Learning From Macy’s

Originally published July 14, 1986

LIKE THE Ancient Mariner, we war veterans have a glittering eye.  (I have seen mine reflected, dully, in my grandchildren’s eyes as they prepare to listen dutifully.) We could tell you a tale or two-and we will. Indeed, I will, here and now, tell you war story that has a lesson for us today and for tomorrow too.

Perhaps you were there. After all these years I may be off a bit on some of the details. If so, you can correct me. But I’m sure that I have my oral straight.

It was, as I remember it, in the fall of ’37. The battlefield was not on the banks of the Ebro but in Herald Square. Macy’s let loose a barrage advertising a special on the Modern Library: three volumes for a dollar. Skirmishing had been going on for months or maybe years but the price had rarely fallen below wholesale, somewhere around 50¢ (the list was 95¢). The big battles in the last half of ’36 and the first of ’37 were fought over Gone with the Wind, which, in spite of its $3.00 list price and an ordinary wholesale price of $1.80, sold as low as 49¢ in auto supply stores. It was the big loss leader: possible profits on Margaret Mitchell’s work were expendable as-Ion- as it lured in people to buy bigger-ticket items.

By the fall of ’37, practically everybody who wanted a copy of Gone with the Wind-and many who didn’t-had one. So Macy’s tried to effect a breakthrough with the Modern Library. The book section, then on the main floor, was mobbed. We rushed in from every point of the compass as soon as the doors opened. I still have my three books: The Education of Henry Adams, The Theory of the Leisure Class, and D.H. Lawrence’s The Rainbow (a novel, I’m ashamed to confess, that I’ve never been able to finish).

Did Macy’s tell Gimbel’s? No, but Gimbel’s was not caught napping. Its comparison shoppers were in the front line, rushing the news from 34th Street to 32nd Street as fast as it occurred. And of course, Macy’s spies were doing the same in Gimbel’s.

I was a well brought up young man; so after I had elbowed my way to the table and grabbed my three books, I waited patiently for a clerk. My good manners were rewarded. Twice, as I stood there, an assistant buyer rushed in (we smartly made way for her) and lowered the price-first to 31¢, then to 28¢, the price by the time I was waited on. Maybe I’d have done better at Gimbel’s.

I don’t know. Anyway, it was a good war. Even the most flaky Harvard philosopher would call it a just war. But it had repercussions. Booksellers for miles around were hurt, or thought they were, and screamed.

Some returned their stock of the Modern Library to Random House; some refused to buy Random’s new books; all urged Random to protect the Modern Library price under the new Fair Trade Act. (This law allowed producers of copyrighted, patented or trade-marked goods to follow a complicated procedure that would require every retailer to maintain list prices. The act has since been repealed, and it is conventional to denigrate it; constant readers will not be surprised to learn that there I go again, being unconventional.)

Macy’s moved quickly. They ordered in, on top of their usual heavy inventory, an extra $50,000 worth of the Modern Library. That was a lot of money in 1937. Random was delighted. But when the publisher started talking about price maintenance, Macy’s whispered that it would have to return all those books for cash. Random decided to bear those ills it knew, and continued to do so for another four or five years, until wartime shortages allowed it to call Macy’ s bluff and declare that it would take back any books Macy’s was ready to send. End of war story.

The moral is this: If you maintain a large inventory, you can force your suppliers to play the game according to your rules. And where can we put that lesson to good use? Ina word: oil. Oil is certainly the second most screwed-up topic in political economy. I’m not sure what is first. Probably the deficit, or maybe the defense budget. No matter; they’re all related.

Everyone knows you can’t run a war or a police action or even a defense without oil. It is the absolutely essential military resource. It is not surprising, therefore, that we have at least the outlines of a policy on oil, and that we’ve followed them for a long time. But if you tried to think the problem through, calmly and rationally, you would not guess what our policy is, not in a million years. For example,

President Eisenhower, who certainly did not regard defense frivolously, imposed a partial embargo on imported oil. Ike said (if you don’t believe me, you could look it up) this was a defense measure.

Its expected and intended and actual results were (l) to reduce the importation of foreign oil, (2) to let domestic producers raise their prices, and (3) to encourage domestic producers ( a.k.a. wildcatters) to explore for new oil fields and exploit existing fields more thoroughly, Now, you, being a sober citizen, will wonder how all this made America  stronger, and I will have to say that it had the diametrically opposite effect, for it caused us to use up our oil reserves faster than we might have otherwise. To be sure, the higher price of oil may have persuaded some people to conserve a bit; but the principal consequence was a draw-down of our reserves.

The crazy thing is, people are clamoring for us to do the same thing again. This time the alleged purpose isn’t national defense but deficit reduction. Of course, if your real aim was to reduce the deficit, you would put an extra excise tax on all oil. No one, however proposes this, because it would annoy a number of politically active oilmen.

Similarly, if you really wanted to make America stronger, you would import every ounce of foreign oil you could, now that the price is down. You would move, with more than deliberate speed, to fill up those salt mines (or whatever they are) where we started, back in the discredited days of Jimmy Carter, to accumulate a ready oil reserve. Before the oil glut, OPEC warned us that if we tried to fill those mines in order to reduce our dependence on them, they’d consider it unfriendly behavior and would respond by pushing up the price of oil, or maybe slapping a new embargo on us. Today, though, with pretty bad business and pretty good conservation world- wide, OPEC has so much oil it doesn’t know what to do. In addition, we have banks failing all over the West, and the growth of Houston, especially, is being corrected. So far, the only thing we have been able to think of is a trip for Vice-president Bush to explain to the Saudis that the people he represents hope that prices won’t fall too low.

ADMITTEDLY, filling those mines would cost real money, even at present oil prices, and everyone has been programm-rudmanned to worry about the deficit. But here is where the moral of the Herald Square war comes in. Just as Macy’s excessive inventory of Modern Library books inhibited Random House from fixing the price at 95¢, so if we had all our depleted mines (and all our storage tanks) brimming with oil, it would be difficult, if not impossible, for OPEC ever to spring another embargo on us.  Those full reserves would be a new declaration of independence for us. They’d make a quicker and more effective (and probably cheaper) contribution to national defense than Star Wars or nerve gas or re-commissioning obsolete battleships.

What’s more, buying that oil would be an investment in something useful for civilian as well as military life. At the minimum, it would be a guarantee that we would not have lines at the gas pumps until oil was really running out. Charging such investments to the current budget is nonsensical accounting (but that’s another story).

Filling our reserve capacity would also give us opportunities for a creative and hard-nosed foreign policy. Consider how the reduction of Arabian pressure on us would strengthen our position in the Middle East. And consider how we might distribute the orders for the oil: Naturally, we’d buy most from friendly countries that are heavily burdened with debt (much of it owed to us).

Thus we could help, first of all, Mexico, which is on the brink of lMF-sponsored chaos. Then we could think of Venezuela, one of the struggling South American democracies, and of Nigeria, one of the struggling African democracies (at least in ideals). In the Middle East we could favor countries willing to put a bit of pressure on Syria. The possibilities are very great. Prudent friendliness on our part could earn us friendly prudence on the part of many important nations.

So why don’t we do it? You know why. Even if we weren’t hung up on the deficit issue, even if the Administration and Congress could be gotten to see the light, the program would be stopped dead by influential senators and congressmen who are obligated to, or in fear of, 50-odd men who’ve made a killing in oil. You know these people would stop it, just as they’re now stopping tax reforms that might treat them like everyone else.

These 50-odd men are not the Seven Sisters of Big Oil. Exxon and the rest usually support what they do, and their support rivals the clout of any other industry’s lobby. But the initiative and most of the money comes from the independents. What makes these few men so powerful? They are wealthy-really and truly wealthy-and they don’t give a damn about anything except having their own way. Every one of them is capable of signing checks for hundreds of thousands without worrying about the bank balance. Every one of them can make maximum contributions to political action committees as fast as the committees are invented.  If you want a rundown on who they are and how they work, I refer you to The New Politics of Inequality by Thomas B. Edsall (one of the last books I edited, and a good one).

We’re not talking about merely Texas and Oklahoma. There are appreciable amounts of oil in 10 or more states, some of them very populous. That gives the oil lobby a bloc of, say, 20 senators and 50-60 congressmen it doesn’t have to worry about. Moreover, many of these legislators have accumulated seniority and the committee chairmanships that go with it.

In spite of all this, maybe the current economic difficulties of the oil states can give us a chance to get some of our own back. Suppose we said we’d fill up those reserves with true-blue American oil. Could they resist the temptation? We would lose the chance to do something useful in foreign policy. Still, we wouldn’t be doing something harmful to our national defense. And the existence of that ready reserve just might make the oil senators a little more respectful of the rest of us in the future.

The New Leader

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