Contrary to much commentary, Paulson's plan would not be the largest government intervention in the private economy since World War II. That distinction still belongs to Richard Nixon's imposition of wage and price controls in August 1971. True, Paulson would socialize unprecedented amounts of private debt, but Nixon asserted control over the entire economy. What's fascinating are the possible parallels between the two episodes, starting with a shared irony: Both came from administrations committed to "free markets."
When Nixon declared the wage-price freeze -- a complete surprise because he had consistently opposed controls -- the decision proved "wildly popular," Rice University historian Allen Matusow writes in his book "Nixon's Economy." By one survey, 75 percent of Americans supported it.
"There was widespread public rejoicing that at last the government was protecting the people," Herbert Stein, a Nixon economist, later observed. Consumer price inflation, which had been rising at a 4 percent annual rate, dropped toward 1 percent. People believed that by acting decisively government could outlaw inflationary psychology. It couldn't.
Inflationary pressures built up under the artificial lid of the controls. Moreover, the faulty economic doctrines that produced inflation -- easy-money policies aimed at maintaining "full employment" of 4 percent joblessness -- remained. When controls ended in 1974, inflation exploded to 12 percent. It averaged almost 9 percent from 1975 to 1981. Only the brutal 1981-82 recession, imposed by Paul Volcker's Fed and raising unemployment to 10.8 percent, ended the wage-price spiral.
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