 percent by 1974. The result was an economic recession that lasted until the early 1980s, which prompted President Ronald Reagan to cut taxes and the Federal Reserve to lower interest rates.
Stein served as chairman of the CEA from January 1972 until August 1974, the month in which Nixon left office. He continued for a few weeks under the administration of President Gerald R. Ford but resigned at the end of the month. From 1974 to 1984, he served as the A. Willis Robertson Professor of Economics at the University of Virginia. For most of his last three decades, Stein was heavily involved with the American Enterprise Institute (AEI), another conservative economic think tank. Stein was an adjunct scholar at the AEI from 1975 to 1977 and a senior fellow in 1977.
A prolific writer, Stein was a member of the Wall Street Journal board of contributors in 1974, a weekly columnist for the Economy Today and Scripps Howard newspapers (1974–1980), and a contributor to the Internet journal Slate in the 1990s. He wrote more than a dozen books and AEI pamphlets, including The Fiscal Revolution in America (1969); with Benjamin Stein, Moneypower: How to Make Inflation Make You Rich (1979); Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond (1984); Washington Bedtime Stories: The Politics of Money and Jobs (1986); Tax Policy in the Twenty-First Century(1988); Governing the $5 Trillion Economy (1989); with Murray F. Foss, An Illustrated Guide to the American Economy (1991); and What I Think: Essays on Economics, Politics, and Life (1998). He also coauthored a novel, On the Brink (1977), with his son Benjamin. In addition to his other work, Stein served the Reagan administration as a member of the President's Economic Policy Advisory Board (1981–1989) and the President's Blue Ribbon Committee on Defense Management (1985–1986). Under the administration of President Bill Clinton, he was a member of the President's Committee to Study Capital Budgeting (1998). Stein also acted as consultant to the Congressional Budget Office (1976–1989) and the U.S. Department of State (1983–1992). He died of heart failure in Washington in 1999.
As an economic advisor to the Nixon administration, Stein found himself in a difficult position, one in which his name could potentially become associated with the disastrous economic policies he had opposed. That it did not, and that he remained a respected economic thinker, is a tribute to his forthrightness and intellectual independence. Although he had distinct political and economic ideas, he never allowed ideology to govern his thinking. As a critic of his own fellow conservatives, Stein remained an opponent of supply-side economics, and in the social realm, decried the use of the phrase "family values," saying that such things do not exist; there are only human values.
He also distinguished himself by calling for greater action on behalf of the poor: "The children growing up in wretched families, in unsafe schools, and in vicious streets," he wrote, "are also 'our' children. A decent respect for family values calls for … more commitment to them." By remaining intellectually independent, Stein won the admiration of both conservatives and liberals. Among the latter was E. J. Dionne, who in a Washington Post obituary praised "the many bits of contrarian wisdom offered by a smart, puckish, and exceptionally honest commentator who, alas, will no longer be around to prick our intellectual balloons."
Biographical information on Stein is scarce. A good source of information on his career prior to the Nixon appointment is the congressional document Nominations of Paul W. McCracken, Hendick S. Houthakker, and Herbert Stein: Hearing, Ninety-first Congress, First Session, January 27, 1969 (1969). For a more personal view, see Stein, What I Think (1998), as well as various writings by his son Benjamin, including Financial Passages (1985) and Tommy and Me: The Making of a Dad (1998). Obituaries are in the New York Times (9 Sept. 1999); the Los Angeles Times (10 Sept. 1999); the Washington Post (14 Sept. 1999); The American Enterprise 10, no. 6 (Nov. 1999): 12; Business Economics 35, no. 1 (Jan. 2000): 4; and the Southern Economic Journal 66, no. 4 (Apr. 2000): 1,009–1,010.