The Practical Economist
MARGOLIS, RICHARD J.
States of the Union THE PRACTICAL ECONOMIST BY RICHARD J. MARGOLIS Call me Finchmale. Until last month I was just an average American with an average American job. Now I hold an important...
...The next day I boarded the Metro for the capital...
...or because there is no other wharf in that port...
...I did not tarry...
...In many cities of the United States, and in rural communities as well, there are dual and competing telephone systems, doing both local and long-distance business...Patrons of these telephone systems are put to endless annoyance and increased expense...
...Hot dog...
...You gotta get up pretty early in the morning to fool Alan Greenspan...
...For quality of service leads quickly to questions of cost: good service for the price charged...
...In 1968, President Johnson's Task Force on Communications Policy concluded, "It can be truly said that the United States has the finest telephone system in the world...
...If in the public interest, government removes that rivalry by granting exclusive franchises, then government must provide the mechanisms for preventing arbitrary or excessive charges or unreasonable or discriminatory regulations...
...That meant ending duplicate telephone companies, replacing them with exclusive telephone franchises...
...As I have often observed, it's no use arguing with a closed mind...
...So I decided to go to Washington and shake his hand...
...Accidentally," she cut in...
...In 1847 Mill had studied the situation of two other new industries that supplied water and gas through pipes to the homes and businesses of London: "It is obvious, for example, how great an economy of labour would be obtained if London were supplied by a single gas or water company instead of the existing plurality...
...My wife sipped her martini...
...Call us...
...Note that he didn't just say the recession was over...
...That," I replied, turning off the TV, "is the area into which I am basically moving...
...The state commissions, supported by public desire for efficient regulation, worked...
...The New York Times says that nearly one-quarter of all the construction workers in America don't have jobs...
...Finchmale," my boss finally asked, "who told you all that malarkey...
...My boss favored me with a peculiarly tight smile...
...I answered...
...Can you see the light at the end of the tunnel...
...Greenspan, would you object terribly if your office became an area into which I was basically moving...
...The first effort at comprehensive federal regulation came in the Mann-Elkins Act of 1910, amending the Interstate Commerce Act...
...Greenspan flung open the door...
...Double systems of cables, wires and conduits burden the streets and highways...
...We were talking about being practical...
...But on the national level-for telephone lines and services crossing state boundaries - there was no federal counterpart to the state regulatory commissions, although telegraph companies had been regulated to some extent by the Postmaster General and the Interstate Commerce Commission under statutes dating back to the 19th century...
...It endowed companies with the rights and responsibilities of common carriers, each solely privileged to purvey its services within its territory but all in turn strictly accountable through state and national regulation to the public they serve...
...Do you have an appointment...
...I turned around in my seat...
...President in 1907, Vail enunciated the goal: "One policy, one system, universal service...
...We're on the Bell," was a frequent invitation in those days, to friends or customers...
...What was needed-and what he sought to create-was a telephone system...
...After all," I argued, "for all practical purposes the recession is over.'' My boss did not answer...
...I was adding up our company's deficit, that's what I was doing...
...spent a lot of time explaining to customers that the number wanted was on the town's other telephone system...
...double sets of machinery and works, when the whole of the gas and water required could generally be produced by one set only...
...So is Newark," chimed in an old lady sitting behind me...
...They'll mug you," she said...
...And wasn't it John Maynard Keynes who pointed out that 'Practical men are usually the slave of some defunct economist...
...Various municipal boards did undertake to control the quality of service provided by water, gas and electric companies, usually through periodic reviews of franchises granted...
...I said...
...there cannot be taken arbitrary and excessive duties...but the duties must be reasonable and moderate....For now the wharf and crane and other conveniences are affected with a public interest...
...Maybe I'm speaking out of turn, Mr...
...I jammed a foot into the opening and said politely, "Mr...
...Everybody gets mugged in that town...
...It took me most of the day, Finchmale, because it happens to be one humdinger of a deficit...
...It's only when I veer to the left that I begin to have trouble.' I soon saw his mistake...
...In fact, Finchmale, unless we do something drastic, we will be basically moving into the area of bankruptcy...
...he merely looked bewildered...
...Greenspan gasped and slapped his forehead...
...I later called on my best friend and told him I was the bearer of glad tidings...
...As the proportion of homes and businesses with telephones grew, the usefulness of the telephone increased greatly...
...This job has grown too complex for just one man...
...Now I hold an important government post, thanks mainly to my remarkable grasp of the national economy...
...Charles Evans Hughes of New York and Senator Robert M. LaFollette of Wisconsin, who were working to persuade state legislatures to try a new approach to regulation through state utility commissions-responsive to the public at the state level -as best serving the public interest...
...I've been out of work for five months, I'm running out of food stamps and the bank is threatening to foreclose the mortgage on my house...
...Then there was the matter of geographic area served...
...In fact, you may be able to help me out of a pickle...
...No, only a hunch...
...Most public utilities came to be regulated on a statewide basis, and a framework of efficient regulation was set...
...And Greenspan is your basic all-around, hard-headed, tough-minded pragmatist...
...Pragmatically," I countered...
...But while some viewed the telephone companies as providing a similar vital service, others regarded them as being more akin to manufacturers selling ingenious machines in the luxury class...
...I don't think we have started into the next phase, which I would consider an upswing, but clearly that is the area into which we are basically moving...
...Confusion multiplied geometrically as the companies strung long distance lines to connect various cities...
...Were there only one establishment, it could make lower charges, consistently with obtaining the rate of profit now realized...
...The next day I strode into my boss's office and demanded an immediate raise...
...The intent of Congress - as it had been the intent of both Bell and Vail - is outlined in Section I of the Communications Act: "For the purpose of regulating interstate and foreign communications by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, nationwide and worldwide wire and radio communication service with adequate facilities at reasonable charges...
...In an essay on rates for wharf services, Sir Matthew Hale, Lord Chief Justice of England, established in 1670 the criterion that private industries "affected with a public interest" may be regulated by the public: "If the King or subject have a public wharf unto which all persons that come to that port must come and unload their goods...because they are the only wharfs licensed by the King...
...And beyond that, Media, Pennsylvania...
...My short, happy tale begins a few Sundays ago when I switched on the set to watch Face the Nation...
...It betrays your fundamental ignorance of how the world's work gets accomplished...
...When only a few people had telephones, one observer called them "electric toys...
...And so redundant companies continued to exist in many towns...
...The recession is over for all practical purposes...
...equal prices for all customers for services of a similar nature, so that no one is discriminated against...
...Report of the House of Representatives Committee on Interstate and Foreign Commerce, 67th Congress (1921) When Alexander Graham Bell's telephone patents expired in 1893 and 1894, new telephone companies sprang up almost overnight...
...Greenspan is not in today for all practical purposes," the receptionist said, and resumed her typing...
...They were not eager to take on the responsibility of regulating the telephone business...
...Federal regulation took a new turn in 1934 with the passage by Congress of the Communications Act, which established the Federal Communications Commission...
...Rejoice...
...Not at all," he said with a broad smile...
...I bet they're not getting up very early in the morning these days...
...The recession for all practical purposes is over," he announced...
...After two hours of waiting in the dark, I collared the conductor...
...Central, the voice of "Number, please...
...It was not quite so obvious for the telephone...
...And each month there were two telephone bills to pay...
...I'm going to Washington," I explained, "in order to shake the hand of Alan Greenspan, the President's top economic adviser...
...English common law provided a rationale for regulation...
...I asked...
...My wife sighed...
...It's not the heat, it's the permissiveness...
...As noted earlier, regulation of telephone companies already had begun to develop at the state level...
...There was the President's top economic adviser, Alan Greenspan, bringing us his top economic advice...
...Local officials had their hands full regulating the three industries already mentioned (water, gas, electricity...
...Later that evening it occurred to me that I might be the one person in America- maybe the world-who understood Alan Greenspan...
...Too bad you missed him...
...A solution to the problem had been worked out long before by John Stuart Mill...
...he exclaimed...
...Such a consolidation, Mill saw, was clearly in the public interest...
...I persisted...
...My wife eyed me narrowly as I poured two martinis...
...Mr...
...People who use their middle names are not to be trusted," I shot back...
...And that is how I got to be top deputy to the President's top economic adviser-for all practical purposes...
...He told the entire nation over network television...
...This calls for a little celebration...
...Greenspan stared at the calculations and stroked his chin...
...The recession is over for all practical purposes...
...It was not hard to see that the public benefited from having water piped into homes...
...Telephone, telegraph and cable companies were declared to be common carriers subject to ICC regulation...
...Greenspan, but you forgot to carry the one...
...Wasn't it Henry Adams," my wife asked, "who said, 'Practical politics consists in ignoring facts...
...The train lurched out of Penn Station, moved a few hundred yards and then, somewhere beneath the Hudson River, coasted to a standstill...
...When Edison's electric light superseded illuminating gas, the parallel was obvious...
...When two or more rivals supply a similar service, competition keeps each up to the mark, or else some eventually lose customers and go out of business...
...After all, he'd never been too smart at economics...
...That's a typical dumb-broad question," I said...
...What makes this Greenspan so sure the recession is over...
...adequate service capacity so that anyone able to pay for the service can have it...
...An exclusive franchise for a specified area is a natural corollary of Mill's concept of a public utility...
...Has it worked...
...Vail recognized, however, that national regulation also was a necessary complement to state regulation, particularly since one company-A.T.&T.-was chiefly responsible for interconnecting the individual telephone companies into a telephone system...
...Did you hear that...
...That kind of service didn't just happen...
...It was planned that way, right from the start...
...I think that for all practical purposes this conversation is over...
...she wanted to know...
...You know what I think...
...I'm here to see Alan Greenspan,' I told her...
...While there are even as many as two, this implies double establishments of all sorts, when only one, with a small increase, could probably perform the whole operation equally well...
...The blackboard behind the desk was filled with his feverishly scrawled computations...
...Henry Adams had a lousy education,' I retorted...
...Now get out of here before I fire you...
...Soon after he was elected A.T.&T...
...Alan Greenspan," I answered triumphantly, "the President's top economic adviser...
...Vail saw, too, that the very "exclusivity" of the franchises invited -indeed, demanded-regulation by officials elected or supported by the public to protect the public interest...
...I walked in and saw immediately that Greenspan had been working hard on a problem...
...How about coming aboard, Finchmale...
...What can you tell me that will cheer me up...
...There you go changing he subject...
...No, he said the recession was over for all practical purposes...
...It works...
...My best friend's face grew very dark...
...And exclusiveness was a troublesome subject...
...The doctrine of public regulation of privately owned resources has its roots in Roman law and the tenet of justum pretium -"just price...
...Almost alone among the nations of the world, then, this country entrusted the development and operation of its communications resources to private enterprise...
...Vail thus agreed with the efforts of Gov...
...Greenspan picked a bit of lint off his dark blue jacket and continued, "I don't think we have started into the next phase, which I would consider an upswing, but clearly that is the area into which we are basically moving...
...You see," he said to me without further chitchat (for great men are invariably direct), "I've done rather well, if I do say so myself, with the digits to the right of the decimal point...
...In other words,' said my wife, "for all practical purposes you've decided to have a drink...
...Pshaw...
...My feelings were hurt, but I soon forgave him...
...At the top of it, in a firm hand, Greenspan had carefully written down the primary issue as he perceived it: if john has $4.57 and mary has $8.91, how much money do they have altogether...
...In other words, Vail understood that it was not enough for the nation to have telephone companies...
...Finchmale," he said, bringing his face close to mine, "do you know what I was doing while you watched the Green-spanning of America...
...In order to reach all the people using telephones, the telephone patron finds he must install two telephones in his house and office...
...The accepted way of organizing communications was to have the "dual and competing telephone systems" cited in the Congressional report...
...When we finally reached Washington, I took a taxi to the big building next-door to the White House where the President's top thinkers think...
...A young woman was sitting at the reception desk...
...The concept of a "public utility" was reinforced...
...That's the top of the news off the top of the head of the President's top economic adviser, Alan Greenspan...
...I thought you'd never ask," I said...
...He saw that the future of the business depended on having one unified telephone service for the entire nation-a service that every family and business could enjoy...
...How there came to be only one telephone company in town...
...It was definitely Alan Greenspan...
...The old lady smiled sweetly...
...At that moment a door to my left opened a crack, revealing a pair of spectacles, a Paisley tie, and a receding brow...
...Rejoice...
...I felt deep-down that we were kindred spirits...
...I sure could use some," he said...
...I asked my wife...
...One Bell System...
...Not only can I see the light at the end of the tunnel," he said, "but according to my calculations, prosperity is just around the corner...
...Before I had time to think about it he delivered an upswing to my chin that instantly sent me spinning into the next phase, which was on my back...
...I casually dropped an olive into her glass...
...Should Bell's invention be compared with Edison's new electric light, or was it more like his phonograph...
...It was no easy task...
...even double sets of pipes, if the companies did not prevent this needless expense by agreeing upon a division of the territory...
Vol. 58 • July 1975 • No. 15
