David R. Henderson  

A Short History of Gasoline Price Controls

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In the Weekend Interview in today's Wall Street Journal (WSJ editor Rob Pollock interviews George Shultz), Shultz says the following:

And one thing you know from experience is when you control the price of something, you end up getting less of it. So if you control the price of health-care providers, you will have fewer of them and that's gonna wind up as a crisis. The most vivid expression of that . . . was Jimmy Carter's gas lines.

There's nothing incorrect about this statement. But it gives the reader the impression that Jimmy Carter was the president who introduced price controls. Shultz knows better. It was his boss, Richard Nixon, who introduced price controls on everything and kept them on gasoline. Shultz, as Secretary of the Treasury at the time, was intimately involved with the details. It's true that Carter kept the controls and didn't try to get rid of them until early 1980, when he made a compromise with Congress--giving them their "windfall profits tax" on oil, which was really a graduated excise tax on oil, in return for phasing out the controls. But Nixon is the one who imposed them. So there were "Richard Nixon's gas lines" just as there were "Jimmy Carter's gas lines."

You could dismiss Shultz's line as simply a selective partisan dig, which is what it was. But I point this out because I have read over the years so many people blame Carter for price controls on gasoline as if Carter initiated them. Nixon started them, Ford kept them and made them worse with the so-called "entitlement program," and Carter kept them. And, as noted above, Carter at least did try to get rid of them. Reagan finished the job within his first month in office.


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COMMENTS (19 to date)
joshua writes:

Thanks for the non-partisan clarification. I've often been given the impression that Carter did it, it was terrible, Reagan fixed it. On the other hand, if it was tolerated through three presidencies, just how bad was it?

David R. Henderson writes:

@Joshua,
Thanks for the non-partisan clarification.
You’re welcome, Joshua.
On the other hand, if it was tolerated through three presidencies, just how bad was it?
Really bad. Even worse things often get tolerated through more than 3 presidencies. Think of slavery, for example.

As far as modern presidents go, Carter is under-rated. He did continue many of Nixon's damaging programs and started a few of his own.

But he also deregulated the trucking industry and the airlines (enabling the rise of Southwest, FedEx and ultimately Amazon). And, after initially wobbling a bit) he stood behind Volker's anti-inflation program. A move which may have cost him re-election.

Best of all, he legalized homebrewing, which lead to an explosion of craft brewing and new breweries. Thanks to Jimmy, American beers went from some of the worst to some of the best in the world in 2 decades.

I think I'll go raise one to Jimmy now.

Greg G writes:

Excellent post David. This is a good example of how all of us, even those as knowledgable as Schultz, easily reinterpret the past to fit our favorite narratives.

Schultz wants to give Reagan credit for supporting Voelker. Fair enough, but he also seems to forget that Carter appointed Voelker and paid a price for that in his re-election campaign due to the rising unemployment that accompanied rising interest rates.

Tom N writes:

Schultz's comments are symptomatic of Republicans' selective memory at election time. I get Republican fund raining letters frequently asking me to send money if I am against big government and deficits. They must think we have really short memories. Do they want me to forget that Republicans started a $2 trillion war without any provision to pay for it? Do they want me to forget the expansion of Medicaid without any funding? Do they want me to forget "No Child Left Behind", a hugely costly takeover of education with costs and restrictions imposed on the states. Do they want me to ignore their insistance during health care debate that Medicare must never interfer in the doctor patient relationship by declining to pay for therapies with high cost and low expected benefit? Republicans are and continue to be every bit as guilty for our bloated, deficit plagued, centrally-regulated welfare state as Democrats--they are just less honest about it.

Shayne Cook writes:

@ David R. Henderson:

Just a quick correction - Richard Nixon was Jimmy Carter's predecessor as President of the United States, not his "boss".

And an additional factoid: Occurring during the time frame and circumstances you describe, was the Arab (OPEC) Oil Embargo, which somewhat confounded the deeds and mis-deeds of Nixon, Ford and Carter. And probably to far greater effect.

collin writes:

Dave,

Should not libertarians start celebrating Carter's deregulation a lot more. There is a lot shared values with Democrats and it might be time pursue those interests harder than simply falling into Republican compromises on military and social issues. Find small gains and build on Ron Paul success with the young.

Here in California the Buchanan wing of the Republican party is vastly having the effect of turning in a strong blue state. The libertarians need to break off separately. I still think there will be a party realignment in 2020.

MingoV writes:

Nixon didn't start price controls; he unwisely reinstated some of them. Price controls (and rationing) in the USA were established under President Roosevelt in 1942.

http://www.thefreemanonline.org/features/the-two-price-system-us-rationing-during-world-war-ii/

Ted Levy writes:

@Shane Cook,

Professor Henderson did not claim, incorrectly, that Richard Nixon was Jimmy Carter's boss.

He claimed, quite correctly, that Richard Nixon was GEORGE SHULTZ's boss.

don bumpass writes:

my memory is the nixon wage/price controls (august 15, 1971) were initially non-binding in U.S. market because domestic oil price ($5.25) was above the prevailing world price (around $2.50 or so). Then, the first OPEC price shock (Fall 1973) quickly pushes the world price to $16 (I haven't a link for this). This yielded the oil shortage (Qd > Qs) with the $5.25 (domestic) vs. $16 (world price). of course, there were various aspects of this market that made for interesting price regulation problems (e.g., "new" domestic oil price vs. "old" domestic oil prices, refiners using mostly foreign crude vs. refiners using mostly domestic crude).

David R. Henderson writes:

@don bumpass,
Your memory is roughly correct. The OPEC shock pushed the world price to between $11 and $13 per barrel, up from about $3. There was a slight pre-existing price differential--the U.S. price was higher, IIRC--because of the U.S. import quotas on oil that Ike had imposed.
@ted levy,
Thanks. You’re absolutely correct.
@Greg G,
Thanks. I agree that Carter was way less bad than he is painted now.
@Steve Fritzinger,
I agree. I had forgotten about the beer. He also de-emphasized Nixon’s drug war.
@collin,
Yes. I agree about celebrating Carter’s accomplishments more. I used to do so every time I got on an airplane until George W. Bush socialized “airport and airline security."

happyjuggler0 writes:

Regarding then president Carter and Paul Volcker:

My memory of the issue (from long ago reading Greider's famous The Atlantic article in 79 or 80 that told the inside story of this issue) was that the US bond market *forced* Jimmy Carter to appoint Volcker. Carter was told what Volcker wanted to do, namely tighten monetary policy to such an extent that it would surely cause a nasty recession. Upon being told this, Carter asked, "Isn't there anyone else?". He got back in reply, "no, the bond market will only trust Volcker". At which point Carter proverbially sighed and appointed Volcker.

So to the people who want to give Carter credit for appointing Volcker, all I can say is that if you think that *credit* is the appropriate word for making a decision that you can't refuse with a gun to your head, then I heartily disagree with you.

In terms of historical incidence Carter did indeed appoint Volcker. In terms of de facto incidence it was actually the bond market that appointed Volcker, and against Carter's will.

Jim Glass writes:

"it gives the reader the impression that Jimmy Carter was the president who introduced price controls."

To be fair to Schultz, I'm not sure it does. He said...

"When Ronald Reagan took office, inflation was in the teens, the prime rate was in the 20s, and the economy was going nowhere. We still had the remnants of wage and price controls, particularly in oil and gas."
If when Reagan took office all that remained were the "remnants" of price controls, then it is pretty clear that the Carter Administration must have gotten rid of most of them.

Joel M writes:

@Shayne Cook;

Mr. Henderson was referring to Nixon as George Shultz's boss, NOT Carter's.

Scott P writes:

If Nixon and Ford has price controls on gas, as did Carter, then why were there substantial waits to get gas ("gas lines" I recall were quite common) during Carter's administration, but not during Nixon and Ford's administration? I don't recall EVER having to sit in line for gas during the first two admins, but I do recall having to sit in gas lines during Carter's administration.

Ted writes:

If we want to be fair, I'm not sure Henderson was giving Shultz's comment its proper perspective.
But the point of Shultz's comment seems to have been lost in the " my position is better than yours" arguments (whines). Governmental controls on individual rights are usually not good and the more government HELPS you the more it owns you.

David R. Henderson writes:

@Scott P,
If Nixon and Ford has price controls on gas, as did Carter, then why were there substantial waits to get gas ("gas lines" I recall were quite common) during Carter's administration, but not during Nixon and Ford's administration? I don't recall EVER having to sit in line for gas during the first two admins, but I do recall having to sit in gas lines during Carter's administration.
First, there’s no “if” about it. Nixon began price controls and Carter continued them.
Second, there were substantial waits during the Nixon administration. Getting gas in the first few months of 1974 was a daily challenge in many American cities.
Third, it’s true that the lines were fairly uncommon during the Ford administration. It has to to with the domestic crude oil “entitlements” introduced by Ford. They’re too complicated to cover in this short space. If you want to read more on this, read Joseph P. Kalt, The Economics and Politics of Oil Price Regulation.

andrew writes:

Don't forget the Staggers Act- the rail portion of Carter's transportation deregulation trifecta.

Scott P- where did you live? Federal allocation during the '73 oil shortage was state by state based on previous year's consumption. (Gee, what could be an obvious problem with that one?) Shortages (really outages), lines, and finally even/odd rationing were common in my state.

Shayne Cook writes:

@ Joel M:

Thanks, got it.

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