Benjamin Cole Remembers Richard Nixon (of Blessed Memory?)

On Marcus Nunes’s Historinhas blog, Benjamin Cole has just written a guest post about Richard Nixon’s August 15, 1971 speech imposing a 90-day freeze on wages and prices, abolishing the last tenuous link between the dollar and gold and applying a 10% tariff on all imports into the US. Tinged with nostalgia for old times, the post actually refers to me in the title, perhaps because of my two recent posts on free trade and the gold standard. Well, rather than comment directly on Ben’s post, I will just refer to one of my first posts as a blogger marking the fortieth anniversary of Nixon’s announcement, which I recall with considerably less nostalgia than Ben, and explaining some of its, mostly disastrous, consequences.

Click here.

PS But Ben is right to point out that stock prices rose about 4 or 5 percent the day after the announcement, a reaction that, of course, was anything but rational.




11 Responses to “Benjamin Cole Remembers Richard Nixon (of Blessed Memory?)”

  1. 1 Benjamin Cole April 15, 2016 at 8:29 pm

    Hi David.

    Yes, I referred to you in the title, and explain so (perhaps clumsily) in the PS, that you recently addressed free trade, and you said that few if any other tenets of modern macroeconomics are held in such high regard as free trade.

    I am probably mostly a free trader too, but I do find the macroeconomics profession is completely close-minded on the topic, there is no room for debate, and I doubt an aspiring Phd could secure a position at any major campus in America while prominently espousing an non-free trade viewpoint.

    But after all, the benefits of free trade are theoretical, given the huge structural impediments and institutional imperfections in the world. Of that cross-border migrations of millions of people is usually illegal. Then there are sometimes meaningful concerns about environment, and transfers of military technology. Is manufacturing sourced in the nations with the most oppressive regimes?

    How about infant industries?

    I think free trade, or least the shape of international trade, is a debatable topic.

    A dew decades back very serious people gave the thumb’s up to Nixon for across-the-board 10% tariffs. The New York Times gushed in admiration. So, was Nixon right or wrong? i will read you roost on the topic.

    Yes, nostalgia too. Nixon was a crook, but at least he was an interesting crook.


  2. 2 Benjamin Cole April 15, 2016 at 8:30 pm

    I will read your “post,” not “roost,” on the topic.


  3. 3 Benjamin Cole April 15, 2016 at 9:12 pm


    I read your excellent “40th anniversary” post on Aug. 15 1971.

    As always, top-flight stuff from you.

    But you address the 10% tariff only a little.

    And if we believe in EMH, why the Wall Street surge?

    And the fact is, the economy expanded by more than 11% in the two years 1972–1973 (more than 5% annually).

    In one way, that could be viewed as a leader delivering the goods to the public. And we know now (from tapes) Nixon was bullying Burns to go along.

    Is chronic suffocation by the Fed today a batter way?

    You are dead right on petroleum products. Of course, wage and price controls don’t work except perhaps in wartime, and then even maybe not.


  4. 4 Hugo André April 17, 2016 at 6:44 am

    There may be a case for rethinking the free-trade views but your specific examples seem a bit odd.

    The infant industries argument is taught in most undergraduate textbooks on trade (these also teach the tariff income argument saying that countries with a small tax base may need to levy tariffs). The reason for the lack of research about the topic is presumably that it’s hard to model (and the fact that earlier studies were running into decreasing returns). Environmental degradation and transfers of military technology as effects of trade would seem even more difficult. The problem is that these effects are fairly static.

    If there came a prospective phd student with promising ideas on how to develop theories about these things (and if the student’s theories were informative), I’m sure he/she could’ve gotten a position.


  5. 5 Frank Restly April 17, 2016 at 8:45 am

    Let us remember who the economic luminaries were that concocted this grand scheme:

    To combat these issues, President Nixon consulted:

    1. Federal Reserve chairman Arthur Burns
    2. Treasury Secretary John Connally
    3. Undersecretary for International Monetary Affairs and future Fed Chairman Paul Volcker.

    On the afternoon of Friday, August 13, 1971, these officials along with twelve other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by suspending the convertibility of the dollar into gold; freezing wages and prices for 90 days to combat potential inflationary effects; and impose an import surcharge of 10 percent, to prevent a run on the dollar, stabilize the US economy, and decrease US unemployment and inflation rates, on August 15, 1971.

    The ironic thing is that the tariffs meant to address trade imbalance and price controls meant to address inflation were short lived while taking the U. S. off the gold standard was permanent. The net effect was to permit the U. S. to run large budget and trade deficits.


  6. 6 David Glasner April 17, 2016 at 9:23 am

    Benjamin, The New York Times applauded the decision to impose a wage and price freeze, so I don’t think that the Times opinion on the subject has much credibility. Free trade is not really as much of a macro issue as a micro issue. The analysis of comparative advantage and the gains from trade is pure micro. The effect on jobs is more complicated and involves macro analysis as well as micro analysis. Most of the exceptions to free trade doctrine have actually been discovered by economic theorists, so many of the analytical tools to dispute free trade have been worked out by economists. My point in my post on free trade was to say that economists underestimate the losses associated with job losses and the undermining of communities when entire industries as decimated by free trade (or technological progress). I can’t do the analysis myself, but I am suggesting what needs to be changed to make it more relevant.

    I agree that the rise in stock prices is anomalous. I don’t know how EMH, which I don’t believe in except as a general tendency, would explain the rise. There’s no mystery about why the economy expanded, monetary expansion worked. But they overdid it, and it backfired and then they overdid it when they put the brakes on just as oil prices started zooming up.

    Hugo, Infant industry argument is theoretically valid, but difficult to apply. It was used to justify huge wastes of resources for two generations or more by developing countries that believed that the path development was through industrialization. China found a better way by opening up the country to foreign investors that would build factories to manufacture their exports more cheaply than their existing facilities. So the Chinese strategy worked by circumventing the infant industry scenario.


  7. 7 Benjamin Cole April 22, 2016 at 8:56 am

    David– I sense you are a fan of economic history, so you may enjoy my latest post at Historinhas on Reagan.

    I had forgotten that Reagan was the Great Protectionist!


  8. 8 David Glasner April 22, 2016 at 10:59 am

    Thanks, Ben. I’ll have a look. You are probably overstating slightly, but let’s just say that Reagan could be flexible.


  9. 9 Benjamin Cole April 22, 2016 at 8:34 pm

    David: I think you will be surprised at the extent of Reagan’s protectionism. Cato Institute wrote about Reagan’s Protectionism in 1988, before the PC hagiographers set in.

    Well, free trade, in a world of gigantic structural impediments and institutional imprecations remains a fascinating topic.

    Do multi-nationals source where labor has no rights and environmental controls are a joke? But report profits in the Cayman Islands? I sense this is part of free trade too. (I have talked to accountants at the old Arthur Andersen whose full-time job it was to source profits for multi-national clients in the lowest tax district).

    Another annoying aspect: You read the blogs, and the topic is always free trade, immigration and the minimum wage. Yes, we should have free trade, open immigration and no minimum wage, in theory. But one would have to be naive to think there is not an element of “tilting the playing field against the employee-class” in this mix of everyday topics and policy recommendations.

    Meanwhile, other larger depredations on free commerce—property zoning and the ubiquitous criminalization of push-cart vending—well, they are not everyday topics.

    Gee, do you think high-rise luxury condo developers would like to bulldoze upper-income single-family detached neighborhoods? In free markets they would.

    And if people could start up their own businesses for a few hundred dollars, and play the streets, would they need jobs?

    Unfortunately, I think people profess to like free enterprise when it works for them. Well, duh.


  10. 10 Benjamin Cole April 23, 2016 at 8:52 pm


    At the risk of being overbearing, here are some additional thoughts on free trade:

    I am not sure what I am talking about.

    Maybe like this: Okay, we believe in sticky wages. But in purely free commerce, wages should drop to clear labor markets. So in theory, sticky wages do not exist.

    But due to institutional, legal, contractual, traditional and cultural issues, wages do not drop quickly enough in the U.S. The theory does not work as a practical guide to actual policy-making.

    Sticky wages are a structural impediment, and we sensibly adjust macroeconomic policy to accommodate this impediment. Indeed, we Market Monetarists like moderate inflation.

    I suspect something similar is going on in international trade along the lines of huge institutional imperfections and structural impediments.

    I cannot prove this.

    The Japan stock market surges on export outlook. Far East nations have boomed for generations on the export model. Germany is the strong man of Europe, and an exporter. For that matter, everybody’s favorite Singapore has been running mounting trade surpluses for two decades.

    Yes, there are exceptions. The US remains rich (though there is the structural impediment that works in our favor, and that is we have a reserve currency). Hong Kong is an importer (this may muddy upon closer examination).

    Something nags at me about the “import our way to prosperity, and run up mounting debts to foreign holders of IOUs” model.

    Maybe it is old-fashioned Puritanism, aversion to debt. Ben Franklin-ism, “Neither borrower nor lender be.”

    Perhaps I have a misplaced moral sense one is supposed to work for the standard of living, not send pieces of paper in exchange for goods and services. It reeks of decadence!

    Perhaps I should be more internationalist (difficult, when one’s nation levies taxes by confiscation, and neighborhood crime rates and unemployment directly affect the quality of life).

    There are also some empirical observations. The US did fine under President Reagan, the most aggressive protectionist (by a country mile) of the Post-War Era.

    After President Nixon slapped on a 10% across the board tariff in August 15 1971, the US economy expanded by more than 5% in 1972 and another 5% in 1973.

    BTW, the largest one-day gain in Dow history (to that point) was the Monday after Nixon applied the tariffs.

    The Dow did fine under Reagan too. Reagan’s wide-ranging and aggressive protectionism evidently was not that harmful or dangerous.

    I keep an open mind on trade issues.


  11. 11 David Glasner April 27, 2016 at 12:56 pm

    Benjamin, I don’t think I would be surprised. Reagan built a career throwing rhetorical red meat to his base and doing what was politically expedient. Most successful politicians wind up doing something along those lines. However, I think that Reagan probably believed in free trade in some abstract sense even if he had no qualms about adopting protectionist policies when it was to his political advantage. And lets’ face it, his base hardly cared two cents about free trade. Free trade is an intellectual fetish of a small group of economists and an even smaller group of right-wing intellectuals. So there was no political price that Reagan had to pay for throwing his free trade principles overboard whenever he perceived it to be in his political interest to do so. That would distinguish Reagan from someone like Pat Buchanan who is a protectionist “on principle,” because it fits with his nationalist/chauvinist persona better than namby-pamby free trade.

    I think the stock market went up in 1971 because there was an anticipation of monetary expansion and a hope that Nixon would keep wages from rising as fast as prices, allowing profit margins to rise. But remember that I am not Scott Sumner and I don’t believe in EMH. Do you remember how long the 10% tariff Nixon imposed in 1971 stayed in effect? I don’t think it lasted that long, so I think you are overstating its importance as you are overstating Reagan’s “protectionism.”


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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey’s unduly neglected contributions to the attention of a wider audience.

My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan

Follow me on Twitter @david_glasner


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