A half-century ago this week, the energy market was forever changed by a seemingly unrelated act of government intervention. Against the recommendation of his economic advisors, President Nixon signed Executive Order 11615—Providing for Stabilization of Prices, Rents, Wages, and Salaries—to freeze prices 90 days to break inflationary expectations.
But what was called “temporary” was anything but. Nixon’s Phase I turned into Phase II, Phase III, Phase III½, and Phase IV. Worse, petroleum was singled out for continued tip-to-toe regulation under the Emergency Petroleum Allocation Act of 1973 (EPAA), which would not be revoked until early 1981, by Ronald Reagan.
Price controls predictably created shortages, and shortages did not result in decontrol but a raft of new government intervention to ration supply, reduce demand, and increase supply, a sordid story told elsewhere.
Nixon’s price-control order received praise from almost all quarters. But a few voices rang out in dissent. These warnings deserve recognition and kudos on the 50th anniversary (August 15, 1971) of Nixon’s great mistake.
“I regret exceedingly that he decided to impose a ninety-day freeze on prices and wages. That is one of those ‘very plausible schemes … with very pleasing commencements [that] have often shameful and lamentable conclusions.’” (Newsweek, August 30, 1971)
“Individual price and wage changes will not be prevented. In the main, price changes will simply be concealed by taking the form of changes in discounts, service, and quality, and wage changes, in overtime, perquisites and so on…. But to whatever extent the freeze is enforced, it will do harm by distorting relative prices.” (Ibid.)
“By encouraging men to spy and report on one another, by making it in the private interest of large numbers of citizens to evade the controls, and by making actions illegal that are in the public interest, the controls undermine individual morality.” (Newsweek, October 28, 1971)
“It is a mark of how far we have gone on the road to serfdom that government allocation and rationing of oil is the automatic response to the oil crisis.” (Newsweek, November 19, 1973)
“The present oil crisis has not been produced by the oil companies. It is a result of government mismanagement exacerbated by the Mideast war.” (Ibid.)
“Lines are forming at those gas stations that are open. The exasperated motorists are cursing; the service-station attendants are fuming; the politicians are promising. The one thing few people seem to be doing is thinking…. (Newsweek, March 4, 1974)
“The long gasoline lines that suddenly emerged in 1974 after the OPEC oil embargo … and again in the spring and summer of 1979 after the revolution in Iran, [came after] a sharp disturbance in the supply of crude oil from abroad. But that did not lead to gasoline lines in Germany or Japan, which are wholly dependent on imported oil. It led to long gasoline lines in the United States, … for one reason and one reason only: because legislation, administered by a government agency, did not permit the price system to function.” (Free to Choose, 1979, p. 14)
“There is one simple way to end the energy crisis and gasoline shortages tomorrow—and we mean tomorrow and not six months from now, nor six years from now. Eliminate all controls on the prices of crude oil and other petroleum products.” (Ibid.)
“Two years ago, in response to the first freeze of Phase I of Nixon’s new economic policy, I wrote that ‘on August 15, 1971, fascism came to America.’ Some critics felt that the label was overblown; but here we are, two years later….” (The Libertarian Forum, January 1974)
“When the black day of August 15, 1971 arrived, we free-market economists predicted that shortages of all sorts of products would result from the price control…. On the day of the freeze, everything seems to be functioning smoothly, and so the general mood is one of euphoric success.” (Ibid.)
“And while the rest of us are placed into increasing subjection by the government, in the name of aiding or curing the energy crisis, the cause—government—continues on its merry way unchecked.” (Ibid)
“The Arab oil embargo was not the cause of the energy crisis in this country: it was merely the straw that showed that the camel’s back was broken.” (Ayn Rand Letter, November 1973)
“The filling stations of the universities have dried up long ago and have been peddling a corrosive mix that paralyzes the brains of the nation.” (Ibid.)
“The oil industry is being destroyed by a bombardment of paper–of governmental rules, regulations, directives, edicts, commands. But that bombardment is more effective than other kinds of air raids: it blasts your power stations, extinguishes your lights, freezes your homes, stops your motors, locks your factories, wipes out your jobs, and leaves a barren land on which nothing will grow again for generations.” (Ibid.)
“There is no ‘natural’ or geological crisis; there is an enormous political one. It is in the nature of a mixed economy that its policies are rationally inexplicable.” (Ibid.)