There’s an odd nostalgia among some conservatives that recalls days gone by as a time of limited government and open markets. It makes for an apparently sharp contrast to today’s heavy-handed government intervention, intervention that supposedly stifles competition and individual initiative. In fact, the opposite is true — at least in modern times, the US economy today is freer than ever, a point neatly illustrated by an ignominious 40-year anniversary.
In 1973, Americans were at the tail end of a truly bizarre experiment: a full-throttled system of wage and price controls. First launched by President Richard Nixon as a temporary measure in 1971, they were reimposed in June 1973. By the end of that year, they had left the economy in tatters.
The problem Nixon sought to cure was inflation, then at roughly 4 to 6 percent a year. It seemed a high figure at the time, and the White House thought it had just the cure. The government would, in effect, make inflation illegal. So it froze wages and prices on every single worker and every single item across the country. In a breathtaking example of central planning, any exceptions required approval from the federal Price Commission, headed by what became known as the price “czar.” A baker would like to charge $1.25 instead of $1.10? An employer wants to increase wages to its workers? Only if the czar said so.
The result was catastrophic. Productivity declined. Shortages were rampant. The economy headed downhill. “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets,” recall authors Daniel Yergin and Joseph Stanislaw. And far from dampening inflation, the controls actually exacerbated it. When they were finally lifted (the last controls ended in April 1974), inflation soared to over 12 percent.
There was much irony in what Nixon did. A famous cold warrior, the system he put in place was something any communist would have applauded. But Nixon doesn’t deserve all of the blame. The wage and price controls he imposed may have been extreme, but back then it was common practice to regulate prices and limit competition.
Airfares for every single flight, for example, were set by the Civil Aeronautics Board. Meanwhile, interstate truckers weren’t allowed to set their own rates for hauling goods from place to place. That was the job of the Interstate Commerce Commission. Telephone prices were regulated too. The Bell Telephone Company — or “Ma Bell” as it was known — had a government-granted monopoly over all phone service; consumers weren’t even allowed to own their own handsets. The federal government controlled gasoline and natural gas prices. When OPEC launched embargoes in 1973 and 1979, motorists waited in long lines to refuel. (If prices had been allowed to rise, the shortages wouldn’t have developed.) Meanwhile, in cities across the nation, owners of apartment buildings were subject to often punitive rent controls.
All of this provides a striking contrast to today. The Civil Aeronautics Board is gone — thanks to the late Senator Edward Kennedy, who successfully pushed for deregulation. The Interstate Commerce Commission was phased out in 1996. Ma Bell is no more. Prices at the gas pump rise and fall with demand and supply. Rent controls are discredited, abandoned by all but a handful of areas (Boston finally got rid of them in 1994). And the idea of a US president asserting the authority to control every wage and price in America would be seen as a laughable overreach.
Why such a change in attitudes? The good news is that we are able to learn from our mistakes. We’re more willing to let markets work as they should. Competition can be destructive, yes, but we see it as necessary for productivity. Sure, those committed to free markets are certainly right to worry about the downsides of government intervention. Still, we’re much better off today than in any imagined past.