The Stupidity of Free-Market Chic . . . . . . in the Middle East
Bennet, James
The Stupidity of Free-Market Chic . . . . . . in the Middle East If Americans understood that there’s no such thing as a free market, they’d realize there are better ways to break Saddam than...
...The pertinent question isn’t whether or not there should be government interference but what form that interference should take-that is, how Americans as citizens define the marketplace for Americans as producers and consumers...
...Should we “deregulate” the nuclear weapons trade...
...It’s this community-based system that makes rationing a superior tool for cutting demand than the free-market liberal’s cherished device, the gasoline tax...
...The speed and flexibility with which OPA acted owed a great deal to the novelty of the operation and the youth of the staff In the spring of 1942, the average age of the OPA administrator and his chief deputies was barely 30...
...State control of prices clearly can be a disaster in the long term...
...B. replied he thought he would take it to court and sue for $50 damages...
...In May 1942, pipelines to carry oil from Texas and Oklahoma to the East had not been completed, and oil tankers were providing target practice for German submariners...
...He had to be part public servant, part diplomat and part publicist...
...As Rep...
...Most people cooperated, though many complained to their local board...
...By using rationing to keep demand in check, the United States could have held the price of oil at its pre-invasion level of $21 per barrel, or lowered it...
...As The Wall Street Journal observed of the Sununu-Darman-Boskin triumvirate that shapes domestic and economic policy: “Under their approach, economic growth is the holy grail, free markets are sacrosanct, and free trade is the American mantra...
...During that same period, total annual private car consumption dropped from 18...
...RaThe New Republic declared in 1944, “On a makeshift and extemporized basis, detailed and com p I ica ted controls beyond anything in American history have been imposed...
...B. reports that he purchased at this delicatessen a box of crackers for 4.5 cents, he presented a receipt showing he had been overcharged by 16 cents...
...Probably the most extreme case of government interference in the American marketplace occurred during World War 11, through the offices of the OPA...
...Much of the “deregulation” of the early eightieswidely regarded on the Left as the financial sector’s answer to crack-was needed, and faulty primarily because it came too late...
...On a makeshift and extemporized basis, detailed and complicated controls beyond anything in American history have been imposed...
...If our crooks and our economy have since become more sophisticated, so have our COPS and our economists...
...The backlog of demand wouldn’t have been much of a problem had controls stayed in place until factories returned to producing consumer goods...
...This spreading bias has manifested itself most starkly in the American response to Saddam Hussein...
...Consumers quickly bid up the limited goods available, and inflation soared...
...But at the same time, deregulatory zeal has led the federal government to neglect vital safety issues, such as size and maintenance of trailers...
...And instead of runaway prices, most prices have been pegged...
...But it’s also permitted a handful of large airlines to divide up the country into distinct regional monopolies, shutting out smaller competitors and jacking up fares on less-traveled routes...
...And yet the dam thing runs...
...In 1940, the entire American GNP was just under $100 billion...
...Mercifully, no one freely uses the word “corporate” to mean “evil” anymore...
...The government has to be flexible enough to respond to developments in the marketplace in order to fine tune it-opening access to airline hubs, increasing emissions and mileage standards for cars as the technology improves, determining the legitimate uses of genetic engineering in humans...
...Perhaps because today’s de rigeur thinking precludes the notion of government using the national economy as a weapon...
...A free-market bias that discourages any intervention in the economy can have exactly the same negative effect that wage and price controls can have: freezing inequities and inefficiencies into place...
...How about ownership of property...
...They rest firmly on the constitutional While Congress was burning UD seven months creased more than nine times...
...Unfortunately, the pricing scheme of this free market seems to be slightly off Blood may still be thicker than water, but in America it’s now cheaper than oil...
...The agency grew tenfold in its first year, raiding the staffs of moribund agencies and the faculties of universities around the country...
...if the market is wrong, then the government should be intervening to head off the inflationary effects of a purely speculative doubling of oil prices...
...billion gallons to 10.8 billion...
...Commercial users of gasoline, such as truck and bus lines, received special T” coupons, and farmers got “R” coupons for their tractors and other equipment...
...small entrepreneurs have been allowed into the marketplace to compete, lowering prices...
...Through gas rationing, the United States, which buys more oil than the six other top oil-consuming nations combined, could have taught him an unforgettable lesson in demand-side economics...
...Re-regulate...
...Farmers want higher prices...
...Auto safety comes to mind...
...In his memoirs Promises to Keep, Chester Bowles, who served as Connecticut district administrator for the OPA before becoming head of the national agency in the summer of 1943, wrote, “The program worked for two reasons...
...Because of the American experience in World War I, when widespread profiteering spawned massive inflation and 22,000 new millionaires, Roosevelt was actively investigating the merits of price stabilization by the time of the Battle of Dunkirk in May 1940...
...Research assistance was provided by Joshua Ray Levin...
...The coalition that had kept the agency going began to unravel after V-J day, however...
...War planners calculated that the military alone would need $100 billion annually to fight the two-front war...
...B. . . . This man (grocer) had been checked six times in the past 3 months and each time was found in compliance and had never had a complaint or occasion to be called before the board before . . . he would advise Mr...
...It’s an instructive example, because, unlike Richard Nixon’s clumsy “Phases,” which free marketeers trot out whenever anyone mentions price control, the OPA’s regulation was so encompassing-and it worked so well...
...Meanwhile, the boycott, tioning at least merited serious consideration, but free marketeers would instantly lose their membership cards if they dared clear their throats and raise the idea...
...But the stubborn fact is that rationing worked before...
...But many are settling on a new bias that is no less knee-jerk-that “free market” means “good,” which leads to the dangerous assumption that government intervention inevitably sours the economy...
...The federal government first resorted to gasoline rationing on the East Coast to deal with a real, immediate shortage, unlike the perceived shortage we face today...
...Advertisers had kept consumers primed through the lean war years: “Many dealers have Coffeemaster, but if your dealer should not, it is because of the ‘all out’ war production program at the Sunbeam factory...
...By the end of the war, pent-up demand for consumer goods was staggering...
...The problem is, they’re wrong...
...And in the past 11 months, according to Mr...
...Bush would have a far easier time convincing Americans oil is worth rationing than he will convincing them it’s worth dying for...
...Individual economic action inevitably has consequences for political life, and vice versa...
...It’s ridiculous to talk about American “free” markets, since the government is constantly interfering to invent new markets and modify existing ones-creating a tax break for companies that make ethanol, for example, or outlawing child prostitution...
...After being rationed on the East Coast, gasoline was added to the responsibilities of all boards in December 1942, not in order to preserve gasoline, which was running short only in the East, but to preserve rubber...
...This category included maintenance men, candidates on the campaign trail, and, believe it or not, doctors (today, the only guys making house calls carry pizzas...
...B. He asked the panel members if they thought he would be so foolish to give a receipt if he had any intention of wrongdoing...
...The legislature hates subsidies...
...Deregulation of the trucking industry has in many ways resulted in better service to the consumer...
...By the time Bush finally opened the reserves, it was too little, too late...
...First, we went to great lengths to explain it constantly to the public, and second, everyone recognized that the decision in regard to his ration was made not by some bureaucrat in Washington but by members of his own community who served on the local volunteer ration board...
...Even George Bush’s solution to the Gulf crisis-sending troops to Saudi Arabia and cutting off the Iraqi pipelines to restore OPEC’s role as peaceful pricefixeris just price control by another name (war) and with an added cost (human life...
...Bowles, there has been no upward move in the costofliving average at all...
...S. asked Mr...
...Surveying the “end of history” a year ago, George Will memly observed, “There are a few brackish backwaters of Marxism-Managua, Pyongyang, Cambridge, Massachusetts-but no longer i s it de rigeur for ‘advanced’ thinkers to think that bourgeois society is a backward, doomed stage of development toward a shimmering socialist future...
...The system may have creaked and groaned, but some good work got done...
...Yes, this synopsis has blithely skipped over a number of complications, such as the inevitable black market...
...Motorists were entitled to one of three ration tickets, depending on their needs as determined by a board...
...Would free marketeers argue that the Emancipation Proclamation constituted illegitimate government interference in the marketplace...
...But the market (sorry, but we all affectionately personify it these days) is adding in other factors: The price rise is based not on the current cut in supply but on expectations that there’s going to be a war...
...They constitute a powerful ‘blocking coalition’ that swats down proposals at odds with this philosophy...
...which had limited authority to issue extra coupons in hardship cases...
...The legality of these price schedules is unquestionable,” Rep...
...Likewise, airline deregulation has resulted in better service for long-distance passengers...
...A. another chance and then if he is caught willfully overcharging he will be dealt with severely by the board...
...It should worry Americans profoundly that the administration is not consideringrationing- or even less ambitious demand-side reforms-from lowering speed limits to limiting business tax deductions for employees’ parking costs-that would constitute “interference” in the market...
...Today, we have plenty of oil, since Iraq and Kuwait accounted for only 3.5 percent of our supply-an amount that swollen U.S...
...These days, the collapse of the S&Ls is the favorite example of the perils of “deregulation” for the remaining big-government types and for those freemarket liberals still anxious to assert their lefty credentials...
...In such a case, put Coffeemaster on your ‘VICTORY LIST’ of things to get first when peace returns...
...Labor wants higher wages...
...This is the most dangerous deficiency of both the current prevalent bias and the former, pro-regulation one: The shorthand terms of debate over economic issues-“free marketeers” on one side, “big government” types on the other-hide more than they reveal...
...If the market is right, then the government should be intervening to prepare Americans for the economy-wrecking oil shortages a Persian Gulf war would cause...
...Although demand for motor transport shot up as the wartime economy began humming, the results of the rationing system were impressive., The average gas consumption per passenger car went from 607 gallons in 1941 to 416 combined with the threat of air strikes should Iraq make a move for Saudi Arabia, could have closed the noose around Saddam’s neck without deployment of ground forces...
...Just consider the condition o housing in New York City: City government control of rents-a holdover from World War 11-has forced up prices on uncontrolled apartments, discouraged new building, and encouraged landlords to harass their tenants and let their property go to seed...
...Meanwhile, “Farmers, labor, and corporations are making the biggest profits on record...
...The subsequent success of Violetta Chamorro in Nicaragua and John Silber in Massachusetts suggests it’s getting less de rigeur by the day...
...That means voters have to understand that the choice isn’t between the free market and big government, that the distinction harshly symbolized by Bush’s joyriding in his cigarette boat-between citizen and consumer, between republican life and economic life-is phony...
...Gas rationing, in concert with the boycott, could have handled Saddam on both counts, without loss of life...
...Even more important, a degree of state control over the economy in the long term is crucial to prevent abuses of the environment and of workers’ and consumers’ health-again, a point that seems self-evident after a moment’s reflection...
...Indeed, you might think that after punching in an 8 percent reduction in the world’s supplies and coming up with a doubled price of oil, the free market would check the batteries in its calculator...
...asked The New York Times last summer in a classic editorial oversimplification of the debate about transportation and telecommunications...
...During World War 11, bold leadership and a widely perceived threat persuaded Americans to cut the nation’s gasoline and fuel oil consumption almost in half...
...Thrown together in the early days of World War 11, the Office of Price Administration eventually controlled almost every price-of any dress, any peach, any stove or pork c h o p i n the United States...
...their absentee ballots, Americans at home can certainly take a few moments to go to the polls...
...On April 28, 1942, OPA issued the General Maximum Price Regulation (“General Max”), which controlled all goods and services not already controlled...
...Few liberals are outraged about this laissez-faire approach...
...You don’t have to go to Eastern Europe for evidence...
...While the OPA was in full swing-from the spring of 1943 to the spring of 1945-the Bureau of Labor Statistics’ index of consumer prices rose less than 2 percent...
...In other words, we would have all the benefits of the actions Bush has taken so far with none of the costs: no unpredictable shocks to the economy, much less risk to human life...
...Stationing troops in Saudi Arabia may help with the second problem, but only by exacerbating the first...
...It seems reasonable to assume that the market could be either right or wrong about this...
...When a motorist paid for his fuel, he would also hand over the requisite number of coupons...
...S. reminded Mr...
...gallons in 1943...
...Now the big government crowd, thrashing around in the same Manichean universe, is making the same mistake...
...And what about inflation...
...Car owners who had to travel in the course of working were issued “C” cards...
...George Bush, who in some ways-working through the U.N., bringing the Arabs on board-has handled the Middle East crisis superbly, nonetheless seemed far more willing to send tens of thousands more potential victims into the desert than he was to offset the economic impact of the invasion by tapping the strategic petroleum reserves-r even by calling vigorously for conservation at home...
...The real problem behind the rapid escalation of the S&L mess in the eighties was not “deregulation” but an absence of “oversight” (that is, enforcing the rules that remained on the books and analyzing the market to ensure they were adequate...
...But as the OPA proved, over the short term even massive government control can work...
...Recently on National Public Radio’s “All Things Considered,” Philip Verleger of the Institute for International Economics was asked why American companies were selling gasoline abroad when we might soon be facing shortages at home...
...So were manufacturers and retailers...
...Ditto for the cable television industry...
...Either way, we should be doing something to counter the economic threat that Saddam is posing to the United States in addition to the political threat he’s posing to the world order...
...B. made the statement he would think it over and on second thought he probably wouldn’t sue at all...
...The government had no legal authority to enforce the measure...
...It was the only ration for which those with no war-related reason to drive were eligible...
...A gas tax large enough to quickly cut demand could never discriminate as precisely on the basis of need-to-travel and as a result would be extremely inflationary...
...Meanwhile, “Farmers, labor, and corporations are making the biggest profits on record . . . national income is roosting in the tall pines...
...Corporations want to end renegotiation...
...So does clean air...
...That’s okay, then...
...Americans had been saving at a rate of $33 billion per year, and they were ready for their reward...
...The Stupidity of Free-Market Chic . . . . . . in the Middle East If Americans understood that there’s no such thing as a free market, they’d realize there are better ways to break Saddam than going to war by James Bennet As compensation for the loss of a good chunk of their ideological foundation in the past two years, American conservatives have had the satisfaction of watching liberals slink quietly away from their old economic biases...
...Case dismissed...
...At this point in World War I . . . cost of living was up 64 percent...
...Eventually, these boards managed 18 rationing programs, including shoes, coffee, meat, and canned fruit and vegetables...
...Today, cost of living is up only 26 percent...
...This victory of the consumer over the citizen must be what everyone means by “the triumph of capitalism...
...Huh...
...If today’s voters and politicians understood that as well as those price and ration board volunteers did, they’d realize that the national economy, as the aggregate of all our individual getting and spending, should be recruited to serve the national interest long before any 18-yearold...
...His reply was he was taken to the hospital in January and came back to his store the middle of February . . . that truthfully he was not aware of the correct selling price until he called the price clerk and had her figure his mark-up...
...public and private reserves plus increased production by oilexporting nations could easily offset until the boycott starves Iraq...
...A. if he had anything to say...
...A volunteer member of a local ration board was subject not only to heavy pressures but often to considerable abuse...
...The industry was in fact doomed by stupid regulation in the late sixties...
...B. to give Mr...
...As OPA went to work, the inflationary pressures were becoming enormous...
...It’s to use new government regulation to carefully eliminate the natural barriers of the industry that we’ve discovered as the government-shaped air travel marketplace has developed in the past few years, thereby allowing market forces to go to work...
...Lyndon Johnson could have taught this threesome something about the wisdom of locking out opposing counsel...
...He admitted the sales “may seem to be unpatriotic” but offered this justification: “It’s hard to explain to voters, but it’s how the market works...
...Liberals are finally willing to recognize that businessmen can contribute to society...
...In the summer of 1946, Congress passed a new price control bill that was stuffed with exemptions for assorted industries...
...An “A” card went to all car owners to cover basic requirements like getting to the store...
...Bowles wrote Truman that “the bill would simply serve to legalize inflation” and resigned...
...it’s still business as usual...
...Followed by clean water, food inspection, traffic lights, and the jailing of Ivan Boesky...
...Shortly thereafter, Bowles, the new director of OPA, stopped inflation dead...
...In effect, OPA had taken over the entire marketplace...
...Gas attack The tragedy of the widespread acceptance of this business-as-usual response is that, were Bush willing to consider options that involved government intervention in the economy, he might have stumbled on a more elegant means of sticking it to Saddam-one that wouldn’t cause inflation or kill Americans...
...As background, you should know that anyone who was overcharged had the right to sue the merchant for triple the amount of the overcharge or $50: Fourth case...
...By regarding the government and the market as antagonistic forces rather than cooperating and compensating ones, Americans blind themselves to the vital importance of the federal government’s most peculiar institutions: the regulatory agencies, where so much of the action is and so little of the reporting gets done (witness the S&L debacle...
...We may be on the verge of war in the desert, but here in the U.S...
...Let’s hope they don’t have greater cause to regret this than just a recession...
...We’ll continue to advertise so you’ll remember...
...In February 1941, his early team of stabilizers enacted the first of their “price schedules,” intended to control prices of second-hand machine tools...
...The solution isn’t what the Times calls “re-regulation,” by which it must mean a return to the days of the Civil Aeronautics Board and regulated routes and fares...
...As one Oregon housewife put it, reporting in an official history of the OPA on her five years’ work as a volunteer board clerk: “We discovered that the American people are basically honest, and talk too much...
...OPA’s big thinkers quickly discovered that their itern-byitem, “selectivist” approach to price control was insufficient...
...The free-market bias has served to short-circuit public discussion of the crisis...
...But it does not easily apply to the modem economy, even in industries with limited competition...
...Meanwhile, the closest Bush has come to issuing a clarion call for national sacrifice on behalf of the military effort has been to point out in an advertisement during a baseball playoff game that if our troops in Saudi Arabia can take the time to send in James Bennet is an editor of The Washington Monthly...
...That image was relevant in the 19th century, when farmers needed protection from monopolistic railroads...
...While the broader history of the OPA holds some important lessons for free marketeers (which we’ll come to), of immediate interest is one specific OPA program: gasoline rationing...
...B” cards went to people who couldn’t car pool or use public transportation to get to and from work...
...He offered to refund the 16 cents to Mr...
...Unfortunately, this failure is perfectly consistent...
...Not on your life...
...At this point Mr...
...Despite the controls, inflation continued to drift upward until FDR’s famous “hold the line” order of spring 1943...
...But the price control line began to bend too soon...
...By fall, Truman, lashing out at the “few men in Congress who, in the service of selfish interests, have been determined for some time to wreck price controls no matter what the cost might be to our people,” was forced to lift first controls on meat, then on all wages and most prices...
...Just the ticket Within a month after Pearl Harbor, ration boards made up of volunteers recruited and organized by the OPA were allocating tires in every American community...
...Writing off the advances in consumer protection in 20th-century America is like writing off the progress in Italian art after the 15th-century...
...31 in Washington, D.C...
...the amount of the ration depended on the distance the holder had to travel...
...By the time Congress passed the bill in January 1942, John Kenneth Galbraith, as head of OPA’s price division, had already placed about half the country’s wholesale prices under control by issuing price schedules, brokering voluntary agreements, and sending out threatening letters...
...Those definitions depend more on nuance than on the yes or no of “free market” and “big government...
...Henry Steagall noted wryly...
...S. asked MI: B. what he wanted and Mr...
...Between 1940 and 1943, liquid savings by individuals indickering over;he Emergency P&e Control Act that The 16-cent decision FDR requested, OPA was rushing ahead with its preparations...
...Meanwhile, Americans have continued sucking down gasoline at virtually the same rate as before the crisis, as though their consumption had nothing to do with the national predicament...
...Money will be refunded...
...But then along comes the staid New York Times to elevate silliness to a virtue: “Deregulation has been a triumph...
...And instead of runaway prices, most prices have been pegged...
...This bias pervades the breathless reporting on economic change (always called “reform”) in the Soviet Union and Eastern EuroDe (see Jonathan Rowe...
...Here’s an example of how these boards functioned, taken from the March 8, 1944 minutes of Board No...
...The OPA would have shown him the way...
...Tlhe core explanation for the administration’s caution seems to be a deep reluctance to tamper with private markets,” reported the Times, which to its credit endorsed the idea of tapping the reserves early in the crisis...
...It seems gratuitous to point out that blanket condemnation of government regulation is as silly as blanket advocacy of it...
...As Harvey Mansfield wrote in his official history of OPA, “Decontrol was not a rational triumph of enlightened self-interest...
...The system is under attack from every side...
...It is also affecting the way Americans view their own government, as free market chic creeps from the editorial pages of The Wall Street Journal into the organs of conventional liberal opinion...
...That flies in the face of traditional liberal reliance on government regulators to protect ordinary consumers...
...The New Republic declared in 1944, “We are fighting a war and getting rich too...
...According to the experts, Saddam Hussein’s original goal in taking Kuwait was to force the increase in oil prices that OPEC wouldn’t support...
...How much for the girl...
...That problem arose because the freemarket Reaganauts confused the two terms...
...A friend in Cambridge reports that guests make fun of her for keeping Marx on the shelf...
...lective commodities is like trying to impound a stream by building a dam only halfway across it...
...Albert Gore declared in urging a more universal approach in the fall of 1941, “To try to halt general price levels by placing a ceiling on seAs with rationing, Bowles believed that the keys to OPA’s success in controlling prices during the war years were the 5,600 price and ration boards, staffed by a quarter-million volunteers working on average 32 hours each week-“by all odds the greatest grassroots administrative effort in our history,” he wrote...
...D. 20...
Vol. 22 • November 1990 • No. 10
