Just Take This Medicine
Editors, Matthew Cooper for the
Just Take This Medicine We agree with Paul Craig Roberts that the danger of inflation is widely overestimated. But that doesn't mean there aren't steps we can take to make sure that it does not...
...As The New York Times pointed out, it can now raise them and still be competitive abroad...
...At the Justice Department, Robert Kennedy began a grand jury probe for antitrust violations...
...Not surprisingly, the only years other than 1946-47 that inflation actually went into double digits were 1974 and 1979-1980...
...Because we consume so I much of the world's oil, the prospect of a sudden reduction of demand through rationing should have a sobering effect on the oil-producing nations...
...Pushing up interest rates, as the Federal Reserve Board has been doing, is not the right step...
...Yes," said the clerk at a posh hotel...
...Matthew Cooper for the Editors...
...Unlike Ford, Kennedy put his political muscle into the fight...
...Fortunately, there is something to be done...
...Another way is to enact standby gasoline rationing authority, and make it clear that we will use it if prices get out of line...
...The lower dollar has been good news for American exports but bad for inflation...
...But White House pressure can work...
...The president should have a Noonan speech in the can before the next inflationary settlement...
...Because the price of domestically produced oil followed OPEC's lead, the fact that we imported less oil than, say, Japan was of no help...
...Liberals pinned the blame on LBJ's escalation of the Vietnam war...
...But the biggest culprit was a shortage—a shortage of oil brought on by OPEC, which we can thank for a 26 percent price hike in 1973-74 and a 56 percent boost in 1979-80...
...Presidential jawboning got a bad name in the 1970s when the Ford administration haplessly tried to fight soaring inflation with WIN buttons...
...How can we persuade OPEC to be reasonable...
...If the Fed continues along this path, a recession is practically certain...
...The major cause of double-digit inflation in twentieth century America has been specific shortages of things people want...
...This obviously had ramifications throughout the economy...
...in fact, in 1948, as inflation cooled, the Fed's discount rate was 1.5 percent...
...n The Weaker Dollar...
...Lack of Leadership...
...The inflation of the late 1940s was due to the shortage of consumer goods at war's end...
...As the economy got back on a peacetime footing, inflation abated...
...Eventually the two settled on $119...
...Of course, there are other things Washington could do—like holding back on some cost-of-living adjustments...
...Last year the company did just that, raising its prices 14 percent...
...Interest rates didn't have to go sky-high...
...In the last quarter of 1988 wages grew wages at a 5.5 percent annual rate...
...Incredibly, consumer prices have risen 46 percent since 1979, while producer prices are up 25 percent—proof positive that service costs are way up...
...All these things did, indeed, contribute to the inflationary spiral of the time...
...Why risk such an unhappy result when, instead of using the blunderbuss approach of higher interest rates with the overkill of the economy that they usually provide, we can take specific actions aimed directly at the causes of inflation...
...In 1962, President Kennedy staved off a major $6 a ton increase in steel prices...
...198" "Too much," the customer said, walking away...
...Hobart Rowen recently made a convincing case against steel quotas that effectively limit imports to 20.2 percent of U.S...
...There is no more potent weapon against inflation than consumer resistance...
...Back in the early eighties, when the dollar was high, Dow had to lower its prices to compete in world markets...
...The steel quota should not be extended when it expires on September 30, and we should get rid of other barriers that are inflationary...
...We have a room ." "The rate," asked the customer...
...This is less of a problem than it used to be, but labor costs have begun to rise...
...Since we're heading towards this situation in the airline industry, the proposed merger of Delta and American ought to make everyone anxious...
...Monopoly pricing...
...Here are others and what can be done about them: ? Medical costs...
...Take Dow Chemical...
...In marked contrast to the mostly single-digit inflation we have been experiencing through most of this decade, Medicare payments to doctors have been rising 17 percent per year...
...Monetarists fingered Arthur Burns, Nixon's Federal Reserve chairman, who sped up the money supply in time for the 1972 election...
...Fourteen billion dollars is wasted each year on unnecessary surgery...
...Their concern was enough to prompt this story in The New York Times of March 29: "OPEC Wants Its Prices to Stay Under a $20 Top " The budget deficit is an obvious and often-cited cause of today's rising prices...
...There's nothing inherently terrible about an industry being concentrated in the hands of a few companies...
...The problem is that concentration leads to high prices and closed doors so that no one is open to join the fray...
...Since the main cause of the higher prices of recent months has once again been OPEC, oil prices should remain our primary target...
...But too many barriers protect inefficient industries and keep prices high...
...Other culprits were the rise in wages of auto workers—and those in other industries—without increases in productivity and the 1973 wheat deal with the Russians, which drove up prices by reducing domestic supply...
...But that doesn't mean there aren't steps we can take to make sure that it does not become a serious threat to our economy...
...The problem with shortages held true in the 1970s, even as lots of people tried to place the principal blame for inflation on something else...
...But beyond the federal response, the private sector must do something about controlling costs...
...And they are not unaware of the danger that too high a price will decrease demand, as it did in the early eighties...
...He went on national television to name names and denounce the hike...
...The result: the hike was repealed...
...consumption...
...Because the dollar is so cheap, manufacturers have been able to raise their prices and still be competitive abroad...
...Other companies have followed suit, and the president needs to go after them with zeal...
...The answer in both cases is tough regulation of doctors rather than higher interest rates...
...Trade barriers...
...Businesses ought to band together to fight hotels, airlines, and other businesses that take advantage of expense accounts...
...One example of where we need White House leadership today is in the area of "cost-push" inflation— targeting bad agreements where wages outstrip productivity...
...Because of those quotas, steel prices increased an average of 15 percent in 1987 and 1988—almost four times the 4.4 percent rise in the Consumer Price Index in 1988...
...That is why we were comforted to see a long article by Louis Uchitelle in The New York Times on March 31 with this headline: "Rising Prices: Consumers Are Beginning to Balk:' Peter S. Greenberg of the Los Angeles Times saw just this kind of anti-inflation tendency in Manhattan...
...One way is to sell oil from our Strategic Petroleum Reserve to keep prices down and stem panic caused by shortages like the Valdez incident...
...He transferred government contracts to companies that kept prices in line...
...Indeed, the OPEC hike was particularly inflationary in America because we guzzle far more oil than any other country on earth...
...Caterpillar Inc., the construction equipment company, contends that its prices rose some 8 to 30 percent because of the quotas—versus only 4 to 8 percent had they not been in place...
...Tariffs and quotas can be a good thing—a way of helping an industry that's on the mend...
Vol. 21 • May 1989 • No. 4
