Inflation primer
Case, John
Inflation primer UNDERSTANDING INFLATION by John Case Morrow. 228 pp. $9.95 Here is a book so blatantly at odds with conventional economics, so ludicrously out of fashion with what passes for...
...Recent U.S...
...If government is too restrictive in some sectors, it is widely held to compensate with lavishness in others...
...The major corporation's first line of defense against sagging demand is to close plants, not cut prices...
...Despite its unfortunate genre dust-jacket, this is not a how-to book, warning of Armageddon and advising you to salt away your Krugerrands in the fruit cellar...
...The solution is not to eliminate people's ability to make claims against the economy, but to control the claims...
...They have a demonstrated penchant for inducing political business cycles by throwing recessions at inflations...
...Only once does he stumble—on the issue of defense expenditures...
...Controls will be difficult and disagreeable, but happiness is not the criterion by which to judge them...
...The get-yours-first tracts are steeped in gloom because they see the source of inflation as monolithic and unstoppable...
...By 1984, with inflation as intractable as ever, controls might appeal to the Reagan Administration...
...Lewis emphasizes, "A system of controls, warts and all, is the only anti-inflationary program that seems even roughly fair to all and likely to increase rather than undermine people's sense of security...
...Nobel Laureate Sir John Hicks once observed that the best of all monopoly profits was the pursuit of the quiet life...
...Unlike the pox, inflation will not go away...
...He insufficiently warns his readers of the inflationary consequences of the planned megamilitary and the carte blanche now being given to the generals...
...The answer is yes—for common stocks, the grocer's eggs, and the services in the Yellow Pages...
...Rather, how successful will they be in alleviating economic distress...
...Not, of course, in the manner of steel price quotes passed along surreptitiously under table napkins (as at the infamous Gary dinners of seventy years ago) or market sharing according to phases of the moon (the ploy used by GE and other electrical firms in the 1960s...
...In the twelve years that followed, the yearly rate of inflation averaged nearly 8 per cent...
...At this, many Americans proved adept...
...Presidents have yet to learn this economic principle...
...Examples abound...
...In place of deep thought, politicians will substitute the pithy epigram...
...Economists of a generation ago would have met with a look of affront the then heretical claim that a slack economy with idle workers and machines could also produce rapidly rising prices...
...In the twelve-year period from 1957 to 1968, prices rose annually at an average of 1.6 per cent...
...Patrick Lewis (J...
...Only the disingenuous will ask, "Doesn't competition insure that price increases will be minimized...
...The media, perhaps because of the premium on instant news, distort economic issues...
...This Case does with admirable clarity and patience in Understanding Inflation...
...The Truman experiment with controls during the Korean War was much more instructive, but conservatives seldom mention this experience, preferring instead to raise the specter of nefarious price controllers from Diocletian to Gosplan, as if time and circumstance were irrelevant...
...Corporations and the middle class aspired to and indeed achieved a similar dose of euphoria and security when, in the mid-1960s, the financial buffeting began that persists today...
...The key to understanding inflation is knowing that "most of the important participants in our economy are able to exercise some influence over how the economic pie gets divvied up...
...The welfare state is seen by some as a Grand Entitlement Office, peopled by Gogol-like wastrels, or, in the Kemp-Stockman phrase, "an automatic coast-to-coast soup line...
...Except for welfare recipients and a few other powerless groups whose real incomes have fallen over the last decade, Americans have become part of the cushioned economy...
...And there is a shame in that, for Understanding Inflation is as reasoned a defense of price and wage controls as John Kenneth Galbraith's uncollected thoughts on the subject...
...Even here, executive salary increases outdistance the field...
...Bureaucratic meddling usually takes pride of plaice...
...But this puts us ahead of John Case's achievement in this primer, an informed guide through the labyrinth of the American economy...
...For Case, the "First—maybe the Only—Law of Inflation" is that markets are rigged...
...Virtue demands that the objections to price and wage controls be met, their measure taken...
...9.95 Here is a book so blatantly at odds with conventional economics, so ludicrously out of fashion with what passes for wisdom in Washington that to predict for it a publishing success would be folly...
...Though they are now the luminaries of the newscasts, they get no mention in Understanding Inflation...
...It won't do to cite Nixon's slapdash freezes as a true test of controls...
...Nor does he succumb to the simplistic solutions associated with the Laffers, Kemps, and Stockmans...
...The cause of inflation," Lewis writes, "has been the long, tortuous, and largely successful escape from the terrible insecurity of the marketplace—from the chilling fingers of the invisible hand...
...Virtually every occupation has its trade organization to insure that licensing requirements, hourly wage rates, and entrance restrictions are maintained...
...Case has no pet villains...
...It is built into the system...
...And this power they cannot be expected to relinquish...
...Unplanned and mismanaged, these were fated to failure from the outset...
...Against this ravage, the struggle to sustain real income gains intensified...
...Lobbyists (the "touts of the protected industries" Winston Churchill called them) and political action committees seek tax relief, subsidies, and price supports to widen the wedges of the pie for their constituents...
...For the rest of the economy, competition is as dead as Adam Smith...
...Workers accustomed to cost-of-living adjustments in each new contract resent the hint of a wage cut...
...The reasonableness of a strong incomes policy will become evident only after a long travail, after we suffer through the nostrums of supply-side economics—exercises in alchemy...
...and the list of culprits will include Vietnam, OPEC, minimum wage laws, aggressive unions, big business...
...But here we are in 1981 with nearly a quarter of our plant capacity idle, a 7 per cent plus unemployment rate, and inflation percolating along at two digits...
...Firms today are much more sophisticated and no less effective in insulating themselves from the rigors of competition...
...Perhaps they retain this article of faith from their erstwhile mentors...
...Ask any garage mechanic or junior account executive, "Why inflation...
...Using illness as a metaphor for inflation, with its attendant symptoms, prescriptions, and cures, is meaningless...
...But that is likely to be too late...
...Capitalism, the lesson was clear, is not for lightweights...
...Patrick Lewis, an economist, teaches in the department of integrative studies at Otterbein College in Ohio...
Vol. 45 • June 1991 • No. 7
