A Price-Fixing History Lesson Mayor-Elect Mamdani Sorely Needs to Learn

So the question before us now is whether Zohran Mamdani can be the first person in the history of human civilization to make price-fixing work? 

It has never worked, and is not likely to ever work given the catastrophic history this approach has demonstrated. Example after example exists of how price-fixing creates cheating, black markets, misallocations, shortages and a host of other maladies that have plagued the very people the tactic was intended to help. 

To all of the young folks out there who wanted to give this a try, I wish you had opened a history book. I know you haven’t lived through a real-life example of these epic failures — but I have. 

As a young boy, I vividly remember sitting in my dad’s car for hours waiting on a line at the gas station on Saturdays to fill up his tank. Then we drove home, got into my mom’s car and did the entire thing all over again. Most of the day was wasted sitting in the car waiting for gas. As that is my real-world experience, let’s take a deep dive into what caused these circumstances. 

In the early 1970s, mounting economic challenges were facing the United States. Inflation, which had been rising since the late 1960s, was accelerating due to a confluence of factors: The Vietnam War caused outsized government spending along with Great Society programs launched by President Lyndon Johnson. Wages were also rising, and there was a lot of global economic instability. 

In response, President Richard Nixon made one of the most dramatic economic interventions in U.S. history: He imposed wage and price controls. (Mayor-elect Mamdani, have you ever read about this?) While the move was politically popular and provided short-term relief, it ultimately failed to address the root causes of inflation. It contributed to even deeper economic problems in the years that followed.

By 1971, inflation had reached about 5.8 percent, the highest peacetime rate in decades. Historically, inflation was thought to be a result of lower unemployment, but Nixon faced a troubling mix of both — a phenomenon later known as stagflation (stagnant growth plus inflation).

Several conditions drove prices upward: government deficits from war spending, expansive monetary policy from the Federal Reserve, and the breakdown of the postwar monetary system that tied the U.S. dollar to gold. At the same time, American productivity growth was slowing, and global competition was rising. This was not a healthy combination of factors. 

Nixon, who was up for re-election in 1972, faced strong political pressure to address inflation without triggering a recession. Conventional economic wisdom at the time, informed by Keynesian ideas, still regarded wage and price controls as a legitimate short-term measure to “cool off” an overheated economy. With public frustration mounting, Nixon decided to act decisively. 

The issue that many Keynesian followers fail to recognize is that all of economist John Maynard Keynes’s principles were established at a time of cyclically balanced budgets — something the U.S. could even then barely see in the rearview mirror. They have never worked in an era of constant deficits. 

On Aug. 15, 1971, in a nationally televised address, Nixon unveiled his New Economic Policy (NEP) — a broad proposal that shocked both allies and opponents. 

The plan included three key components: closing the gold window, imposing a 10 percent import surcharge to protect American industries, and freezing wages and prices for 90 days. This was the first time since World War II that the federal government directly fixed prices and wages across the economy.

Under Phase I of the plan, all wages and prices were frozen at their existing levels for 90 days. Businesses were not allowed to raise prices, so workers could not demand higher pay. Nixon justified this unprecedented move by saying, “We must stop the rise in the cost of living.” 

Americans largely supported the decision as polls showed approval ratings above 70 percent. Inflation temporarily eased, and consumer confidence surged. Politically, Nixon gained enormous benefits — the economy appeared stable heading into the 1972 election, with “appeared” being the operative word!

After the initial freeze, the Nixon administration implemented Phase II, a more flexible system overseen by the newly created Price Commission and Pay Board, which set specific rules for allowable wage and price increases. The government tried to balance fairness with flexibility — allowing modest wage and price increases but maintaining overall stability. Inflation remained subdued in the short term, falling to around 3 percent in 1972, which helped Nixon win a landslide re-election.

However, deeper structural problems were not addressed, and these seemingly positive impacts were merely cosmetic. As controls continued, businesses struggled with misdirected incentives. Many producers, unable to raise prices to cover increasing costs, cut back on production, leading to shortages. Meat, gasoline and other consumer goods became scarce. Black markets emerged as sellers looked for ways around the restrictions. Economists warned that the controls were artificially suppressing inflation rather than solving it — and they were correct.

By 1973, the administration entered Phase III and later Phase IV, gradually relaxing the controls. Once prices and wages were freed, pent-up inflationary pressures exploded. Businesses, eager to recoup lost profits, raised prices sharply. Workers, whose wages had been constrained, demanded higher pay to address lost purchasing power. The inflation rate shot up again, reaching double digits by 1974. The price controls had merely delayed — not prevented — inflation.

The 1973 OPEC oil embargo exacerbated the situation. With global oil prices quadrupling almost overnight, energy costs surged throughout the United States. Nixon’s remaining controls on energy prices led to gasoline shortages and the long lines at filling stations that I waited in, wasting most of every other Saturday for many months. The result was widespread public anger. The government’s attempt to cap oil prices made the crisis worse by discouraging domestic production and misallocating resources. These are the sorts of conditions that price controls always eventually lead to. 

By 1974, Nixon’s economic policy was in chaos. Inflation reached over 12 percent, unemployment rose rapidly, and the U.S. entered a deep recession. The price controls were finally abandoned and discredited as an effective tool for fighting inflation. Economists across the political spectrum concluded that the policy had only temporarily camouflaged inflation while distorting the economy and undermining free market efficiencies. 

Wake up, Mayor-elect Mamdani. Nixon’s price controls were a disaster and failed for several very fundamental reasons. 

First, they did not address the root causes of inflation. Second, price controls distorted free market signals: When prices could not rise, shortages developed, reducing output and efficiency — think mostly empty shelves in government-run grocery stores. Third, the temporary suppression of inflation created a “rebound effect,” as prices surged once controls were lifted — think of a rubber band being stretched in one direction, only to snap back even more violently when released. Finally, the political motivation behind the policy — to win re-election — meant short-term optics were prioritized over long-term stability. Sound familiar?

Nixon’s experiment with price-fixing is now widely regarded as a cautionary tale and is just one of many examples where price-fixing simply does not work. The New Economic Plan demonstrated the limits of government intervention in complex market systems and reinforced the fact that inflation is primarily a monetary phenomenon. By the end of the 1970s, under Presidents Ford and Carter, the U.S. continued to struggle with inflation until Federal Reserve Chairman Paul Volcker imposed strict monetary tightening in the early 1980s — a painful but ultimately effective solution.

In retrospect, Nixon’s price controls provided temporary relief and political gain, but failed economically. Instead of curbing inflation, they postponed and magnified it, contributing to the “stagflation” crisis that defined the 1970s — a time I vividly remember from my teenage years. The episode remains a defining example of how short-term political expediency can undermine sound economic policy. 

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.