Subsidies or Else

Leon Henderson was fighting mad last week and showed it as only Leon can. He even threatened to quit as price tsar.

But the big news in Henderson's mad scene was not his wisecracks, but the clear revelation that the core of price control from now on lies in subsidies.

Before long, thousands of companies in scores of industries will be trying to collect from the Government the price boosts they cannot pass on to their customers. To pay these subsidies, Senator Brown (D., Mich.) said the Administration will soon ask for perhaps $1,000,000,000 just for a first flight.

What Henderson was fighting for last week was really a chance to make a success of his job. To a Senator who asked whether rumors of his resignation were true he cracked, "Why not? You fellows don't seem to give a damn about making price-freezing work. Why should I?" To reporters he said he might go off to Havana for a cooling-off trip since "I can't seem to get to go any place else." The last time he went South to cool off (TIME, April 21, 1941) was just before Franklin Roosevelt gave him the OPACS and a green light on expansion of war plants.

Last week the subsidy question was all tangled up with patronage. Congress was in a rage because Leon had tried to be nonpolitical with his OPA appointments--the biggest potential patronage pool the U.S. has seen in years. To "discipline" him Congress got set to slash his $161,000,000 budget to finance his price-control army. It had also refused to authorize subsidies for any price-ceiling casualties except primary producers (like farmers). And it had refused to vote any money at all for any kind of price-ceiling subsidy.

Subsidies were underplayed in the press two months ago when the General Maximum Price Regulation was announced. They got only a passing reference in the first documents describing "the big freeze." And when Congress shortly thereafter refused subsidy funds to RFC, most people shrugged their shoulders and thought it was just another swipe at newly unpopular Jesse Jones.

As a matter of fact, widespread subsidies did not become the sine qua non of effective price control until it became clear that neither Congress nor the Administration was willing to fight for a really effective anti-inflation program on the taxation, farm-price and wage-freezing fronts.

To Leon Henderson, no farm-price control plus no wage control plus insufficient taxes leaves nothing but subsidies to hold the retail price line. Both Canada and Britain have paid subsidies in cases where retail ceilings imposed hardships so extreme that they could not be shoved back on the wholesaler or manufacturer. Canada's payments have been trifling, but in Britain two years of price control have cost more than $1,000,000,000 in subsidies, and Britain regards it as money well spent to avoid a far more costly general increase in prices.

Even that kind of money is chicken feed to what the U.S. will probably have to dish out to keep ceilings fixed. The $1,000,000,000 figure Senator Brown foresaw last week was just a starter; and if $1,000,000,000 sounds high, Leon Henderson had some stratospheric statistics to justify it: price control, he contended, has already saved the U.S. $6 billion on war expenditures; if the ceilings hold for another 20 months, the U.S. will pay $62 billions less for its war than it would if prices rose as they did in World War I.

The real need for subsidies,is obviously just beginning--so is over-all price control. In the past, specific calls for subsidies (for high-cost copper, for the cost of shipping Southern coal by rail instead of by water, etc.) have been few and confined to extraordinary emergencies. From now on, the extraordinary emergencies are bound to become more & more the ordinary casualties of a titanic war effort.

Trouble is, past emergencies have just about exhausted all the funds that RFC has had available to deal with them. This week, therefore OPA will probably have to puncture its East Coast price ceiling on gasoline for the fourth time, since the oil industry cannot go on forever absorbing the higher cost of bringing oil east by train at 4-c- a gallon instead of by tanker at 1/2-c-. So far a deficit of $39,000,000 is the only thanks the industry has received for its unhesitating efforts to move oil east, without tankers, regardless of cost.

Harried Henderson got a good lick in last week when he told his press conference that he was worrying "about how to keep the cost of living stabilized and not how to keep Leon and his faithful associated 'bureaucrats' in their jobs." Whether he would really carry out his threat to martyr himself to save his ceilings was still a moot question. If Congress makes his resignation the price of a subsidy bill, he may have to follow through. On the other hand, as he cagily mentioned last week, "A lot of personalities are being chewed up around here, but the trouble is I don't chew so damn easy." So far, the public has shown more appetite for chewing on Congressmen than on their Price Administrator.

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