Saturday, August 21, 2010

What were President Nixon鈥檚 intentions of the price control?

What is President Nixon鈥檚 intention of the price control? What is the actual consequence of the policy? Why do you think President Nixon failed in this policy?\





Oil CrisisWhat were President Nixon鈥檚 intentions of the price control?
In his own words





';there is one great problem that rightly concerns every one of us, and that is, as you know, rising prices, and especially rising food prices. By the end of last year, we had brought the rate of inflation in the United States down to 3.4 percent. That gave us the best record in 1972 of any industrial country in the world. But now prices are going up at unacceptably high rates.





The greatest part of this increase is due to rising food prices. This has been caused in large measure by increased demand at home and abroad, by crop failures abroad, and as many people in various areas of the country know, by some of the worst weather for crops and livestock that we have ever experienced. But whatever the reasons, every American family is confronted with a real and pressing problem of higher prices. And I have decided that the time has come to take strong and effective action to deal with that problem.





Effective immediately, therefore, I am ordering a freeze on prices.1 This freeze will hold prices at levels no higher than those charged during the first 8 days of June. It will cover all prices paid by consumers. The only prices not covered will be those of unprocessed agricultural products at the farm levels, and rents. ';


http://www.presidency.ucsb.edu/ws/index.鈥?/a>





In the early 1970s, inflation had been much higher than in previous decades, getting above 6% briefly in 1970 and persisting above 4% in 1971. U.S. President Richard Nixon imposed price controls on August 15, 1971. This was a move widely applauded by the public and some number of (but by no means all) economists. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Also motivating the controls, it should be noted that on the same date that the controls were imposed, 15 August 1971, Nixon also suspended the convertibility of the dollar into gold, which was the beginning of the end of the Bretton Woods system of international currency management established after World War II. It was quite well known at the time that this would likely lead to an immediate inflationary impulse (essentially because the subsequent depreciation of the dollar would boost the demand for exports and increase the cost of imports). The controls aimed to stop that impulse. The fact that the election of 1972 was on the horizon likely contributed to both Nixon's application of controls and his ending of the convertibility of the dollar.





The 90 day freeze became nearly 1,000 days of measures known as Phases One, Two, Three, and Four [1], ending in 1973. In these phases, the controls were applied almost entirely to the biggest corporations and labor unions, which were seen as having price-setting power. With such monopoly power, some economists saw controls as possibly working effectively (though they are usually skeptical on the issue of controls). Because controls of this sort can calm inflationary expectations, this was seen as a serious blow against stagflation.





The controls were abandoned in 1972 (about the same time as the Bretton Woods system was finally abandon


http://en.wikipedia.org/wiki/Price_contr鈥?/a>What were President Nixon鈥檚 intentions of the price control?
His intentions were to slow down inflation. It caused a scarcity of goods instead. He failed because it did not work.
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