Marshall:
Inflation is running rampant. We need strong
government intervention now to bring it under control.
Nelson:
Wage and price controls have never worked and can never
work. The last thing we need now is more government intrusion into the
economy and into our daily lives.
Dukakis:
Good evening, and welcome to The Advocates. I'm
Michael Dukakis. Tonight we're going to be talking about the thing that's
first on just about everybody's mind these days—inflation and what to do
about. Perhaps it's some small comfort to know that the United States is not
nearly as bad off as some other countries. Argentina has run a rate of
inflation in recent years of at times 100 percent. The current rate of
inflation in Israel is approximately 50 percent. And England, Great Britain,
only recently slowed down from 25 percent. On the other hand, little
Austria, which imports a great deal of its energy has managed to hold its
rate of inflation to approximately 3 percent; West Germany, to substantially
less than 5 percent. We all have our ideas about what causes inflation. Some
people think it's OPEC and the price of oil. Others think that it's the
manipulation of the economy by what they call "big business" and "big
labor." Some think it's the government running a deficit too long,
particularly during the Korean War, the Vietnam War. And some say it's the
government which is printing too much money. There isn't a lot of agreement
on what to do about inflation either. Look at how different presidents have
dealt with it. Jimmy Carter's guidelines, John Kennedy's public pressure,
Lyndon Johnson's job-owning and persuading with a big stick. And at least
three presidents in recent years have in fact imposed wage and price
controls in the economy of this country. President Roosevelt, during the
second World War; President Truman, during the Korean War; and more
recently, President Nixon- during the early 70's. So, tonight, we return to
the question of mandatory controls over wages and prices and other factors
in our economy; and we ask this question: "Should the United States impose
wage and price controls to fight inflation?" Advocate Margaret Marshall
says, "Yes."
Marshall:
Our economy is out of control, and the result is inflation.
Tonight, to tell us what causes inflation and how we can combat it, I shall
call two expert witnesses. Joan Bannon is an economist and Assistant
Director of the United States Conference of Mayors. Gar Alperovitz is also
an economist and Director of the National Center for Economic Alternatives.
We've got to stop fighting inflation with one hand behind our back. The task
is awesome. Last year, the annual rate of inflation topped 12 percent; and
it's rising. All of us are affected by inflation. If we want to attain some
kind of control over our earning and our spending capacity, we must pressure
Washington to take a strong stand. To begin with, we can insist that the top
2,000 corporations and the top 100 unions no longer increase wage and price
controls—wages and prices. And to do that, we have to insist the government
not promote special interests at the expenses of all of us. My witnesses
will tell us first why the inflation that we now face is quite different
from any other inflation that we faced before; second, why a timid and
hands-off approach simply won't work and third, why a coherent and
well-directed policy can succeed. We can in a democratic manner restore
economic health to our nation.
Dukakis:
Advocate Avi Nelson says, "No.”
Nelson:
Wage and price controls simply do not work, and we don't
need them. To help me make this case tonight, two distinguished witnesses,
Dr. Marvin Kosters, who is an economist with the American Enterprise
Institute and Professor David Meiselman, who is a Professor of Economics at
Virginia Polytechnic Institute and State University.
Wage and price controls have been tried hundreds of times
over 40 centuries, and there isn't a single recorded instance of success.
And the reason is because they treat the symptom and not the cause of
inflation. Increasing prices are not the cause of inflation; they are the
result. And implying wage and price controls will help is like painting a
thermometer to tell yourself you don't have a fever. You can mask the
symptom, but you don't address yourself to the underlying cause. The main
cause of inflation is the printing of money, the inflation of the currency,
the cheapening of the currency which is done when the government runs the
printing presses. And this is what we have to address ourselves to. Wage and
price controls are the kinds of things that are simplistic and easy to grab
onto. But the fact is not only are they ineffective, but they also are
counter-productive. They cause shortages and black markets; and if we really
want to make a dent in this inflation problem, we have to address ourselves
to the true underlying cause. Only that way will we be able to solve
inflation and the result of inflation—the constant upward price spiral under
which we all suffer.
Dukakis:
Thank you, Mr. Nelson, we'll get to the cases in a
moment but first a word about tonight's debate. I think it's important to
point out that at the present time, President Carter cannot unilaterally
impose mandatory controls on wages and prices. Congress will have to act to
give him those powers, which means that both the executive and legislative
branches are involved, and it is to both the Congress and the President that
our question is addressed this evening. And now, let's get on with our
cases. Miss Marshall—your first witness.
Marshall:
I call witness Joan Bannon.
Dukakis:
Welcome to The Advocates, Miss Bannon. Nice to
have you with us.
Marshall:
Miss Bannon, you have heard Mr. Nelson say that the reason
why we have this 12, 13 percent inflation is because we keep printing too
much money. What are the causes of inflation in your estimation?
Bannon:
Well, the textbook explanation for inflation has been that
inflation is the result of excess demand—that is, too much demand chasing
too few goods.
Marshall:
Does that apply now?
Bannon:
I, I don't believe it applies now—when we've got
unemployment that still remains at 6 percent of the labor force, when we've
got industry operating at only 85 percent of capacity. We certainly don't
have a situation of excess demand.
Marshall:
What do we have?
Bannon:
I think the re—, I think the cause of our present-day
inflation is the concentration in certain markets—the fact that, that firms
now have a great deal of control over the prices which they can pass on to
consumers.
Marshall:
Can you give us an example of what you mean by
concentration in the markets?
Bannon:
The top 150 firms—the largest 150 firms in the U.S.
economy today—control roughly two thirds of our productive assets—that is,
plant and machinery. And they account for over half of all sales and all
profits—whether we're looking at the market for detergents, or the market
for automobiles, or the market for steel.
Marshall:
You will see this finds—
Bannon:
—Or that the top four firms in the industry pretty much
are the price-setters and dominate that industry.
Marshall:
Now, if the concentration in a particular area means that
a corporation can set its prices and is essentially out of the supply-demand
mechanism, what kinds of controls would you advocate o r how do we deal with
the inflation that is a result of that concentration?
Bannon:
Well, first let me, let me say that there are three
possible groups that we can go to control inflation. One is our traditional
fiscal and monetary policies.
Bannon:
We can, we can cut federal spending, we can raise taxes,
we can raise interest rates. However, those tools are, are, are effective
and useful only when we have a situation of excess demand. So they don't
have currently—
Marshall:
So they don't have—. They would not be effective
now.
Bannon:
I don't believe they would be effective in combating our
current inflation.
Marshall:
What are the other mechanisms?
Bannon:
Another mechanism is what's being attempted right now in
our economy-voluntary wage and price guidelines—voluntary
cooperation.
Marshall:
Have those been successful?
Bannon:
Well, I believe that history has shown that they're not
very successful— the reason being that those who cooperate with the
guidelines are the losers in the long run, if inflation is higher than
expected.
Marshall:
So, does that mean—
Bannon:
Those who violate the guidelines usually are the
winners.
Marshall:
Does that mean there's nothing we can do about
inflation?
Bannon:
Well, I think the third alternative is mandatory wage and
price controls. On a selective basis—
Marshall:
What do you mean by selective?
Bannon:
Well, I think we can't control all as—, all sectors of the
economy, and I don't think we want to. We still do have roughly half of our
economy operating on a fairly competitive basis—small firms. We have really
eight million independent entrepreneurs in our economy, whether farmers,
small businessmen, small, small firms, of one kind or another. It's the
other half of the economy where prices are being fixed right now, and I
think it's important we realize they're being fixed by the firms who are,
who are selling the products to people and where they have control over the
prices. The question is, "Do we want our prices fixed by firms where it's
adding to our inflation, or do we want prices fixed by government in such a
fashion as to control inflation?"
Marshall:
So you're really saying that it's the big guys who fix the
prices, and all of us pay the price for that, in other words.
Bannon:
I think that that's been the case. I think if we look at
the history of our economy, what we see is that the only year in which
prices have gone down was in 1949, since World War II; the only year in
which prices actually went down was in 1949, and this despite the fact that
we've had four recessions where demand actually dropped.
Marshall:
So you're saying that—
Bannon:
What that says is that prices were still going up, and I
think the reason for that is that when, when demand goes down in the
automobile sector, for example, we still see that General Motors and Ford
can raise prices.
Marshall:
Let's take a look at this proposal of yours to put
controls onto the top corporations—the biggies—the top 2,000, and the big
unions. Is that workable, or are you suggesting some kind of mammoth
bureaucratic entanglement that is going to grind this thing to a
halt?
Bannon:
No, I think it's workable. I—. During the Nixon economic
stabilization program, there, there was a total staff of 900 who were
monitoring—
Marshall:
Was that mandatory wage and price controls?
Bannon:
Mandatory wage and price controls, and they were
monitoring compliance in a much broader range of firms and labor unions and
really across the whole economy. What I'm proposing is that we focus our
attention on the largest corporations and the largest labor unions and on
government employees and so on. But we're, we're focusing our, our attack
here; and I don't think it would require a huge bureaucratic apparatus to
monitor that kind of wage and price controls.
Marshall:
So we could actually streamline quite easily.
Dukakis:
Excuse me. Miss Bannon, Miss Marshall will have an
opportunity to ask you some questions in just a minute or two. But we're
going to move now to Mr. Nelson who has some questions of his own for you.
Mr. Nelson—
Nelson:
Miss Bannon, you talked about the large industries'
concentration of market power. Isn't it true that in the large industries
the prices have gone up on the average less rapidly than in the rest of
society?
Bannon:
Well, no, I don't think that's true, although if you look
at where the price increases have been most recently, you do find that they
have been in four sectors of the economy; and we do have another witness who
is going to address that.
Nelson:
Miss Bannon, if you check and take a look, after the
program, and take a look at autos or manufactured durable goods or
televisions, you'll find that in the big industries, the actual price
increase has been lower than the average overall. So it casts some question
in the direction you're traveling. But I'd like to go now to the question of
wage and price controls, which is really the theme of the program. There's a
new book that just came out, Forty Centuries of Wage and Price Controls.
They went back a lot of years, and they didn't find a single instance of
where it is, was successful. Now, I appreciate your tenacity, but don't you
think by this time we should have learned a little bit from
history?
Bannon:
Well, I, I think that's an unfair characterization of
what's happened with wage and price controls. I think there have been some
successes. I think, for example, in World War II, we were very successful at
controlling prices. I think that the Nixon economic stabilization program
was fairly successful from 1971 through 1973 at controlling prices. The
inflation rate went down. I think that if you look at other countries, for
example, England, when they instituted their wage and price controls, at
least it lasted for a year or two years, where they actually did bring
inflation down.
Nelson:
And then they abandoned—, in each of these cases, they
abandoned them as unworkable. You mentioned World War II, which, of course,
is cited as the classic instance, there were 60,000 bureaucrats, 300,000
volunteers, to try to impose that control system. We had the motivation of
the patriotic spirit because we were involved in a war for survival. And
even then, as Milton Friedman put it, the ingenuity of millions of people
could not be denied. And there were black markets and gray markets; and
overall, I don't think with the exception of you and perhaps the eminent
novelist John Kenneth Galbriath, there were people who were satisfied with
that, with the performance in that era.
Bannon:
Well, I, I do think that we have been relatively
successful. I don't think we need that kind of bureaucratic apparatus to
monitor a very selective kind over wage and price controls. We certainly
don't need 60,000 bureaucrats. I think that we can rely on a voluntary
compliance of a lot of firms. I think we can rely on selective audits of
those firms and those unions to see what sorts of wage and price controls—,
increases are, are occurring.
Nelson:
We are, of course, talking about mandatory wage and price
controls-
Nelson:
Let me—, let me go into some of the economics. Let's take
a, a price for a commodity or substance that is going to be controlled, and
I think we agree that we're controlling it down—that is to say—we're putting
a ceiling on it. So in effect, we are denying the ordinary market forces if
the price is kept down. What does that do to supply? Doesn't it tend to
depress the supply because producers won't be as eager to come in and
produce that substance—that widget?
Bannon:
Experience has shown that that has not necessarily
happened. During 1971 through 1973, there were very few supply problems that
developed. There were beginning in 1974; and the reason is we had the world
market impinging on our domestic market. It's very difficult to have wage
and price controls that are absolutely inflexible. But I think flexibility
is the key. I think we—
Bannon:
—have to be able to respond to the need to raise wages and
prices in certain areas that—
Nelson:
Isn't it true in basic economics that if you price the
good low, then you're going to have fewer producers coming in to produce it
because the profit margin is lower? And let's continue the next step. When
the price is kept down, isn't it also true that we stimulate demand? We tend
to buy more things if they are priced lower. Isn't that true?
Bannon:
I think that's true in those areas where the economy is
relatively competitive. I, I am not proposing that we put wage and price
controls on those areas of the economy that are operating in a competitive
fashion. Certainly not on small businessmen; certainly not on farmers. I
think there are large areas of the economy that operate in that kind of
fashion. But, but the problem
Bannon:
—is we have at least half of our private sector economy
operating in a noncompetitive fashion. Supply and demand are not operating
in those sectors.
Nelson:
You're telling me then that if we lower the price, there
won't be an increase in demand. Is that correct? In other words, if, if we
have a widget or a glass or a book and we reduce the price, there will be no
increase in demand. Is that correct?
Bannon:
No, I, I think there will be an increase in
demand.
Nelson:
Good. I agree. Now, what happens when we have a depressed
supply and an increased demand—doesn't that create a shortage with that
product?
Bannon:
I think it can create shortages, but I think we are
capable of dealing with those—
Nelson:
Yes we do. How do we deal with—
Bannon:
—kinds of situations in a fairly flexible
manner.
Nelson:
—with rationing, with controls, because if there is a
greater demand than we have supply, then obviously some people aren't going
to be able to get the commodity that they're after. So who makes the
decision? Some bureaucrat somewhere. It depends less on how much money you
have because the good is in short supply. It depends more on who knows whose
brother-in-law in some agency in Washington. Isn't that the natural result
of wage and price controls?
Bannon:
I think the question is, "Do we want Exxon setting our
prices for oil, or do we want the government setting our prices for gasoline
and oil?"
Nelson:
Fortunately, in that case—
Bannon:
I would rather take my chances with the
government.
Nelson:
We don't have either. We have OPEC setting our prices for
oil. But you want to regulate the top 2,000 companies. Incidentally, I would
hate to see the scurrying around when you say 2,000 of the bottom hundred or
two hundred each quarreling with the other to claim that they really are
smaller than their neighbor.
Dukakis:
Mr. Nelson, I'm sorry I'm going to have to
interrupt and let Miss Bannon respond to that and then we'll go back to Miss
Marshall. Do you have a quick response to that?
Bannon:
I think what we need to do is set some kind of limits. I'm
not saying absolutely the 2,000 largest firms. I'm saying we're going to
have some kind of cut-off. It might be 2,100. It might be 1,900. But I think
we want to hit those firms that do hire a large number of employees and have
major market influence.
Dukakis:
All right. Let's go back to Miss Marshall
now.
Marshall:
Miss Bannon, what you're really suggesting to me is this
program that you're suggesting of mandatory wage and price controls needn't
be so inflexible that the government not reserve to itself the right to
react to a situation when it saw an emergency arising. Is that
correct?
Bannon:
That's what I'm saying. I think that's very
important.
Marshall:
Mr. Nelson has tried to suggest that as to the mandatory
wage and price controls that were imposed by the Nixon Administration in the
early 70's, that these were lifted because they didn't work. Were there any
other political factors? Is that the reason why they were lifted?
Bannon:
Well, I think, I think what happened with the Nixon wage
and price controls was something totally beyond the control of, of anyone
in, in our Administration at the time. We had, we had rising food prices,
mainly because of, of export, rising exports of grains and because of crop
shortages. We had the OPEC cartel raising oil prices, tripling oil prices.
Those kinds of factors were impinging on our local domestic
problems.
Marshall:
So those were external factors, in other words.
Bannon:
And I think that's the reason that the controls fell
apart.
Dukakis:
On that note I'll have to interrupt. Thank you,
Miss Bannon, very much for being with us. Now let's turn to Mr. Nelson who's
going to present his first witness to us.
Nelson:
Thank you. I call Dr. Marvin Kosters.
Dukakis:
Welcome to The Advocates, Dr. Kosters. Nice to
have you with us.
Nelson:
Dr. Kosters is an economist with the American Enterprise
Institute. Now, let's get to the bottom line first. Will mandatory wage and
price controls work?
Nelson:
Why not? Good answer. Why not?
Kosters:
The reason, the reason they won't work is that usually
when controls are imposed, you have a situation where demand is increasing
more rapidly than our capacity to increase supply. Under those
circumstances, if you impose controls to keep prices down, you have
shortages. So you can take your choice between keeping prices stable under
rigid controls or experiencing shortages. You can't have both.
Nelson:
Have controls, mandatory controls, been tried?
Kosters:
They've been tried in, in many cases—in this country and
abroad—and by and large, they have failed to keep prices down. They've
sometimes kept them down for a brief time and let them rise later. That's
the typical experience.
Nelson:
When these shortages develop, does that lead to so-called
gray and black markets?
Kosters:
Yes. People are very inventive about ways of getting
around wage and price controls, so that when you have mandatory wage and
price controls, you have people all across the country channeling their
energies to conniving to get around them rather than more productive
activities.
Nelson:
What about, as was alleged by Miss Bannon, that it's
market concentration, that it's the big companies that are the problem; and
if we impose some kind of constraints on them, that our inflation problem
will be solved?
Kosters:
Well, there are two problems with that view. First of all,
it's not borne out by the data. If you look at the evidence, more
concentrated industries tend to have slower price increases historically
than do the less concentrated industries. That doesn't mean they're better
behaviors in a normative sense. It only means that they've had larger
productivity increases. They've become very efficient compared to other
sectors of the economy. The other problem is that it's very difficult,
really, to distinguish between firms of different sizes in producing the
same product. If you have the same product produced by a small firm and a
large firm, it doesn't make much sense to most sensible people to have them
selling at different prices.
Nelson:
Let me approach some other myths also. I think somebody
will believe that high profits cause inflation. Is that true?
Kosters:
No, they are not a cause of inflation. They may come with
it; they may not.
Nelson:
What about big unions, the demands that big unions make
for higher wages?
Kosters:
No. Neither are big unions. It's always very convenient to
try to seek a scapegoat—whether it's large firms or unions or profits or
whatever. Basically though, individual firms and people are operating in a
market place, looking to further their interests; and they are at the mercy,
really, of a general level of demand and available supplies.
Nelson:
Okay, Dr. Kosters, having dispelled with what doesn't
cause inflation, what doesn't help, what does cause inflation?
Kosters:
Well, basically, it's just a matter of too much demand
given available supplies. And what's behind that, essentially, is excessive
expansion of the money supply.
Nelson:
Now when you say "excess expansion of the money supply,"
who's doing it?
Kosters:
Well, the Federal Reserve is the instrument of the
Federal Government that is doing it. And they do it in ways that are
complicated that are often said in shorthand as printing money.
Nelson:
Is that a fair representation—that in effect, they do
print more money; and that just expands the currency and cheapens the
currency?
Kosters:
Well, if I had one word to say about the cause of
inflation, I would say money. And since I don't have much more than that, I
better leave it at that.
Nelson:
All right. Let's move on to, granting that's the cause,
how do we combat it—inflation, that is?
Kosters:
Well, the thing we need to do is to reduce the rate of
expansion of the money supply. We need to essentially reduce the amount of
money that's placed into circulation year by year. There may be other things
that we need to do to supplement that—in addition. We need to coordinate
other policies with that, including federal spending policy. But, basically,
we will not succeed unless we succeed in having smaller and smaller
additions to the money supply.
Nelson:
And this is a policy that should be set at the federal
level by our policymakers, the politicians in Washington.
Kosters:
Oh yes. It's essential that it be done at the federal
level. The government should, as was said earlier, take strong action. And
this is the most important element in that strong action, it seems to
me.
Nelson:
One last question, Dr. Kosters. Is this a new theory or a
new result? Is this a new kind of inflation where now it's caused by money
supply, or has this historically been the case?
Kosters:
This has historically been the case. Every inflation is a
little bit different, in terms of which price rises fastest and which price
rises most and for how long, and so on. But basically, the general level
could not rise without sufficient demand to push it up; and behind that is
the rate of expansion in the money supply.
Dukakis:
Dr. Kosters, let me turn now to Miss Marshall.
She's going to be asking you some questions. Miss Marshall—
Marshall:
Dr. Kosters, I wanted to look at the, at the suggestion
or the actual statement that you've made—that if we reduce the rate of
expansion of the money into the, into the economy, that that is going to
deal with inflation. Would you agree with me that the rate of inflation in
the energy sector has been, in the, for the last quarter, was something like
24.9 percent?
Kosters:
At an annual rate.
Marshall:
At an annual rate?
Marshall:
That's correct.
Kosters:
Especially one-fourth that rate.
Marshall:
I mean it's somewhere way up above 20. And would you
agree with me that when crude oil and natural gas is de-regulated, that that
rate will increase?
Kosters:
Well, it may not.
Marshall:
All right. So we're—. It may, or it may not; but there's
a possibility that it might. At any rate—
Kosters:
There's a possibility that it might. But much of what we
now deny our domestic producers is wasted in distribution and refinery
channels.
Marshall:
Okay. Just, just remember that point because I'm going to
get back to that in a minute, what I want to ask you is this—do you think
that the hiking of the prices by the OPEC nations, the oil cartel, has had
any effect on inflation in this country?
Kosters:
Yes, I think they have had a marginal effect. It's not
that we couldn't have kept inflation down. We could have, but it would have
meant other prices being reduced.
Marshall:
So quadrupling or quintupling, I believe, the oil prices
had a marginal effect. Could you tell me how that marginal effect at 24.9
percent is going to be impacted if we reduce the rate of money being fed
into the economy?
Kosters:
Well, it will work in very complex ways.
Marshall:
I'm sure it will be very complex.
Kosters:
First of all, it will probably affect the rate at which
OPEC pushes its prices up, which is a major determinant of our prices. It
may affect the value of the dollar.
Marshall:
It may do all kinds of things-
Marshall:
—but how is that going to reduce the rate of inflation in
the, in the energy area?
Kosters:
It will reduce the average rate of increase of prices.
And it may well be that oil prices, energy prices, will still go up at say 5
percent, 10 percent, or whatever.
Kosters:
However, if other prices go up more slowly and some
decline, we can have less inflation or no inflation, even if oil prices go
up.
Marshall:
Okay, so you are saying that, in fact, there can be an
external factor such as the rapid increase of OPEC prices that will have an
effect on our inflation such that if you, if you sector off energy, you
could deal with the rest of infla—, inflation, the energy might continue to
go up.
Kosters:
It might. See, historically, we've always had certain
prices going up more rapidly than the average, other prices going up less
rapidly than the average.
Marshall:
Okay, let's take a look at some of the other areas which
have been increasing very rapidly. I'm not, I'm not a very sophisticated
economist; but it seems to me that if you tighten the money market, that is
to say, if you reduce the amount of money going into the market, what is
that going to do to interest rates, and by that—
Kosters:
It will make them initially rise somewhat but later on,
decline.
Marshall:
So the people who will now have to pay a 10 1Ž2 percent or
11 percent on their mortgages to purchase a house, those interest rates on
mortgages will continue to rise.
Kosters:
No, probably not. In fact, they might even decline.
Short-term interest rates would probably rise initially—
Marshall:
And why do you say short-term?
Kosters:
The long-term interest rates reflect the rate of
inflation and with prospects for lower inflation, they will decline very
significantly.
Marshall:
Well, I think I would have a debate with you about that.
But at least initially, we can tell, let's say, numerous young families who
are about now to purchase a new house that with your system, they'll be
faced with a higher rate of inflation, a higher rate of interest, at least
to begin with. Let's look at some of the other factors. Housing is running
at a very high inflation rate; so is food. Could you tell me how, by
reducing the amount of money that goes into the market, that that's going to
have an impact on food prices? What's keeping the food prices
high?
Kosters:
Well, for one thing, incomes are keeping food prices
high. That is to say—
Marshall:
So that if we controlled incomes, that would have an
impact.
Kosters:
—high incomes—. Well, incomes are rising because of a
booming economy and because of additional people entering the work
force—
Marshall:
That's right. If we—
Kosters:
—husband and wife families, for example.
Marshall:
And if we control those—
Marshall:
—we will be controlling inflation.
Kosters:
Now, this means, among other things, that many more
choices are made to eat out and to eat more expensive food.
Kosters:
This is one of the matters that is an increase in food
prices.
Marshall:
That's right. And that's exactly why if we controlled
wages, people wouldn't have as many choices to eat out; and you would be
able to see the gradual reduction of food prices and a reduction of
inflation in that area.
Kosters:
That's probably true. One wouldn't have as much income if
one controlled wages. On the other hand, not necessarily true. It may well
be that more people would be changing jobs in order to take advantage of
raises that they would otherwise get.
Kosters:
They'd get promotions instead of wage increases. There
are ways of getting around those things.
Marshall:
Of course there are. But what you're saying to me is as
wages go up, that's one of the key prices, of, of high, keys to high food
prices. Are there any other factors? I mean, I'm trying to understand—
Dukakis:
I'm afraid—, I'm afraid I'm going to have to
interrupt. Could you make a very brief response, Dr. Kosters? Then we're
going to have to move back to Mr. Nelson.
Kosters:
Well, I, I think it's, it's surely not the case that
rising food prices are a result of a concentrated industry. I can think of
no more a concentrated industry, no less concentrated industry, rather, than
all the individual farmers across the country.
Marshall:
But not the middle men. The middle men are very
concentrated.
Dukakis:
I'm sorry; I have to interrupt at this
point.
Kosters:
I would expect to see their prices, their profits rising
rapidly; and I see no evidence—
Dukakis:
Miss Marshall, I'm sorry. We'll have to go back
to Mr. Nelson. Don't go away, Dr. Kosters, another question or two from Mr.
Nelson.
Nelson:
Now, Dr. Kosters, let's go back for a moment to the
question of energy. Let's consider such countries as West Germany and Japan.
Is it not true that their reliance on foreign energy sources, foreign oil,
is much greater than ours?
Kosters:
Yes, it's much greater, and indeed, it's almost
complete.
Nelson:
And aren't the—. And the prices there for energy are much
higher than we are charged in this society.
Kosters:
They are much higher. They had no alternative but to pay
world prices.
Nelson:
And what is the inflation rate in countries like West
Germany and Japan?
Kosters:
Much lower. It's very small. It's been ranged from
approximately 0 to 3 or 4 percent in the last year or so.
Nelson:
Compared to our rate, which is around 13
percent.
Kosters:
Nine to ten to fourteen.
Nelson:
Which tends to imply, does it not, that the OPEC problem
and, in fact, energy is not the major contributing factor to inflation
here?
Kosters:
I think one could draw that inference.
Dukakis:
Dr. Kosters, thank you very much for being with
us. Appreciate it. For those of you who may have joined us late, our
question tonight is, "Should we impose mandatory controls on wages and
prices to stop inflation?" Advocate Margaret Marshall has presented one
witness, Joan Bannon, who has argued that we must have mandatory wage and
price controls—at least in certain segments of the economy—which she
characterizes being concentrated and characterized by a few firms
controlling the market.
On the other hand, Advocate Marvin Kosters has argued
that wage and price controls do not work, have not worked in the past, and
that it is the expansion of the money supply that is primarily to blame for
the inflation that we are currently facing. We're now going to turn back to
Miss Marshall, and she's going to present another witness.
Marshall:
I call Gar Alperovitz.
Dukakis:
Welcome to The Advocates, Mr. Alperovitz. Nice to
have you with us.
Marshall:
Mr. Alperovitz, you've heard the previous witness suggest
some mechanisms that might control inflation. Are those going to
work?
Alperovitz:
Well, unfortunately, I'm afraid not only will they not
work tightening the monetary supply, I think it's going to increase
inflation. Anyone who has bought a car on time which has interest rates and
the financing costs knows the price goes up. Anyone who's got a home that
they've purchased or want to purchase, knows that when interest rates go up,
the mortgage cost month to month goes on; and it raises, in fact, the direct
price that the consumer experiences. That might have worked 20 or 30 years
ago or maybe in the nineteenth century, but I don't think it's going to work
anymore these days.
Marshall:
Why is that? I know, for example, that you've been
meeting with President Carter and his top economic advisors. What have you
been suggesting instead of the nineteenth century approach that's been
advocated here?
Alperovitz:
Well it's a—. I should say that the nineteenth century
approach, with all due reference, is kind of over-simplified, of course. But
the monetary supply not only isn't going to do much about the new sources of
inflation that we're experiencing, it's going to run us right directly into
a recession. And that is, in fact, the prescription—to lower demand, throw
thousands of people, millions of people out of work—on the theory
oversimplified, that maybe this will do something about inflation. In fact,
the record is that because the inflation is coming from quite different
sources, in each of the last recessions, what we got was recession and very,
very little change in prices. Everyone knows that's what stagflation
was—high prices and unemployment with no success by reducing the demand or
tightening the monetary supply. It doesn't work anymore.
Marshall:
And if that's the case, what kinds of programs would you
suggest?
Alperovitz:
Very self-evidently. The kinds of inflation we're
experiencing, particularly in the basic necessities, we've got to chart, I
guess, on food and shelter and medical care, energy. Four out of five
families spend some 80 percent, 70 percent of their budget on these items.
Now you simply have a very specific sources of inflation. It is a fact, as
everyone knows who's buying gasoline or crude oil or heating their home,
energy prices have been going up. I mean, it becomes silly to say that
that's not inflationary.
Marshall:
Now if you could have focus on those areas, what are the
kinds of programs that you, that you have in mind?
Alperovitz:
Well, I agree with Senator Kennedy. We've simply got to
postpone any more rises in energy prices. That 24.9 percent rise is before
de-control. We're going to see another tremendous increase in price rise in
energy, tremendous boost to inflation unless we can put a lid on this. So I
agree. Here's a place—tremendous profits are obviously being made. The cost
of production, Mobil tells us now that one barrel of crude oil in their
latest filings with the government was $1.38. They want—
Marshall:
And what were Mobil's profits for the last
quarter?
Alperovitz:
Mobil is running, I believe, something like 300 percent
profit rate. Some of the companies at four—, at 100 percent rate, 200
percent. And it's going to go higher. It's obvious in energy that you can't
control energy inflation unless we put a lid on it.
Marshall:
If you were to adopt the proposal put forth by the
opposition, that is, controlling the amount of money that was being put into
the market, would that have an impact on those kinds of prices?
Alperovitz:
Well, again, I do want to say that there are times in
history when that might work. There are certain kinds of inflation. But this
is a very new kind of inflation. And what that will do is produce a
recession, and still you may find OPEC and Exxon and Mobil raising the price
of energy. They may be totally unrelated now.
Marshall:
Let's look at some of the other areas that you focused on
that were on the chart, for example. Energy was one. What are the kinds of
things that you would do to tackle the inflation in the housing
area?
Alperovitz:
Well here, here again is where the old solutions go the
wrong way, as I said, raising interest rates, tightening the money supply,
is going to do two things. One, the family is going to feel it in that
mortgage payment. And it's going to hurt tremendously. Secondly, we're in a
new era. The old kind of post-war baby boom that we all knew about—that baby
boom is now, is just becoming a family boom. And there are a lot of young
families looking for houses. The demand for housing is growing very rapidly.
Unless we expand the investment, increase the supply of housing, and supply
and demand here is important, we're not going to meet that demand. We're
going to see more and more inflation.
Alperovitz:
So the main policy is let's go out—, after an expansion
of supply in housing not tightening the monetary supply, which is going to
restrict it. It's just building up dynamite for the future. Housing prices
are really going to skyrocket if you control supply.
Marshall:
So then you'd focus specific programs in the housing
area. How about food? Food was another major contributor to
inflation.
Alperovitz:
Again, food is so dramatic; and I don't think there's
much debate on this. I'm sure my colleagues won't debate with me the major
sources of the current inflation in the early 70’s were tremendous boosts
and jolts and profiteering in the world food market.
Marshall:
What do you suggest is a result of that?
Dukakis:
A brief response please.
Alperovitz:
We're eventually the only country in the world, really,
about the only country in the world that allows profiteering to—, on the
Russian wheat deal, for instance, to make all consumer food prices rise. We
simply have to stop that, perhaps the way the Canadians do, and hold down
consumer prices so that short-term profits don't wash all over all the
domestic consumers in one fell swoop. A specific problem—
Dukakis:
Let me interrupt at this point. Mr. Nelson,
you're on.
Nelson:
Thank you. I think in the last bit of testimony, Mr.
Alperovitz, we got to the real germ of what you're driving at. Let me read
you a quote and see if you agree with it. "In the absence of a positive plan
for allocating resources, controls will distort investment and lead to
inefficiencies and inequities." Would you agree with that?
Alperovitz:
In the absence of a positive plan, anything will increase
distortion in the market.
Alperovitz:
We need a positive plan, not an over-simplified plan at
this point.
Nelson:
I see. I'm glad—, I'm glad you went along with it. It's a
quote from you. And, I would like to know what that positive plan is. You
have written elsewhere that the plan is actually quite broad, is it
not?
Alperovitz:
Sure. Let's talk about it very specifically. Many major
businessmen in this country now are obviously seeing that if we had this
yo-yo kind of economy, tremendous recession one year, tremendous inflation,
the next year, everybody loses. If you have a big recession, that means that
taxes go up, the deficit goes up, everyone's going to have to pay for more
taxes—
Nelson:
What is your plan?
Alperovitz:
—because the economy is not working.
Nelson:
What's your plan?
Alperovitz:
The plan is to begin, obviously, in these four specific
areas—these are the necessities of life—the four things that matter most to
most families, beginning to put a lid on basic necessity heating oil in
Maine, driving to work gasoline, putting a lid on some of the tremendous
international grain deals that have pushed the whole food economy out of
line.
Nelson:
Yes. And after you start there, isn't it true that you
really are in favor of having a much broader, what might be called a planned
economy?
Alperovitz:
I think that's kind of a silly way to look at it, Mr.
Nelson. I think—
Nelson:
Oh, I don't know. I got it from your article. If it's
silly, then you shouldn't have written it.
Alperovitz:
No. Concretely and, if I may say, the place to start is
not a fully planned economy, nor is it an over-simplified let in the
nineteenth century market. But go after the four things that matter most.
That's our tactics.
Nelson:
Then, you don't want to start there, but you want to
expand to there, don't you?
Alperovitz:
No. I would like to start at the four things that matter
most—that 70 percent of the most important things most families—
Nelson:
And then what? What I'm trying to drive at, Mr.
Alperovitz, I'm not trying to lead you into any trap—
Alperovitz:
I doubt that.
Nelson:
—except that—. You've gotten suspicious in your old age.
—Except that what you have written in other places is that you start in
these four areas and then you move to a totally planned economy. And really,
I guess, the point I'm driving at—
Alperovitz:
I haven't written that.
Alperovitz:
I have not written that.
Nelson:
I disagree with you. I'll, I'll give you the article
after you have
Alperovitz:
In what I've said—may I say what I've said?
Alperovitz:
I said some form of planning is inevitable. For instance,
my opponents would like to plan the steady expansion of the monetary supply.
I believe the kind of planning you should aim at is that which stabilizes
the price of the basic necessities and stabilizes specific jobs at the heart
of the economies of local communities. I do not believe in a totally planned
economy. I think luxuries ought to be allowed to go in terms, in terms of
the market. I think small businessmen ought to be allowed not in the
plan.
Nelson:
Well, I think we would refer you to THE PROGRESSIVE
article—the article you wrote in THE PROGRESSIVE in July 1977, which
contradicts exactly what you just said. And let me go on. What you say
is—
Dukakis:
Mr. Nelson, I'm sorry; does it or doesn't
contradict what you just said?
Alperovitz:
No, I've said, we—, I think some form of planning is
inevitable. The question is what kind, and I would very much like to plan so
that Exxon does not raise more energy prices.
Nelson:
I'm going to go on with your plan. You suggest, you
suggest that we need to change our lifestyle and attitudes and ultimately
our social values. Now, I would say that that's pretty broad
planning.
Alperovitz:
Oh, I think, I think most Americans agree that there is a
need for quite a different set of values in this country—
Alperovitz:
—that we are moving into a time ultimately over the rest
of this century— scarcity—that somehow we've got to curve the wastefulness
of our practices. There's a need for some new values in the country. Who
disagrees with that?
Nelson:
Well, I, I'm glad to hear that you're moving back from
the position that you put forward barely two years ago. But let me go on now
in terms of the price and wage controls that you recommend for the limited
segments of the economy now.
Nelson:
You talked earlier that under Richard Nixon when there
were wage and price controls, the people who manufactured beef, or who
brought the beef to market, when these wage and price controls were imposed,
decided to export the cattle to Canada. Also, there were—
Alperovitz:
I, I don't think I said that.
Nelson:
Well, would you, would you agree that that's—
Alperovitz:
I said that the Russian wheat-
Nelson:
—would you agree that that happened?
Alperovitz:
No, I—. There was a very complicated set of things. I was
talking about the Russian wheat deal and how it forced up grain
prices.
Nelson:
Yes, I was—. I was taking another instance of what
actually happened under Richard Nixon. And the reason I brought it up—there
are also examples of farmers drowning chickens because it simply was not
worth it to them in terms of cost to bring them to-
Alperovitz:
I absolutely agree that the Nixon farm policy was a
terrible mistake.
Nelson:
All right. And the reason it was, was it not, is that it
had to expand and control, as you suggested earlier, an export
policy?
Alperovitz:
No. The Nixon farm policy began by letting the world
market raise feed grain prices tremendously. That meant that farmers had
tremendous costs to feed beef, poultry, and other items. They had to pass
that on. Then Nixon, in a way that I think was rather silly, I mean, if
you're doing that kind of programming, the Nixon administration then clamped
on controls and hurt the farmers very badly. It was the worst of both
worlds. I certainly wouldn't do that.
Nelson:
In terms of the controls, has it not been the history
that once they are applied in a certain area, they always have to be
expanded because money flows from the controlled items to the uncontrolled
items? Isn't that true?
Alperovitz:
No, not at all.
Nelson:
But you are contradicting what is generally to be adhered
to in terms of economic theory—
Nelson:
But I've just one last question here.
Alperovitz:
I'll give you an example to answer the
question.
Nelson:
No. One last question because you said no. Can you give
me-
Dukakis:
A brief question and a brief answer
please.
Nelson:
Can you give me a case, you cited the nineteenth century
earlier; I'll give you the entire 40 centuries of recorded history; can you
give me an instance where wage and price controls worked?
Alperovitz:
Well, I am not an advocate of wage and price controls in
general. I think we ought to go after these four targeted areas. In some
instances wage and price controls—
Nelson:
Have they ever worked?
Alperovitz:
—would be much more efficient. They certainly worked for
a short time in the Nixon administration, even under people who were doing a
terrible job administering them. But, in general, the main thing is get our
priorities straight. The necessities of life after all, are much more
important than the luxuries and the yachts and the jet fuel. I think that's
where we should start.
Dukakis:
Let me interrupt at this point. Miss
Marshall—
Marshall:
Mr. Alperovitz, I'd like to pick up at just that point on
the necessities of life. Let's get back to the program that has been
advocated on the other side-this tightening of money, the supply of money.
What, what's the impact of that going to be on the basic necessities of
life?
Alperovitz:
Well, it will do very little, as I said. To tighten the
money supply isn't going to do much about food prices.
Marshall:
So, prices will stay high.
Alperovitz:
They still go up for the reason they've been going
up—which is that that sector has special problems that aren't being dealt
with adequately.
Marshall:
What are some of the problems that wouldn't be dealt with
by that?
Alperovitz:
Well, for instance, the, the start-up of this had to do
with these big wheat deals and shortages which hit the cattle cycle; and the
cattle cycle, we still see as a result of those earlier failures and in
part, the way, the rather silly way in which the Nixon administration
applied short-term controls, compounding the problems of the grain pricing.
But they are in that sector. They don't relate to the overall monetary
supply. They're specific to the agricultural sector.
Marshall:
So, that it's not going to make any impact on the
inflation rate. What kind of impact is it going to have on our
society?
Alperovitz:
It's designed to produce a recession or a slow down.
That's what it's about. Tightening the monetary supply and the grand old
theory was let's reduce demand; this isn't the kind of inflation, except for
very few people who think that we have a demand fueled inflation, I think
almost no one believes that. Perhaps my colleagues disagree. This isn't that
kind of inflation. So, it's designed to dampen, dampen demand. The Brookings
Institute did a recent study that it would take one percentage more of
unemployment for three years running to get one percent change in inflation
that way. And we're running at 13, 14 percent inflation; to bring it down to
6 percent that way is to create not only recession, but what most people
would call a depression. It's a very, very costly, inefficient, and I think,
very inequitable way to go forward.
Dukakis:
Mr. Alperovitz, on that note, thank you very
much.
Dukakis:
Let's turn back now to Mr. Nelson for his final
witness. Mr. Nelson-—
Nelson:
I call Professor David Meiselman.
Dukakis:
Welcome to The Advocates, Professor Meiselman.
Nice to have you with us.
Nelson:
Professor Meiselman is a Professor of Economics at
Virginia Polytechnic Institute and State University. Well, let me ask you
first, we've heard a lot of discussion about interest rates, what would
happen if we tried to control inflation by cutting down on the expansion of
the money supply?
Meiselman:
Interest rates would come down. In fact, many interest
rates would come down immediately. The reason is that interest rates go up
as a consequence of inflation, because when people loan dollars now, and
they know that inflation is coming down the pike, they charge higher
interest rates to adjust for the decrease in the value of the dollars being
loaned.
Nelson:
What about Mr. Alperovitz's suggestion that if we go into
four important sectors of the economy and control wages and prices just
there, then we'll be able to attack the bulk of the inflation
problem?
Meiselman:
That simply is not true.
Meiselman:
The reason is you cannot dam this off. It's true that
during a period of inflation when prices on average are rising, some prices
will rise more than others. It's also true that if, in fact, prices were
stable and we had no inflation, some prices would go up and some prices
would go down. So that merely looking at changes in relative prices has
nothing whatsoever to do with the inflation problem. Inflation has to do
when the average of prices is rising.
Nelson:
Mr. Alperovitz seemed to suggest that this is somehow a
new inflation. I ask again, what are the basic causes of the
inflation?
Meiselman:
This is not a new inflation. The old laws of economics
are still working. In the 1970's, on average, output in the United States
has increased 2 percent per year. In the 1970's, the quantity of money has
increased 9 and one-half percent per year or 7 and a half more. By the old
laws of economics, when money increases faster than output, prices go up.
Prices on average have gone up 7 and a half percent per year. There's
nothing different now than has happened over all of recorded economic
history.
Nelson:
So you say, according to the chart, that there's a very
close correlation between the increase in the money supply as divided by the
output and the consumer price index or the prices that we are
paying.
Meiselman:
It's true now. It's been true in earlier periods in our
history. It's been true in every single episode of inflation that's been
studied. I've also studied inflation in other countries around the world in
recent years, and it's also true there.
Nelson:
I understand that some economists have developed that
chart back 400 years and have found that the correlation still
holds.
Meiselman:
Well, it's even, even, even more than 400 years. There's
a famous article by Anna Schwartz, where she traces every single inflation
that's ever been recorded. The same thing happens.
Nelson:
Professor Meiselman, if we were to approach inflation
from your perspective, that is to say, to try to control the increase of the
money supply, will there be the problem of causing unemployment, as has been
alleged?
Meiselman:
Not necessarily. It depends how it's done. If we have so
much inflation built into the economy and we want to root it out within a
month or two, within a short period of time, then we slam on the brakes, we
will cause a recession; and that is not the way to do it. The way to do it
is to phase it out over time; and, and once we do it, not deviate from the,
that policy. What the Federal Reserve and the Federal Government ought to do
is to slow down the rate of growth of money, slow down the rate of inflation
until we get down to zero, and never start this dirty business
again.
Nelson:
If we have the technical know-how, if we understand the
mechanism by which we can control inflation, why isn't it being
done?
Meiselman:
In part, it's an open question. We know how to do it; and
it's not that I have any private wisdom. This has been known for a long
period of time. Part of the problem is that there's a lot of loot in
inflation, particularly for the government; that inflation is a secret tax
that's levied on all of us. It's a way to increase taxes without any
congressman having to vote an increase in taxes. And the congressmen then
like to get kudos from the public by handing some of that revenue out and
acting as if it's their own money that's being passed out to their
constituents and not your money and mine.
Dukakis:
Professor Meiselman, let me interrupt. We're
going to go to Miss Marshall and then we'll go back to Mr. Nelson for some
additional questions.
Marshall:
Professor Meiselman, correct me if I'm wrong, but I
thought I heard you just say that if we adopted your program, we wouldn't
have a recession. Is that correct?
Meiselman:
Eventually we could root out the inflation,
right.
Marshall:
Eventually. But in the meantime, are you telling me that
if we begin to curtail the amount of money into the market, and according to
you, curtail inflation, that isn't going to have any impact on the
unemployment rate?
Meiselman:
In fact, the unemployment rate may fall.
Meiselman:
Inflation causes more unemployment.
Marshall:
Could you tell me how—
Meiselman:
Not the other way around.
Marshall:
—how, if the Federal Government is not spending or
putting more money into the market and there are not more jobs, how that
doesn't cause a decrease in the unemployment rate?
Meiselman:
It means that there's an increase in the efficiency of
the private sector. It means that we don't have to bedevil, be bedeviled by
all of this. It means there will be more private jobs, more private
investment, more growth.
Marshall:
That's a very nice theory. But, in fact—
Meiselman:
It's the truth.
Marshall:
In fact, the case—
Meiselman:
If you think about it, growth of this country did not
come about by, as a-
Dukakis:
Excuse me. Excuse me.
Meiselman:
consequence of government programs.
Marshall:
So, in fact, what you're saying is that given the correct
incentives, big business will cause, will, will—
Meiselman:
It has nothing to do with big business or small
business—. It has to do—
Marshall:
—will choose—. Can I finish my question? Can I finish my
question?
Meiselman:
It has to do with people having the right incentives to
work, whether it's a big business or small business.
Dukakis:
Professor Meiselman—. Professor
Meiselman-
Marshall:
Professor Meiselman—
Dukakis:
—let’s let Miss Marshall ask a question, and then
you can answer.
Marshall:
—it's more persuasive if you let me ask the question and
then answer it, and not shout me down.
Marshall:
If you've got good arguments, you'll win. Let me just
take a look again at the, at the fact that you suggest that there's not
going to be an increase in unemployment. Is unemployment going to stay the
same of the five million Americans out of work at the moment?
Meiselman:
Not necessarily. It depends on whether there's been
abrupt stepping on the brakes. And, in fact, that is what the Federal
Reserve has done in recent months. And if they don't stop it, we will have a
recession; and we will have an increase in unemployment. That is no
way—
Meiselman:
That is not the way to do it.
Marshall:
Why is it, Professor, Meiselman, every other time that
we've had a recession in the twentieth century, there has been a dramatic
increase in the unemployment; and there has not been a corresponding
decrease in inflation?
Meiselman:
That is not true we haven't had a corresponding decrease
in inflation. If you have a general context over a long period of time where
you have inflation, the fact that the Federal Government changes its
policies for a few months doesn't convince anybody that there's not a, any
fundamental long-range change. So what happens is that we all still believe
that the inflation moderated over a short period of time, that's the way we
set our prices.
Marshall:
But the fact of the matter is that every other time
there's been a recession, the five major recessions—
Meiselman:
Since the second World War.
Marshall:
—have had dramatic increases in the rate of unemployment.
So, there are going to be millions more Americans out of work. Even if
they're only out of work for a year or two years, that's still millions of
Americans out of work.
Meiselman:
I will not let you put me in a situation where you
believe that I'm proposing a recession. I do not propose a recession. I
propose a slowdown in the inflation until it's eliminated; and as a
consequence of that, we'll have an increase in employment, a decrease in
unemployment.
Marshall:
Professor Meiselman, if you are slowly throttling
somebody, while you're chopping off their head—
Meiselman:
I'm not slowly throttling anybody—. I am not throttling
anybody. I am not throttling anybody. I don't want this country to drown in
cheap paper money.
Marshall:
Could you, talking about cheap paper money—
Marshall:
Could you explain to me in a way that your colleague
could not explain to me why, when we have a cartel, an oil cartel,
skywriting, skyrocketing oil prices, how cheap paper money is going to get
the price of oil down?
Meiselman:
It may not get the price of oil down because
the price of oil is set by the Arab OPEC oil cartel.
Marshall:
That's right, but—
Meiselman:
But the fact that the price of oil goes up
doesn't mean that the price of my shoes has to go up.
Marshall:
Of course not. And, in fact, what we've been suggesting
is if you look at those areas that are impacted by external forces, isolate
them and deal with them accordingly.
Meiselman:
You can't isolate them. You can't isolate them
in general. OPEC is a very special set of circumstances where you have a
small number of countries that have gotten together to try to throttle us.
That is not the same as talking about why the prices of shoes go
up.
Marshall:
Professor Meiselman, let me try and get at it this way.
For your plan to work, do you need a free market for supply and demand to
work?
Meiselman:
You can have inflation, whether you have a free
market or not a free market.
Marshall:
I mean, I'm talking about your, your program.
Meiselman:
It is—. You can have whatever degree of, of
monopoly that is there; and it is—
Marshall:
Could you just answer my question? Do you need a free
market for the laws of supply and demand to work accurately, as you seem to
be trying to get us to move towards?
Meiselman:
The economy is more efficient with a free
market; but even with a high degree of monopoly, you can have varying
degrees of inflation.
Marshall:
Well, let's look at the—
Dukakis:
I'm sorry, Miss Marshall. I have to interrupt at
this point. We're going to go back to Mr. Nelson for a question or
two.
Nelson:
Well, let me, let me carry on at that point. You're
suggesting, as I understand it, that the government which controls the money
supply, stop inflating that currency. And the fact that we don't have a
pure, free market in this society at this point in time has no bearing on
the situation.
Meiselman:
Has, has no immediate bearing. We should move
towards a free market because that increases efficiency. That is an
indepen—, independently, that has merit. In terms of inflation, that has
additional merit because by virtue of having a more efficient economy, we
have greater output, and greater output lowers prices somewhat.
Nelson:
And I would—, I guess I would remark again about the OPEC
situation which was brought up again by the other side. But the fact is that
the contradiction is West Germany and Japan that have higher energy costs
and lower inflation.
Meiselman:
Because OPEC sticks it to us is no reason why
we have to do it to ourselves in addition.
Nelson:
Is the reason, is the reason that they have lower
inflation—
Dukakis:
This will have to be a very brief question and a
very brief answer, Mr. Nelson.
Nelson:
is the reason that they have lower inflation in those
countries—West Germany, Japan, etc., because they're not inflating their
money supply?
Meiselman:
The rate of monetary growth in those countries
is very much slower than it is here. And they hang on to that.
Dukakis:
Professor Meiselman—. Thank you, Professor
Meiselman, for being with us. Appreciate it. At this point in our debate,
each of the advocates has one minute in which to present a closing argument,
and we will begin with Miss Marshall.
Marshall:
Eighty percent of us spend 70 percent of our incomes on
health care, housing, food, and energy. Those are the necessities that we
can't do without, and yet it's those items that are driving up inflation at
the highest rate. It seems to me that it makes sense to focus our fight
against inflation in those areas. Our witnesses have put forward a proposal,
a strategy, to deal not with just a passing battle but the entire war. They
have a plan that looks at where the problems are and then through careful,
thought-out well-directed proposals deals with those problems. The
opposition, on the other hand, notwithstanding their protestations to the
contrary, mean only one thing—and that's recession— more unemployment,
failures of small business increasing, the kind of general suffering of
those who can least afford it are going to be subjected to. In the past, our
government has been too timid, too hostage to the interests of special
groups, that it has been unwilling to impose the kinds of controls and means
that will work. Now is the time for the government to take the initiative to
impose wage and price controls to reduce the cost of basic necessities and
to insure that we keep our inflation under control.
Dukakis:
Thank you very much, Miss Marshall. Mr. Nelson,
you, too, have one minute.
Nelson:
The political satirist, H.L. Mencken once said, "For
every complicated human problem, there is a solution that is neat, simple,
and wrong." Wage and price controls are in that category. The fact is that
wage and price controls do not work and have not worked. They approach the
symptom, and they cause additional problems; but they do not solve our
problem. The main cause of inflation, and if you learn only one thing from
this show, let it be this: the main cause of inflation is everywhere and
always, due to an increase in the money supply perpetrated by government.
This is the way they pay for their debts. It drives us into higher tax
brackets so we have to pay higher taxes; and all in all, it is the problem
that we have with regard to inflation. We do not need additional intrusion
into our lives and into the economy from government, what we do have to do
to address ourselves to this fundamental cause of inflation is to let our
policy-makers know that they must stop debasing the currency, stop
cheapening our money. That is the only way that we will be able to address
ourselves to the problem of inflation and to the results of inflation—the
increasing prices which is taking our income away from all of us.
Dukakis:
Thank you, Miss Marshall and Mr. Nelson. And now
we come to that time in our debate where we ask you, our audience, how you
feel about tonight's question. Should we impose mandatory controls on wages,
wages and prices to fight inflation? Send us your "Yes" or "No" answer on a
postcard with your comments and mail it to The Advocates, Box 1979, Boston,
02134.
We hope very much that you will join us next week. And now
with thanks to Miss Marshall, to Mr. Nelson, to their distinguished
witnesses, and to our host, the Kennedy School of Government, here at
Harvard University. Thank you, and good night.