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4 Government Interventions: Did They Work?

4 Government Interventions: Did They Work?

San Francisco Chronicle via YellowBrix

July 13, 2010

Since the BP (NYSE:BP) Deepwater Horizon oil spill on April 20, the American government has deployed 17,500 National Guard troops to respond to the environmental crisis. Over 484 miles of shoreline have been impacted, and 81,181 square miles of Gulf of Mexico waters have been closed to fishing. Many are wondering if, with stronger regulations, the incident could have been prevented. But increasing regulations doesn’t come without controversy. When President Obama tried to implement a six-month moratorium on offshore drilling in response to the crisis (which was later overturned), the Independent Petroleum Association of America fought back, fearing the moratorium would be devastating to the economy. Bruce Vincent, chairman of the association and Swift Energy, a Houston based company, said, “Putting more job-creating American energy off-limits, and discouraging the production of our homegrown oil and natural gas, will only deepen our nation’s foreign energy dependence, leading to even more unstable prices for consumers across the country.”

How much the government should intervene in the economy is a debate for the ages. But has increased regulation worked in the past?

Cleveland’s Railroad Dilemma Workers at Chicago’s Pullman Palace Car Company walked out one spring day in 1894 in protest of smaller wages. The American Railway Union supported the workers and announced that, after negotiations failed, no trains that had Pullman cars would be operated. President Grover Cleveland became involved in the dispute when routes beyond Chicago were disrupted. He deployed military soldiers to force the protesters to return to work, claiming that because the U.S. mail service had been disrupted, he had the constitutional right to do so. More than 30 people died in the violence between those on strike and the military, garnering sympathy from the public for the labor activists. (Unions are organizations that negotiate with corporations, businesses and other organizations on behalf of union members. Find out how beneficial they really are, in Unions: Do They Help Or Hurt Workers?)

Roosevelt’s New Deal When former President Franklin D. Roosevelt replaced his predecessor Herbert Hoover in 1933, the Great Depression had taken a firm, relentless grip on the nation. In his inaugural address, Roosevelt famously said, “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror, which paralyzes needed efforts to convert retreat into advance.” The president unveiled his New Deal plan, which involved creating government programs that put people to work in a variety of fields, like building large-scale infrastructure. The New Deal was credited with reinvigorating the economy and was widely popular, and Roosevelt was re-elected for another term. (Read What Caused The Great Depression? to find out more.)

Truman and the Steel Industry After contract negotiations between the United Steel Workers and steel producers deteriorated in 1952, former president Harry Truman seized control of the steel industry in an effort to avoid a strike while the Korean War continued. The move was highly controversial, according to the Miller Center of Public Affairs, 43% of those polled said they did not support the high level of government intervention in the matter. The U.S. Supreme Court found Truman’s initiative to be unconstitutional; the steel industry was again a private one, and steel workers promptly went on strike for 53 days. An editorial in Life magazine from April, 1952 reads, “He showed outrageous partiality in a serious industrial dispute, and he gave his own constitutional powers a dangerous and quite unnecessary stretching.” (Former U.S. President Harry S. Truman famously wanted a one-armed economist so he didn’t have to hear “on one hand” followed by “on the other hand.” Find out more, in 5 Common Misconceptions About “Free” Markets.)

Nixon’s Oil Crisis Between 1971-1973, former president Richard Nixon imposed the New Economic Policy, which, for a 90-day period, would freeze wages and prices in an effort to combat inflation. Although it looked like the move had a stabilizing effect, inflation again became a threat once the controls were relaxed. Nixon again imposed the controls, in part because of the OPEC oil embargo, but this time it didn’t work. In The Commanding Heights, Daniel Yergin and Joseph Stanislaw write, “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.” Although Nixon resigned just four months later, price controls on oil continued, and the U.S. began to try to free itself of dependence on foreign oil resources by increasing domestic exploration. (It’s the 1970s, and the stock market is a mess. It loses 40% in an 18-month period, and for close to a decade few people want anything to do with stocks. Find out more, in The Great Inflation Of The 1970s.)

Conclusion Which brings us full circle. While it’s tough to say whether or not government intervention is always or never a good thing, it’s easier to say this: Many-a-President before Obama has erred in his decision to intervene, or has blundered in his method of intervening in the private sphere. But there is an expectation for the President, whoever he or she may be, to act in some way when the country is in dire straits. But the way in which he acts, the circumstances, the other parties involved and unknown factors make it impossible to predict what the outcome may be.

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