 Well 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 two and 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 Periods a 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 it seems to Be more comparable to the New Deal period than to say what happened during either of the World War periods So I view it that way and in my work in which Concentrated heavily on the effect of crisis I See these years as crisis years forming a kind of a discrete episode. I think the period from the end of the the fighting in Korea in 1953 for the next decade or so are relatively Placid and Then we have a period of about ten 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 and This of all the crisis periods I've studied as a historian is is the only one that that I myself personally experienced as an adult and and therefore can 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 crisis that That the world seemed suddenly Full of turmoil and conflict and uncertainty and and we were not shocked when Outrageous or big political events took place When for example political leaders were assassinated as several were in the 1960s the president himself and And and 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 so In retrospect, I look back and I see the period since the early 70s is as Relatively placid as as really quite different from what it seemed to be During that time. I know 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 It was a different kind of hysteria tightly focused one and not so generalized as the 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 president said we can pretty much say that this starts with the Kennedy Assassination and ends when Nixon leaves office if we want to put this 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 libertarian I'm not sure how to characterize his ideology, but He 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 percent of Practicing historians now do in this country. So His books are are very well documented and well, I believe thought out And this is a very revealing book. I believe about the nature Particularly the social programs undertaken by the Johnson administration And and other programs in the Nixon administration, too He 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 very very fine book Well, 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 in World War one 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 protests 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 During the Korean War as I indicated yesterday many people actually came to 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 and 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 But many white people as well were part of the civil rights movement in those days and were Viewing the situation of race relations in this country is profoundly unjust and Demanding change Of a variety of kinds but 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 to stage sit-ins In for 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 and and 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 someplace and sit down and won't move so that 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 to take actions to 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 the Restraints on black voting were more settled than that and and they took a variety of forms Including the 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 and of course the People who administered the test were were all white people who who who might Find just somehow that blacks were never sufficiently well well informed about The matters they tested the bond to qualify as passing the test To obtain voting eligibility So it's just lots of little tricks like that had been adopted in the south starting way back in the late 19th century when when the Jim Crow system really developed in the formal sense and So that they 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 and not only protest these things but But challenge them in the sense of taking some well educated black person and 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 and there'd always been a few blacks almost everywhere that managed somehow to vote In places where they had more access then then People came in and began to 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 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 And help of blacks get registered to vote Well, 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 And the Great March on Washington DC 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 that in a sense has set the tone now when when the the United States which had started putting Quite a lot of troops into Vietnam in 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 and knew that if you're unhappy with some public policy. Well hold a demonstration Hold what was then called a teach him and Anti-war professors would would get together in some university hall and invite students to come in and they'd give them speeches Explaining why the US military engagement of Vietnam was wrong and why we should take action to to Oppose it and to make our views known to public officials and and so forth. So there was a lot of that going on As oh, yes much of it in 65 a little bit of it even earlier in fact, but it really spread in 65 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 And in a way dealt with through the normal political channels through political party activities and and more conventional means but in those areas Let's say a 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 Ted offensive When many people decided that that the Vietnam War was a terrible idea 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 and indeed 1968 marks a turning point for the Factionals support of US foreign policy up to that time from World War two to 1968 there had prevailed a so-called bipartisan Support for US 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 Atchison writing the present at the creation And I always love that title as if he was an innocent bystander there, you know when the Cold War broke out I There I was Trying to innocently be Secretary of State when boom the Cold War broke out What happened? Anyhow, it was the Truman administration that set this entire Cold War ball in motion so far as the US part of it was concerned and And the Republicans just came along later and decided well, yes, we have to do this this too but from 1968 onward big chumps of the Democratic apparatus became anti-war and have remained hostile to 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 of the 1920s and 30s. So we've had this kind of Turnabout in the in the party lineup in relation to Foreign policy positions in the United States and 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 in wider cultural protests just just kind of a counterculture in general anti authority a Kind of hippie dropout Smoke dope to hell with the system the establishment all these kinds of code words that people like to throw around in those days That was pretty much new, you know, they're there there'd been beatniks and you know 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 in ways of life and So that colored to a large extent the politics of this period because a lot of it came Became in a sense a war between the defenders of respect ability old-fashioned type Respectability and the challengers and knows themers of respect ability and and Such such symbols as men with long hair Came came to mark that divide later on of course bizarre things happened and and Some of the most any hippie elements like working-class young whites Adopted the long hair and stuck with it longer than buddy else So you never know what's gonna happen to symbolism once it's loosed in the world but But to beards and long hair started out as the counterculture counterculture's way of Making visible it's contempt for conventional standards of respect ability Things just turn into fashion statements. They they have a way of losing their content Particularly after commercialization gets hold of them Well, all of this turmoil and ferment and protest Had a lot of political effect Johnson being Propelled into office by Kennedy's assassination Now this is where I wish Murray were here to give us a quick five-minute explanation of Who really shot Kennedy Because he would always say loan nut right loan nut Who's dead to benefit? That 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 he he affected to care not only about the poor whites But also about poor blacks And that that was One of the hallmarks of his political ambition that that much of what he supported as president seemed aimed at alleviating poverty of Helping people to pull themselves up by their bootstraps particularly if they'd turn around and vote for Democrats Which they 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 his ideological propensities to the extent that he had any there but But he had acquired a level of ambition That led him to look back to the New Deal as a kind of standard He wanted to be a great president and he knew that to be a great president He 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 who many of whom had never voted for Democrats before such as blacks And it was all also a way for him to realize his boundless ambitions So he plunged into the job And he came he came to the job very well prepared in the sense that that he was a recognized master Politico he had been Leader in the Senate before he became vice president and he already had a High reputation as an arm twister and persuader and 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 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 And you know 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 it here. People are backing up And and yet it worked for him He really was able he understood the system how 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 the United States He supported the civil rights bill that was appending at the time he became president and that became the first of a number of very important legislative enactments during the decade we're talking about now I Listed a few of these in a table in my book crisis and 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 was truly a Whopper of a law it has a whole Litany of parts having to do with education and and public housing and Employment and and so forth and and one of the things that that clearly differentiates it from from previous civil rights laws is is that it 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 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 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 And likewise for people who keep a Restaurant and and so forth that it 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 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'd violated the civil rights law so so Freedom of association was 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 that weakened it so this was a big change and in the government's involvement in race relations and It it spilled over and indeed what I want to suggest to you is that is that just as the civil rights protests I kind of spilled over onto 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 we're easily seen as quote logical extensions of anti-war or pro-civil rights actions environmentalism feminism a whole host of actions on behalf of groups that That had never been viewed as minority groups in the past to say the elderly Certainly women are a majority of the population But they became viewed as a as a minority group deserving of some kind of federal government Protection on in the same way that blacks were being protected by the Civil Rights Act So so the spillovers were huge during this period from the core issues of war and civil rights to a lot of related issues The In 1965 the 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 this effort to to ensure that blacks could not be kept from voting by the the standard Devices used in the southern states for decades The so-called war on poverty was made a big part of the Johnson Program That that had also begun to heat up in the early 60s when Kennedy was president there were some some token efforts made by the federal government to to Do something about poverty and during the Kennedy administration they they took they formed for the most part of regional development programs such as a program to to assist People in Appalachia Which was viewed as a a backwater where where there was little economic activity and and of course the interesting thing about regional Development or community development or any such programs which Which proliferated and became lodged in 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 poor subsidies or special assistance into it Rather than just suggesting to people that they should go somewhere else where where more opportunity exists 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 And nothing could be more routine in this country than moving some place to find better opportunity and yet all of these geographically defined assistance programs seem to work in opposition to to that Obvious truth well, 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 a lot of Sort of community make work programs there was something called community action Grants and they became a real doozy of a of a waste of money Trying to buy a few boats and neighborhoods all over America from From poor people and from blacks and a lot of them fell into the hands of local criminal entrepreneurs Who use use the money they pocketed for all sorts of activities everything from running your drug businesses to? to just having a good time Alan Matusos book has quite a bit of information about the community action grants and head start was put into effect and reaching down to preschool children who Were we're seeing in those days and indeed still seen by some people in some places as as needing federal government assistance and the belief has been that somehow if you can just Do a little more to to teach of 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 from the head start program Evaporate quite quickly so that after a few years there's there's not no Effect anybody can find between the children who who went through head start programs and those who didn't so it It was one of those one of those heart-rending Appeals that that were made frequently in connection with these kinds of programs and It's just 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 ration ticket to to cheap food but But the government made big efforts to go literally door-to-door telling people about the the food stamps and letting them know that that they might be eligible or that they were eligible so so So go down and get some and so the program grew very quickly and and Became a multi-multi billion dollar per year Operation now it's instructive because in many ways it's It's a good it's a good example of how a lot of these programs work when you look at anti-poverty programs if you have any kind of sensibilities in public choice training you say well Well, the poor don't have any political clout. Why would they ever get anything from government? Why wouldn't anybody who can actually exert control over the political process? Squander that by letting anything slip away into the hands of 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 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 with people representing black Constituencies in the big central cities of America. Well, that's not a typical line up But that's the one you see when they vote on the food stamp program. So it's It's a fraud as as as most of these programs if not all of them are Starting in 1965 we got the Unlisted it either this this was regulatory legislation and so that that explains the Failure to put the Medicare program there, although number of regulations came along with the Medicare program It it's it's not a regulatory program per se Medicare 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 may be 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 would cost and They had projected that by 1990 It would cost a certain number of billions per year to provide this subsidized medical care For the elderly. Well, if you look at what the actual 1990 cost was it was it was not simply more than had been forecasted It was seven times What had been forecasted seven times right Now 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 to create a So-called insurance, but basically just a setup for for the government to pay hospitalization and doctor's bills Beyond a very small amount paid by the patient and 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 then go to the doctor if you worried about anything get yourself put in the hospital So that's exactly what people did Furthermore the medical establishment having 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 for it almost day in and day out That was not a foot in the door. That was everything but a foot in the door. So so The doctors have fought the fought this kind of Intrusion but no sooner had the program been thrust on them Then they fell deeply in love with it and discovered that this was just a total boondoggle that they could exploit Right and left and rake in the loot and so pretty soon the combination of the the unlimited demand by elderly patients and The the game playing by doctors who who would you know do every test you could think of and you know readily send people to hospital confinement and Why not they're you know, there's an additional amount to be collected by them or every time they make a move so There was there was nobody watching the store as to how much they charged and So this was this was heaven on earth. So the combination of the 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. So 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 the 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 at the mercy of greedy sellers capitalists and people who who foist incomprehensible contracts on them that they that they have no choice but to sign Because of course they can't just say no no, thank you. I don't want this good or service so consumer protection laws the Truth in Lending Act in 1965 a Consumer Product Safety Act a little later in 72 and On both ends of this period related to FDA Powers were created in 1962 Very important amendments to the Food and Drug Act were were put into place that have had a major impact on the well-being of Of all of us actually and if not directly then potentially and indirectly because they 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 their availability on the market So the FDA amendments of 62 and then in 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 more protection and Remember to apply Higgs Higgs law of political rhetoric here when when something is described as protecting us Chances are very good. It's harminess or even killing us So that was certainly the effect of these FDA law changes The coal mine safety law was passed in in 1966. It's interesting that the By the 1966 the accident rate in coal mines had fallen to probably 10% of what it had been at the end of the 19th century It's very often the case that after something has happened On its own The government comes along and and passes a law against what is almost disappeared already And then people assume that but for the government would 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 Worth while in terms of their costs and benefits and and many of which are just simply idiotic Anybody who ever worked in it in a dangerous workplace Understands first of all that most of the accidents are are caused by carelessness or by by people just doing something that they They already know not to do But they take chances or they they just say oh hell with it and they don't do what they Know is the safe 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 Because I maintain that workers will find a way to hurt themselves and they're very clever about that I Used to work in a factory part of the time when I was growing up and I've seen some pretty gruesome things all of which were owing all of which were owing strictly to stupidity and And 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 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 Of course, we know that that became a way for environmentalists to halt projects By challenging those statements and and even going to court about them if need be So that 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 EPA took over enforcing that and those became The authority by which the federal government has imposed massive costs on all kinds of producers ever since and 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 that despite the apparent speed up of productivity in 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 but to keep pushing the envelope these laws were fairly brought 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 there's a book by Herbert Stein called presidential economics I actually recommend this book Stein is not certainly not an Austrian economist was not it was a kind of a Conservative Keynesian I guess is one way to describe him But he was not a stupid guy and he circulated throughout his life in or near high policymaking levels and so he had a lot of good observation and experience to guide his writing and Yeah, that's right. He's the father of Ben Stein the rather inspiring actor Apparently Herb was a funny man himself I never knew him, but this book presidential economics has a chapter about the Nixon administration or maybe more than one called a 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 as a rabid anti-communist That's how he made his political reputation in the beginning and and He'd served as a kind of attack dog for the Eisenhower administration and a lot of people disliked him because he was a he was a Kind of manful 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 whoever really revealed his true self if indeed he had a true self but But but but 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 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 1970s were recommending a so-called incomes policy wage and price controls Because the price level had begun to creep up And and the high levels of inflation had not been seen in this country since the Korean War and 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 and 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, but that's what people want so I'll go ahead and do it In 1970 at Congress passed something called the Economic Stabilization Act And this was a kind of ploy in its own right a dare if you like because 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 is saying 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 four percent a year And the president has been authorized to stop it and and the blockhead won't do it He won't use the very authority. We've given him Well He showed them He turned around in August 1971 and imposed this this very creative new economic program Really, I really doubt that any of the people who concocted this title Knew that Lennon had called his program of 1921 the same thing But well just an accident and they do happen. Okay, so 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 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 Nixon's advisors his economic advisors knew this Even though they weren't Austrian economists they they were economists of some kind and even neoclassical economists understand this So Herb Stein and his colleagues on the council economic advisors knew that this was a stupid idea from an economic standpoint, but they weren't the ones making the decision and Did the decision was being driven? Mainly by the advice of John Connolly the Texas Politico who had 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 Well, what did John Connolly know about economics? Basically zero he didn't know anything But he was a successful politician and and he believed in the grand gesture and Football metaphor which next Nixon liked to use they Connolly believed in the big play You know, you've got you've got third down in three yards to go So drop back and you know go for the end zone 70 yards away with the Hail Mary pass That was Connolly style politics So Connolly said we'll you know, we'll do the shocking thing We'll really get attention brought to our program with this new economic policy We'll we'll stop inflation cold with a freeze and then after that we'll lighten up a little bit and let 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 and in addition to that they closed the gold window They stopped redeeming gold for anybody even foreign central banks So that was the the total end of any semblance of the gold standard in this country in August 15 1971 They they they impose a surtax on imports And they added a list of other Measures and they're in their plan all of them goofy But but grand and shocking and attention-getting and 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 so they did this and then they 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 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 long without wrecking the economy even Nixon understood that So their idea was they would gradually loosen up and and by the by the time they they got down the road a little ways Nixon would have been reelected and 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 the mess That was the plan Things didn't work out quite according to plan because 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 you know, 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 that the political blowback was was terrible and So after about a month, they they they lightened up even on that second freeze and began to to move to a final phase of administered controls which allowed all kinds of adjustments and just discretionary Relief to particular sellers and then when the law Economic Stabilization Act expired in April 1974 they they said Adios Been nice to know you and everybody was happy to have these price controls over with but meanwhile They had done a lot of damage to the workings of the economy and they had damaging legacies one was that 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 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 to help people adjust to the effects of the embargo and so These limited supplies of petroleum products were were rationed by the usual kinds of the rationing devices when there's great access to man and the gas lines Gas lines and that that was almost a first You know gasoline had been short during World War two But in those days with 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 An efferation 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 get to the pump To buy some fuel Of course, this is this was a situation in which the sellers with only a limited amount available Could could could suit themselves say since they were able to sell all they had Available and they could only charge the control price Well, the way to improve their well-being was to cut their costs the revenue was going to be the same no matter What but their costs could be? Reduced by such things as closing the station most of the time So they you know, they they had to spend less for wages and spend less of their own time there and and what have you they could also Stop providing Additional services that they had in the past provided to people Tend ties them to come and buy gasoline You know cleaning your windshield and checking the air pressure in 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 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 they couldn't stand this Americans had never had to had to deal with these kind of communist line ups before But you know everybody in the Soviet Union stood in a line for 60 years They were used to that but Americans weren't used to lining up to buy something 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 I was working at Stanford that year and 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 some some guy who had who'd run out of Gasoline out in the country somewhere That made him so angry That he had he'd 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 Poured the gas all over his car and set it a fire Another fellow somewhere in the Bay Area where I was living Got so Impatient waiting in line that finally pulled out of the line and began to Systematically ram every car in front of him with his car until he'd ram five or six and finally disable his vehicle So it's obvious that Americans are not really cut out to be good Q-standers These gas lines were just intolerable And they were unnecessary too. They were in wholly the product of price controls They would have disappeared instantly and 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 and so the government and 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 the administrative Organizations to it to to allocate petroleum and its products to different users in the country and To manage this system, which it 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 he he went on from energy czar to be secretary of the Treasury For which oddly enough he was he was much more qualified than most secretaries of the Treasury, but but he wrote a book called a time for truth and You should read this book. It's it's really good reading And it's his kind of firsthand report on the stupidities Attempts to economic Due economic planning by the central government And it's very good reading. I don't know if he had a ghost writer or not. I suppose he he didn't I used to know Bill Simon personally So I just never asked him if he sat down and wrote that himself Yes, right, I think father was a bit brighter light than son But so but but Simon was an interesting character, too Because just 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 he had no political future after he left it the the government in 1977 Even even Conservatives and Republicans couldn't stand to deal with him. He was 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 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 that had occurred in 1973 74 and they They disappeared instantly, you know the minute the price controls came off all the problems went away the gas lines disappeared stations had fuel and And 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 that Helped people such as controlling inflation There's a lot more here and I'm not going to Walk through every item because our time is limited. Let me just say a little bit about some of the Enduring legacies of what was done during this ten-year period There 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 There were very serious fiscal implications. I mentioned the 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 dollars That was more than initially projected it would be in 1990 several times more so it was growing very fast in 1990 Medicare costs were were 98 billion dollars and In 2002 Medicare costs were 231 billion dollars This thing is growing exponentially at a very high rate and It will it will be for long unless something is done to 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 that's behaving this way when when the Medicare law was being debated in Congress a Wilbur Mills a Powerful congressman from Arkansas who headed the Ways and Means Committee of the House of Representatives, which is a Exactly where you want to be if you're a congressman or woman Probably the most powerful position you could hold 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 and as they all do and embraced the not so poor and people in other categories were swept in to 65 it was part of it was part of the original act of 65 it was a multi-part law part of it created Medicare another part Medicaid and If we follow that we find that I don't have Medicaid singled out here, but in the in the table I just looked at There's a category called health That doesn't include Medicare and it's it's it's for the most part. It's the federal government's payments for for the Medicaid system In 1980 these say health expenses were 23 billion dollars In 1990 they were 58 billion dollars and in 2002 They were a hundred and ninety-seven billion dollars. So you're seeing there the same kind of rapid exponential growth of Expenditure a Final big gorilla in the same general category as the social security benefits Now 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, you know 20 years after the system has been created there's just 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 was something that politicians in the 50s 60s and 70s discovered as a as a beautiful campaigning issue and So what everybody who wanted election or re-election to Congress would do it would be to promise the voters If you elect me, I will Raise social security benefits and 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 and the deal got sweeter and sweeter and the pensions got adjusted for changes in the price level and at one point they even got double adjusted because of a Misconstruction in the law they they were adjusted twice over for price level changes and that's the kind of Cost of living adjustment we would all love to have Profit from inflation So social security costs even as late as 1966 21 billion dollars 1980 they'd gone up almost Six full they were up to a hundred and nineteen billion dollars in 1980 by 1990 they were up to 233 billion dollars and in 2002 they were 456 billion dollars So if you go back and look at the division of the all federal spending between say these welfare state transfer payments and Defence spending okay in the mid 50s Defenses 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 and about a ten-year period so that by the by the mid 70s the Proportions are almost the exact opposite of what they had been just a decade earlier and and then the Divergence just keeps getting bigger as these transfers Get a bigger and bigger proportion. They're 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 four hundred billion dollars But yeah, multiply 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 is Next fall Okay These are promises that will help these guys get themselves reelected in 2004 You can bank on it. That's their specialty Where 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 reelected We know they know that because every year almost every one of them gets reelected 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 reelected 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 talk to people now about the gas line Thank you think oh, it's because old pack did what they did right at the time were there at least some op-ed writers that Very few I would say very few All this of course people were making all kinds of suggestions about how to improve things but the suggestion of Getting rid of the price controls was It was not unheard but it was it was far from frequently heard Yeah, freedmen used to write a Newsweek column and of course he he he was making the you know the correct analysis of the situation and there were others so Clearly some people were saying the right thing about it, but if you if you just 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 It's the same law Medicare is part of the social security system. Yes Joe 72 reading a story in the paper Some guy decided to work on Saturday for rainy day Probably working in two inches of water. He didn't work with just one electric screw gun. He was working with two So of course you got like your kids. There's no I shouldn't expect to start in doing this Ever I put a job once because these guys would build this redneck desk trap which they call scoundrel It was the unsafe thing they were saying you'd walk out in the middle of the park and you'd think about six Yes, sir You gave us some figures on Medicare and Medicaid and Social Security benefits Yes, you have the figures on what they're drawing in on the revenue set. I Do have those I've got some some data With me as it turns out so I can check those for you if you'd like to see the revenue I think I've brought that that part of the data By the way, if you ever are interested in these things about the government the government's budget you can go online and Just do a Google search for budget of the United States and it'll take you to the website of the of the Bureau of management and budget and to the budget documents And their PDF files. So what you're seeing 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 that the executive branches 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 So so it's a very useful source. I find My own Looking into exactly how big some of these programs are and how much they've grown Brad Um, the immigration act of 65 the what were the political groups that were behind it? Were they the same sort of lineup? There's a meter was that sort of spurred by something but maybe different I know it was totally changing the face of the American political landscape. I wonder how it fits with what I I Can't tell you with any precision what the coalitions were to change that law I do know that a lot of people who had come to the United States were Were unhappy because they were unable to bring other family members here to join them We still 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 the national groups in the country in In 1920 so the quotas were very high for a lot of European countries which replaces From which relatively few wanted to come to the United States so 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 had very very small quotas so There was a pressure and I don't know exactly what interest groups or what members of Congress were were involved in And actually pushing that law to enactment, but but I do know there was a lot of dissatisfaction With the old quota system because it had pretty much become a relic of a very different prior age Joe well I see a claim when I read some of these left-wing magazines which are quite a few and they say well It's true people complain about being put in jail for filling in a ditch But I had air quality is better. Yeah, they like this claim. Well air quality is better So that's sort of justified as the whole ecological establishment. Where do they get this? Well, there are there there are data measuring air quality levels for a number of Substances that EPA has been measuring and if you look at just the concentrations of ozone or particulate matter or Or nitrogen oxide or so on and so forth You can find a data series and and almost all of those Particular measures of pollution levels do show declines in the past 30 30 years or so now Many forms of pollution We're declining long before there was an EPA or any federal Intervention in in this area at all. So it doesn't follow of course that EPA made these declines happen but even if EPA Did make them happen it doesn't follow that it was good to make them happen because we need to know what the costs were and how much people value having these lower levels of Pollutants in the air. I mean the the environmentalist assumption is always that lower levels of pollution or ipso facto a beneficial thing But even apart from what it costs to get those lower levels It's just not the case because we may be at such low levels already for many of these Things that get into the air that that they just don't have any effect on anybody So what's the point of reducing their levels even even further? It won't necessarily do anybody any good Mark I'm very interested in the period you addressed The Nixon administration basically the closing of the door with a price control and watergate all that stuff It almost seems like it really qualifies as one of your crisis periods, and I was wondering What 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 one book that I think is quite worthwhile is Is by Schultz and Dan George Schultz who was himself a high official in Several different capacities in the Nixon administration during those years and and went on later to become Secretary of State and all around military industrial complexer Heading up Bechtel and He's covered all the bases I would love to see a really good life in times biography of George Schultz because that would tell many tales But to Schultz and Dan published a book. I believe in 1977 Kenneth Dan was a lower 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 says quite worthwhile It's got a lot of information about all those policies you mentioned Karen you're off on the board there to sell about two years ago on the Nixon economy Yes, it's a great right down Yeah, I really yeah, I referred elliptically to that book a while ago. I recommend that too. Yeah, that's really very good source as well Well, I think we've come to the end. Thank you very much