by Gary Alexander
August 20, 2024
Before Jackson Hole (to be held later this week), there were secret meetings to devalue the dollar and enforce wage and price controls (held at Camp David, Maryland, August 13-15, 1971), and before that, public meetings to re-invent the postwar financial world (at Bretton Woods New Hampshire, July 1-22, 1944) and way back there were secret meetings to invent the Federal Reserve (at Jekyll Island, Georgia, November 10-20, 1910). I suppose it’s better to hold such meetings in the open, like at Jackson Hole, but that tends to make the speeches boring, whereas some of those closed meetings seemed truly diabolical.
As Lew Lehrman wrote for The Wall Street Journal on August 15, 2011, the 40th anniversary of Nixon’s dollar devaluation, plus tariffs and wage and price controls, the setting seemed right out of a novel:
“On the afternoon of Friday, Aug. 13, 1971, high-ranking White House and Treasury Department officials gathered secretly in President Nixon’s lodge at Camp David. Treasury Secretary John Connally, on the job for just seven months, was seated to Nixon’s right…. [Nixon] and Connally were determined to present a comprehensive package of dramatic measures to deal with the nation’s huge balance of payments deficits, its anemic economic growth, and inflation.
“Dramatic indeed: They decided to break up the postwar Bretton Woods monetary system, to devalue the dollar, to raise tariffs, and to impose the first peacetime wage and price controls in American history” — from “The Sum of it All,” Lewis Lehrman’s new autobiography, page 284.
At the time, I had expected this dollar devaluation, after reading Harry Browne’s book on the coming dollar devaluation, plus the works of French economist Jacques Rueff and renegade newsletter writers like Harry Schultz, based in London, and Canadian C. Verne Myers, so I surveyed the Monday morning reaction to Nixon’s televised Sunday night speech and wrote a “hold the presses” article for Plain Truth magazine, titled, “Initial Reaction to Nixon’s Economic Plan” (September 1971). Among my findings:
“A poll of 220 households by Albert E. Sindlinger & Co. on Monday revealed 75% of Americans favored the President’s proposals, while ‘most of those who dissented did so on the grounds that Mr. Nixon’s actions should have come sooner.’ Mr. Sindlinger’s amazed reaction was, ‘In all the years I’ve been doing this… I’ve never seen anything this unanimous, unless maybe it was Pearl Harbor.’
A Gallup Poll also revealed 75% in favor of Nixon’s proposals. On Monday, August 16, the Dow leaped a record 33 points on record volume. Even the dummkopf economics profession (‘We’re all Keynesians now,” Nixon quipped) was in favor of the wage-price freeze – which never worked in history. They were also gung-ho for the devaluation of the dollar in foreign markets, which favored U.S. exports, short-term.
In the 53 years since Nixon untethered the dollar from gold, here is the sad inflationary tale of the tape:
- The Consumer Price Index is up 670%, from 40.8 to 314.54 (with 1982-84 = 100)
- Gold is up 73-fold, from $35 to $2,543 per ounce, or 9.4 times the CPI rate of increase.
- Crude oil is up 23-fold, $3.35 to $77 per barrel, 3 times the CPI rate
- The dollar is down 80% to the Swiss franc, which grew from 23 cents to $1.15 now
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
And Now, Eco-Whiz Kamala Harris Repeats History by Proposing Price Controls
Last Friday, in her ongoing war against President Biden’s economic woes – and on the anniversary of the day President Richard Nixon imposed price controls on Monday, August 16, 1971 – the presumed Democratic nominee Kamala Harris proposed an imposition of price controls on “greedy corporations,” which she said are gouging Americans by fixing prices to profit from weak consumers with no choices.
Even the pro-Harris Washington Post tried to steer the candidate away from this plan, with an editorial:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As this chart shows, producer prices got ahead of consumer prices for a while, meaning many businesses were making lower profit margins early in the Biden years, in 2021 and 2022, but now consumer prices have caught up, as producer prices (and commodity prices) are lagging, but it’s inconceivable in this economy, with so many competing online delivery services and street-level bargain stores, that price-gouging is possible in most goods or services. We can easily shop for the best prices online or in person.
In 1971, Nixon and his political crew at Camp David were seduced by wage and price controls, partially because they had lived through such a scheme in World War II, when patriotism and war shortages made such controls work, for the most part, but 1971 and 2024 are not wartime, nor times of great shortages.
We also see a great divide between a candidate with a lifetime spent in business vs. a team (Harris and Walz, not to mention 52-year-politican Biden) with no experience in business or the private sector at all.
If they had experience – or common sense; or had read a history book – they would know that back in 1971, when Nixon ordered a “freeze on all prices and wages” to be “enforced by a Pay Board and a Price Commission,” it was an utter failure. After 90 days, prices had skyrocketed, and kept rising for a decade.
Price controls invariably lead to shortages, cheating and/or black markets, particularly in energy markets after the 1973 oil embargo. One of the first executive orders under Reagan was to lift all remaining oil and gas price controls, and the oil crisis ended within days. Oil prices collapsed by the mid-1980s.
Other examples of deregulation in the late-Carter, early-Reagan eras include:
- Airline costs (real fare costs) fell by 33%
- Trucking rates fell by 35% to 75%
- Natural gas prices fell 30%
- Long distance telecommunications rates fell by over 30%
- Bank interest rate returns doubled when rate ceilings were removed
Sources: Cliff Winston of the Brookings Institute, 1993, and Steve Moore, Committee to Unleash Prosperity.
Apparently, Candidate Harris will start her price control program by limiting grocery store profits by establishing price controls on food. That will be tricky, since the grocery sector has one of the lowest profit margins of any retail sector, only about 2.5%. Yet, Supermarket News (February 17, 2023) reports a poll of shoppers who believe stores make a 35.2% net profit margin, 14 times higher than the real 2.5%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This chart shows the case for “price gouging” at grocery stores – a 1.23% profit rise in a pandemic – but this was largely due to supply chain disruptions, a worker shortage and a once-in-a-century lock-down and plague – but the cost of a national price board to enforce a 1% price reduction will cost far more than 1%!
As Democrats meet this week in Chicago, it’s important to examine the folly of central planning, with Chicago and Illinois exhibiting the depth of Blue State Blues. Illinois has lost population in each of the last 10 years, with 230,000 fleeing the state in the last four years alone. The unemployment rate there is the third worst in the nation, and the second worst among blacks. Illinois’ public education costs $24,000 per student per year, but only one in three read at grade level and barely one in four is proficient in math. Still, billionaire Illinois Governor J.B. Pritzker abolished a program for school choice for 10,000 mostly poor and minority children. Chicago and Illinois give us a preview of coming attractions if Harris wins.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
Central Banks Could Announce a “Round of Cuts” This Week in Wyoming
Income Mail by Bryan Perry
A Goldilocks Economy Begets Rising Gold Prices – What Gives?
Growth Mail by Gary Alexander
Zombie Price Controls Revived (by Economic Dummkopfs)
Global Mail by Ivan Martchev
This Latest Feels Like an Upside Overshoot
Sector Spotlight by Jason Bodner
To Prepare for “Air Pockets” – Always Wear Your Seat Belt
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About The Author
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Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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