have to be made aware that just as private goods cost money,
public goods cost money too. In the long run, we cannot indulge
ourselves without picking up a very large due bill in the form of
inflation.
If there is very little that can be done in the way of dramatic
policy thrusts, then we have to turn our attention to micro-policy
considerations. One question that should be asked, and is not
asked often enough, is why or how can an economy simultaneously
experience a recession and accelerated inflation. The only way it
can happen is if market power, whether it be labor market power or
industry market power, has reached the point where sellers of
resources or sellers of goods and services can to a substantial
degree set their prices independent of market considerations. We
do not have to look much farther than the American automobile
industry to see a classic case. If any of us were operating a busi-
ness that was in as bad shape as the auto industry was last year, we
would not conclude that this was the most propitious time to raise
the selling price. Quite the contrary! Yet now we see substantial
increases in view. Why? To protect profit margins.
The marketplace is presumed to operate on the assumption that
those profit margins sometimes get eroded and that actual profits
may just disappear when sales disappear. That is the way the mar-
ket is supposed to work. But in many instances it does not work
that way. If we go to the labor market side, we see the same thing
happening, particularly with craft unions in construction. The
“discipline of unemployment” does not exert the same pull on a
craft union in construction as it does on an unorganized area in the
American economy. We have permitted economic concentration at
the industrial level, and in many instances in the labor market, to
proceed to the point where the kinds of downward price and cost
flexibility that were assumed to exist in the competitive model no
longer can do their jobs at present levels of slack. If we want
downward price and cost flexibility, we are going to have to accept
a lot more slack than we are willing to take right now.
So the matter, then, of a micro-economic policy called antitrust
is something that needs renewed attention. We should begin to ask
ourselves the hard questions of whether or not the public interest is
well served by the industrial structure and the labor market struc-
ture which presently confront the American public. I will say,
categorically, the answer is no, it is not being well served. If the
world is what John Galbraith described, in his New Industrial
State, as one in which we are going to have two clear planning
components in the economy, a government and a private sector,
10