Can a President Use an Executive Order to Cap Your Pay Raise? Yes

Forty years ago this week, President Richard Nixon showed us just how dangerous unchecked executive power can be to the free-enterprise system.

On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”

After a 90-day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye toward eventually lifting controls — conveniently, after the 1972 election.

I did not write that passage (I added the red font and underline). Gene Healy, a prominent leader of the libertarian think tank Cato Institute wrote this in 2011 (for more, read this https://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls).

Richard Nixon used an executive order to “freeze” wages and prices. That means anyone who raised wages or prices over the limits set by President Nixon were subject to civil enforcement.

This history is relevant today. President Trump is making record use of executive orders, topping President Obama. Tariffs—the product of Mr. Trump’s executive orders— are going into effect today against China. More are coming, according to the president. They will likely add costs to producers, and possibly cause inflation above and beyond a strong economy.

President Carter also used an executive order to control wages and prices. The nation’s labor unions sued to challenge the order—and they lost (AFL-CIO v. Kahn, 618 F.2d 784 (D.C. Cir. 1979)). President Franklin Roosevelt and Truman used these orders, too, albeit in times of war.

So, the bottom line is that President Trump has this power.

Economists say the power is counter-productive, though others note it helps presidents in the polls for the short term.

If you think this is inconsequential, consider: Our legacy health insurance and pension systems are the byproducts of wage and price controls. Pension and insurance benefits were “fringes” to wages, i.e., exempt from these orders because they weren't wages. 
Thus, unions bargained for these non-wage forms of compensation. Over the years, they benefited two generations of Americans but their costs mushroomed out of control.

This supports the point made by most economists: You can’t really control wages and prices with an executive order. All you’re doing is distorting markets—a whack-a-mole situation where side-bargains, underground economies, and under-the-table arrangements occur.