In the early 1970's, American chicken hatcheries began killing their stocks of chicks. One hatchery manager, to make a point, drowned 43,000 on television for all the world to see. It was cruel. It was also the farmers' rational economic response to a government policy that turned chicks from assets to liabilities by fixing the price that farmers could charge for their stock. Feed prices rose; chicken prices didn't. Cue the dirge.
One might assume that a socialist-leaning Democrat was responsible for such a policy. After all, the chick slaughters were reminiscent of scenes from the Grapes of Wrath, in which John Steinbeck described the perverse outcome of Roosevelt-era efforts to artificially prop up food prices by torching produce and limiting supply. ("And children dying of pellagra must die because a profit cannot be taken from an orange.").
In fact, the chicks had Richard Nixon, a theoretically pro-free market Republican, to thank for their early demises. Richard Nixon had been a critic of government price controls ever since he worked as an attorney during World War II for a government tire-rationing office. But as president, he built a persona as a champion of the working man and a crusader against foreign influence, and he had no qualms about exercising his executive power to--and beyond--its fullest extent.
So, when pressured to do something (anything) about rising inflation in 1971, Nixon took swift and sweeping action. On Sunday, August 15, he interrupted the Western hit television series, Bonanza, to declare that "the time has come for decisive action." Taking a measure that seems unthinkable today, Nixon ordered "a freeze on all prices and wages throughout the United States" for ninety days. Inflation would stop. Because Nixon said so.
The price controls were necessary, Nixon explained, because "international money speculators" were waging an all-out war on the American economy and profiting from the inflation crises at the expense of American paychecks.
Indeed, foreign powers were the primary targets of Nixon's program, under which the United States devalued foreign currencies by disallowing foreign governments to convert dollars to gold, imposed a 10% tariff on imports, and cut foreign aid. America, Nixon explained, had rescued foreign economies from the fallout of World War II; now it was time for them to contribute their fair share.
Politically, the gamble paid off. As Nixon had intended, the public viewed him as a decisive commander. Nixon bolstered his credentials as the champion of the working man and the enemy of international speculators. The price controls artificially curbed inflation long and well enough for Nixon to win reelection in 1972.
But as famed economist Milton Friedman predicted, the wage and price controls proved to be merely a cosmetic fix to mask a systemic problem. When the administration lifted controls, prices shot up. By 1973 inflation reached 9 percent. Although Nixon warned that "we must not let controls become a narcotic," he needed to appear strong more than ever in the face of the looming Watergate scandal. To that end, he reimposed price controls and increased government staff to sanction businesses who raised prices. In the long-term, the price controls did not resolve the inflation crisis. By the time Nixon left office and the controls were fully lifted in April 1974, inflation had soared to 12 percent.
There are lessons to be had from the failure of Nixon's price controls. For one, they prove that prices are more obedient to the invisible hand of the market than presidential orders. To Nixon's head of the Office of Management and Budget, this was the silver lining. "At least," he told Nixon, "we convinced everyone else of the rightness of our original position that wage-price controls are not the answer."
Perhaps more importantly, the "Nixon shock" should be remembered as a cautionary tale about the dangers of giving broad authority to a president who will use his power to build a strong-man persona rather than protect the interests of his constituents.
There are deep parallels between Trump and Nixon. Like Nixon, Trump pushes policies that bolster his tough-nosed persona, even when--or especially when--they run contrary to well-established economic truths. Most notably, he invokes Nixon-esque xenophobia to justify trade tariffs that are certain to do more harm than good to the U.S. economy.
But lecturing Trump about the vices of protectionism are futile, because, like Nixon, Trump is less interested in the pursuit of national prosperity and more interested in the pursuit of a masculine persona built on a sentimental narrative in which foreigners are a threat and he is the protector.
Apologists will undoubtedly deflect criticism of Trump's irresponsible trade policies by invoking ad hominems against Obama and his socialist band of Democrats. But history proves that traitors make the best assassins. As Nixon proved, a Republican president with an appetite for "decisive action" can wield executive power with far more impunity than a Democrat, because his own loyalty-fragmented party is a meager obstacle.
Fortunately, Nixon's wage and price controls lost their allure after Nixon's disgraceful departure gave Republicans the opportunity to resume their place as the party of the free market, ready and willing to check and reverse bureaucratic solutions to free market problems, a role that they solidified during the oil crisis of 1979.
Trumpism marks a worrisome departure from that post-Nixon political order. In a stunning reversal, a large majority of Republicans now favor tariff increases. Even those harmed by his trade policies seem inclined to follow the Trump persona over free market ideas; after Harley-Davidson announced that it would move manufacturing operations out of the United States in response to Trump's tariffs, the company's employees were still apt to trust the president's instincts and blame foreigners for their predicament. Persona is a powerful thing.
America will be fortunate if Trump leaves before he can break all of our nice things. It would also help if he would take his trade policies with him, so that Republicans can go back to pushing against Democrats for a freer market and an executive branch less inclined to Nixon's brand of "decisive action."
For another perspective:
Peter Navarro, an economic adviser to President Trump, offers a rationale for raising tariffs.
Megan McArdle wrote an op-ed arguing that free trade is under fire because people care more about their identity as producers than consumers.
Further Reading:
For more background on Nixon's economic policy and conditions during his presidency, PBS has a section on a web page titled "Commanding Heights" based on a book with the same title.
For a full video of Nixon's August 15, 1971 speech, click here.
