Posts published in “History”

David Greenberg, a professor of history at Rutgers, has a piece in Politico today lauding the Progressive Era wartime economic planning of Woodrow Wilson.

Greenberg specifically credits the War Industries Board and a cluster of other federal agencies with marshaling the resources needed by the U.S. and its allies to win World War I.

More generally, he says the War Industries Board “helped vault the U.S. into its preeminent role in the world.”

If the War Industries Board failed to mobilize business as effectively as it might have, it did demonstrate clearly that only the government, and not the private sector, has both the authority and the size to direct and coordinate any industrial mobilization on a national scale.

Greenberg’s implication is clear:

President Trump needs to stop dragging his feet and use whatever federal powers might be necessary—including, but not limited to. invoking the Defense Production Act of 1950—to force General Motors and other big businesses to provide critically needed medical supplies to our hospitals and healthcare workers on the frontlines in the war against the coronavirus.

Greenberg is wrong. He is wrong about the history of the War Industries Board and central planning; he is wrong about the economics of the private sector versus central planning; and he is wrong about the public policy implications for today.

First the history and economics. America won World War I and became a preeminent world power in spite of President Woodrow Wilson’s “war socialism,” not because of it.

America, in fact, had been rapidly industrializing, and its economy growing, well before Wilson’s central planners began to gum up the works with their fascistic ideas of government control and coercion.

The Economic Historian Association’s Hugh Rockoff notes, for instance, that production of steel ingots and “total industrial production’—an index of steel, copper, rubber, petroleum, and so on”—was growing years before establishment (on July 28, 1917) of the War Industries Board. 

“It is evident,” Rockoff observes,

that the United States built up its capacity to turn out these basic raw materials during the years of U.S. neutrality when Britain and France were buying its supplies and the United States was beginning its own tentative build-up.

Moreover, despite their dangerously fascistic aspirations—and despite causing considerable economic mischief, damage, and dislocation by effectively discriminating against small-scale entrepreneurs who lacked political clout—the central planners at the War Industries Board were seriously hemmed in, and, as Greenberg himself admits, unable to implement their plans in full.

Their fascistic rhetoric far outpaced the reality of Wilson administration actions. 

In Greenberg’s view, this was precisely the problem. The War Industries Board “could cajole companies to act but had little ability to command them,” he writes.

In truth, though, the board’s limited power of command was our saving grace, and the very reason American industry was able to produce a vast amount of raw materials and munitions (aircraft especially) that proved decisive for the Allied war effort.

As historian Francis J. Munch succinctly put it in a 1973 review of Robert D. Cuff’s book, The War Industries Board: Business-Government Relations:

The WIB simply maintained the symbol and myth of an integrated system which in reality lay beyond its grasp. The agency was severely circumscribed by private interest groups, the military, and ideological assumptions of the mobilizers themselves…

The obstacles to wartime coordination and control (institutional factors and political conditions) were omnipresent…

In sum, the effectiveness of the WIB as a public symbol helped protect businessmen from traditional political pressure, while the ineffectiveness of the WIB as a bureaucratic power save them from undue intrusion by the state.

Greenberg also fails to mention that Wilson’s disastrous economic policies, rooted as they were in central planning and government control, led to “very high inflation… and a severe depression in his last year in office.

“[Indeed], industrial production,” writes economist Scott Sumner, “had fallen by 32.5% by March 1921,” when conservative Republican Warren G. Harding became president. Harding “cut income tax rates sharply” and the economy quickly recovered, surpassing its previous cyclical peak, Sumner notes.

As to the public policy implications for today, Greenberg insists that if Trump had used the Cold War-era Defense Production Act six weeks ago “to force General Motors to build the life-saving ventilators that are in short supply around the nation… those ventilators would probably be en route to hospitals today.”

No, that’s not true.

To be sure, Greenberg is right to fault Trump for being slow to recognize the magnitude of the danger presented by the coronavirus. Trump continually downplayed the problem when, in fact, he should have been rallying the nation to confront the problem.

That’s a fair and legit criticism, and one that we’ve made here at ResCon1.

And, truth be told, had Trump done so, it’s certainly the case that all Americans—private industry included—would have been more quick to recognize that we need many more masks, ventilators, respirators, and other crucial medical gear sooner rather than later.

But the question becomes means—or how, exactly, do we meet this unprecedented demand?

All of our historical experience, and everything that we know about economics, and the incontrovertible laws of supply and demand, tells us that far from the government needing to “command” or direct private-sector business decisions, we instead need to allow open and competitive markets to function and work.

Trump has been wildly inconsistent about whether he is or is not invoking the Defense Production Act to force General Motors to produce more ventilators.

One day he is throwing stones at GM and saying he will invoke the act; the next day he is saying that GM is being responsive and that invoking the act is unnecessary.

Regardless, one thing is crystal clear: private sector companies, including GM, are making heroic and herculean efforts to meet this unprecedented demand, and they are doing so irrespective of what Trump and the feds are or are not doing.

Why? Because they recognize that there is a severe need for this under-supplied medical gear, and they are rushing to meet that need, both to do good and to make money.

Price Signals. Greenberg echoes New York Governor Andrew Cuomo’s complaint that states are in a bidding war for ventilators; and that, therefore, the federal government needs to intervene to hold down prices.

But again, this betrays a serious lack of understanding of how markets work—and specifically, a lack of understanding of the importance of price signals as the means by which private sector producers identity and meet market demand.

As Alex Tabarrok, a professor of economics at George Mason University, explains at Marginal Revolution:

A price is a signal wrapped up in an incentive, as Tyler [Cowen] and I write in Modern Principles.

Compare the price system with command and control. We need ventilators. The federal government could order ventilator firms to make more but they are already doing so.

The government could order other firms to get into the ventilator business but does the federal government have a good idea which firms have the right technology, or which firms have the right technology that could be repurposed to ventilator production at low cost, that is without causing shortages and disruption in other fields?

Can they do better than a decentralized process in which millions of entrepreneurs respond to price signals. No.

Government’s Role. To be sure, this doesn’t mean that there isn’t a role for government in ensuring the prioritization and distribution of ventilators among the 50 states and regions.

Which is precisely, it seems, what former Clinton administration official Joshua Gotbaum is getting at when he argues, in the Washington Post, that Trump should involve the Defense Production Act.

“The act,” he writes, “allows federal agencies to collaborate with business to get critical supplies during emergencies—by encouraging investment and speeding production—and direct them to where they’re most needed [emphasis added].”

Okay, but prioritization and distribution of goods manufactured and produced by private sector companies responding to market signals is very different from the sort of state-run war planning scheme pushed by Greenberg as he harkens back to Woodrow Wilson’s War Industries Board.

Again, as Tabarrok explains:

If all the trucks are fleeing from the front, we want the army to be able to requisition vehicles to move in the opposite direction.

Private and social incentives do not always align and when time and certainty are of the essence command and control may be superior (as Tyler and I discuss in Modern Principles in the chapter on externalities).

For the most part, however, that is not the situation we are in now. Private incentives are all pushing in the right direction of greater production.

Let the market respond. The federal government is not good at command and control, but it does have a role to play in redistribution for need.

Bad History. In short, when it comes to history, “it ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Greenberg purports to know something that just ain’t so—to wit: that Progressive Era wartime economic planning by Woodrow Wilson and the War Industries Board was a great success—or at least a template or model that future American presidents should learn from and adapt to present circumstances.

In truth, the government’s attempt to commandeer and command private industry was misguided to begin with; it caused considerable economic mischief, damage, and dislocation; and America succeeded in spite of it, not because of it.

And it is a mistake we should not repeat any time soon, at least not if we wish to defeat the coronavirus and save American lives.

Feature photo credit: Woodrow Wilson, arguably the worst president in American history, courtesy of History.com.

Today is the fortieth anniversary of the “Miracle on Ice,” when the underdog U.S. men’s hockey team, which no one every thought had a chance, beat the world’s greatest hockey superpower, the Soviet Union, in the semifinal round of the 1980 Winter Olympics.

Two days later (Feb. 24, 1980), the U.S. men’s hockey team beat Finland to win the Olympic Gold medal.

The “Miracle on Ice” was a welcome and surprise victory that helped lift the spirits of the country at a time when America was down, and, many believed, in a state of irreversible decline.

And, in retrospect, it was clearly providential and a harbinger of the future. The win presaged the oft-stated belief by then-Republican presidential candidate Ronald Reagan that America’s best days lie ahead.

In fact, with Reagan’s election as president, America came roaring back and experienced one of the greatest economic booms in its history, while defeating the Soviet Union in the Cold War.

Talk of national decline was eclipsed with talk of American greatness, as the country enjoyed a quarter-century of triumph and achievement arguably unlike anything it has ever experienced and likely every will experience again.

All of this may seem obvious with the benefit of historical hindsight; but on Feb. 22, 1980, the notion that America had a future worthy of its past seemed quaint and fanciful.

American Decline. The U.S. economy was mired in a deep recession; the auto industry was on the ropes, with Chrysler and American Motors on the verge of bankruptcy; and OPEC, the Organization of the Petroleum Exporting Countries in the Middle East, had America over a barrel—literally and figuratively.

The Soviet Union, meanwhile, was on the march—in Asia, Africa, the Caribbean, and Latin America. Nicaragua turned communist in 1979 and El Salvador seemed destined to follow. Communist Cuban guerrillas were on the offensive in Angola, and the Soviets invaded Afghanistan in December 1979.

In 1956, Soviet Premier Nikita Khrushchev boasted, “Whether you like it or not, history is on our side. We will bury you!” In February 1980, it looked, sadly, like he might be right.

In the preceding decade, the United States had suffered a series of disasters, including: the Vietnam War, Watergate, the resignation of Richard Nixon as president, oil and energy shocks, gas rationing and long lines at the pump, recessions and high inflation, Three Mile Island…

By November 1979, Islamist revolutionaries in Iran had toppled the government there and taken 52 Americans hostage. A rescue attempt in April 1980 was a complete fiasco. America looked like a pitiful, helpless giant, as even then-President Jimmy Carter seemed to acknowledge.

“The erosion of our confidence in the future,” Carter said in his important but much-derided ‘malaise speech,’ “is threatening to destroy the social and the political fabric of America.”

The malaise speech was much-derided not because it was wholly wrong in its diagnosis, but rather because Carter appeared to have no clue about how to right the ship of state and reverse America’ precipitous decline.

David versus Goliath. This was the political context in February 1980 when the U.S. men’s hockey team began its miraculous ascent.

The team was comprised of amateurs from the American heartland. Most were from Minnesota and other northern states. Some had played college hockey; but no one would ever put them on a par with their vaunted counterparts from the Soviet Union.

As Tom D’Angelo explains in the Palm Beach Post: 

The Soviets had won six of the previous seven gold medals in men’s hockey and were the overwhelming favorites. The team was made up of professionals who had been crushing opponents after losing to the U.S. in the 1960 Games, losing just one game in the previous 20 years.

This band of mismatched American collegians led by feisty coach Herb Brooks stood no chance against the Red Army.

“By the time of the big game on Friday, Feb. 22,” notes the Washington Examiner’s Quin Hillyer,

the American people had adopted their gritty team in a way that I’ve never seen before or since. It is not mere ex post facto gloss to say the contest was seen as being about much more than just hockey, more even than Olympic gold.

For the first time since World War I, Americans saw themselves—not just the team, but the nation—as underdogs. The young hockey squad carried the country’s hopes that underdogs still could win, that freedom could defeat regimentation, and that right could triumph. The battle seemed civilizational.

Win, of course, the Americans did. Most readers know the game story—the saves by goalie Jim Craig, the go-ahead goal by captain Mike Eruzione, and announcer Al Michaels’s immortal question, as the last seconds ran off the clock: “Do you believe in miracles?”

“Yes!” he answered… And finally, yes, we did.

This was very important, because by most lights, it would take a miracle to outstrip the Soviets in the far more consequential, geopolitical, nuclear-haunted battle of ideals and will.

The problem was that only one major presidential candidate in 1980 seemed eager to wage that battle.

His name: Ronald Wilson Reagan. The rest, as they say, is history. Reagan would go on to win the presidency, and then to inspire and lead an American economic renaissance. And, in the end, thanks to his concerted efforts, it was the United States that buried the Soviet Union.

But for most ordinary Americans, the first real glimmer of hope that maybe, just maybe, all was not lost, and that America could once again be great, came in the winter of our discontent in a small town (Lake Placid) in upstate New York.

There a group of unheralded but determined young Americans came together as a team to give it their all and achieve the impossible. And if they could do it, so could we. And we did.

Feature photo credit: Focus on Sports/Getty via InsideHook.