August 15, 1971: A Day That Should Live in Infamy
On Sunday evening, August 15, 1971, I was soaking in the bathtub with the door open because my roommate, Ron Robinson, was out. At the time I was living in a two-bedroom apartment in Winnipeg and was about to launch the next part of my intellectual odyssey: a move to London, Ontario to study advanced undergrad economics at the University of Western Ontario for a year before going on to graduate school, preferably in “the States.”
I had the bathroom door open so I could hear the news on the radio. And what I heard appalled me: Nixon had just used executive power given to him by Congress to freeze all wages and prices in the United States for 90 days.
I had understood more than a year earlier why price controls are a bad idea, and my reading economics on my own for 4 hours a day every weekday for the previous year had amplified my understanding.
What I didn’t know–and no one could know–was that the price controls on oil and gasoline would combine with an OPEC-induced increase in the world price of oil in the fall of 1973 (from $3 to $11 per barrel) to cause serious shortages. (The reason no one could know was that we didn’t know that OPEC would have such power in just 2 years and would use it so effectively.)
And that wasn’t the end of it. President Nixon, who had understood the problems with price controls when he worked with the Office of Price Administration during World War II, was too cowardly to reverse what he must have known, and what advisors like George Shultz almost certainly told him.
So not only did we get the standard problems with price controls–lineups, billions of hours wasted in line, misallocation among users, and even occasional violence in line–but also those controls led to many more controls that we are still contending with today.
First, Nixon signed a bill that imposed what the truckers called the “double nickel,” their name for the nationwide 55 mph speed limit. The good news there is that it was finally ended in 1995, so we had to deal with it for “only” 21 years.
Second, that’s how we got the Corporate Average Fuel Economy (CAFE) law under President Ford. Government officials saw that the artificially low price of gasoline was causing us, in our purchases of cars, to act as if the price of gasoline was artificially low. So, instead of allowing the price controls to end, the feds dictated to auto producers and consumers the average fuel economy that had to be achieved. This has been raised more and more over the years and is one of the main factors in the sale of electric vehicles. The 1975 law also gave the feds power to regulate fuel efficiency of many appliances.
Third, especially under President Carter, the feds started regulating the “energy efficiency” of various appliances. We’re still dealing with the unintended, but largely predictable, bad consequences of those regulations.
Thanks a lot, Dick.