Freeman

ARTICLE

A False Remedy

JULY 01, 1967 by HENRY HAZLITT

The country has been in a mild recession since the fall of last year.

In previous eras not too much concern would have been aroused by a comparable recession (which still leaves the gross national prod­uct at new high levels). Some re­adjustment within particular in­dustries would have been taken for granted. But now, when a thousand doctors nervously take the pulse and temperature of the economy every day, any failure of any index to make a new high record every month causes alarm.

So the government rushes to the rescue. The rescue almost invari­ably consists of added doses of in­flation. The government increases old spending programs and adds new ones. Never mind if govern­ment spending has risen in every one of the last eight years and is now at record levels. Never mind if there have been budget deficits in every one of the last seven years. The spending and the deficits must be pushed still higher. Interest rates must be forced down. The supply of money and credit must be increased.

All this is done on the assump­tion that we cannot have continu­ous full employment and prosperity without at least a little continuous inflation—and maybe, at times, a big shot of it.

The truth is that inflation is neither necessary for full employ­ment nor sufficient to secure it.

What is necessary is a workable co-ordination of the price system. This entails a co-ordination of wages and prices. Individual wage rates must be at the levels at which the full labor force can be profit­ably employed. Prices must be high enough to keep a profit incentive, but low enough to permit the op­timum volume of goods and serv­ices to be sold.

Wages and prices are always tending to reach these levels in free markets.

The half-truth in the Keynesian or inflationary theory is that if wages and other costs of produc­tion have got too high in relation to final prices, so that profit mar­gins have shrunk or disappeared, an injection of new money or credit into the economy may sometimes raise final prices before it again raises wage rates and so tempo­rarily restore profit incentives and production and employment.

But this kind of prosperity can be kept going only as long as prices and profits can be kept at least one jump ahead of wage rates. It be­comes a constant race between the printing press and the demands of the labor unions. It is a race that can only end in gross distortions of income distribution, incentives, and production, in a balance-of-­payments crisis, and in falling con­fidence in the dollar.

This disastrous inflationary race can be prevented only if the gov­ernment has the will and the wis­dom to prevent the continuous im­position of extortionate union wage demands.

This does not mean a wage freeze as in England. It does not mean antistrike legislation. But it does mean the repeal or thorough revi­sion of our present one-sided Fed­eral laws.

It means the removal of the spe­cial compulsions put on employers and the special immunities granted to unions. The employer must not be forced to bargain exclusively with one government-certified union. The unions must not con­tinue to enjoy a special license to keep a plant closed by intimidatory mass picketing until their demands are met. The right to strike does not include the right to prevent anybody else from being offered or taking the job that the striker has voluntarily vacated.

Until we restore balanced labor laws, even continuous injections of more money and credit are not go­ing to assure full employment be­cause irresponsible unions will con­tinue disruptive strikes and unrea­sonable wage demands.

Copyright 1967, Los Angeles Times, Reprinted by permission. 

ASSOCIATED ISSUE

July 1967

ABOUT

HENRY HAZLITT

Henry Hazlitt (1894-1993) was the great economic journalist of the 20th century. He is the author of Economics in One Lesson among 20 other books. He was chief editorial writer for the New York Times, and wrote weekly for Newsweek. He served in an editorial capacity at The Freeman and was a board member of the Foundation for Economic Education. 

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