The last few weeks have been a time of economic uncertainty in our region. While the first cause of the stomach-churning jitters is clear enough — the raising of the federal debt limit — how we got where we are and what the outcome will be are yet to be determined.
Sometimes, when wandering in strange territory, it is helpful to look for whatever is familiar. A careful look at the present landscape will reveal that we are not in totally new territory.
First, this is the right time of year for an American economic calamity. Late summer and early fall are times of maximum vulnerability for stocks, bonds and banks. This trend was first noticed by financial people in the mid-19th century.
The reason for the economic tension was then thought to relate to demands for cash from county banks to purchase incoming crops. This resulted in an annual draw-down of cash in eastern urban centers, reducing bank reserve and tightening the supply of cash to cover financing requests for railroads, industrial investment and government requests. As the reserves thinned, institutions and organizations that relied on borrowed money became likely to fail when funding ceased to be available, sometimes leading to countrywide depression or recession.
The harvest cash draw-down theory was not initially accepted, but enough lawmakers and economists gave it credence that the federal reserve system came into being early in the 20th century, based in part on belief in this theory. The system was to provide a constant and reliable source of dollars nationwide and in all seasons. While it has not proved a perfect mechanism over time, the system has helped to even out the availability of credit.
Second, the use of combinations of federal law and private contributions to solve large financial issues has long been as American as apple pie. When there has been a uniquely difficult financial problem or passage, our public and private financial institutions have usually responded in a coordinated way to good effect.
One interesting aspect of these types of problems is the remarkable pragmatism they evoke and, despite what you might have heard, no one political party has monopoly on government activism or lack thereof.
On a quiet summer weekend in Washington, D.C., in 1971, almost exactly 40 years ago this month, small groups of federal officials, private lenders and bill legislative staff were meeting on a special assignment. This work began in early August and continued to Aug. 13-15 meetings at Camp David.
On Aug. 15, the president imposed a freeze on the domestic economy of the United States. The freeze — covering wages, prices and rents — was to last for 90 days. There were a few exceptions to the freeze; first sale of raw agricultural products, interest, dividends and imported goods.
The freeze was viewed as a placeholder, to provide time to devise longer-term solutions to address the accelerating inflation and unemployment the country then faced.
This sweeping economic control program was created and implemented in little more than a week, used less than 2,000 full-time employees nationwide (all temporary or on loan from their jobs in various federal agencies) and was largely self-enforcing, relying on public opinion to create pressure to bring violators into line.
It bore some resemblance to contingency plans that would have been used to control the U.S. economy and resources in the event of nuclear war.
It perhaps speaks to the orderliness of another time that while an appeal process existed, few exemptions to or exemptions from the freeze were granted, no dividends of relief were successfully appealed, and there was no successful legal challenge to this freeze program as a whole.
The freeze accomplished what it was meant to do — buy time. The consumer price index rates of increase fell from 4.0 in August to 1.7 in November while the wholesale price index (more significant as an indicator of probable future trends) rates of increase fell from 6.5 in August to 1.3 in November.
Efforts at economic control following the end of the freeze in November 1971 were less successful.
As to our present circumstances, the odds are that as in the past, a variety of forces will converge in the next few weeks to stabilize our domestic economic picture.
There are some difficulties now; we no longer enjoy the degree of economic power or insularity as was formerly the case. Our educational levels do not compare as favorably with other countries as they once did. Our infrastructure is not as new or well-kept as that of our competitors.
However, if we can still create the kind of effective multi-party public-private partnerships that have been so much a part of our heritage and strength, we should do fine. Remember, the most extensive program of government economic activism the country has ever seen, the 90-day wage price freeze, was created and run by a Republican president, Richard M. Nixon.
Spence Perry, a resident of Fulton County, Pa., is active in Washington County affairs. He was executive officer of the Office of Exemptions and Exceptions during the 1971 freeze.