Real War

by Richard Nixon

  Over my protests, an opposition-controlled Congress had given me the power to impose controls. With inflation worsening, there was a swelling chorus of demands in Congress and the media that the power be used. The clamor grew so great that Secretary of the Treasury John Connally, who disliked the idea of controls as much as I did, bluntly told me, “If we don’t propose a responsible new program, Congress will have an irresponsible one on your desk within a month.”

  When controls were imposed in August 1971 the nation stirred with excitement and sighed with relief. In the first day’s trading, the Dow Jones average on Wall Street rose thirty-three points. But it was a false euphoria. In the short term, controls provided relief; in the long term, they made the situation worse. Once in place, they were more difficult to get rid of in an orderly way than I had expected. The longer they stayed in place, the more they compounded economic imbalances for which the piper would have to be paid later. The best thing they did, if the lesson has been learned, was to demonstrate dramatically that controls do not work.

  Price controls can do one of two things: create surpluses or create shortages. Price floors for farm products created grain surpluses; price ceilings on oil and gasoline have created gas shortages. When the government pays more for a product than consumers are willing to, producers will come up with more of it than the consumer wants. When the government puts a ceiling on prices so that consumers are not allowed to pay as much as they would be willing to for a product, producers will not supply enough of it to satisfy the public’s demands. There may be circumstances in which creating surpluses is justified; our grain surpluses, for example, helped keep the price of wheat stable for twenty years. But there is no justification for creating shortages in basic industrial materials.

  Wage and price controls throughout an entire economy create thousands of separate spot shortages and surpluses. There may be more lumber than anybody wants but not enough nails; there may be more cars than people want but not enough gasoline; there may be a huge surplus of wheat in the Midwest but no railroad cars to get it to market.

  The best economic advice I can give to my successors in office is to resist firmly political pressures to impose wage and price controls, however strong those pressures may become. Controls will not solve the problem of inflation. They may give short-term relief but inevitably they produce long-term disaster. The only answer to inflation is for government to spend less and for people to produce more.

  • • •

  What we do with the American economy is important not only at home but also abroad. The American economy produces over $2 trillion worth of goods and services—one-quarter of everything produced in the entire world. Seventy percent of international trade is transacted in dollars. The old adage that when the U.S. economy sneezes, the economy of Zaire gets pneumonia is still true, and today we are running a high fever.

  There once was a time when “sound as a dollar” was a description, not a joke. If the dollar continues to lose value, international trade will become a guessing game. The money markets of the world will be places where speculators will prosper and businessmen suffer.

  There is no rising economic and military power that can take over the international economic burdens of the United States. We have to set things in order. We not only owe it to ourselves, we also have a responsibility to the rest of the world. The way to restore faith in the dollar abroad is to reestablish its soundness at home. Until we do so, the spectre of runaway worldwide inflation and new trade barriers will haunt businessmen everywhere and inhibit the trade that is the lifeblood of the international economic system.

  As Irving Kristol has noted, our foreign policy and economic policy are inexorably linked:

  it is an inescapable fact that the American economy is a vital organ of a larger world economy. The one cannot survive, and certainly cannot prosper, without the other. The wealth of nations today is indivisible. Our economic growth will henceforth be as dependent on our foreign policy as on our economic policy. And if we fail to establish the conditions for such growth, our democracy will itself unravel, as economic pressures give rise to political polarization, at home and abroad. . . . What few seem to realize is that a prospect of economic growth is a crucial precondition for the survival of any modern democracy, the American included.

  Energy

  Along with inflation, energy is the most urgent problem facing the American and world economies today. Energy is basic to the world economy; all other industries depend on it.

  Wood was the fuel of the preindustrial world; coal was the fuel of the first industrial revolution, which began in the eighteenth century; oil has been the fuel of the second industrial revolution, which continues to this day. Other energy sources, including nuclear and solar, will fuel the industrial advancements of the twenty-first century. Nothing is more natural than a depletion of one energy resource, its gradual rise in price, and its replacement by a new source. In our day, however, that transition has turned into a crisis.

  Three candidates are usually put forward for the role of villain in the present energy debacle: the oil companies, OPEC, and the government.

  It has been especially popular among politicians to make scapegoats of the oil companies. But the oil companies did not create the energy crisis. They are, in fact, one of the consumer’s best allies in trying to solve it. From 1950 to 1970, when the oil companies were at the height of their power, the price of gasoline rose from 27 cents a gallon to 36 cents a gallon, and half of that rise was due to an increase in taxes. In the 1970s, when OPEC and the federal government had stripped the oil companies of much of their power, the price of gasoline went from 36 cents per gallon to over $1 per gallon.

  On January 1, 1970, OPEC was charging $1.80 for one barrel, or forty-two gallons, of crude oil; in late 1979 they were charging around $30 for the same amount, more than fifteen times as much. It is OPEC’s price hikes, not an oil company conspiracy, that have caused higher prices at the pump. In addition to price increases, political instability in the Persian Gulf has made the supply of oil uncertain. As long as the West is dependent on oil from the Gulf there will be crises or the possibility of crises. In this situation government has a role to play, but the role it has chosen to play has turned the energy crisis from a manageable drama into a Greek tragedy.

  • • •

  I was the first President to propose a wide-ranging energy program. I did so nearly a decade ago, in 1971. In my last State of the Union address, in January 1974, I described energy as our number-one priority.

  Like my successors, I encountered frustration after frustration in trying to get Congress to act on my proposals: legislative roadblocks to the Alaska pipeline, inaction on proposals for coal conversion, natural gas deregulation, fast-breeder reactor development, and other needed measures. The goal of my energy policy—which I named Project Independence—was, in the long run, to stimulate the production of energy from renewable sources such as nuclear power, and, in the short run, to cut back our dependence on unreliable foreign suppliers of oil. The United States is uniquely qualified to do these things. Ill-considered government policies, however, have had the opposite effect; they have actually increased our dependence on foreign oil.

  At the present time conventional fuels supply 90 percent of our energy needs. Oil, half of it imported, supplies 45 percent; coal, 20 percent; and natural gas, 25 percent. By boosting production from these sources and increasing conservation, while at the same time gearing up to increase our energy supply from renewable sources, we could probably have managed the “energy crisis.” As it is, we are making things worse than they were before.

  Government policies of price controls, high taxation, and overregulation have discouraged the use of our domestic energy resources, encouraged waste, and increased our vulnerability to OPEC’s price hikes and supply interruptions. Price controls on oil and a nationalized allocation system, which I regret I did not remove before I left office in 1974, have created spot shortages and su
rpluses in a checkerboard pattern all over the country. Former Treasury Secretary William Simon, who also served as my energy administrator, has aptly commented on the allocation system: “The kindest thing I can say about it is that it was a disaster.”

  The best way to encourage conservation is through the free market. When waste becomes too expensive, people will find ways to eliminate it, and in a much more efficient manner than the government could ever devise, much less manage. The government could back up its strong words on conservation by taking one simple action: decontrolling all oil and natural gas prices once and for all.

  Decontrol of prices would not only cut consumption, it would also boost production. For twenty-five years price controls on the interstate sale of natural gas have made it uneconomical to sell gas from gas-producing states to other parts of the country where the gas was needed. In the winter of 1976–1977 thousands of factories were closed and over a million people thrown out of work because of fuel shortages—shortages caused by controls such as those that kept natural gas from crossing state lines.

  High taxation on “windfall” profits has a similar effect in discouraging production. Unless the energy producers of this country can make an extra dollar from their extra efforts, there is no incentive for them to solve the energy problem. It makes no sense to provide incentives for new oil production by removing price controls and then take away the incentives by punitive taxation. What “windfall profits” taxes really produce is a windfall for the government, paid by the consumer.

  Coal is our most abundant energy resource. At the 1973 rates of consumption we have enough coal to last 800 years. But overly stringent environmental constraints have prevented us from using it to decrease our dependence on imported oil; in recent years the percentage of our energy needs supplied by coal has actually decreased. It makes no sense to sit on half the free world’s reserves of coal and not use them. Environmental laws that were passed in a time of energy abundance need to be reexamined.

  The Department of Energy employs 20,000 people and has a budget of $8 billion a year. It should be abolished. Its primary achievement to date has been to prevent the free market from solving the energy crisis. As long as the government is running the energy business we will have an energy crisis. The whole dismal history of government interference, whether in Britain, the Soviet Union, or the United States, points to one conclusion: politics is harmful to the economy’s health.

  • • •

  Looking to the future, we have to prepare for the day when conventional fuels will become too scarce and expensive to remain the principal source of power for our industries. At that point renewable energy sources should have come on line, supplying us with a virtually inexhaustible reservoir of energy. Solar, geothermal, and other research programs should be strongly supported, as I urged in 1973 and as President Carter did in 1979.

  But none of these renewable sources offers more promise in both the short term and the long term than the power of the atom. Unfortunately, the issue of nuclear power has become extraordinarily politicized, polarized, and emotionalized. Opposition to nuclear power has become the new “cause” of the political Left. Panic-mongering modern Luddites have carried their ideological crusade against it into the streets in an attempt to cut off reasoned debate. Already companies trying to move forward in this area are inhibited by what William Simon calls a “crazy-quilt of environmental regulations” that threatens to destroy the economic viability of nuclear power. The latest nuclear power plant built in the United States took sixteen years to construct; in South Korea it takes less than five years. As a result, even before the latest OPEC price hike, in South Korea electricity from nuclear power plants was only half the cost of electricity from oil-fired plants.

  There are risks in nuclear power, as there are with any energy source, and there is room for disagreement about the extent of those risks. But we should strive to keep that disagreement within informed and reasoned bounds, rather than letting our energy future be swept away in a sea of placards. If our ancestors had consulted only their fears, America would never have been discovered and the modern world would never have been built.

  From my office in San Clemente I can daily view the white domes of the San Onofre nuclear power plant. These domes do not threaten me with radiation. They do not remind me of death or destruction. If they did, I would not have set up the Western White House virtually next door to them in 1969.

  Rather, these domes represent heat and light for me and my neighbors and thousands of jobs for those working in plants dependent upon the electricity they produce. They represent the growth of an expanding economy and a rising standard of living. They represent the most abundant, and potentially the cheapest, source of energy, and one which Dr. Edward Teller describes as “the safest, cleanest way to generate large amounts of electrical power.” We need this energy for the nation’s future. As former Energy Secretary Schlesinger has put it, “Quite bluntly, unless we achieve greater use of coal and nuclear power over the next decade, this society just might not make it.”

  Seven years have passed since we began Project Independence, but we are no closer to energy independence now than we were in 1973. Indeed, we are farther from it. We must begin now to prepare to protect our interests in the oil-producing regions of the world. At the same time we must reject the fuzzy negativism of “limited growth” and continue to press for vigorous progress in developing our abundant energy resources. Only thus can we be assured of our viability as the world’s greatest economic and military power. If we don’t follow this course, we will face growing darkness with each passing year as surely as twilight follows the sunset.

  Ceiling Unlimited

  The economy is not just the realm of accountants. It is also the realm of the spirit. We fulfill ourselves in work, enriching our lives and the lives of others. Most important, there is a direct relationship between human liberties and a free economy. As Nobel Prize-winning economist Milton Friedman has noted, “Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.” Conversely, when economic freedom disappears, political freedom dissolves with it.

  The struggle between the American Revolution and the communist revolution is a struggle between a free society and a controlled society. The communists are materialists, but they have failed to match the material achievements of capitalism. What socialism promised, capitalism delivers. What utopians have predicted, capitalism provides. What dreamers have dreamed of for centuries, capitalism has produced and continues to produce: freedom and wealth, together, for the many.

  The cult of the guilt-ridden has imbued us with the notion that we must be apologetic and defensive about our wealth; that because ours is a rich society, it is therefore an evil society. Giving credence to this nonsense is a disservice to America and the rest of the world. The plain fact is that ours is a rich society because it is a productive society, and unless we accept and proclaim that fact, the example we set for the needy nations of the world will be a false one.

  Poverty oppresses. The best antidote to poverty is productivity, and the greatest productivity occurs when the economy provides incentives and rewards for hard work, for extra effort, and for increased investment.

  The great majority of the world’s people want change. But they want change for the better. Communism offers it, and then imposes a system that produces change for the worse. Capitalism, by contrast, is the greatest instrument of progressive change in the history of civilization. It produces more prosperity, more abundantly shared and with more freedom of choice, than any other economic system.

  Two hundred years ago, at the start of the industrial revolution, the average per capita income in the world, in 1979 dollars, was $200. Today it is $2,000. Futurist Herman Kahn predicts t
hat it will rise to $20,000 in the twenty-first century. Kahn says we are at the midpoint of an economic revolution as significant as the one that transformed man from a hunter to a farmer some 10,000 years ago. “Two hundred years ago,” he writes, “almost everywhere human beings were comparatively few, poor and at the mercy of the forces of nature. Two centuries hence, barring some combination of very bad luck or bad management, they should be numerous, rich, and in control of the forces of nature.”

  What distinguishes these last 200 years from the thousands that preceded them is industrial capitalism. As recently as the 1780s four-fifths of French families spent 90 percent of their income on bread alone, for the sole purpose of staying alive. With the dawn of industrial capitalism the chains holding people to the land were broken, and peasants by the thousands flocked to the cities in search of a better life. Millions willingly put up with the hardships of early urban life to escape the even more gruesome lot of a peasant.

  As it was for those peasants 200 years ago, the future is a vast unknown for us today. Man has always approached the future with a mixture of hope and fear. Now those fears are being fanned by the apostles of a new cult that is antigrowth, antitechnology, antibusiness, antiprogress. Sociologist Robert Nisbet warns: “I can think of no intellectual change that has come over America in the latter part of the 20th century that is more pregnant with institutional and material consequence than the almost complete disappearance—among intellectuals, not yet perhaps the majority of the people—of faith in progress.”

  There have always been prophets of doom, men of little minds and smaller faith. Pundits of Columbus’s time advised the King and Queen of Spain that his proposed voyages were unlikely to yield any good result. In 1835 railroad experts dismissed as “extremely improbable” the development of any system of transport that could move at a rate exceeding ten miles per hour. One week before the Wright brothers flew, the New York Times ridiculed the idea that man would ever get off the ground. Again and again, timid pessimists have said it cannot be done. Again and again, courageous men have proved them wrong. If we do not fall captive to our fears—more specifically, to the fears of a vocal minority—we will again shatter all preconceived notions about the “limits” of growth. We will enter an era of “ceiling unlimited.”