July 25, 1973

Phase IV Another Bromo-Seltzer

How do you let go of a tiger's tail?

That's the dilemma we face as Phase IV moves into high gear.

Prices are to be "allowed" to go up, but not the percentage of profit.

Everything from bread to steel is to be "controlled."

President Richard Nixon promises that when the crunch is over - maybe in six months to a year - wages and profits will be nudged back to the competitive economic system.

But, will prices of such things as steak, and ham, and chicken ever drop back to pre-Phase IV levels?

Not likely.

Throughout history, controls have proven to be only temporary.  They only buy time - and precious little of that.

The economy cannot rely too long on artificial restraints that tend to postpone, not erase, wage-price pressures.  Historically, the aftermath of controls has always been inflationary.  Our experience with controls during World War II and, more recently, Phase II is ample proof.

Take food, for example.

In the last six months, the cost of living has jumped 8.7 percent.  However, the food portion of that index has skyrocketed to 22.4.

Who and-or what is to blame?

The consumer says the farmer.

The farmer says the processor.

The processor says politics.

The politicians say the wheat deal.  The economists say the consumer.

And so we come full circle.

In reality, it is the consumer who is the most to blame for high prices, though all the rest in the long chain of economic interdependence share.

Long before even Phase I, consumption of food stuffs, for example, was soaring without a commensurate increase in production.  The inexorable law of supply-and-demand resulted in higher prices.

Ponder these statistics:

In 1960, when beef averaged 80.2 cents a pound, the average American ate 86.1 pounds.

Last year, when beef cost $1.20 a pound, he ate 113 pounds.  And his neighbors in other prosperous countries are beginning to indulge their taste for filet mignon, medium-rare.

The world-wide consumption of all the good things of life is growing at a stupendous rate - much faster than production facilities can expand to meet the demand.

We talk poor, feel poor and act poor.  Yet, we actually are richer, relatively, than at any time in our history.

We have more dollars to spend - albeit too many of them credit dollars - than we have goods to buy.

Why, then, our current mood of pessimism?

Because we have lost our willingness to bear the hard knocks that accompany the benefits of competition, in my opinion.

We have lost our patience with short-range inconvenience even for long-range plenty.

I do not say this is necessarily bad.  Perhaps it represents an important milestone in human progress.  But, it is a fact which explains our present discontent.

We like to believe that Phase IV is just a temporary tinkering with the traditional American private enterprise which made a new nation great.

A pleasant myth.

Free competition suffered a mortal blow with the NRA and the Wagner Labor-Relations Act during the great depression.  We substituted controls for private enterprise and over the years, have come to love the subsidies and favors conferred on us by big government.

We accepted as right the payment of subsidies to farmers - not realizing that the price of food in the supermarket was artificially lower to the extent of our tax dollars that went for the subsidies.

Now, with the demand for food by Americans, Russians, Chinese and all the other, peoples of the world growing by leaps and bound, we have removed the subsidy control in order to encourage production.

Farmers and processors now demand their fair profit entirely from the market place.

And we scream.

We let go of the tiger's tale for but a moment and are promptly nipped.

So we frantically grab a new hold and pray for a messiah who can give us security - and never mind that private enterprise jazz.

Make life easy for us, and we will swing gladly forevermore from the nether end of that hungry, economic beast of inflation.

Unfortunately inflation eats us up sooner or later.

President Nixon seems determined to force us into some semblance of fiscal responsibility except that he loses his nerve under criticism.

When he first came to office he tightened the money supply, raised loan interest and cut government spending drastically.  As the re-election neared, however, Nixon faltered.

To stimulate the economy and satisfy his critics Nixon eased credit and moved into deficit spending by government.  It worked.  Unemployment went up, business started expanding with easy credit, and Social Security was hiked.

Now our head aches from the inflationary hangover.

 Phase IV is a Bromo-Seltzer

The question is - and it is of paramount importance - can we gather ourselves together and kick the habit?

Author: Lindsey Williams