JACKSONVILLE BEACH, Florida (February 6, 2009) – I was listening to the Rusty Humphries Show on the radio last night, and Rusty (who’s 44-years old) said he didn’t really remember President Richard Nixon’s wage and price controls. I lived through the 1000-days of horror and the subsequent recession. I thought there may be a lot of folks who also don’t remember those days, and with President Obama announcing a limit on executive pay, let’s look back at what happened in the 1970s.
In 1970, inflation had hit the unprecedented high of 6%, and it continued on at 4% for months. The country was paying for the war in Vietnam as well as a tremendous number of social programs begun under President Lyndon Johnson’s Great Society (as he called his administration) such as The War on Poverty. People were losing their jobs because of the inflation and increasing interest rates.
Federal Reserve Chairman Arthur Burns, in May, 1970, declared that corporations and labor unions were driving up wages and prices. Proving himself an elitist, he called for the creation of a board of “distinguished citizens” who would oversee wages and prices.
In January, 1971, Mr. Nixon announced, “I am now a Keynesian.” He proposed what he called a “full employment” budget, which provided for deficit spending. Many folks in Washington today have returned to Keynesian economic theories and the current bail-out bill before Congress is nothing if not deficit spending.
By August, 1971, much of the public and many economists called on the federal government to do something. They thought the way out of trouble was through massive federal intervention. Congress gave the president the authority to freeze the economy, and President Nixon said that he did not want that power. However, on August 15, the president froze wages and prices.
Though I can’t find any reference to this, I remember well that the freeze was retroactive. I knew people who had received raises who lost them. Particularly hard hit were automobile dealers. Summer is the time of year that dealers used to put cars on sale to clear out inventory for the new models. By August 15, they had ended the sales, but for cars sold during the retroactive period, the dealers were forced to return to the lower price and refund money to the purchasers.
At the same time, the United States went off the gold standard. The measure was taken specifically to lower the value of the dollar. However, with the dollar worth less, it naturally cost more to buy a given product. But with prices frozen, manufacturers couldn’t make money. The natural result was that they stopped making things.
Americans are creative – far more creative than the governments that try to control them. They found ways around the controls. Businesses were free to set new prices for new goods, so they turned to making new things. For instance, if a grocery item had previously been sold in a 16-oz. can, it was now sold in a 15-oz. can for a higher price. Ranchers stopped shipping unprofitable beef – farmers drowned their chickens. Consumers emptied store shelves. Butchers simply cut meat in a different way, called the meat something different, and raised the price When summer rolled around, car dealers no longer put cars on sale, but offered manufacturer’s rebates. That’s a practice that’s still with us.
Businesses used the wage and price controls as an excuse to not raise wages. Many people went years without a raise, all the while the prices they paid for consumer goods went up, and they fell farther behind.
OPEC was not controlled by the measure. The OPEC countries began to manipulate oil prices at this time and the price at the pump went from about 19-cents a gallon to about 50-cents. It all put a tremendous squeeze on the consumer.
Wage and price controls were supposed to last only 90-days, but as with most government programs, they continued on. It was April, 1974 before they were mostly ended, and by that time, inflation had reached 9%.
The effects of wage and price controls lasted through the decade. With companies no longer making unprofitable goods, it was impossible to buy certain things. I worked for an industrial supply company from 1973-76 and saw this first hand. People needed tools and parts to manufacture goods, but the tools and parts were not available. No one could make anything because of shortages tracable directly to the wage and price controls.
Today’s politicians say we’re now in the worst economy since The Great Depression. I don’t think the economy is nearly as bad now as it was in the 1970s.