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Date: September 01, 2024 at 13:25:57
From: old timer, [DNS_Address]
Subject: When Richard Nixon Wrecked the Economy |
URL: When Richard Nixon Wrecked the Economy |
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When Richard Nixon Wrecked the Economy
Kamala Harris should be careful not to follow the Republican president’s
lead.
By Joshua Zeitz
09/01/2024 07:00 AM EDT
Joshua Zeitz, a Politico Magazine contributing writer, is the author of
Lincoln's God: How Faith Transformed a President and a Nation (May
2023). Follow him @joshuamzeitz.
When Vice President Kamala Harris announced her first major policy plank
— new crackdowns on alleged price gouging in supermarkets and grocery
stores — the impetus was clear. Still reeling from pandemic-era inflation,
Americans remain frustrated by steadily rising food prices, which are 20
percent higher today than when Harris and President Joe Biden took
office.
But her proposals have sparked contention. Donald Trump has attacked
“Comrade Kamala” for embracing “socialist price controls.” Harris’
supporters claim that she did not endorse price controls on groceries, but
rather ordinary crackdowns on gouging that exist in other areas of the
economy.
In fairness to both sides, the vice president’s proposal was more
conceptual than specific. But Democrats have good reason to deny, and
Republicans to argue, that she plans to impose price caps. While price
controls played an important role in helping the U.S. mobilize during World
War II, they were disruptive to the economy and, eventually, broadly
unpopular.
In fact, the last time a president attempted to quell runaway inflation was
in the early 1970s when Richard Nixon — a Republican — imposed
temporary ceilings on food and gas prices. The results were economically
ineffective and politically disastrous, with massive unintended
consequences. It’s history that Harris should remember as she continues
her campaign — and as she governs, if she wins.
After nearly two decades of post-war prosperity featuring robust growth
and low inflation, by the late 1960s, wages and prices began to accelerate
more quickly.
Between 1965 and 1968 federal spending increased by 60 percent — in
large part a result of America’s military buildup in Southeast Asia — and
pushed inflation up to an annual rate of 5.5 percent. Liberals in Lyndon
Johnson’s White House generally embraced the writings of the famed
Cambridge University economist John Maynard Keynes and attributed
such “cost-push” inflation to the dramatic hike in government
expenditures.
By this logic, government fiscal policy (in this case, increased war
spending) primed the nation’s economic pump, creating low
unemployment. In turn, the tight labor market encouraged workers to
exact generous pay increases from their employers, who responded by
boosting prices to cover new labor costs. At the same time, workers
equipped with more expendable cash competed for a limited supply of
products, further edging prices upward. Good Keynesians all, LBJ’s
advisors convinced the president to secure congressional approval of a
temporary, 10 percent tax increase, a measure that would theoretically
reduce aggregate demand and slow the steady climb of wages and prices.
But the tax surcharge did not have its desired effect. “When we were able
to call the policy tune,” said Arthur Okun, LBJ’s chief economic advisor,
“the economy did not dance to it.”
Such was the economy that Richard Nixon inherited. In his first two years
in office, inflation hovered between 5.5 percent and 6.6 percent — modest
by comparison to what would follow in the mid-1970s, when inflation
moved into double digits, but still alarmingly high by recent historic
standards. By late 1970, Nixon was eager to own the issue and drive
prices down. Which is where John Connally came in.
A conservative Democrat and onetime protégé of Lyndon Johnson,
Connally served from 1971 to 1973 as Nixon’s Treasury secretary. Best
known for catching one of the bullets intended for President John F.
Kennedy in November 1963, he was entirely self-made — a son of
sharecroppers who rose to become student body president at the
University of Texas, then secretary of the Navy under JFK, and finally, a
three-term governor of Texas. Henry Kissinger noted that “Connally’s
swaggering self-assurance was Nixon’s Walter Mitty image of himself. He
was the one person whom Nixon never denigrated behind his back.”
A man of few ideological commitments and even fewer fixed notions about
political economy, Connally liked to brag, “I can play it round or I can play
it flat, just tell me how to play it.” After surveying the landscape, in August
1971 he convinced the president to enact what came to be called the New
Economic Policy (NEP), a two-pronged plan which first took America off
the gold standard that year, thus deflating the dollar and arresting the
outflow of gold to foreign nations that held large reserves of U.S.
currency; and second, a move to check inflation by imposing 90-day wage
and price controls — something that no American president had done
since the 1940s. NEP also included a temporary 10 percent surcharge on
all imports. Together with the devaluation of the dollar, this step boosted
American exports and helped revive the struggling manufacturing sector.
Initially, it was a political success; 73 percent of Americans applauded
Nixon’s imposition of wage and price controls, and for a time, NEP seemed
to work. But as Herb Stein, one of the president’s chief economic
advisers, later admitted, “We had no plan for getting out of … the ninety-
day freeze.” Improvising, in October 1971 the administration introduced
“Phase II” of the NEP, which kept certain controls in place until January
1973. With prices and wages thus locked into a holding pattern, the
administration’s high-spending budget and the Fed’s expansionist
monetary policy heated up the economy in time for the 1972 presidential
election. Unemployment only dipped modestly from 5.9 percent in 1971 to
5.6 percent in 1972, but inflation dropped to a manageable 2.9 percent,
providing a stable enough environment for Nixon’s last electoral campaign
and his landslide win against George McGovern.
In 1973, just as Watergate began spinning out of control, the economy
came crashing down. The Fed’s easy money policy and the
administration’s budget had so overheated the economy (GNP grew at a
real rate of 8.7 percent during the first quarter of 1973) that Americans
engaged in an orgy of consumption, creating shortages of raw materials
like chemicals, paper, steel and copper that soon drove wholesale and
retail prices through the roof. The end of Phase II in January and the
introduction of Phase III, which retained mandatory controls on only a
handful of sectors (namely, health care, food and construction),
exacerbated the problem.
Had cost-push inflation been the only source of economic woe, the
president’s troubles would have been bad enough. But a series of events
— some coincidental, others owing to Nixon’s ineptitude as a manager —
conspired to create what economists call “supply shock” inflation,
particularly in the all-important food and energy sectors.
First, heavy snows in the Soviet Union destroyed much of the country’s
wheat harvest, while warm water currents in the Pacific Ocean flowed to
the Peruvian coastline, decimating the anchovy harvest. Anchovies were a
key ingredient of high protein feed grain, a necessary staple for U.S.
livestock farmers.
Second, in 1972, the Soviets had quietly cornered the U.S. grain market,
using $750 million in American credits and $500 million in hard currency
to buy up one-quarter of the American wheat harvest. Nixon had extended
the credit and eased the way for the purchase in an effort to secure Soviet
acceptance of arms control agreements that he believed (correctly) would
bolster his reelection campaign. He never anticipated the economic
fallout.
Third, in an effort to shore up his support in the farm belt during the
campaign, in 1972 Nixon’s Agriculture Department had increased crop
reduction subsidies, thereby driving up agricultural income ahead of the
November election, but further contributing to the shortages that plagued
the national economy the following year.
Finally, the devaluation of the dollar had indeed boosted U.S. exports, but
that included agricultural exports. Thus, America entered 1973 with
dangerously low reserves of grain.
Together, the twin natural disasters in the Soviet Union and Peru; the
“Great Grain Robbery;” the devaluation of the dollar; and the
administration’s crop reduction plan created massive raw material
shortages and pushed meat and grain prices to historic highs. In the
winter of 1973, the cost of food rose an astounding 30 percent, creating a
hike in the consumer price index larger than any since the Korean War. For
ordinary Americans, the effects were devastating. The price of meat
climbed by 75 percent in just three months.
As if the administration had not displayed sufficient ineptitude, in June
1973 Nixon announced “Freeze II,” a 60-day freeze on wholesale and retail
food prices, but not on the price of raw materials. Poultry, dairy and
livestock farmers now faced an impossible situation: The cost of feed was
rising at uncontrolled rates, but the prices they could charge for their
product — eggs, milk, beef, pork and chicken — were locked. On June 23,
American television news viewers were stunned by images of a farmer in
Joachim, Texas drowning 43,000 baby chickens in barrels of water. “It’s
cheaper to drown ‘em than to … raise ‘em,” he explained.
In October 1973, matters went from bad to worse. The Nixon
administration intervened in the latest Middle East conflict — the Yom
Kippur War — by supplying Israel with badly-needed arms that helped it
stave off near-defeat at the hands of Syria and Egypt. As a punitive
response, on Oct. 20, just hours before Nixon’s “Saturday Night
Massacre,” Saudi Arabia cut back oil production and imposed a temporary
embargo on all exports to the United States. With 18 percent of U.S. oil
consumption tied to the Middle East, prices were certain to go sky-high.
Reserves might have helped cover the difference, but the NEP’s price
controls on energy had posed a disincentive for refineries to produce
stocks of home heating fuel.
Once again, the administration’s incompetence exacerbated problems
whose origins were largely beyond its control. The president took to the
airwaves in November to ask Americans to lower their thermostats by six
degrees, ordered a 10 percent reduction in air travel and urged voluntary
austerity. “We are heading into the most acute energy shortage since
World War II,” he grimly explained.
At the time, Nixon scarcely knew the half of it.
In December the Persian Gulf oil ministers hiked the price of crude oil
from $5.11 per barrel to $11.65 — an increase of 470 percent since the
beginning of the year. Airlines and automakers announced new rounds of
layoffs, schools closed early for want of heating oil, power plants cut their
voltage output and motorists lined up for hours in search of precious,
expensive gasoline to power their cars.
By February 1974 private rage began to boil over. The Annapolis Evening
Capital reported that “long lines, long waits and the gas shortage teamed
up yesterday to produce hot tempers and the first violence in customer
lines at county gas pumps,” while in Miami, a frustrated driver tried to
drive over a station attendant. “In the past month,” the New York Times
observed, “people in metropolitan areas have become increasingly
suspicious and angry, insecure, devious, often violent and seldom
resigned, all because of the lack of gasoline.”
Both Keynesians and monetarists were accustomed to thinking of inflation
and unemployment as functions of demand. In theory, they enjoyed an
inverse relationship: As one went up, the other went down. How to achieve
stable equilibrium was the defining question of post-war economics.
Consequently, most experts in early 1974 suggested combating rapid
inflation by cooling down the economy. Nixon chose a middle course,
maintaining a small full-employment budget surplus and urging the Fed to
hold the line on money growth. No contraction, but no expansion, either.
What the administration failed to appreciate was that the Great Inflation of
1973-1974 was not a function of excess demand; it resulted from supply
shocks in the food and energy sectors — shocks that sopped up money in
much the same way a tax increase or monetary contraction might have. In
effect, supply shocks could create inflation and unemployment — or, in
the common parlance of the day, “stagflation.”
Inflation would persist until oil and food supplies re-stabilized, which is
precisely what happened in 1975. Reversing job losses, on the other hand,
would require tax cuts, spending hikes or a flow of easy money. One study
suggested that a $20 billion tax cut in early 1974 could have produced
normal economic growth within a year. But Nixon went the opposite route,
fighting inflation with traditional measures. In so doing, he made a bad
situation worse. By May 1975 unemployment hit 8.7 percent.
If there is a lesson in this story, it’s that price controls are one lever, and
only one lever, to address inflation — and in the absence of a fully
coordinated economic policy, they can be ineffectual and carry
unintended consequences.
In the same way that Nixon could not fully control the Fed or remedy
global supply shocks — some owing to weather, others to politics — a
potential Harris administration may prove no less able to anticipate the
host of extenuating circumstances that might render price controls a poor
tool to manage the economy. Certainly the recent experience of Covid-
related economic disruption at the global level, much like the freak
shortage of anchovies in 1972, is an example of how unexpected events
can cause unexpected fallout.
To be fair, Harris’ plan leaves much to interpretation. But should she
ascend to the Oval Office, the example of Richard Nixon, and his ill-fated
experiment with price caps, is instructive. What’s good politics today
might be bad policy — and bad politics — tomorrow.
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Responses:
[440579] [440591] [440563] [440561] [440581] [440564] [440585] [440569] [440587] [440574] [440566] [440601] [440603] [440621] |
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440579 |
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Date: September 01, 2024 at 17:02:06
From: Redhart, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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the article lost me when it called the vice president
"Comrade Kamala"...
It's the language of a clearly a politically motivated
hit piece of someone trying to use hyperbole to brand an
opponent who probably doesn't know what real communism
is.
That's the language of idiot Trump, not an unbiased
journalist.
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Responses:
[440591] |
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440591 |
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Date: September 01, 2024 at 17:28:43
From: old timer, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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“That's the language of idiot Trump, not an unbiased journalist.”
sounds like a reading comprehension issue red since the article did
attribute that name to trump lol
slow down, read and pay attention red. the article was from politico by
joshua zeitz who is a democrat
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440563 |
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Date: September 01, 2024 at 16:09:42
From: georg, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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this "unrealized earnings" tax is the death of this
economy if she gets in ... if you live in a house that
has a mortgage ... most likely it has increased in
value significantly since Biden-Harris took office
now, with her plan, that bump in property evaluations
is going to mean increased property tax and a new tax
on "unrealized earnings" ... but if the interest rates
are high ... you cannot find a buyer ... no one can
afford these inflated prices at such high interest
rates
there was a plank in the Biden-Harris campaign
literature I have that called for the end of the single
family dwelling ... this from 2020
this new "unrealized earnings" tax will force that
issue to a culmination that does just that ... the end
of the single family dwelling
so, how do you like her now?
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440561 |
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Date: September 01, 2024 at 15:45:45
From: ryan, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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but we don't have runaway inflation...
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[440581] [440564] [440585] [440569] [440587] [440574] [440566] [440601] [440603] [440621] |
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440581 |
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Date: September 01, 2024 at 17:05:25
From: Redhart, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
URL: https://apnews.com/article/inflation-prices-election-federal-reserve-rates-economy-aa9e7150fb54287425c78383e7bcad3a |
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It's under 3% (2.5% now)...brought way down by the
Biden Administration.
Excerpt (full article at link):
"WASHINGTON (AP) — An inflation measure closely tracked
by the Federal Reserve remained low last month,
extending a trend of cooling price increases that
clears the way for the Fed to start cutting its key
interest rate next month for the first time in 4 1/2
years.
Prices rose just 0.2% from June to July, the Commerce
Department said Friday, up a tick from the previous
month’s 0.1% increase. Compared with a year earlier,
inflation was unchanged at 2.5%. That’s just modestly
above the Fed’s 2% target level...."
So much BS. Welcome to an election year.
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440564 |
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Date: September 01, 2024 at 16:11:48
From: georg, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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no, we have a plateau of high prices that will not go
down ... and we have stagflation in wages and jobs are
being lost at a high rate ... don't kid yourself dude,
this economy is shit and we get shoved in it ... the
workers paradise? I don't think so compadre
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Responses:
[440585] [440569] [440587] [440574] [440566] [440601] [440603] [440621] |
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440585 |
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Date: September 01, 2024 at 17:13:23
From: Redhart, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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Sorry, but feel you are just spreading more skewed
Trump bs.
Just because you repeat the campaign bull as "if" it's
fact, doesn't mean it is fact.
Not seeing it, buddy. I don't think I'm the one kidding
myself.
Sorry if your personal finances are shit. I suggest
making a budget, finding a way to earn more or
downsizing perhaps.
I worked three jobs for over 10 yrs after hubby got
cancer to raise our last 5 boys.
It's not as hard now, it's improved.
Read an article about someone like you and OT who was
saying they were doing worse, and when they were
checked out had tons of money in their accounts and
just bought a 2nd vacation home.
Hard to take them seriously.
At some point, you just roll your eyes and walk away.
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440569 |
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Date: September 01, 2024 at 16:35:46
From: old timer, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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been posting articles on the economy here almost daily. anyone that
doesn’t understand by now doesn’t want to understand. bopp goes from
claiming there is no problem to blaming trump, sometimes in the same
post lol
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[440587] [440574] |
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440587 |
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Date: September 01, 2024 at 17:16:35
From: Redhart, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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I trust my balances more than I trust your articles.
I trust what I "see" in my community and among my
friends and family more than articles that try to tell
me what we see.
I trust what I hear from real people, over what unknown
strangers try to sell me.
I trust my experience more than someone who's trying to
rewrite my experience that I've never met.
I don't have to buy what you're selling. Sorry if that
pisses you off.
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440574 |
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Date: September 01, 2024 at 16:49:58
From: ryan, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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don't play dumb, dumbass...although i know it is an easy role for you...lol...
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440566 |
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Date: September 01, 2024 at 16:23:19
From: ryan, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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well, you can thank the orange turd for that...
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440601 |
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Date: September 01, 2024 at 18:41:57
From: georg, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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really? show us the figures ... I think you are a liar
... how about them apples?
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Responses:
[440603] [440621] |
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440603 |
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Date: September 01, 2024 at 19:08:02
From: ryan, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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Responses:
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440621 |
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Date: September 02, 2024 at 12:39:10
From: georg, [DNS_Address]
Subject: Re: When Richard Nixon Wrecked the Economy |
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neither the truth nor the love of God seems to be in you
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