Minnesota’s Economic News — W/E 9/24/21
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Henry Hazlitt (1894-1993) was one of the 20th century’s greatest writers on economics. His 1946 classic Economics In One Lesson is still an excellent introduction to the subject for the general reader. And, for a number of years, he was columnist in Newsweek, bringing economic insights to the issues of the day and expressing them with clarity. The article below is a classic example of this. It appeared in Newsweek on this day in 1946.
In his sweeping decontrol order four nights after the election President Truman proved that he could recognize a mandate when he saw one. His decontrol order was not only, with the exception of one or two paragraphs, an eminent example of good sense; it was also, with this exception, an eminent example of good sportsmanship. Mr. Truman would have been more than human if he had not accompanied his decontrol order with at least a little attempt at face saving; but that little was unfortunate.
He declared that “the real basis of our difficulty is the unworkable price-control law which the Congress gave us to administer.” It is true that the price-control law was unworkable; but this was precisely because of the provisions that Mr. Truman and his administrators had themselves insisted on, and not because of the amendments that Congress had inserted over their opposition. Some of its “fair-price” amendments never got a chance to go into effect; the so-called Decontrol Board did nothing but recontrol; and it is improbable that the President could have decontrolled first meat and then practically everything else without the discretionary decontrol powers which Congress insisted on giving his administrators without his or their request. Price control had lost popular support not, as the President asserted, because the law was “inadequate,” but because it was altogether too adequate.
Nor is it true, as the President declared, that “in the fifteen months since V-J Day the stabilization program has preserved a large measure of general economic stability during a period in which explosive forces would otherwise have produced economic disaster.” It is not true, either, that the situation today is “far more favorable for the return to a free economy” than it was only four months ago, when the President insisted on retention of overall price control for an additional full year.
On the contrary, it is altogether probable that prices will be higher this winter than they would have been if price controls had been lifted on V-J Day. For the effect of peacetime price control has been to retard, unbalance, and discourage production and to produce shortages. The net effect, also, of government intervention in labor relations and wages has been to raise wage rates fasterthan they would otherwise have been raised and to jack up production costs.
The first result of the President’s decontrol order will be price advances in most of the products that have been controlled and sharp advances in the products that have been controlled most tightly. The most spectacular advances will make the headlines, thus giving a distorted view of the overall picture. The advances will be blamed on decontrol. But the real reason, as in meat, will be the shortages brought about largely by control itself, supplemented by the wild swings inevitable when both buyers and sellers are first groping for the real equilibrium price.
While advances are still going on in some commodities, declines will be taking place in others, for the very reason that all commodities will be competing freely for the consumer’s dollar, so that if more of it has to go for one commodity, less of it will be left for others. It may be doubted whether the general price level in the next few months will rise more than another 5 or 10 percent. And any general rise in the price level will be basically due, not to the absence of price controls, but to the increase in money and bank credit in recent years brought about by the war and by governmental policy. With the false remedy of price control out of the way, public attention will at last be able to concentrate on the real remedy for inflation, which is to halt the increase in the money supply.
In retaining ceilings on rents, the President doubtless followed the only course that seemed to him at the moment politically possible. But it is unfortunate that he did not at least remove rent ceilings at once on all new and remodeled housing; for such rent ceilings merely prevent a great deal of such housing from being built, and so themselves prolong the housing crisis. The next step should be to remove rent ceilings from all houses or apartments voluntarily vacated by the former tenants. The third step should be to allow at least some moderate maximum increase on new leases for old tenants.