It's the Economy, Stupid!

 How did Richard Nixon go from a staunch opponent of wage and price controls in July, 1971 to reversing his position just a few weeks later? The answer is relatively simple: he wanted to ensure his reelection in November. Pres. Nixon was advised by his treasury secretary, John Connally, to impose these economic controls in order to demonstrate to the public that he was serious about curbing inflation. The imposition of price and wage controls can be characterized as political signaling to voters, not necessarily a policy initiative in the public’s best interest. Richard Nixon never once believed that these controls would actually fix inflation in the long run. To convince Nixon of their value, Sec. Connally and other proponents argued for the “cosmetic” effects of a freeze on prices and wages. In other words, Connally emphasized the perception of these policies as opposed to their genuine effectiveness. Additionally, because Nixon could only serve four more years in the Oval Office (assuming a victory in November), the long term effects of price and wage controls were weighed negatively against the desire to win the upcoming election. 

Nixon’s decision to impose these controls is a clear-cut example of a politician forming policy in order to win elections instead of the reverse. The question we should ask ourselves is if Nixon is unique or if all politicians use policy as a means of winning elections. As our old pal Milton Friedman put it, “Nixon had the capacity of rising above principle if politics demanded it.” Is this a fault of Nixon’s character, or is this a fault of the incentive structure embedded within American politics? The answer is likely both, but we would need a second blog post to answer this question in more detail.