Crisis Policy-Making: Immediate Action, Prolonged Regret

Brief Analyses | Government | International

No. 375
Thursday, October 04, 2001
by Robert Higgs

In a national emergency, perhaps the strongest urge of democratically elected officials is to "do something" immediately. Politicians believe that inaction sends citizens the message that their leaders are indecisive and perhaps incompetent to deal with the crisis. In the wake of the September 11 terrorist attacks, Congress and the president are proposing a host of new security measures and other laws and regulations. Federal spending, which, as the figure shows, spiked for both World Wars, is about to spike again with higher spending for the military, domestic security, stricken industries and perhaps other items.

In America's past, however, in virtually every case, policies adopted in the heat of the moment have proven, in cool retrospect, to have been overreactions that sapped the long-term vitality of civil society and the free-market economy.

World War I.

With U.S. entry into World War I, the federal government expanded enormously in size, scope and power. It virtually nationalized the ocean shipping industry. It did nationalize the railroad, telephone, domestic telegraph and international telegraphic cable industries. It became deeply engaged in manipulating labor-management relations, securities sales, agricultural production and marketing, the distribution of coal and oil, international commerce, and markets for raw materials and manufactured products. Its Liberty Bond drives dominated the financial capital markets. It turned the newly created Federal Reserve System into a powerful engine of monetary inflation to help satisfy the government's voracious appetite for money and credit. In view of the more than 5,000 mobilization agencies of various sorts - boards, committees, corporations and administrations - contemporaries who described the 1918 government as "war socialism" were well justified.

To ensure that the conscription-based mobilization of an army could proceed without obstruction, the government had to silence its critics. The Espionage Act of June 15, 1917, penalized those convicted of willfully obstructing the enlistment services with fines of up to $10,000 and imprisonment of as long as 20 years. An amendment, the Sedition Act of May 16, 1918, went much further, imposing the same severe criminal penalties on all forms of expression in any way critical of the government, its symbols or its mobilization of resources for the war. Those suppressions of free speech, subsequently upheld by the Supreme Court, established dangerous precedents that derogated from the rights previously enjoyed by citizens under the First Amendment.

The government further subverted the Bill of Rights by censoring all printed materials, peremptorily deporting hundreds of aliens without due process of law and conducting - and encouraging state and local governments and vigilante groups to conduct - warrantless searches and seizures, blanket arrests of suspected draft evaders and other outrages too numerous to catalog here. In California the police arrested Upton Sinclair for reading the Bill of Rights at a rally. In New Jersey the police arrested Roger Baldwin for publicly reading the Constitution.

When the war ended, the government abandoned most, but not all, of its wartime control measures. By the end of 1920 the bulk of the economic regulatory apparatus had been scrapped, including the Food Administration, the Fuel Administration, the Railroad Administration, the War Industries Board and the War Labor Board. Some emergency powers migrated into regular government departments such as State, Labor and Treasury and continued in force. The Espionage Act and the Trading with the Enemy Act remained on the statute books. Congressional enactments in 1920 preserved much of the federal government's wartime involvement in the railroad and ocean shipping industries. The War Finance Corporation shifted missions, subsidizing exporters and farmers until the mid-1920s. Wartime prohibition of alcoholic beverages, a purported conservation measure, transmogrified into the ill-fated 18th Amendment.

World War II.

During World War II, federal authorities resorted to a vast system of controls and market interventions to get resources without having to bid them away from competing buyers in free markets. By fixing prices, directly allocating physical and human resources, establishing official priorities, prohibitions and set-asides, then rationing the civilian consumer goods in short supply, the war planners steered raw materials, intermediate goods and finished products into the uses they valued most. Markets no longer functioned freely; in many areas they did not function at all.

World War II witnessed massive violations of human rights in the United States. Most egregiously, some 112,000 blameless persons of Japanese ancestry, most of them U.S. citizens, were uprooted from their homes and confined in concentration camps without due process of law. Those subsequently released as civilians during the war remained under parole-like surveillance. The government also imprisoned nearly 6,000 conscientious objectors - three-fourths of them Jehovah's Witnesses - who would not comply with the military draft laws. Signaling the enlarged federal capacity for repression, the number of FBI special agents increased from 785 in 1939 to 4,370 in 1945.

Scores of newspapers were denied the privilege of the mails under the authority of the 1917 Espionage Act, which remained in effect. Some newspapers were banned altogether. The Office of Censorship restricted the content of press reports and radio broadcasts and censored personal mail entering or leaving the country.

The government seized more than 60 industrial facilities - sometimes entire industries (e.g., railroads, bituminous coal mines, meatpacking firms) - most of them in order to impose employment conditions favorable to labor unions engaged in disputes with the management.

At the end of the war most of the economic control agencies shut down. Some powers persisted, however, either lodged at the local level like New York City's rent controls, or shifted from emergency agencies to regular departments. For example, certain international-trade controls were moved from the wartime Foreign Economic Administration to the State Department.

Federal tax revenues remained very high by prewar standards. In the late 1940s the Internal Revenue Service's annual take averaged four times greater in constant dollars than in the late 1930s. In 1949, federal outlays amounted to 15 percent of gross national product, up from 10 percent in 1939. The national debt stood at what would have been an unthinkable figure before the war, $214 billion - in constant dollars, roughly a hundred times the national debt in 1916.

The Cold War.

During the Cold War the government's operatives committed crimes against the American people too numerous to catalog here. The government's reprehensible actions, which many citizens viewed as only abuses, we can apprehend more plausibly as intrinsic to its constant preparation for and episodic engagement in warfare.


President Bush and his subordinates proclaim that the United States has entered into "a new kind of war." Unfortunately, this undertaking has the potential for the same kind of domestic abuses and excesses associated with previous U.S. wars. Already some officials have proposed such steps as requiring everyone to carry a national identification card, allowing the indefinite detention of legal immigrants without charges or hearings and vastly increasing government surveillance powers. Because policies once established are so difficult to reform or abolish, it behooves everyone to act with deliberation during the present crisis. To act rashly, as if our present reactions to the attacks of September 11 posed no long-term dangers to the very liberties we seek to protect, would be to repeat history in the worst way.

Robert Higgs is a Senior Fellow in Political Economy at the Independent Institute.

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