A Free-Market Energy Blog

Jane Mayer on Energy Policy: Some Corrections

By Robert Bradley Jr. -- February 11, 2016

“Price controls cause shortages, and government allocation exacerbates it. This was learned the hard way during the 1970s, particularly with oil, thanks to Republican President Richard Nixon.”

George Melloan’s review of Jane Mayer’s Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right (Wall Street Journal, January 15, 2016) criticized her foray into energy and energy policy:

Ms. Mayer might herself benefit from an economics course. She writes that Richard Nixon imposed economic controls on oil and gas in 1971 to “address the energy crisis.” The Nixon price controls helped to cause the energy crisis.

Intrigued, I bought Dark Money to see exactly what she said.  Here is the passage from Mayer (p. 91) referenced by Melloan:

The fossil fuel industry’s fondest wishes were also fulfilled. Following proposals set forth by the Heritage Foundation, as soon Reagan entered the White House, he abolished the economic controls on oil and gas that Nixon had imposed in order to address the energy crisis. These were among the regulations that Charles Koch had so bitterly opposed. 

Yes, energy deregulation was promoted by the Heritage Foundation (and, by the way, the American Enterprise Institute and the Koch-founded Cato Institute). But about everything else in the above paragraph is historically inaccurate. And lo-and-behold, price controls were anointed by Republican presidents, one indirectly (Eisenhower: 1956, natural gas) and the other directly (Nixon: 1971, oil). And Democrat Jimmy Carter set into motion price decontrol with natural gas (1978) and oil (1980).

Oil Price Controls and Petroleum Shortages

Price controls cause shortages, and government allocation exacerbates it. This was learned the hard way during the 1970s, particularly with oil, thanks to Republican President Richard Nixon.

Nixon was fighting inflationary expectations, not an energy crisis, when he imposed wage and price controls in August 1971. As I explained elsewhere:

Richard Nixon (1913–94) got on the wrong side of economic law three years before his Watergate-related resignation from the U.S. presidency. In August 1971, in a surprise decision, Nixon imposed the first peacetime wage-and-price controls in American history.

Businessmen reined in their surprise to pragmatically offer support. John Kenneth Galbraith and Paul Samuelson offered quick congratulations. There was public approval of the ‘temporary’ action that was intended to just quell inflationary expectations (as if the problem was psychological and not the inherent consequence of expansionary money). The inflation rate was then running at about 4 percent per year.

Free-market economist Milton Friedman, knowing that shortages lay ahead, lambasted the move. So did Ayn Rand in the Ayn Rand Letter. Murray Rothbard was fiercely critical (“on August 15, 1971, fascism came to America,” he wrote); he had seen price controls and shortages before.

Nixon’s edict disabled the market process responsible for coordinating supply with demand and allocating resources to their most profitable use. Predictably, oil shortages developed, which resurrected long dormant depletionist thinking and pointed policymakers toward conservationism. After all, if price controls did not allow prices to rise and “regulate” demand to available supply, then government had to—at least according to the majority of policymakers and neo-Malthusians whose worldview dovetailed nicely with public sentiment against the energy industry.

In fact, Nixon’s controls were causing shortages before the Arab Embargo. As I explain:

The oil crisis, contrary to popular remembrance, did not begin with the Arab Embargo of October 1973. It began with petroleum product shortages that arose in late 1972 when price controls became constraining. In February 1973, Senate hearings on fuel shortages demonstrated, in the opinion of committee chair Henry Jackson (D-Wash),

One, there has been an unprecedented breakdown in our energy supply and distribution system;

Two, the fuel shortages now being experienced are far more extensive than anticipated;

Three, more severe shortages of fuels, particularly gasoline, are in the offing.

Expert testimony was heard about how 18 months of price controls were at the root of the supply shortfall, as were the lingering constraints of an earlier federal program designed to help the domestic industry in a time of oil surplus, the Mandatory Oil Import Program.

The U.S. Senate convened a meeting on energy conservation, identified as “the first congressional hearings to be devoted to this subject.” Demand was now decoupled from supply, creating an industry of thought, opinion, and passion as to what demand should be and what role government should play to correct oil-market problems.

The game was rigged thanks to Richard Nixon, whose original 90-day freeze would be but the first of five price-control phases and the starting point for more than seven years of price-and-allocation regulation under the Emergency Petroleum Allocation Act of 1973 (EPAA).

This was petroleum price controls; oil price and allocation decontrol was initiated by President Carter (not Reagan) with an 18-month phaseout. President Reagan accelerated decontrol by eight months upon taking office, but he did not set into motion the process. Carter (and Congress) did it with the political trade being a Windfall Profits Tax.

Alas, the free market turned out to be much better for consumers than did the very price-and-allocation controls supposed to help consumers. A sellers’ market turned into a buyers’ market in 1981/82 and again, with a vengeance, in 1986. (And certainly now, thanks to a new generation of technology).

Natural Gas Price Controls and Shortages

Let the record also show that Republican President Eisenhower reversed course in 1956 and vetoed legislation to decontrol natural gas prices. Such legislation was in response to a Supreme Court decision two years before that upheld the Federal Power Commission’s interpretation (of “just and reasonable” under the Natural Gas Act of 1938) as wellhead price controls. President Nixon’s August 1971 action did not disturb the existing FPC (and later FERC) regime.


Jane Mayer should study none other than Milton and Rose Friedman to understand government-versus-market price setting. The two’s insight into the distortions from government intervention shortages is timeless. Consider this from the Friedmans’ Free to Choose (1979: p. 219):

Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail…. Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail.



My more general view of Jane Mayer’s book was summed up by one of the 400 or so comments that Melloan’s review generated.

Incredible! The Hidden History of the Billionaires Behind the Rise of the Radical Right.  We are the “radical right” because we don’t aspire to Paul Krugman’s Keynesian economics and his inept solutions to inequality.  We are the radical right because we believe in free enterprise, state’s rights and a federal government that is limited to deliver what the US Constitution allows by law.

We are the “radical right ‘ because we believe the best path out of poverty is an education followed by a meaningful job or profession.  Our education system is broke thanks to the progressives and so called community activists from Alinsky to Obama, Hillary and de Blasio.  Therefore, instead of jobs, minority children will face continuing poverty, thanks to Krugman, Jane Mayer and their fellow progressives. They really want our citizens to be totally dependent on government.

Mayer said of her book the “Dark Side:” “I see myself more as a reporter than as an advocate.” I don’t think so!!

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