Economist Gar Alperovitz Says There's Only One Solution to Inflation: Consumer Revolt
Will the President's anti-inflation program work?
No, unless it's drastically changed, and I think the Administration knows that. We are taught to think that cutting the budget—a large part of the Carter plan—will automatically cut inflation, but I don't know one top Administration official who believes that. We are also taught to think that raising interest rates is an antidote to inflation, but in fact it can raise the cost of housing and of consumer goods like autos. Unless we get away from the old illusions and shopworn economic theories, we will never solve the problem.
So you are against the proposed federal budget cuts?
Yes I am. I think it's ugly and unfair to swallow the rhetoric that budget cutting is going to significantly help the inflation problem. In fact, it may destroy key programs for low-and medium-income people. The weakest people in society are currently carrying the brunt of the anti-inflation rhetoric. The budget cut will reduce inflation less than one-tenth of one percent in two years, so it is mainly symbolic and is both vicious in terms of its impact and ineffective in terms of its economics.
Then are you also against the constitutional amendment to balance the budget now being proposed by California Gov. Jerry Brown, among others?
Very much so. Such an amendment could straitjacket the economy. The aim of the amendment is to cut spending and taxes, then to ride out the anti-inflation wave. But it will produce a recession, cut into government programs that benefit the poor, and things could get rough. Urban League Director Vernon Jordan has already warned us of trouble in the streets.
Who is most hurt by inflation?
People with moderate and low incomes. Inflation is most severe in the four areas which are really basic necessities: food, housing, energy and health care. They represent nearly 70 percent of the budgets for roughly four out of five U.S. families.
Could you be more specific?
When food prices go up almost 12 percent as they did last year, that means you are squeezed very badly if you're on a budget. Housing costs went up just a little under 12 percent too. You can't go without groceries or paying the rent or the mortgage. Those are necessities. Ironically, luxury items have not gone up all that much. The price of hamburger went up 54 percent, but sirloin actually went down a penny.
Will President Carter's wage-price guidelines help?
Nobody in Washington I know believes that even with the best of luck this will produce more than a half percent change in inflation. It's basically not fair if you allow the price of oil, food, medical care and housing to go up while keeping a lid on wages. The inherent inequities are likely to undermine the program, and I don't think people are going to comply.
Under what conditions would you favor wage and price controls?
Only if they are part of an overall program to hold down the prices of necessities. Otherwise, it's unfair to ask people who lost VA percent in real income—that is, buying power—last year to hold down wage demands. The family has been tightening its belt as the government looked away from the main causes of inflation. Washington has to aim at curbing the appetites of the vested interests of the major oil and energy producers, the medical establishment, the housing industry and the food industry.
What's behind the increase in food prices?
Long-term mismanagement of the whole food structure. For example, we produce far more food than we can use. But we are still suffering from the inflationary effects of the 1972 Russian wheat deal and the 1973 worldwide feed-grain shortages which fueled high beef prices. We need an overhaul of the basic food-price system. If necessary, compensate the farmer directly. But keep the price of feed grain down with government controls, in order to keep down the price of hamburger. No other country on earth allows the world market to suddenly jolt its consumers.
Does it help to boycott foods that seem overpriced, as happened with meat in 1973?
Yes, particularly if done with consumer or other citizens groups to emphasize the point publicly. I think the message will get through—sometimes directly, sometimes indirectly—that change is needed. Anyone who has talked to supermarket operators knows they become much more careful and responsible in pricing strategies when they know consumers are concerned and willing to take action. However, this is only a small step.
What would represent a bigger step?
The government should institute a program to give the grocer a 5 percent reduction in taxes if he reduces his food prices by 5 percent. It's like a reverse sales tax, and it would give simple, immediate, dramatic relief on food prices this year. Meanwhile, the Carter administration and Congress could work on the harder things like revamping the whole structure of federal price supports and export-management systems to get at the heart of the problem.
What else could be done?
You've got to break up the quasi monopolies in the food industry. The fact is that some parts of the food-distribution system are extremely concentrated. According to our research, one firm controls approximately 90 percent of the soup sales; three firms control 82 percent of the cereals; four firms control 75 percent of the bread and flour. Increasing competition could bring down prices. It might mean breaking up some of the big, highly concentrated firms while giving assistance to small businesses.
Is any action possible on energy prices, or is the U.S. at the mercy of the Arab and other OPEC oil suppliers?
The U.S. still produces a substantial share of its own oil. An overall freeze on energy prices for the next two years could be done if the people demand it. The Carter administration has taken a small first step by postponing decontrol of oil prices. It's better to prohibit gas guzzlers than burden people with $1.25 gasoline. Utility rates can also be held down. But in a way the local utility is the tail end of the problem, and the dogs wagging it are the big energy companies and the friends in government, so I think we need to put a chain on the dog rather than simply slap the tail. We must also concentrate on direct conservation and explore alternate sources like solar energy or wood in areas where it is plentiful.
What about housing and health costs?
Expand government programs to increase the supply of housing and allocate credit at reduced interest rates. Government must also hold down the price of medical care by containing hospital costs, by expanding the supply of health-maintenance organizations and by instituting a national health plan.
What can the average consumer do?
There are a number of small steps: buy more selectively, join a food coop, turn down the thermostat, put on a sweater, start a car pool and buy generic drugs. But all in all, these are tiny Band-Aids on this dangerous economic hemorrhage called inflation.
So what's the answer?
There is not going to be any significant relief on any of these fronts unless there is citizen demand for it. Until people begin to show that they really care about these things, we'll get more price rises. Most people suffer under the illusion that they themselves don't matter. I am bored by people who wring their hands. I'd like to see widespread rallies and teach-ins. We must put the democratic process back to work—conditions are just becoming too painful for too many families. Reality is a powerful battering ram, and if it keeps thumping away, people will be forced to act.