In the fall of 1979, as I was just beginning my teaching career at MIT, I went to an economics conference in Vermont. I made the trip in a state of high anxiety — not because I was worried about my presentation, but because I was driving. And it wasn’t at all clear whether I’d be able to find gas for the return trip.For those were the days of fuel shortages and gas lines, with drivers sometimes waiting hours for the opportunity to refill their tanks.What happened in 1979 was that the United States faced an inflationary shock: soaring oil prices in the aftermath of the Iranian revolution. That was a bad thing for American consumers. But the experience was made much worse by botched policy. Rather than simply accept higher prices at the pump, the U.S. government imposed a gasoline price ceiling. And as often happens when the government
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