1

In August 15th, 1971 Nixon froze prices and wages change.

What was Nixon's wage and price control's impact on the economy, why was it necessary and what happened when it was released, that caused a recession ?

Picture for reference (showing inflation rates at the period):

enter image description here

Improve this question

1 Answer 1

Reset to default
1

The Wikipedia article does a good job covering this, but to directly answer the question, the price control was necessary to help prevent sudden issues based on taking the US off of the gold standard:

To prevent a run on the dollar, stabilize the US economy, and decrease US unemployment and inflation rates, on August 15, 1971, Nixon issued Executive Order 11615, pursuant to the Economic Stabilization Act of 1970, which imposed a 90-day maximum wage and price ceiling, a 10% import surcharge and most importantly, "closed the gold window", ending convertibility between U.S. dollars and gold.

Thus the freeze by itself is almost irrelevant compared to the economic consequences of abandoning the gold standard. The combination is called the "Nixon Shock", and its effects on the world economy are still being debated - see the last section of that Wikipedia article for examples and quotes.

Improve this answer
2
  • this addresses what the price controls where and why necessary. what about it causing/not causing the recession that followed. Perhaps that should be a separate question?
    – user1873
    Jan 20, 2014 at 18:59
  • 1
    @user1873 - I don't think it's possible to distinguish any economic effects of the price control from those of the change off the gold standard. I'm not an economist, but that seems like a much larger change with much wider ramifications than three months of frozen prices. However, asking about those changes would make a good separate question.
    – Bobson
    Jan 20, 2014 at 19:22

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .