There’s a lot about politics, economics and culture that seems eerily reminiscent of the 1970s right now.
For starters, ABBA has a new album.
We’re, again, playing foreign-policy chess with Russia. In the ‘70s, Russia — then the Soviet Union — invaded Afghanistan, leading to a U.S. boycott of the Moscow Olympics. Today, Russia has invaded Ukraine, and we’re sorting out the best actions to take.
We’re also facing the highest inflation rates since the 1970s. The January year-over-year CPI inflation rate was 7.5%, and February’s rate was even higher at 7.9%.
And since the invasion of Ukraine didn’t begin until February 24, the February CPI number doesn’t yet reflect changes in the prices of goods and services — including gasoline — since the war began.
We’re also all aware of the rapid gas price increases here in Southwest Florida. It seems every time you turn around prices are higher than they were hours ago. And the lines are long: I know because I braved Costco Wednesday afternoon. Ask to see my photos sometime.
Back in the ‘70s, a then-president decided to fight back against inflation by instituting a 90-day price freeze. In a nationally televised address on August 15, 1971, Richard Nixon declared, “I am today ordering a freeze on all prices and wages throughout the United States.” That’s also the day we ended the convertibility of U.S. dollars to precious metals.
But even if it feels like we are reliving the ‘70s, including higher inflation and gas prices, it’s not time to bring back the price-controls of the ’70s.
It’s helpful to understand what inflation rates were like when Nixon decided to defy the laws of economics and freeze wages and prices. The month that Nixon addressed the nation, declaring inflation such a threat that it required autocratic price controls, the year-over-year CPI inflation rate was a mere 4.6%.
Though many wage and price controls were subsequently lifted, price controls on gas remained part of the policies of the Ford and Carter administrations as well. But when you deny what the underlying market-determined price of something like gas really is, you’re doomed. During the OPEC oil crises that followed, artificially low prices led to long gas lines along highways to find gas before stations ran out. In some states — like Pennsylvania where I grew up — they instituted an “odd-even” rationing system that allowed you to buy gas only on odd dates — like March 13 — if your license plate ended with an odd digit. And vice versa.
Now some populists will claim that it’s unfair to some groups to allow the price of something like gas to rise “too much” or “too fast.” But I think we all know that in the ‘70s those gas-station operators probably all had plenty of gas to support their family, close friends and best customers: All operators had to do was hang out that “Out of Gas” sign before it was true.
That also seems unfair.
High prices are bad. And inflation is worse. But here’s the marvelous thing about the price system: The price of anything, when it’s allowed to move as the unseen forces of supply and demand dictate, tells every person all they need to know about how to behave — both on the supply side and the demand side.
You don’t need to know there is a war in Ukraine. You don’t need to know the intricate details of the supply-chain and labor-market issues that have dogged us throughout the pandemic. And you don’t need a Ph.D. in economics, either.
All motorists need to know to conserve gas, when it’s in short supply, is already conveyed in that price.
Victor V. Claar is associate professor of economics in the Lutgert College of Business at Florida Gulf Coast University, where he holds the Truist Distinguished Professorship in Free Enterprise. He also serves on the Research Advisory Council of the James Madison Institute.
