Was it good policy at the time? Was it done just (or mostly) to help ensure his reelection the next year? Is there any consensus among historians and economists about the Nixon policy today?
I don’t know about the “consensus”, but wage and price controls have more or less never worked in practice. I can think of one time they ever did - in World War 2, the economy was heavily regulated. But that was already a weakened economy with a huge problem of labor shortages, and a massive volunteer war effort which put the government in direct or indriect charge of a gross portion of the economy.
I do remember That Canada adopted wage and price controls several years later by a prime minister who was opposed to wage and price controls earlier, so it must have had some positive results.
I can’t speak to the consensus among historians and economists, but of course it was all about re-election. And when shortages of all sorts of things, from meat to gasoline*, started popping up in the spring of 1973, just as economic theory says should happen when price controls are instituted, that pretty much told the tale of whether it was good policy.
*It’s been largely forgotten in the wake of the Yom Kippur War of 1973 and the Arab oil embargo that followed, but the U.S. was already experiencing (mild, by comparison) gasoline shortages during the spring and summer of 1973.
Not by anyone who had to travel across the country that summer. :mad:
Yes, the consensus is that it was moronic.
Government wage and price controls date to ancient times, but they achieved their full flowering in the West during the two world wars. In the shared sacrifice atmosphere of the world wars, they were moderately effective. During total war, people accept that there will be shortages of a lot of consumer goods, and that economic life will be interrupted for the duration. During Vietnam, nobody accepted any of that.
Price controls are an easy way out for politicians. It allows them to transfer blame for inflation from the government (where it belongs) to the public and to “evil profiteers”. It allows the government to keep creating money, but to say, “The inflation is your fault. We did our part–we passed a law. It’s not our fault if you won’t follow it.”
It worked temporarily, but as noted, there were spot shortages and price bounces by 1973.
So, in the long run (actually, the medium run) no.
Protectionism does work in the short term especially when economies are slow to react. The US did it first in the late 1700’s early 1800’s, especially with the piracy of books (though some argue that it actually helped the authors). In today’s modern economies, protectionism’s short term benefits would be widely, widely outweighed by the distortions it creates.
Better that than the runaway hyperinflation experienced by many South American countries, or the living corpse that Britain became in the late 'Seventies and early 'Eighties.
I don’t know that we can really say that the price and wage controls were really “good”; but I think they were necessary insofar as creating a bit of breathing room for the US to normalize economic growth and demands. It is not something we should institute in the long term (and no doubt the timing of it was somewhat influenced by the upcoming election) but the Bretton Woods system of international fiscal policy was badly strained if not completely broken, and without wage and price controls the US economy the balance of payments crisis (where the US had to keep running a deficit in order to keep the system afloat, a.k.a. the Triffin dilemma) the domestic situation would have become increasingly untenable as a free-floating dollar lost value against needed imports.
We still have this problem today; many economies are at least loosely based on the American dollar (though Europe has now harmonized and has the semi-independent Euro to compete), and must of our “value” in terms of dollars is held overseas, particularly in China and the Middle East, which means these nations could dump dollars on the market and create a run that would leave the US without the fiscal capacity to maintain the existing standard. Since most of our manufacturing, especially textiles and consumer goods, is oversees, this would be absolutely devastating for us; fortunately, it would also be very bad for our vendor nations whose purchasing power for raw materials and high industrial services is predicated on a reasonably strong US dollar. But this is like holding a grenade while someone else has their finger in the pin-ring. Scary.
Stranger
I just don’t see it. It’s not like the U.S. economy was going to go even mildly crazy in the pre-oil embargo part of the 1970s in the absence of wage and price controls.
We were becoming a lot more dependent upon imports, which meant that we needed a strong dollar for effective purchasing power; however, for Bretton Woods to keep working, the US dollar had to be held at a high amount relative to other trading commodities–in particular, gold, which had been artificially held at $35/oz–meaning that maintaining the value of the dollar was predicated on continuous inflating deficits to fund international growth with progressively less chance of profitable return; in short, the United States was printing money and creating fiscal value via fiat, with the underlying assumption that the dollar would always be good. Meanwhile, a costly war raged in Southeast Asia, traditional good paying middle class jobs started to go oversees, and the amount of holdings that the US had to provide to secure its own internal debts was increasingly held by foreign interests, which meant that if gold started to be traded on the free market much of the US reserve would be in foreign hands. There was actually a run on gold in 1967 which, if successful, could have inflated the value of gold holdings considerably and caused massive deflation of the dollar’s purchasing power. This was really about the last straw in Bretton Woods, which was predicated on gold being the indisputable measure of value exchange, when in reality people were really exchanging dollars and oil (and eventually, gold) at free market value, leaving the US with a fistful of debt.
The US economy wasn’t completely tanking in the late 'Sixties and early 'Seventies, but it was on the cusp and the barbarians at the gate held back by a number of Rube Goldberg schemes intended to prop up the dollar, including Nixon’s last grasp. None of these were really thought out, but they weren’t intended to be anything but stopgaps, and it wasn’t until the Reagan buildup and the real estate boom of the early 'Eighties that the economy began to breathe normally. Frankly, the wage and price controls weren’t the first, but rather the last step in the deregulation of direct control of the value of the US dollar, which had been amplified since the Eisenhower era by artificial import duties and export restrictions.
Now the primary way the Fed and the government has of controlling the value of the dollar is monkeying around with the prime lending rate, and we’ve seen how well that works. Wage and price controls were just a quick Band-Aid that a) allowed a little bit of transition period without painful spiking, b) offered some degree of stability in the type of potential economic free-fall scenario that New York City was getting ready for, and c) to let Nixon appear to be “doing something” about “this sluggish world economic situation” without blowing stuff up. Not a great solution and certainly not workable in the long term, but then and there it seemed like the best date to the prom. Sometimes you just have to go home with Mr. Rightnow instead of waiting for Mr. Right.
Stranger