The Ghost of Richard Nixon: Harris’s price control plan spurs debate

News analysis

The last time a president tried price controls in the United States was 1971, when President Richard Nixon imposed a multi-phased wage-and-price control scheme to tamp down runaway inflation, which had then climbed to 5.8 percent.

The gambit failed miserably — though it helped Nixon win re-election — and now, for the first time since, a presidential candidate is holding price controls up once again as a solution to ongoing higher prices, and maybe also as a tactic to win the November presidential election.

Just weeks ago, Democratic presidential nominee and vice president Kamala Harris took on what she called corporate price gouging as a way to get rampant retail and rent inflation under control.

“On Day One, I will take on price gouging and bring down costs,” Harris said. “We will ban more of those hidden fees and surprise late charges that banks and other companies use to pad their profits. We will take on corporate landlords and cap unfair rent increases and we will take on Big Pharma to cap prescription drug costs for all Americans. Our plan will lower costs and save many middle-class families thousands of dollars a year.”

To be sure, Harris and her allies disclaim that her plan to bring an end to price gouging is actually a plan for price controls.

“I’ve been amazed at how many credulous commentators, and not just on the right, have asserted that Harris is calling for price controls, making her out to be the second coming of Richard Nixon if not the next Nicolas Maduro,” wrote New York Times columnist Paul Krugman, who called Harris’s plan a solid center-left economic agenda. “What she has actually called for is legislation banning price gouging on groceries. Obviously, this is a populist political gesture — a way to offer something to voters upset about high food prices. But just because something is popular doesn’t mean that it’s a bad idea.”

To observers such as Krugman, price controls are about controlling the general level of pricing in the economy, while price gouging prohibitions target specific acts of corporate misconduct in charging excessive prices and raking in excessive profits.

But, as Krugman himself acknowledged, economists and policy-makers on both the left and right take issue with that perspective, saying Harris’s price gouging proposals are price controls by any other name.

Writing on Substack after Harris’s policy pronouncements, Brian Albrecht, the chief economist at the International Center for Law & Economics, said her policy was just that — price controls.

“Some might argue that calling Harris’s proposal ‘price controls’ is unfair or hyperbolic,” Albrecht wrote. “After all, she’s not directly setting prices, right? Any policy that gives the government the power to decide what price increases are ‘fair’ or ‘unfair’ is effectively a price control system. It doesn’t matter if you call it ‘anti-gouging,’ ‘fair pricing,’ or ‘consumer protection’ — the effect is the same.”

When bureaucrats, not markets, determine acceptable prices, we’re dealing with price controls, Albrecht wrote.

Albrecht listed several reasons why that was the case. First, vague definitions lead to broad interpretations.

“Without a clear, objective definition of ‘price gouging,’ regulators would have wide latitude to decide what constitutes an ‘unfair’ price increase,” he wrote. “It typically refers to unfairly high prices during emergencies. This isn’t about emergencies. This ambiguity could easily lead to de facto price controls across a wide range of grocery items.”

Second, Albrecht wrote, enforcement requires price monitoring. 

“To enforce a price gouging ban, the government would need to monitor price changes,” he wrote. “This creates a system where prices are effectively controlled by bureaucrats rather than market forces.”

Finally, Albrecht asserted, companies will err on the side of caution.

“Faced with potential penalties for ‘gouging,’ grocery retailers and suppliers are likely to be overly cautious about any price increases, even when justified by rising costs or changes in supply and demand,” he wrote. “This chilling effect is tantamount to informal price controls.”

That chilling effect rivals that of explicit price ceilings, even if not true ceilings, Albrecht asserted.

“If companies face severe penalties for ‘excessive’ price increases (however that’s defined), they’ll err on the side of caution and keep prices artificially low,” he wrote. “This informal price control can be just as damaging to market efficiency as a government-mandated price ceiling.”

The political reaction to Harris’s plan was predictable on the right.

“They’ve never even worked,” Republican presidential nominee and former President Donald Trump said of price controls. “Venezuela used price controls, and they got cleaned out. You don’t get anything, you end up with empty stores.”

Many on the left were equally disdainful, including the Washington Post editorial board and Jason Furman, a Harvard economics professor and former chairman of President Barack Obama’s Council of Economic Advisors.

“This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” Furman told The New York Times. “There’s no upside here, and there is some downside.”

Nixonomics

A common comparison running though the reaction to Harris’s plan was to Richard Nixon’s wage and price controls, which he announced on August 15, 1971.

In a nationwide address that day, without any public debate or even a hint that such a plan was on the table, Nixon famously froze both wages and prices for 90 days. What that meant on the street was that no employer could give an employee a raise, and no retailer could raise the price of any product or service. 

Practically speaking, the government had seized direct control over the economy with the intent to lasso inflation. 

While it might have been a Republican who bit the bullet on the scheme, Democrats had actually enabled Nixon to do it by passing the Economic Stabilization Act of 1970, which authorized the president to take the actions he did. Some observers say it was a classic backfire, that Democrats were sure that Nixon, being a Republican, would never freeze prices and thus they would be able to accuse him during the 1972 presidential election of doing nothing, even though Democrats had given him the authority to act.

But Nixon fooled them, this theory posits.

The actual plan came in four parts, or phases. The first was the 90-day absolute freeze, which ended Nov. 13, 1971. Phase II required that wage and price increases stay within strict guidelines adopted by an aptly named Cost of Living Council. That ended in January 1973.

Phase III relaxed controls, though the commission still monitored prices, and there was even less control during Phase IV. Notably, the strict freezes on prices lasted through the 1972 presidential election.

As would be the case now, Nixon adopted the draconian measure with no real emergency pending, except maybe a political one for him. Unemployment stood at 6 percent, and inflation was only 5.8 percent — not a good number but not catastrophic, either.

Initially, too, the policy was popular, as Cato Institute vice president Gene Healy acknowledged in a piece for the Washington Examiner: “Yet, after Nixon’s announcement, the markets rallied, the press swooned, and, even though his speech pre-empted the popular Western Bonanza, the people loved it, too  —  75 percent backed the plan in polls.”

It wasn’t popular with the iconic economist Milton Friedman, however. Writing in Newsweek, on August 30, 1971, he predicted the whole scheme would implode after short-term improvement.

“Officially computed index numbers … will … show a dramatic improvement … and depart increasingly from reality,” Friedman wrote. “How will it end? Sooner or later … as all previous attempts to freeze prices and wages have ended … in utter failure and the emergence into the open of suppressed inflation.”

Of course, Friedman turned out to be right. And Henry Whitehead, writing in 1978 in the Quarterly Review of the Federal Reserve Bank of Minneapolis, observed that while short-term inflation could have been expected to be corralled, it was obvious it would also curtail production.

“Once controls ended, both prices and production rapidly moved to catch up; they rose faster than they would have had controls never been imposed — and prices ended up higher than they otherwise would have,” Whitehead wrote.

And that wasn’t all. The stock market promptly went on a downside ride when the controls came off and demand grew wildly, driving up costs for commodities, food, minerals, and oil. It didn’t take Nixon administration officials long to realize what was happening — indeed they knew it would happen all along — and so they threatened reimposition of total price controls, then they zeroed in on industries such as beef, but all that did was galvanize ranchers to withhold cattle from the market, leading to beef shortages. The administration also embargoed the importation of any soybeans; that didn’t work, either.

Finally, on June 13, 1973, Nixon froze prices again. But times had changed. He was mired in Watergate and the public had a distaste for the palpable consequences of price controls. 

The rest is history. From 1974 on, prices kept marching upward, taking the nation into a sustained period of stagflation — and became Gerald Ford’s and then Jimmy Carter’s burden to bear.  By 1980, inflation was almost 14.5 percent, and unemployment was still headed upward.

Nixon knew all along

Ironically, as tapes of Nixon’s Oval Office conversations later revealed, Nixon himself knew that wage and price controls would not work, and so did his treasury secretary, John Connally, who nonetheless urged them on the president as a political necessity.

Indeed, Nixon, speaking in the Oval Office on February 22, 1971, said: “Here’s my concern about the freeze…There is strong support for a wage board and wage-price controls and particularly from sources like [Fed chairman] Arthur Burns. … The difficulty with wage-price controls and a wage board as you well know is that the [expletive]-damned things will not work. They didn’t work even at the end of World War II. They will never work in peacetime.”

And he added: “In my view… wage-price controls in peacetime on a broad basis will not work…If I thought they would not lead to a terrible smothering to enter on this whole free economy of ours, hell, I’d be for it.”

Later in the conversation, Nixon said: “I know the reasons, you do it [wage and price controls] for cosmetic reasons good God! But this is too early for cosmetic reasons.”

By August 12, just three days before his speech to the nation, Connally was in Nixon’s ear: “To the average person in this country this wage and price freeze, to him means you mean business,” he said to Nixon. “You’re gonna stop this inflation. You’re gonna try to get control of this economy. …If you take all of these actions…you’re not going to have anybody…left out to be critical of you.”

Nixon was soon on board and even went further: “As a matter of fact, I’d like the freeze on right through the election.”

In the end, Nixon would push more ongoing inflationary pressures to the private sector through the public sector, creating a massive administrative state that would begin an era of expansive regulation of the economy.

"Probably more new regulation was imposed on the economy than in any other presidency since the New Deal,” Herb Stein, the chairman of Nixon’s Council of Economic Advisers, has written. 

As the Miller Center at the University of Virginia points out, Nixon signed the law creating the Occupational Safety and Health Administration (OSHA), and he actually proposed the creation of the Environmental Protection Agency (EPA) and a National Oceanic and Atmospheric Administration (NOAA).

“The Republican president also signed amendments to the 1967 Clean Air Act calling for reductions in automobile emissions and the national testing of air quality,” the Miller Center states. “Other significant environmental legislation enacted during Nixon’s presidency included the 1972 Noise Control Act, the 1972 Marine Mammal Protection Act, the 1973 Endangered Species Act, and the 1974 Safe Drinking Water Act.”

The long-term significance of those actions outstrip Nixon’s 1971-73 wage-and-price control scheme but none were more dramatic than the latter. Indeed, the wage-and-price order was only one part of the package of government controls Nixon enacted that day in August 1971. He also decreed a 10-percent across-the-board surcharge on most imported goods and services, violating the international General Agreement on Tariffs and Trade, of which the U.S. was a signatory, and withdrew from the Bretton Woods Agreement, under which the International Monetary System had operated for more than a score of years. 

Specifically, Nixon signed away the agreement to require the country to exchange one ounce of gold for 35 American dollars, creating floating exchange rates.

Still, if the overall course was toward more regulatory control by the federal government, the events took others in the opposite direction. For one, the day Nixon declared wage-and-price controls and other monetary actions was the day libertarian activist and former congressman Ron Paul decided to become active in politics.

“I remember the day very clearly,” Paul said in 2001.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.