Crisis and Liberty: Lecture 9

0:00Well, good morning, ladies and gentlemen, and welcome to the penultimate session of our series of ten presentations on the growth of government in the United States. Today's talk pertains to the growth of government along non-military lines since World War II, I'm going to spend quite a lot of time talking about what I view as the second greatest period of non-war crisis, although in a sense that's misleading because war was going on at the same time, the war in Vietnam, but a great deal of this period's crisis atmosphere had had to do not at least directly with the war, but with other things as well, especially with the civil rights turmoil of the time. And this gave rise to a number of new government actions and programs, laws, many of which are still in effect today, most of which I I suppose are still in effect today, and in many ways it seems to be more comparable to the New Deal period than to say what happened during either of the World War periods. So

1:40I view it that way and in my work in which I've concentrated heavily on the effect of of Crisis. I see these years as crisis years, forming a kind of discrete episode. I think the period from the end of the fighting in Korea in 1953 for the next decade or so are are relatively placid, and then we have a period of about 10 years, let's say from approximately 1963 to about 74, in which all hell's breaking loose just about every year in some way or another.

2:31And this of all the crisis periods I've studied as a historian is the only one that I myself personally experienced as an adult and therefore can appraise a little differently and my personal appreciation of living through these years was that just about everybody in the country had the sense of Christ crisis, that the world seems suddenly full of turmoil and conflict and uncertainty, and we were not shocked when outrageous or big political events took place, when for example Several political leaders were assassinated, as several were in the 1960s, the president himself, and a few years later his brother, who was an aspiring president, and Martin Luther King, and people of major political importance were being killed, and that's not a routine kind of event in this country, But it was just one of those extreme aspects of these years, which presented all kinds of extreme actions and gave the character of danger, uncertainty, apprehension to everybody living in the country at that time.

4:11So, in retrospect, I look back and I see the period since the early 70s as relatively placid, as really quite different from what it seemed to be during that time. I don't believe we've had anything comparable since then. We've certainly had times when the populace became hysterical, as I indicated the other day they did in 1980, with regard to the Iranians, but it was a different kind of hysteria, a tightly focused one and not so generalized as the sense of apprehension felt by Americans during this period that coincides just about precisely with the time in office of Lyndon Johnson and Richard Nixon as presidents.

5:06We can pretty much say that this starts with the Kennedy assassination and ends when Nixon leaves office, if we want to put discreet beginning and end to it. Rothbardians like to talk about the welfare warfare state to characterize the nature of what others call big government. and I've talked quite a lot about the warfare state in earlier talks and today I'm going to be concentrating on the welfare state and I want to recommend to you a book that deals with many of the topics I'll be touching upon today by Alan Matuso. He's a historian who teaches at Rice University. He's not a He's not a libertarian. I'm not sure how to characterize his ideology, but he's a very good historian and I believe a very honest one who does not wear the blinders of left liberalism that at least 90% of practicing historians now do in this country.

6:25So, his books are very well documented and well, I believe, thought out and this is a very revealing book, I believe, about the nature of particularly the social programs undertaken by the Johnson administration and other programs in the Nixon administration too. He's also written a later book that focuses on Nixon and his policies, and I recommend that one also, but it's not quite as focused on my subjects today as The Unraveling of America, a very fine book.

7:12Well, what I've already tried to suggest is that this decade was one marked by a great deal of unrest. And much of the unrest took visible form of political protest in a way that we hadn't often seen in the past. In World War I, for example, even though many people didn't like the fact that the country had gone to war on the side of the Allies, they didn't get out of the street in protest, in part because they would have been arrested if they had done so and put in jail or deported from the country or otherwise shut up.

7:59During the Korean War, as I indicated yesterday, many people actually came to oppose the war as the casualties mounted, but they didn't get out in the streets and protest the war. They did make their views known increasingly through ordinary political processes, so that Truman became quite aware by the end of his term in office that he was a profoundly unpopular person with no political future of any kind, if you should even try to have one. But even before this period began, we were seeing in the United States a more active, visible, kind of in-the-street level of politics and it began with the civil rights movement which has many antecedents, we can trace them all the way back to the war between the states and the emancipation of the slaves, but it began to heat up as it were in the late 1950s to really spread, to gain confidence, to mobilize more and more people, not only blacks who decided they had had enough, but many white people as well were part of the civil rights movement in

9:30those days and were viewing the situation of race relations in this country as profoundly are really unjust and demanding change of a variety of kinds, but above everything else, the end of legal segregation, which still existed throughout the southern states at that time. So the civil rights movement attracted people to stage sit-ins, for example, lunch counters, where the seats were reserved for whites, and so black people would just go sit down, and of course they wouldn't be served, but they refused to move either, until the police came and arrested them.

10:21And, of course, if enough people do this, it's like a sit-down strike in the General Motors plant. It's very hard to remove hundreds or thousands of people who just peacefully walk into some place and sit down and won't move. So that kind of protest action became more and more frequent in the late 50s and early 60s. In addition, a number of people began to take actions to register blacks to vote. And at that time, of course, the laws in the South did not simply read no black may vote legally.

11:07The restraints on black voting were more settled than that. And they took a variety of forms, including such things as poll taxes, which had to be paid and you had to be on record as having paid by a certain time before you would qualify to vote or you had to pass a test of citizenship in some states and of course the people who administered the test were all white people who might find just somehow that blacks were never sufficiently well informed about the matters they tested of the Bond to qualify as passing the test to obtain voting eligibility.

11:53So there's just lots of little tricks like that had been adopted in the South starting way back in the late 19th century when the Jim Crow system really developed in the formal sense and so they had been in effect for a long, long time and they were well worked out by southern state and local officials by that time. So people began to move around and not only protest these things but challenge them in the sense of taking some well-educated black person and putting them there to be tested by the voting tester and demonstrating that it was a farce that when this person was failed at the same time some some wretched illiterate to redneck was being swept right through and passed that it was clear that it was nothing but racial distinction being made so those kinds of actions increased and in places where blacks could vote more readily there was great variation across the south and the strictness with which these kinds of restraints were being imposed in some places they weren't so strict

13:11and there had always been a few blacks almost everywhere that managed somehow to vote in places where they had more access than people came in and began to work to register them, say look, you know, we can get you to the polling place if we'll just register you properly, so let us help. And a lot of young, idealistic white people joined this kind of action in the north, college students for the most part, especially in the summertime when they weren't in class, and they'd come down to the south and they'd go out into various rural areas even, where it was most dangerous to do this sort of thing, and help blacks get registered to vote.

14:00Well, this was all a kind of public, political, collective action that was new, at least on the kind of scale we began to see in the late 50s and early 60s, so that by the time we get to 1963 and the great march on Washington, D.C., where Martin Luther King gave this famous speech, we hear replayed over and over and over, every Martin Luther King Day, about having a dream and so forth, By that time, this is a mass movement, a mass movement of blacks and whites nationwide with a lot of support behind it. So that, in a sense, has set the tone. Now, when the United States, which had started putting quite a lot of troops into Vietnam in the early 1960s, began to put massive numbers of troops there in 1965, protests broke out, particularly on college and university campuses all over the country, Because everybody had a model. Everybody either had seen or had already been part of the civil rights demonstrations

15:20and knew that if you're unhappy with some public policy, well, hold a demonstration. Hold what was then called a teach-in and anti-war professors would get together in some university hall As early as 1965. Oh yes, much of it in 1965, a little bit of it even earlier in fact, but it really spread in 1965 and 1966. So we've now got two big movements happening that have mobilized millions and millions of people in active, visible, in the street politics. That's not the only place these issues were coming into the political arena, of course. They were also being discussed and in a way dealt with through the normal political channels, through political party activities and more conventional means.

16:45But in those areas, let's say, more conservative elements tended to control the setup. So we didn't see so much visible pro-civil rights or anti-war politicking there for several years. Now eventually even the conventional political machinery absorbed those issues, indeed were overwhelmed by those issues also, but it took several years. After 1968 and the Tet Offensive, when many people decided that the Vietnam War was a terrible idea, In India, particularly in the Democratic Party, large numbers of people turned against the war and began to express their political opinions and influence through party channels.

17:44And indeed, 1968 marks a turning point for the factional support of U.S. foreign policy. Up to that time, from World War II to 1968, there had prevailed a so-called bipartisan support for U.S. foreign policy to a very high degree. Many people now tend to forget that it was the Democrats who were the classic Cold Warriors. After all, you know, it's Dean Acheson writing The Present at the Creation. I always love that title. It's as if he was an innocent bystander there, you know, when the Cold War broke out. There I was trying to innocently be Secretary of State when, boom, the Cold War broke out. What happened?

18:35Anyhow, it was the Truman administration that set this entire Cold War ball in motion, so far as the U.S. part of it was concerned. and the Republicans just came along later and decided, well, yes, we have to do this, this too. But from 1968 onward, big chunks of the democratic apparatus became anti-war and have remained hostile to the kind of international belligerency that became associated with the Republican Party since that time. And that, of course, is a switch from the old pro-isolationist Republican position of the 1920s and 30s.

19:26So we've had this kind of turnabout in the party lineup in relation to foreign policy positions in the United States. but 1968 was a critical year for that switch. At the same time as the 1960s went on, this kind of culture of protest became embedded in wider cultural protest, just kind of a counterculture in general. Anti-authority, kind of hippie dropout, out, smoke dope, to hell with the system, the establishment, all those kinds of code words that people like to throw around in those days.

20:15That was pretty much new. There had been beatniks and guys in Greenwich Village from way back, but they were definitely a tiny group of people. When we got it well into the mid-1960s, this kind of anti-establishment, counter-cultural movement had become massive and millions and millions, particularly of young people, embraced it and decided that they didn't want to be part of conventional, respectable society and ways of life. and so that colored to a large extent the politics of this period because a lot of it became in a sense a war between the defenders of respectability, and the old-fashioned type respectability and the challengers and nose-thummers of respectability.

21:12And such symbols as men with long hair came to mark that divide. Later on, of course, bizarre things happened and some of the most anti-hippie elements, elements, like working class young whites, adopted the long hair and stuck with it longer than anybody else, so you never know what's going to happen to symbolism once it's loosed in the world, but the beards and long hair started out as the counterculture's way of making visible its contempt for conventional standards of respectability, Things just turn into fashion statements. They have a way of losing their content, particularly after commercialization gets hold of them.

22:11Well, all of this turmoil and ferment and protest had a lot of political effect. Johnson, being propelled into office by Kennedy's assassination, this is where I wish Murray were here to give us a quick five minute explanation of who really shot Kennedy, because he would Lone Nut, right? Lone Nut! Who's did the benefit?

22:58That would be most entertaining. Whoever shot Kennedy, and I have no idea myself, I have suspicions, but I'm quite confident it wasn't the man who was officially blamed for it. But at all events, Johnson was a very ambitious man in the classic American political, even southern sense, kind of given to populist coloration and expressions of sympathy for the poor and downtrodden, and a little different from the classic southern demagogue because Because he affected to care not only about the poor whites, but also about poor blacks.

23:43And that was one of the hallmarks of his political ambition that much of what he supported as president seemed aimed at alleviating poverty, helping people to pull themselves up by their Boots Straps, particularly if they'd turn around and vote for Democrats, which they could be counted on to do. Johnson's political hero and mentor had been, who else but the sainted FDR. And so he not only had learned his politics in the New Deal School and acquired and his ideological propensities to the extent that he had any there, but he had acquired a level of ambition that led him to look back to the New Deal as a kind of standard.

24:43He wanted to be a great president and he knew that to be a great president you had to do things on the scale of the New Deal. So he understood that the New Deal had been immensely successful politically, that is, it was just a great setup for buying votes from millions and millions of people, many of whom had never voted for Democrats before, such as blacks. And it was also a way for him to realize his boundless ambitions. So he plunged into the job and he came to the job very well prepared in the sense that he was a recognized master politico.

25:28He had been a leader in the Senate before he became vice president and he already had a high reputation as an arm twister and persuader. And if you've never seen any of those old films of Johnson getting in somebody's face to talk to him in the Senate or in the anti-room of the Senate, they're very worthwhile because there's nothing quite like it. I mean, the man was kind of a combination between a bully and a serpent and a good old boy, and it's hard to describe him in action. He'd literally get that far from somebody's face and got a bend over and hear people backing up.

26:14And yet it worked for him. He really was able, he understood the system, how Congress worked, where the strategic positions were, who had to be brought on board, who owed what political debts to whom. He really knew the political system inside and out and knew how to work it. And so he was in position as president to use all that political knowledge. But of course now he had much more power than he'd ever had as a Senate leader because he had all the discretion that rests in the hands of the President of the United States. He supported the civil rights bill that was pending at the time he became president.

27:03And that became the first of a number of very important legislative enactments during the decade we're talking about now. now. I listed a few of these in a table in my book Crisis in Leviathan, but it's a very small sample. One could easily make up a list five or ten times bigger, and still have only genuinely important enactments in it. But the Civil Rights Act was truly a whopper of a law Law, it has a whole litany of parts having to do with education and public housing and employment and so forth.

27:58And one of the things that clearly differentiates it from previous civil rights laws is that It's not just something stipulating how government must deal with citizens, it moves beyond government to put restraints or requirements on private individuals and the disposition of their property. So that if, for example, you have a hotel or a motel, that may be private property, but you're no longer in a position to say with whom you will deal. If you have a hotel and a black person comes in and wants a room and you have a room, and because you don't want to give a room to a black guest, you turn that person away, then you have violated a federal law.

28:55and likewise for people who keep a restaurant and so forth. It had always been the rule, of course, that people had these signs up saying we reserve the right to refuse service. And throughout the South, of course, they had signs that said whites only on places that wanted whites only. So those sorts of things became unlawful, and employment relations were no longer open to the choice of the contracting parties exclusively. If I refused to hire or fired somebody just because of race, I violated the civil rights law.

29:42Law. So freedom of association was extremely infringed by this law and this law has been in effect ever since. There have been some amendments, but actually only amendments that strengthened it, none that weakened it. So this was a big change in the government's Involvement in Race Relations and it spilled over and indeed what I want to suggest to you is that just as the civil rights protests kind of spilled over into educating the anti-war movement about how to go about carrying on their protests and so forth, both of these big political issues and movements spilled over onto a whole host of other political controversies, some of which might not seem to be very directly related at all, but were easily seen as, quote, biological extensions of anti-war or pro-civil rights actions, environmentalism, feminism, a whole host of actions on behalf of groups that had never been viewed as minority groups in the past, say the elderly. Certainly women are a majority of the population, but they

31:21They became viewed as a minority group deserving of some kind of federal government protection in the same way that blacks were being protected by the Civil Rights Act. So the spillovers were huge during this period from the core issues of war and civil rights to a lot of related issues. In 1965, the Voting Rights Act, which I see I didn't even list up here, was passed, and at that time, the federal government put its might behind this effort to ensure that blacks could not be kept from voting by the standard devices used in the southern states for decades.

32:16The so-called war on poverty was made a big part of the Johnson program. That had also begun to heat up in the early 60s when Kennedy was president. There were some token efforts made by the federal government to do something about poverty. During the Kennedy administration, they took the form, for the most part, of regional development programs, such as a program to assist people in Appalachia, which was viewed as a backwater, where there was little economic activity.

33:02and of course the interesting thing about regional development or community development or any such programs which proliferated and became lodged in the government in the 60s and are still out there is they always presume that people are stuck in some place and if that place is not doing well then you've got to somehow pour subsidies or special assistance into it rather than just It's as if somehow they're either incapable of getting off their butts and moving or that it would be grossly unfair to expect them to do so, notwithstanding the fact that millions of us every day do get off our butts and precisely go somewhere else in order to improve our well-being.

34:00Nothing could be more routine in this country than moving someplace to find better opportunity, and yet all of these geographically defined assistance programs seem to work in opposition to that obvious truth. The War on Poverty took the form of a whole host of federal government programs in areas where the federal government had not been much involved before, education, training, a lot of sort of community make-work programs.

35:11to just having a good time. Alan Matuso's book has quite a bit of information about the Community Action Grants. Head Start was put into effect reaching down to preschool children who were seen in those days and indeed still seen by some people in some places in some places as needing federal government assistance and the belief has been that somehow if you can just do a little more to teach four and five year olds what's going on and socialize them a little bit so that they do better when they start the first grade then you have made a permanent boost in their trajectory in life A number of studies have shown, I think, quite decisively that that's just not the case, that even the benefits that seem to come from the Head Start program evaporate quite quickly so that after a few years there's no effect anybody can find between the children who went through Head Start programs and those who didn't.

36:33So, it was one of those heart-rending appeals that were made frequently in connection with these kinds of programs and it's just based on bad information, among other things. Food stamps were made a mass subsidy during this time and they were not only made available to give people a kind of ration ticket to cheap food but the government made big efforts to go literally door to door telling people about the food stamps and letting them know that they might be eligible.

37:52If you have any kind of sensibilities in public choice training, you say, well, the poor don't have any political clout, why would they ever get anything from government? Why would anybody who can actually exert control over the political process squander that by letting anything slip away into the hands of poor people? If anyone can be neglected in the political process, surely it's the poor. Why do they get anything? And I think very often we find that they're just a cover. They're an excuse for something that really channels benefit to somebody who is politically influential. In this case, for example, the food stamp program, this was something, is one of many government programs that propped up the demand for what farmers produce and they were well organized and politically influential and so this, if you look at how the votes line up on this, you see this curious kind of coalition of Midwestern, farm-connected senators and representatives voting along with people representing black constituencies in the Big Central Cities of America.

39:08Well, that's not a typical lineup, but that's the one you see when they vote on the food stamp program. So it's a fraud as most of these programs, if not all of them are. Starting in 1965, we got the, I haven't listed it either. This was regulatory legislation, and so that explains the failure to put the Medicare program there, although a number of regulations came along with the Medicare program. It's not a regulatory program per se.

39:54Medicare was created in 1965, and another huge piece of legislation that has turned out to be a whopper, Comparable to the Civil Rights Act and in terms of fiscal impact maybe even a bigger deal. I just happened to see yesterday posted on a list I get every day an abstract of an article about Medicare because of course there's a great crisis now about the cost of Medicare and someone had gone back and found that when Medicare was created there had been projections of what it In the 1990s, it was not simply more than had been forecasted. It was seven times what had been forecasted.

40:51It was seven times what had been forecasted. Seven times, director. Now, if you were running a business and you couldn't forecast any better than that, you'd be broken a day. And in fact, these costs got out of control immediately. Because what they did was to create a so-called insurance, but basically just a setup for the government to pay hospitalization and doctors bills beyond a very small amount paid by the patient.

41:36And so the marginal out-of-pocket cost of consuming these health care services was zero. Well, that's a good price. If you've got any ache or pain, then go to the doctor. If you're worried about anything, get yourself put in the hospital. So that's exactly what people did. Furthermore, the medical establishment, having fought socialized medicine tooth and nail for decades, and having failed now, the federal government has come in and halfway socialized medicine by embracing what looks like a small group of people, the elderly, but in terms of medical care, is a giant share of the medical care market, because they're the people who have this big demand,

42:59of the unlimited demand by elderly patients and the game playing by doctors who would, you know, do every test you could think of and, you know, readily send people to hospital confinement and why not? You know, there's an additional amount to be collected by them every time they make a move. So there was nobody watching the store as to how much they charged and so this was heaven on earth. So the combination of the suppliers taking advantage of the program and the demanders exploiting it to the maximum drove these costs up at a very high rate. And indeed they're still going up at a very high rate.

43:46So this program has become gigantic. I'll put some data up in a minute to show you just how big the increase has been. A series of laws were passed having to do with consumer protection. Well, how's the consumer come into here? Well, we're sort of protecting defenseless people under Johnson. So, some people claim consumers are defenseless. They're just at the mercy of greedy sellers and capitalists and people who foist incomprehensible contracts on them that they have no choice but to sign. Because, of course, they can't just say, no, thank you, I don't want this good or service.

44:34Service. So, consumer protection laws, the Truth in Lending Act in 1965, the Consumer Product Safety Act a little later in 72, and on both ends of this period, related FDA powers were created in 1962, a very important amendment, to the Food and Drug Act were put into place that have had a major impact on the well-being of all of us actually and if not directly then potentially and indirectly because they had big effects in reducing the rate of innovation in the pharmaceutical industry and bringing about long delays between drugs that were created and their availability on the market.

45:37So the FDA amendments of 62 and then in 76, just after the end of this period, similar laws were put into effect for medical devices with the same result. So we've got more protection and remember to apply Higgs law of political rhetoric here when something is described as protecting us, chances are very good it's harming us The Coal Mine Safety Law was passed in 1966, by 1966 the accident rate in coal mines had fallen to probably 10% of what it had been at the end of the 19th century.

46:31It's very often the case that after something has happened on its own, the government comes along and passes a law against what has almost disappeared already. And then people assume that, but for the government, we'd still be having coal mines just as they were in 1890. But that was not the case. The Occupational Safety and Health Act was passed in 1990, a much broader law affecting workplace safety and leading to a very intrusive bureaucracy that has created headaches for employers all over the country by enforcing a lot of ostensible safety regulations, Many of which are not sensible or worthwhile in terms of their costs and benefits, and many of which are just simply idiotic.

47:30Anybody who ever worked in a dangerous workplace understands, first of all, that most of the accidents are caused by carelessness or by people just doing something that they already know not to do. But they take chances or they just say all hell with it and they don't do what they know is the safe way to do something and an accident results. So as long as you have human beings, especially the kind of human beings that work in factories and mills and farms in this country, you're never going to get rid of all the accidents no matter how you regulate the workplace I maintain that workers will find a way to hurt themselves. They're very clever about that.

48:20I used to work in a factory part of the time when I was growing up. I've seen some pretty gruesome things, all of which were owing strictly to stupidity. I'm not denying it, I acted stupidly myself on occasion too, but I was lucky. I just never had the nail come down on me, or the gear eat up my fist. In 1969, something called the National Environmental Protection Act was passed, and it's from that that we get this requirement for environmental impact statements that have to be written up and approved before big public projects can be carried out.

49:09Of course, we know that that became a way for environmentalists to halt projects by challenging those statements and even going to court about them if need be. So that became a really swell idea. In 1970, the Clean Air Act amendments were passed and then Nixon gave the EPA enforcement power over the air pollution regulations and in 1972, the Clean Water Act, as it's usually called, was passed and the EPA took over enforcing that and those became the authority by which by which the federal government has imposed massive costs on all kinds of producers ever since and some people argue in fact that the productivity slowdown that took place from the early 70s onward for decades and maybe still can persist despite the apparent speed up of productivity in the late 90s, That slowdown in the rate of productivity growth owes a great deal, maybe even the greater part, to the anti-pollution laws and the way that EPA not only chose to enforce these laws, but to keep pushing the envelope.

50:43These laws were fairly broad and EPA was authorized to spell out the details. Well, they've got EPA lawyers working day in and day out, spelling out more and more details, pushing these regulations out, making them more stringent all the time, and imposing more costs on the people who have to comply with them. Nixon was supposed to be a conservative. There's a book by Herbert Stein called Presidential Economics. I actually recommend this book. Stein is certainly not an Austrian economist. He was not. He was a kind of conservative Keynesian, I guess is one way to describe him.

51:32But he was not a stupid guy, and he circulated throughout his life in or near high policymaking levels. Father Benstine

52:11and more than one, called conservative men with liberal ideas, and I think that really helped to capture why the Nixon administration played out as it did. Nixon was supposed to be a conservative, you know, he'd come up as a rabid anti-communist, that's how he made his political reputation in the beginning, and he had served as a kind of attack dog for the Eisenhower administration, and a lot of people disliked him because he was a kind of man full of rage, it seemed, you know, like he might blow up at any given moment. How much of that was real and how much was posturing is hard to say because he was not a guy, I think, who ever really revealed his true self, if indeed he had a true self.

53:05But Nixon cared about sort of being seen as an ideological throwback. On the one hand, he understood, for example, that wage and price controls were futile. That, you know, that was not an effective way to control inflation. He didn't care a lot about economics. He was really more interested in foreign policy. but he understood that that wouldn't work as an anti-inflation program but at the same time a lot of respectable people, all the Democrats and a lot of professional economists in the early 70s were recommending a so-called incomes policy, wage and price controls because the price level had begun to creep up and high levels of inflation had not been seen in this country since the Korean War.

54:00and people began to get really worried about three or four percent rate of inflation as measured by the standard indexes so Nixon perceiving this to be a political threat to himself looked at this advice he should clamp down legally on wages and prices and stop inflation by law and he thought well that's dumb but then he decided well yeah it's dumb In 1970, Congress passed something called the Economic Stabilization Act, and this was a kind of ploy in its own right, a dare, if you like.

54:47Because these Democrats, giving Nixon more credit than he deserved for honesty, thought here's this conservative who despises wage and price controls and is on record as saying And they're stupid, so he'll never put them into effect, so they passed a law authorizing him to put them into effect. And the idea was, now, this inflation, we will blame on the president. We'll say, we've got this terrible inflation of 4% a year, and the president has been authorized to stop it, and the blockhead won't do it. He won't use the very authority We've Given Him. He showed them, he turned around in August 1971 and imposed this very creative new economic program. I really doubt that any of the people who concocted this title knew that Lenin had called his program of 1921 the same thing, but well just an accident and and they do happen, okay?

55:56So part of the new economic program was comprehensive wage price controls. Starting off with a total freeze of 90 days in which it was unlawful for anybody to change a wage or price at all. Imagine that, locking the price system absolutely rigid for three months. I mean, that doesn't seem like very long, but prices change every day. Every day, millions of prices change to some extent, some change a great deal on any given day. So the idea that no harm will be done, and in fact good might come from locking the price system in place for 90 days, was a level of abysmal economic understanding.

56:48Nixon's advisors, his economic advisors, knew this, even though they weren't Austrian economists, they were economists of some kind, and even neoclassical economists understand this, so Herb Stein and his colleagues on the Council of Economic Advisors knew that this was a stupid idea from an economic standpoint, but they weren't the ones making the decision. Indeed, the decision was being driven mainly by the advice of John Connolly, the Texas politico who had been brought in to be, of all things, Secretary of the Treasury and had been given additional authority and making him into a kind of all-around economic czar.

57:37Well, what did John Connolly know about economics? Basically zero. He didn't know anything, But he was a successful politician and he believed in the grand gesture and football metaphor, which Nixon liked to use. Connolly believed in the big play. You've got third down and three yards to go, so drop back and go for the end zone 70 yards away with the Hail Mary pass. That was Connolly-style politics, so Connolly said, you know, we'll do the shocking thing, we'll really get attention brought to our program with this new economic policy, we'll stop inflation cold with a freeze and then after that we'll lighten up a little bit and let some adjustments take place but we'll keep the controls in place, we'll stop inflation, the people will love it, you know the grandstands will go wild with applause and in addition to that they closed the gold window they stopped redeeming gold for anybody even foreign central banks so that was the total end of any semblance of the gold standard in

58:51this country August 15, 1971. They imposed a surtax on imports and they They added a list of other measures in their plan, all of them goofy, but grand and shocking and attention-getting, I mean, none of us could ignore this price freeze, that was for sure. All the consumers are quite aware of that and every seller. So they did this and then they progressively first after the 90 days administered the prices for a while and of course everybody was coming in wanting exemptions and special treatment and appealing and as they always do when you run a program like that and so it became a hodgepodge of arbitrary and capricious administration but they knew they couldn't do this for very very long without wrecking the economy. Even Nixon understood that. So their idea was they would gradually loosen up and by the time they got down the road a little ways Nixon would have been re-elected and everything would be irrelevant anyhow after that point so they could abandon the controls and go back to letting the price system clean up

1:00:13the mess. That was the plan. Things didn't work out quite according to plan because the The program began to unravel quicker than they thought, and their enforcement wasn't very good, and the prices began to go up again, so Nixon decided in the middle of 1973, against everybody's advice, to put another freeze on. And that time, the effect was immediate and disastrous, because then farmers stopped selling any steers to the meatpacking plants and there was no hamburger in the supermarkets and poultry farmers were drowning their chickens rather than bringing them to market and when these kinds of news items appeared in the paper the political blowback was terrible and so after about a month they lightened up even on that second freeze and began to move to to a final phase of administered controls which allowed all kinds of adjustments and discretionary relief to particular sellers and then when the law, the Economic Stabilization Act, expired in April 1974, they said, adios, been nice to know you, and everybody was happy to have these price controls over with,

1:01:40But meanwhile, they had done a lot of damage to the workings of the economy and they had damaging legacies. One was that while they had been in effect, the so-called energy crisis had burst forth in 1973 in the form of the OPEC embargo. And that action would not have had much impact on anybody, except that these price controls were in effect. And with the price controls in effect, the price system couldn't serve to help people adjust to the effects of the embargo.

1:02:27and so these limited supplies of petroleum products were rationed by the usual kinds of the rationing devices when there's great access demand and the gas lines, gas lines and that was almost the first, you know, gas lines had been short during World War II but in those days there was a system, a rationing system, you didn't have to line up and sit in your car for four hours to get gas you just had to acquire and F-ration tickets to buy the gas that was available in the fall of 1973 people didn't quite know what was going on they just knew that that a lot of gasoline stations ran out of fuel or didn't have very much and and that a lot more motorists wanted to fill up and so people were lining up and sometimes sitting in their cars for hours and hours waiting to to get to the pump to Buy Some Fuel. Of course, this was a situation in which the sellers, with only a limited

1:03:32amount available, could suit themselves. Say, since they were able to sell all they had available and they could only charge the controlled price, well, the way to improve their well-being was to cut their costs. Their revenue was going to be the same no matter what, but their The Federal Reserve, fiat money, fractional reserve banking, Human Action and State, The Theory of Money and Credit

1:04:21and Ensuring Your Tires was routine service at gas stations before 1973. After that, it just about disappeared. It was no longer part of the protocol of the pump attendant. They stopped opening service bays where people could get repairs made on their cars. And, well, that's not worthwhile anymore. and so people found themselves short of fuel and wasting tremendous amounts of time in these gas lines and they went crazy about it. Some people absolutely went ape. They couldn't stand this. Americans had never had to deal with these kind of communist lineups before.

1:05:06You know, everybody in the Soviet Union stood in a line for 60 years and they were used to that, But Americans weren't used to lining up to buy something they had normally been able to buy in five minutes. So it made a lot of people angry. I was living that year in California. Actually, I was working at Stanford that year. And the Californians, I think, went crazier than anybody because they have an automobile culture. And so they were goaded painfully by these gas lines. One morning, I turned on the news and heard about some guy who had run out of gasoline out in the country somewhere, and it made him so angry that he had taken his gasoline can, he had walked five miles to the next station, he had somehow managed to get a can full of gas, and he had walked all the way back to his automobile with it, Another fellow, somewhere in the Bay Area where I was living, got so impatient waiting in line that finally he pulled out of the line and began to systematically ram every car in front of him with his car until he'd rammed five or six and finally disabled his vehicle.

1:06:34So it's obvious that Americans are not really cut out to be good Q-standers, and these gas lines were just intolerable. And they were unnecessary too. They were wholly the product of price controls. They would have disappeared instantly, as indeed they did disappear instantly when finally the price controls were taken off. But meanwhile, when the comprehensive price controls expired in the spring of 1974, this so-called gas crisis or oil crisis was still going big time.

1:07:20And so the government in its wisdom decided that it wouldn't let the price controls expire in that sector. It would keep the controls on fuels, and it did, and it created a series of administrative organizations to allocate petroleum and its products to different users in the country and to manage this system, which could not succeed, of course. The Energy Czar, Nixon named William Simon to be the Energy Czar and he became probably the most newsworthy man in America for years. He was on the news every night answering questions and explaining the situation to people and and in the late 70s after he had left the government he went on from Energy are to be Secretary of the Treasury, for which, oddly enough, he was much more qualified than most Secretaries of the Treasury. But he wrote a book called A Time for Truth. You should read this book. It's really good reading. It's his kind of first-hand report on the and the stupidities of attempts to do economic planning by the central government.

1:08:52It's very good reading. I don't know if he had a ghostwriter or not. I suppose he didn't. I used to know Bill Simon personally, so I just never asked him if he sat down and wrote that himself or not. Also the father of Simon who just ran for governor. Yes, right. I think father was a bit brighter light than son, but Simon was an interesting character too because just as LBJ was an abrasive character, Bill Simon was an abrasive character too and he would get right in people's faces and for that reason he had no political future after he left the government in 1977. Even conservatives and Republicans couldn't stand to deal with him. He was not sufficiently amenable to compromise with people who differed with him. Well, it was not until, of course, Ronald Reagan was elected that ultimately these price controls on oil were finally abandoned for good and meanwhile we had that second energy crisis in 1979 and 80 again gas lines and all the screw-ups

1:10:12that had occurred in 1973-74 and they disappeared instantly you know the The minute the price controls came off, all the problems went away, the gas lines disappeared, stations had fuel, and it showed that the entire problem that people had put up with for a decade was wholly artificial, it didn't have to have happened, it was put there by politicians trying to give the appearance of doing something that helped people There's a lot more here and I'm not going to walk through every item because our time is limited.

1:11:08Let me just say a little bit about some of the enduring legacies of what was done during this 10-year period. There were many, I think. Some of them were institutional. A lot of these government administrative agencies, programs, laws and so forth remain in effect today and there were very serious fiscal implications. I mentioned Medicare earlier and how rapidly its costs ran up. In 1980, Medicare had already become vastly more expensive than anyone had expected, and the cost in 1980 was $32 billion.

1:11:55That was more than initially projected. It would be in 1990, several times more. So it was growing very fast. In 1990, Medicare costs were $98 billion, and in 2002 Medicare costs were $231 billion. This thing is growing exponentially at a very high rate, and it will, before long, unless If something is done to change the program, it will be the one big gorilla that eats the entire federal budget. But it's not the only one that's behaving this way.

1:12:43When the Medicare law was being debated in Congress, Wilbur Mills, a powerful congressman from Arkansas, who headed the Ways and Means Committee of the House of Representatives, Wilbur Mills used his clout to stick something else into this bill, a little thing called Medicaid, and this was to subsidize the medical care of poor people. Eventually it spread out, as they all do, and embraced the not-so-poor, and people in other categories were swept in too.

1:13:3465, it was part of the original act of 65. It was a multi-part law, part of it created Medicare, another part Medicaid. If we follow that, we find that I don't have Medicaid singled out here, but in the table I just looked at, there's a category called health that doesn't include Medicare, and it's for the most part, it's the federal government's payments for the Medicaid system. In 1980, these health expenses were $23 billion. In 1990, they were $58 billion, and in 2002, they were $197 billion.

1:14:25So you're seeing there the same kind of rapid exponential growth of expenditure. A final big gorilla in this same general category is the social security benefits. We know those go back to 1935, and for several decades they didn't really amount to anything much. As late as the mid-1950s, 20 years after the system has been created, There's just an almost trivial amount of money being spent on old-age pensions, but the outlays began to pick up, particularly in the 60s and 70s, because Social Security was something that politicians in the 50s, 60s and 70s discovered as a beautiful campaigning issue.

1:15:28And so what everybody who wanted election or re-election to Congress would do would be to promise the voters that if you elect me, I will raise Social Security benefits and indeed I'll take some of you people who aren't eligible for benefits now and I'll put you into the system too. I'll put the disabled in there for example, so the social security system got improved every year for about 25 years from the early 50s into the 1970s and the deal got sweeter and sweeter and the pensions got adjusted for changes in the price level and at one at one point they even got double adjusted because of a misconstruction in the law.

1:16:23They were adjusted twice over for price level changes. That's the kind of cost of living adjustment we would all love to have. Profit from inflation. Social Security costs, even as late as 1966, $21 billion. In 1980, they'd gone up almost six-fold. They were up to $119 billion in 1980. By 1990, they were up to $233 billion, and in 2002, they were $456 billion.

1:17:09So, if you go back and look at the division of all federal spending between, say, these welfare state transfer payments and defense spending. In the mid-fifties, defense is way up here. It's well over half of all federal spending, and these welfare transfers are down here at about a third of the budget, and then there's everything else making up the difference. But what happens in the late 60s and early 70s is that as fractions of the budget they change places in about a 10 year period so that by the mid 70s the proportions are almost the exact opposite of what they had been just a decade earlier and then the divergence just keeps getting bigger as these transfers get a bigger and bigger proportion.

1:18:07There are currently about two-thirds of all federal spending and growing. Now, any number of people know this can't continue, but what do the politicians do? Well, even as we enjoy ourselves in Auburn today, they are hard at work adding a major New Spending Program to the Social Security Program, Prescription Drug Benefits, which is forecasted to cost, in the Republican version, a mere $400 billion dollars, but yeah, multiplied by seven, you see that prescription drugs alone will take up 90% of the federal budget So, again, this is no secret. We all know this. People all over the country know this to be the case. But what are these politicians finding in their interest? They're finding it in their interest to go on wrecking the economy and the society, by making these promises to people that they know cannot be fulfilled for long. But all the long they care about, What we care about is next fall. These are promises that will help these guys get themselves re-elected in 2004.

1:19:39You can bank on it. That's their specialty. I'm always saying, what do they know about this? What do they know about that? Well, there's one thing they do know about, and that's what you need to do to get re-elected. We know they know that because every year almost every one of them gets re-elected, so they understand, they've proven they understand how the system works. And if wrecking the economy and wrecking the society is what it takes to get re-elected, then they are fully prepared to wreak wreckage, and that's what they're doing right now. much of this we owe to this great period of turmoil and social unrest between 1963 and 74 which built into our polity and our institutional arrangements a series of time bombs well let me stop here and take your questions Bob I know when I I talk to people now about the gas line. Many people think, oh, it's because OPEC did what they did.

1:20:48At the time, were there at least some op-ed writers that knew what was going on and explained to people? Very few, I would say. Very few. Of course, people were making all kinds of suggestions about how to improve things. Friedman was probably one of the only major ones...

1:21:34I've looked at all the big city opinion columns. I'm sure you would have found few of them recognizing what was really going on and what had to be done about it. I thought that prescription drugs were being attached to Medicare and not Social Security. It's the same law. Medicare is part of the Social Security system. Joe? Before you talk about safety regulations, I remember about 1972 reading a story in the paper. Some guy decided to work on Saturday, a rainy day, probably working in two inches of water. He didn't work with just one electric screw gun, he was working with two.

1:22:22So of course he got electrocuted, there was an ocean inspector around who was talking to him about doing this. These things happen. I mean, I quit a job once, because these guys would build this redneck dust trap, which they called Scamper. And it was the unsafest thing I've ever seen. You'd walk out in the middle of the park, and you'd sink about six feet. Then you'd go over where you're supposed to be working, and they wouldn't put a decent board in there. Well, all you could do in any case like that is quit the job. That's my own sort of safety aspect of it, taking over. You gave us some figures on Medicare, Medicaid and Social Security benefits. Do you have the figures on what they're drawing in on the revenue set?

1:23:23are interested in these things about the government's budget. You can go online and just do a Google search for budget of the United States and it will take you to the website of the Bureau of Management and Budget and to the budget documents and their PDF files. So what you're is exactly what you'd see if you had the hard copies of these documents. And every year, the budget of the United States, besides having all the proposals that the executive branch is sending to Congress, has a volume of historical series which pulls together just all sorts of categorizations of the federal budget going way back in history.

1:24:18History. So it's a very useful source, I find, for my own looking into exactly how big some of these programs are and how much they've grown. Brad? The Immigration Act of 65, what were the political groups that were behind it? Were they the same sort of lineup, or was that sort of spurred by something, by maybe different considerations? I know it's totally changing the face of the American political landscape, but I wonder how it fits with what?

1:25:16Bill, at that time, had the old quota system that had been put into place in the 1920s. And the original quotas were themselves based on the relative numbers of different national groups in the country in 1920. So the quotas were very high for a lot of European countries, which were places from which relatively few wanted to come to the United States. So many Many of those quotas were not filled in the 50s and early 60s, whereas other parts of the world, where many people wanted to migrate to the United States, had very, very small quotas. So there was pressure, and I don't know exactly what interest groups or what members of Congress were involved in actually pushing that law to enactment, but I do know Well, I see a claim when I read some of these left-wing magazines, of which there's quite a few, and they say, well, it's true people complain about being put in jail for filling in a ditch, but I think that air quality is better. So they make this claim, well, air quality is better, so that sort of justifies the whole ecological establishment. Where do they get this?

1:26:44There are data measuring air quality levels for a number of substances that EPA has been measuring. If you look at just the concentrations of ozone or particulate matter or nitrogen oxide or so on and so forth, you can find a data series and almost all of those particular measures of pollution levels do show declines in the past 30 years or so. Now, many forms of pollution were declining long before there was an EPA or any federal intervention in this area at all. So, it doesn't follow, of course, that EPA made these declines happen.

1:27:31But even if EPA did make them happen, it doesn't follow that it was good to make them happen,

1:28:09I'm very interested in the period that you addressed, the Nixon administration basically, the closing of the gold window, the price controls of Watergate and all that stuff, it almost seems like it really qualifies as one of your crisis periods, and I was wondering if you had any thoughts on that?

1:28:39What would you recommend in terms of the best sort of comprehensive overall history of the price of wage controls and the closing of the gold window and all that business?

1:29:09and went on later to become Secretary of State and an all-around military industrial complexer, heading up Bechtel and discovered all the bases. I would love to see a really good Life and Times biography of George Shultz because that would tell many tales. But, Schultz and Dam published a book, I believe in 1977. Kenneth Dam was a lower level functionary, and he's been in and out of the government several times himself. This book is called Economic Policy Beyond the Headlines, and it's quite worthwhile. It's got a lot of information about all those policies you mentioned. Karen?

1:29:55You're off on the board there. I'm too self. I wrote a book about two years ago on the Nixon economy. Yes. And it's a great rundown on all the Nixon evils. Yeah, I referred elliptically to that book a while ago. I recommend that too. Yeah, that's a very good source as well. Well, I think we've come to the end. Thank you very much.