Just do something
The current economy seems bad, horribly bad to most folks. It’s so bad that the media has run out of words to describe it, since it already accepted and repeated Barack Obama’s claim we were in the “worst economic crisis since the Depression” last year – just as it accepted and repeated the claim of candidate Bill Clinton that his opponent had the “worst economic record in 50 years” sixteen years ago. To reporters it may feel like the worst economy they have ever known – if they weren’t alive or don’t care to recall 1971. Unemployment was at 6% and inflation was at 4%. Both would be somewhat manageable numbers today, but in 1971 they were enough to create a crisis mentality, and the public demanded drastic action by the federal government.
I was barely a teenager, but I clearly remember. Prices and wages were spiralling out of control, with the value of a dollar shrinking in freefall. Price tags seemed to change in the stores every day, and everyone was concerned about the runaway cost of living. On the night of August 15, 1971, President Nixon addressed the nation in a (back then) rare, live television appearance. Barack Obama and FDR notwithstanding, he made what – to me – is the single most sweeping economic statement ever made in a presidential speech:
I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days.
I did not see the speech live, because I was at a grocery store shopping with my father. But I saw the effects of Nixon’s order as an economic lesson played out before my eyes. The grocery store manager, who had been continually raising prices due to runaway costs, suddenly feared that Nixon’s order might drive him out of business. He called in all of his employees to work that night, and they frantically grabbed grease pencils and label machines and set about the task of marking up the price of every item in the store. Since this was before the age of computers, the cost of our groceries was literally going up while we were shopping. There was panic, there was fear, and it became the night our economy nearly collapsed.
Ultimately, the wage and price freeze did not work. There were shortages of some items in stores because they simply could not be produced and sold at a price that was fixed for three months. A deep recession ensued, and inflation reached 10% when Gerald Ford succeeded Nixon as president. One term later, during Jimmy Carter’s term, inflation peaked at 13.5% and unemployment hit 7%. (I use the presidents’ names here only for historical reference, because everyone but journalists know that presidents receive too much credit and too much blame for economic conditions.)
When government takes bold action in an attempt to fix an economy, it doesn’t really know if the cure will work. Often the action is something of a gamble, a bet that no one in Las Vegas would take. Sometimes, as I saw in my teenage years, government can only make things worse.
Expecting governments to fix economies is ludicrous, because in the free market it is only business and consumer confidence that drives recovery. The public puts its faith in the wrong place during economic downturns when it demands government “just do something.”
