In my check of banana prices recently, one Oregon supermarket (Trader Joe’s) was still charging 19¢ each. Its neighborhood rival (Safeway) was charging 29¢. A gallon of gas at my neighborhood Astro station was $ 3.75 last August, and just dropped from $5.29 two weeks ago to yesterday’s $4.95.
Interest in those prices led to my investigation of July’s inflation rate of 8.5 percent. I also noticed inflation was suddenly hot on the evening news and on social media, especially against price controls. That wouldn’t be true unless millions of ordinary Americans have been loudly grousing about eye-popping price hikes at gas stations and meat sections at the grocers.
Reactions can only be imagined in watching Federal Reserve chair Jerome Powell a few days ago warn us that its inflation fight to bring it down to 2 percent would require continuing high-interest rates and layoffs which will “bring some pain to households and businesses .” He certainly wasn’t alluding to billionaire households or Fortune 500 companies. Or that he and the Fed’s board of bankers were ever likely to resort to far less drastic, yet effective, remedies suggested recently by economist Richard D. Wolff in CounterPunch:
“Former U.S. President Franklin D. Roosevelt used rationing in the early 1940s. But precisely because such policies are less favorable to the employer class, they are only used rarely. The dubious achievement of President Joe Biden’s administration (and the complicit GOP) has been to speak and act as if QT [quantitative tightening] was the only existing policy to halt inflation.
[Treasury Secretary Janet] Yellen’s and Biden’s past verbiage of “concern” about U.S. income and wealth inequalities might have acquired some teeth had a freeze of prices combined with wage increases been able to actually reduce those inequalities. That would have been an anti-inflationary policy doing double duty, reversing rather than exacerbating existing inequalities.”
One way to reverse profiteers’ greed-driven markups was President Richard Nixon’s successful 90-day price freeze in 1971-72 aided by the much-revised Economic Stabilization Act of 1970 (ESA) . It was designed to win him votes from the desperate and was initiated and generaled to quick passage by the House “dean” and Banking committee chair Wright Patman (D-TX). In 1970, Patman led colleagues in both Houses into passing an anti-inflation control bill into law (PL 91-151 ).
The best method to stop inflation instantly appears to be cutting profiteering off at the knees at the start of its upward movement issued by a presidential Executive Order (EO) to waylay greed. Profiteers are usually the real drivers of inflation because they set prices “from the top,” indirectly controlling both supply and demand for goods and services. Ultimately, their power controls our economy: the Federal Reserve Bank and member banks, Wall Street, most presidents, Congress, Corporate America, and fear-stricken candidates for any office.
Of all the presidential inflation-fighters, Nixon has to be a standout, reluctant or not. Once the outspoken, rigid opponent of price controls, he was forcibly converted to them by the wit, skill, and guile of Patman and his standing army of anti-inflation Senators and House members. They stood toe to toe after Nixon’s first election as inflation rates moved from 1968’s 4.27 percent to 5.84 in 1970.
Nixon seems to have deduced inflation as the coming chief issue for midterm voters in that the Vietnam war was winding down. As he once told economic advisors: “I’ve never seen anybody beaten on inflation in the United States. [But] I’ve seen many people beaten on unemployment.”
So whatever loathing millions had for him, his extraordinary political insights, opportunism, and inner drive seemed impotent in a faceoff with inflation and Patman’s equal endowments and good nature.
Nixon, the grocer’s son, was well aware of the profiteers’ third rail, and smart enough never to challenge it because of their monumental retaliatory powers. Patman, a scrappy cotton farmer’s son , wasn’t. As a young House member in 1932, his investigative skills, candor, and hatred of banks succeeded in driving Treasury Secretary Andrew Mellon from office on impeachment charges of high crimes and misdemeanors (corruption).
Now, because the Federal Reserve and economic “royalty” have yet to arrest inflation, some of today’s article writers are raising danger flags about any thoughts or moves to resurrect Nixon’s four-year New Economic Policy (NEP): “Nixon Taught Us How Not to Fight Inflation ” and “How Nixon Destroyed the Dollar .”
Mainstream media owners fear retaliation from the tycoons who want no talk about the 90-day “Nixon Freeze” to reach the public because it was an instant and resounding success that probably cost them billions in sales of goods and services. They especially don’t want people to learn that the genesis for that success was the formidable Patman and his anti-inflation fighters in Congress. That may explain why their obedient Wall Street Journal published a contributor’s blunt letter basically saying: 1) Today’s “factory owners and shopkeepers” wouldn’t stand for a price freeze, and 2) “Controls got too complex and the program lasted too long.”
Millions of Americans suffering inflation’s hardships certainly would demand a 90-day price freeze, of course. But many economists and business historians would concede that reader’s second point: Congress and Nixon should have quit while they were ahead instead of sticking with NEP’s last two years of failure. NEP did get too complex and lasted too long, permitting bureaucracy to expand like algae and spawn inefficiency.
Authors of the recent AFL-CIO report Greedflation define that term as what happens “when companies increase prices to boost corporate profits and create windfall payouts for corporate CEOs.” Those profits are an eye-popping $ 2 trillion in this year’s second quarter for nonfinancial companies, according to the latest calculations by the U.S. Commerce Department. Moreover, profiteering is finally being unmasked as inflation’s chief cause and should be targeted and disciplined. Most consumers probably have suspected as much for centuries.
Wenonah Hauter, executive director of Food & Water Watch, says that retail prices for goods and services aren’t set by complex supply and demand factors, the usual inflation culprits: “[Prices] are egregiously manipulated by corporate giants that have achieved monopoly-level dominance over their markets.
Economic pundit Robert Reich agrees. He just pointed out in Inequality Media that today’s stagnant wages aren’t inflation’s cause. The average hourly wages are $10.93 and have barely budged enough to create consumer demand. He attributes inflation to “monopolistic corporations jacking up prices to maximize profits.” His antidote is a “windfall profits tax.”
Far tougher punishment has been suggested to policymakers by Sarah Miller, executive director of the American Economic Liberties Project. Citing the recent 235 percent profit increases by eight major oil companies, she noted:
“Megacorporations are a key driver of high prices—and we need bold action to rein them in….to attack concentrated corporate power immediately and aggressively across the board. That means levying excess profits taxes, ensuring big penalties for price-fixing, and resourcing enforcement agencies to prosecute price-gouging and other forms of corporate abuse. And it means banning large mergers, stock buybacks, and ‘payoffs for layoffs’ to help build durable market power for working people and consumers and level the playing field for small businesses and entrepreneurs.”
Rep. Jamaal Bowman (D-NY) and 19 co-sponsors are also pursuing profiteers with a “Sub-Task Force” in their pending Emergency Price Stabilization Act of 2022. It contains the subpoena power of corporations’ financial records to determine whether price fixing is done out of necessity or greed.
Profiteering is something undoubtedly learned by Nixon as a working-class California youngster laboring in the parental lemon grove and, later, at the family’s grocery/gas station. His career indicates he aspired early on to be a “have” instead of a “have-not” using the lawyer route. Aided by brains, drive, and ruthless ambition—a K-12 school and college leader with a flair for debate and theatre —he pushed open high society’s door and gave lip service to its values. That included the economic myth that wage increases always cause inflation, not sellers charging whatever the traffic will bear.
Back in the “Great Inflation” decade —1970-80—Nixon faced almost identical crises as Biden: funding a proxy war (Vietnam), high inflation rates (5.84% ), unemployment (6.1% ), low hourly wages ($1.45 ), sky-high rents charged by greedy and powerful landlords—and the electorate’s despair and growing fury. Opposition to price controls came in ear-splitting howls from small business owners and threats from profiteers. Not to mention influential economists like Nobel laureate Milton Friedman (“Wage and price controls destroy the system which organizes the economy”).
Using his seven months as a young lawyer for the New Deal’s Office of Price Administration (OPA) , Nixon claimed economic expertise. By February 1971, when his economic brain trusters were weighing solutions to inflation’s ravages and price controls came up, Nixon snapped: “[Controls] didn’t work even at the end of World War II. They will never work in peacetime…I’m not going to have wage and price controls!”
While he was campaigning for the presidency in 1968, so were Congressional incumbents like Patman listening to thousands of financially-strapped constituents demand Congress “do something” to stop spiraling prices and empty shelves at home. Nixon was focused on ending the Vietnam war honorably. Patman, Congress’ banking and financial expert, decided to use the duplicitous Nixon to “do something” far more important to most Americans than the war and perhaps win a landslide election into the bargain.
Now, Nixon was an expert in Congressional wars with presidents: five years in the House, two in the Senate, and eight as vice president under President Dwight Eisenhower. But he was no match for Patman’s 47 years as an expert on economic matters and generating bills into laws. So when Nixon had scarcely unpacked in the White House, Patman probably made sure Nixon knew he was leading a sizeable bipartisan movement in both houses to pass bills “doing something” about inflation.
The first bill—Patman’s Credit Control Act (PL 91-151)—passed before Christmas Eve 1969 and was on Nixon’s desk for signing. It stipulated: “Whenever the President determines that such action is necessary or appropriate for the purpose of preventing or controlling inflation generated by the extension of credit in an excessive volume” he could authorize the Federal Reserve Board to control credit interest rates. Nixon signed it unwillingly, informing Patman’s “army” his undying opposition to any controls—and would refuse to implement the law. That was good news to the Fed and the nation’s bankers, Wall Streeters, and profiteers.
Undeterred, but determined to prevent a financial crash before the 1972 midterms, Patman and his inflation-fighters went to work on a bill—the Economic Stabilization Act of 1970 (ESA)—which led to what was to become known as “Nixon’s Shock” .
The bill was brief because the wily Patman and his colleagues planned to hide ESA as a Title II provision into a bill carefully chosen because of the likelihood it would be fast-tracked for a quick voice vote in both houses: the Defense Production Act Amendments. Even in 1970, lengthy Pentagon bills were rarely read or challenged in Congress. This bill’s Title I is concerned with changing accounting standards.
ESA’s Title II: 1) authorized the President to issue orders and regulations to keep “prices, rents, wages, and salaries” as they were on May 25, 1970 until the law’s expiration on February 28, 1971; 2) the President could “delegate the performance of any function…to such officers, departments, and agencies of the U.S. as he may deem appropriate;” 3) violators would be fined $5,000 for each proven offense; and 4) a court would issue a mandatory injunction against repeated violations. Though unstated, the law would be enforced by the IRS and the Department of Justice.
Nixon had to be furious. Administering it was hardly a job for a diehard capitalist who hated federal controls and regulations. Patman and his people were forcing him to sign a Pentagon bill into law which included controlling prices, rents, and wages, as well as punishing gougers in the housing, and mortgage industry that a House report had just excoriated.
If he carried out the bill’s authority, corporate leaders would regard him as a closet Communist or Socialist because profits would shrink dramatically. So would their donations for his reelection in 1974. Party leadership would provide only token support and funding for his campaign. On the other hand, an energetic anti-inflation effort could win votes from millions of Democratic and independent voters. It would offset significant losses from his Republican base. He might be regarded as a new Roosevelt.
Nixon may have shouted countless private expletives against Patman’s cleverness in instituting price controls, but he was a political pragmatist and vicious opponent, which had earned him the pejorative “Tricky Dick.” He gathered his economic advisors and political experts for help in developing an EO to show Americans why price controls don’t stop inflation. Some names are still familiar: Arthur Burns, Dick Cheney, John Connally, Milton Friedman, Paul McCracken, Peter Peterson, Donald Rumsfeld, George Shultz, Herbert Stein, Paul Volcker, and Caspar Weinberger.
Meanwhile, the supposedly fast-tracked Pentagon bill derailed in the House probably because it demanded transparency of Pentagon accounts. Warhawks rose to protect contracting secrets. During debate, it first set off extensive and heated testimony requiring members read the bill’s text. That revealed the piggybacked Title II’s ESA provision, triggering two days of Republican explosions and raucous calls for renaming the provision “Election Year Squeezeplay,” and “Devious Democratic Demagoguery.”
The bill’s defenders came armed, however, perhaps ready to suggest substituting “controls” for WWII ration books. If the Republicans were to argue it was unconstitutional for one branch of government to delegate “legislative power” to another, Patman’s group had a blockbuster response: Federal controls were backstopped by precedent in peacetimes by a string of landmark U.S. Supreme Court decisions such as Gibbons v. Ogden (1824) and Munn v. Illinois (1877) to U.S. v. Darby (1941). All were based on the Constitution’s Commerce Clause (I, Section 8, Clause 3) empowering Congress to regulate prices “among the several States,” emergency or not.
The fiery debate took four days to pass the bill on August 15, 1970 and sent it two days later for Nixon’s signature to become PL 91-379. As both Nixon and Patman knew, a brouhaha in Congress drew national media coverage and exposed the issues—seemingly bad for the President, but good for Patman and his inflation fighters, and a hopeful sign to a public waiting for them both to “do something” about inflation’s seemingly unstoppable rise.
Boxed into a political corner by Patman, Nixon knew signing that bill would alienate major supporters: Big Business, Wall Street, the ruling class, profiteers, and the Republican National Committee. But as he emphasized to devastated political advisors and campaign staff about the impact on re-election chances in 1974: “I’ve never seen anybody beaten on inflation in the United States, [but] I’ve seen many people beaten on unemployment.”
Nixon used his acting background to look as if he were being forced into signing ESA into law on August 17, 1970, leaving him blameless in the eyes of supporters. Then, playing the last-ditch Republican conservative, he reportedly “issued a blistering attack ” on ESA after the signoff.
His remarks were left-footed because, despite the dire economic circumstances of the year for most Americans, he said he considered vetoing it because it didn’t “fit the economic conditions which exist today.” He held off because the Pentagon provisions were vital. Then came the declaration he would not “exercise the authority” the law provided for implementing controls. It was followed by a parting shot at Patman and his supporters: If Congress felt this strongly about price controls, it—not he—should “face up to its responsibilities and make them mandatory.”
He knew the logistics for creating another national bureaucracy to enforce controls wouldn’t be an overnight success. It would take months to be operational and certainly fail under an OPA-like bombardment of lawsuits, complaints about unfair rulings, staff bungling, and lack of enforcement energy by the IRS and the Department of Justice (DOJ). Nor would funding be secure. Given his vengeful nature, Nixon seems to have made a silent vow to get even with the smiling Patman on the same day next year. Patman became politician No. 16 on Nixon’s infamous Enemies List of 220.
Delegating the heavy lifting of ESA to his staff for that February 28 expiration date, Nixon may have encouraged foot-dragging and inefficiency. Seeing that deadline as an impossibility, Patman’s group submitted an extension to ESA in late November. They shifted the deadline to April Fool’s Day and hid it in a bill amending the Small Business Act’s funding. It sped to passage by a voice vote and a slow-boiling Nixon’s signature on December 17. He promptly announced he would not use it. So another Patman amendment to ESA moved the date to June 1, 1971.
Meeting fairly regularly with his advisors and aides in the next few months, Nixon had them working up a “surprise” for Patman—and the nation. As August 15th approached, network radio and television airtime was requested for a historic address to the nation by the President. Even the super-popular Bonanza TV series and network radio was pre-empted. Obviously, Nixon was aiming to duplicate the chattiness of FDR’s famous Fireside Chats to the public.
That weekend, he huddled at Camp David with advisors for final changes in the content. On Sunday, he put the final touches on the EO fleshing out his directives. Then, came the speech of his lifetime, still called “the Nixon shock ” by economists specializing in inflation.
The 2,596 words were heavy with banner-headline news: ending the gold standard and cutting the federal budget by $4.7 billion to stabilize the dollar’s value, solving balance of payment problems, and a 10 percent surcharge on imports. But the most important passage started with:
“I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, I call upon corporations to extend the wage-price freezes to all dividends.
I have today appointed a Cost of Living Council within the Government. I have directed this Council to work with leaders of labor and business to set up the proper mechanism for achieving continued price and wage stability after the 90-day freeze is over.
Let me emphasize two characteristics of this action: First, it is temporary. To put the strong, vigorous American economy into a permanent straitjacket would lock in unfairness; it would stifle the expansion of our free enterprise system.
And second, while the wage-price freeze will be backed by Government sanctions, if necessary, it will not be accompanied by the establishment of a huge price-control bureaucracy. 1 am relying on the voluntary cooperation of all Americans—each one of you: workers, employers, consumers— to make this freeze work.”
Next day, the Dow Jones Industrial Average jumped to a gain if 32.93 points and posted a record-breaking one-day volume of 31,730,000 transactions. Initially, it was a hit with the public, judging from nationwide polls and leaders at Reynolds Metals, Dow Chemical, and Firestone, as well as the National Association of Manufacturers, and the U.S. Chamber of Commerce. The New York Times lead editorial rumbled:
“…we unhesitatingly applaud the boldness with which the president has moved on all economic fronts—and most especially his order for a ninety day freeze on prices and wages as a preliminary to a flexible policy for checking the runaway spiral that has eroded the purchasing power of all Americans and made American products increasingly uncompetitive in world markets.”
To friends and foes, the surprise freeze was a stopper. Nixon was finally going to go after price gougers—or so they thought. Patman’s reaction is not known, but it would be in character for a chuckle and a head shake at Nixon’s “revenge” backfiring by proving price controls would work at least until after the holidays. By then, profiteers would have figured out how to get around a permanent freeze.
Nixon’s debating skills were at their best perhaps when the uncomfortable post-speech questions arrived. To those asking him “but you’ve always opposed price controls,” Nixon’s response was: “Philosophically, I was still against wage-price controls, even though I was convinced that the objective reality of the economic situation forced me to impose them.” The reality of “objective reality” was getting re-elected in 1972, of course.
Facing ridicule over asking Americans to police themselves —and others—to avoid a $5,000 fine (soon to be $7,500 ) per violation. His OPA experience as a federal prosecutor of rationing violators and black marketers finally became valuable for responses.
Few critics were sharp enough to catch Nixon’s omission of controls on excess profits. He and his aides evidently had decided most of the audience would assume the request that corporations cooperate with interest and dividend controls also covered profits, particularly windfalls. The same omission was in the EO detailing the 90-day freeze rules.
Questions about windfall profits were now being raised so often in the next few weeks that Nixon and his advisors were finally forced to quash them publicly in another major nationwide address on October 7 updating freeze results. It was inserted far below his forced admission of overwhelming success in the first seven weeks of the 90-day freeze. He followed that by telling the audience they were now in the second of four phases of the NEP for the months ahead.
The broadcast opened with a nod to his freeze—for the benefit of voters:
“On the inflation front, I can report to you tonight that the wage-price freeze has been remarkably successful. As you heard on your evening news, the figures bear out that statement. Wholesale prices in September posted the biggest decline in five years. And the price of industrial commodities has gone down for the first time in seven years. The primary credit for the success of this first step in the fight against rising prices belongs to you; it belongs to the American people. It is you who have shown a willingness to cooperate in the campaign against inflation. It is you who have answered the call to put the public interest ahead of the special interest.”
That profits/windfalls weren’t given prominence had to come as a relief to Wall Street, the Fed, and banks. But after his paean to capitalism’s only purpose (greed), Nixon’s burial of that subject was unearthed near the end of his lengthy address:
“Many of my good friends in the field of politics have advised me that the only politically popular position to take is to be against profits. But let us recognize an unassailable fact of economic life. All Americans will benefit from more profits. More profits fuel the expansion which generates more jobs. More profits mean more investments, which will make our goods more competitive in America and in the world. And more profits mean there will be more tax revenues to pay for the programs that help people in need. That is why higher profits in the American economy would be good for every person in America.
“ ‘Windfall’ profits, however, as I will describe them, are quite another thing. When wages and other costs are held down by the Government, even though prices are also held down, circumstances could arise in some cases that might generate exorbitant profits; in other words, where someone will profit from the wage-price stabilization program. In the few cases where this happens, rather than tax such excess profits, the Price Commission’s policy will be that business should pass along a fair share of its cost savings to the consumer by cutting prices.”
The speech essentially marked the end of Nixon’s historic 90-day success using controls to battle inflation. It probably also played a role in his landslide re-election in 1972 against anti-war Sen. George (47.7 million vs. 29.2 million ). After that, his four-phase NEP became a downhill disaster both for the American economy and his political career.
It started with Nixon humbling himself shortly after that speech to request Congress support his proposed NEP bill extending and amending ESA to include this four-phase program. Undoubtedly with a twinkle, Patman in the House and John Sparkman in the Senate obliged, jointly introducing it on October 19. Controversy immediately erupted. Some of Nixon’s provisions were defeated and some of Patman’s group succeeded. Interestingly, of the 33 provisions in the final bill, only one controlling windfall survived. Sen. Fred Harris’ (politician No. 3 on Nixon’s list) entry said:
“In carrying out his authority…the President shall study and evaluate the relationship between excess profits, the stabilization of the economy, and the creation of new jobs. The results of such study shall be incorporated in the reports referred to in subsection (a) […”giving his assessment of the progress attained in achieving the purposes of this title.”]
Nixon had pledged that the NEP would not be “accompanied by the establishment of a huge price-control bureaucracy.” Yet until its phase-out in 1974, bureaucracy and operational expenses soon rivaled OPA’s, according to Council director John T. Dunlop. His estimate was at least $200 million (today’s $1.5 billion ) spent by 1973 alone.
At least its Price Commission initially had razor-sharp teeth in helping reduce inflation to 2 to 3 percent, Nixon’s goal for the freeze. It also tightened regulations on price-increase applications, froze prices on companies failing to report financials, annulled previous approvals to corporations such Continental Can, and ordered several others—Armco Steel, Champion Spark Plug, Simpson Timber, Textron, Woolworth’s—to lower prices or refund overcharges. The commission also teamed with the IRS to disallow business expenses involving wages and prices above NEP’s ceilings.
Consumer economist Michael Walden provides the obituary of price controls overstaying their purpose of stemming the tide of inflation at its start:
“The intent of the Nixon plan was to “cool off” the economy and purge high inflationary expectations from decision-making. Initial polls indicated the country backed the price and wage controls. And while the measured inflation rate was moderated for a while, the success didn’t last, even after a second round of controls was instituted. Within a couple of years, the inflation rate was higher than ever. Ultimately it would reach double digits (1971: 4.38% ; 1974: 11.04% ) three years in a row. It took a deep recession to bring the annual inflation rate back to the low single digits.”
Advisors to candidates in the coming election seasons would do well to consider lessons furnished by both Patman and Nixon in dealing with inflation’s primary cause. So do a pair of university economics professors—Isabella Weber and Mark Paul:
“Contrary to conventional wisdom, price controls have a rather successful history in the U.S. when used right, and, while not a magic bullet, they are a powerful tool to tame inflation and protect low- and middle-income Americans. This is particularly true when market power—be it from landlords, oil companies, or meat cartels—is at play.”
Above all, candidate advisors need to remember that Nixon initially stopped inflation cold for nearly two years using price controls—and got re-elected while doing it from 18.5 million more voters than Sen. George McGovern. And Patman’s brilliant legislative skills opened the door to challenge traditional tactics to fight inflation on the backs of suffering Americans. The two men did do something for them.