Subsidies?

When Leon Henderson's wholesale price ceiling went into effect, the U.S. entered into a controlled economy which made the old NRA strait jacket look like a sport shirt. Next week the retail ceiling will follow; the strait jacket will be laced up.

To most U.S. citizens, control was a less terrible word than inflation. But up cropped a new word, which may come to be as terrible as either: subsidy. The Office of Price Administration, knowing that some businessmen could never make a profit under a suddenly imposed and rigidly enforced ceiling, planned to subsidize their losses. This would mean that the public would have to cough up taxes to support some businesses, particularly marginal and inefficient units. Worse, the U.S. would be piling up the cost of Government to keep its cost of living down.

But OPA believed it had little choice. To keep losing manufacturers at work, it could only offer a subsidy or in effect drive them to sell their goods in a "black market"--which might be good economics but would be bad morals. Subsidies had been found a necessary corollary to price ceilings by both Britain (to the tune of -L-125,000,000 a year) and Canada ($2,000,000 since last December). And OPA planned to go easy: Deputy Administrator Kenneth Galbraith told Manhattan clothing manufacturers last week that subsidies were "a last resort"; hard-pressed manufacturers must first practice "rigid, ruthless economy."

OPA's subsidies might be swallowed as short-term medicine. But the U.S. knew, from its experience with tariffs and agricultural "parity" payments, WPA, etc. not only that subsidies once started are hard to stop, but that they help to perpetuate the economic troubles they are supposed to relieve. If too many people, unable to make money under the ceiling, are kept going by subsidies, they and their employes will form powerful post-war pressure groups. To make sure that a wartime necessity does not create a permanent drain on its Treasury, the U.S. would have to watch its step.

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