In the past couple of years I stopped awarding the Annual Hobart Rowen Award for Economic Illiteracy because the sheer volume of qualified entries became unmanageable. At about the same time, however, I began collecting absurd comments and ridiculous proposals. Unlike most collections, this one has declined in value per ton. Before I toss it out, however, I'll share a few random selections from what I call "the silly file."
The Op-Ed page of the New York Times has provided a treasure of such gems as Mark Green (Mr. Nader's Sancho Panza) explaining that any complaints about "big government" are actually just "a figleaf for anticonsumer, antipoor, and antilabor policies that chiefly benefit large corporate interests." The Times also gave us the enlightened views of one Louis Levitt, who theorized last May that government could somehow extract more taxes by increasing welfare payments. "The increasing inadequacy of welfare grants," wrote Mr. Levitt, "will tend to increase the number of families with unreported income earned at low rates by periodically 'working off the books.' This will…rob the Government of taxes." Just give 'em more welfare and they'll choose occupations that pay better and are easier to tax.
On energy, the blue ribbon surely goes to Charles Peter's profundities in the Washington Monthly last May. Peters wants to "ration gasoline so that we could supply our needs with our own oil." "Our total withdrawal from the international oil market," says Peters, "would have a devastating effect on [OPEC] prices." Unfortunately, total household use of gasoline amounts to about two million barrels a day less than we import, so lowering the ration to zero wouldn't eliminate imports. If imports could be temporarily eliminated, as Peters suggests, it would devastate the US economy, but OPEC could easily wait until imports resumed.
Playboy entered the contest last fall with a similar attack on autos by Richard Rhodes. "Thirty-one percent of US energy today goes to vehicles," said Rhodes, which proves we need "free mass transit systems." Actually, only 26 percent of energy goes to "transportation," and that includes such things as transportation of goods, mass transit, airlines, and all the ships, planes, and tanks in the Defense Department. On the basis of such non-facts, Rhodes concludes that "a tax on fossil fuels…would slow and eventually even halt inflation." That must be why Italy and France, with gasoline taxes of around $1.60 a gallon, have no inflation.
The US State Department set new standards of honest advertising in an ad for its Bulletin. "What other government or private publication," says the ad, "can boast of a 58% reduction in price?" It turns out that the cheaper subscription is due to switching from weekly to monthly publication, so that the price per issue (which they don't boast about) was actually increased by 122 percent.
A General Motors ad last April informed us that the company had patriotically written to its suppliers and asked them to support the president's program by charging GM less. Moreover, said GM, "we are advising our customers to shop carefully." Understanding of inflation apparently reached a record low in Detroit that month.
Writing in Business Week (Feb. 27, 1978), Amitai Etzioni tells us that "we" chose stagflation: "The question is basically one of what we collectively desire—lower unemployment on the one hand, or a humane, just society concerned with the quality of life on the other."
Felix Rohatyn, early last year, made it even clearer that government failure is the fault of the people. The problem, said Rohatyn, is that "we are lazy, cynical, and unwilling to make the effort, unwilling to demand…leadership, nobility of purpose, and sacrifice." Among these noble purposes, Rohatyn likes "a wartime austerity program," gas rationing, wage-price controls and "temporarily limiting imports from Japan" (a particularly noble sacrifice for, say, General Motors or US Steel).
Business Week has been an outstanding source of confusion about where the economy was headed. On May 16, 1977, Business Week worried about "Capital spending's elusive boom." Five weeks later, it reported "a kick from capital spending" but hinted that "the margin of excess capacity may be much less than commonly supposed." Two weeks later, capacity was "adequate to avert shortages and inflation…beyond 1979."
It isn't that nobody at the time knew better. In the Money Manager at about the same time (Apr. 11, 1977), I wrote: "When the acceleration of inflation becomes unquestionable, no later than early 1978…the result will be serious stagflation by late 1978 or early 1979, followed by a recession the severity of which will depend on how long the necessary slowing of money growth is delayed."
Like others who have again been surprised that inflationary policies result in inflation, Business Week is now (Mar. 3) lending editorial support to a six-month Nixonian price freeze, "stringent gasoline rationing," and assorted other magic tricks. Those who do not understand inflation should not presume to deal with it. Seven years ago (Mar. 10, 1973) Business Week likewise came out for tough price controls. That probably helped bless us with the second price freeze in June 1973, and the tough Phase IV program from August 1973 to April 1974 (when nonfood consumer prices rose at an 18.6 percent rate).
The latest and most reluctant entry in the silly file is a February 21 speech by Henry Kaufman, a distinguished economist with Salomon Brothers. Kaufman's ideas on how to repair the economy were so constructive that they were widely credited with sinking the stock market. He wants to "declare a national emergency" and set up a National Commission on the Revitalization of America—charged with "lifting the regulatory burden" and creating plans "to resurrect the marketplace." Among Mr. Kaufman's plans to deregulate the marketplace, however, are extensive credit controls, foreign exchange controls, and wage-price controls.
Reading the schemes of economic pundits these days is getting downright depressing. From now on, perhaps I'll only keep the reasonably sane proposals. That would sure keep my files thin.
Alan Reynolds is vice-president of research at a major US bank.
This article originally appeared in print under the headline "Viewpoint: The Silly File".