Reason Magazine - Staff

Passages

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Thu, 01 Jun 2000 00:00:00 EDT

H.L. Mencken posited that 10 years was long enough for any one job. I have violated that rule only on the rarest of occasions--remember that each infraction requires more than a decade of consistent work. But, with this final column, I will correct one such violation. After 11 years--119 columns--this is adieu.

When I began musing for REASON in October 1989, the Berlin Wall stood tall and you hadn't heard of Microsoft or Cisco. The conventional wisdom was that the modest economic successes of capitalism were offset, more or less, by its sociocultural poverty. Textbooks by Nobel Laureates predicted that the Soviet system would perform and prosper for decades to come. Pick your poison: the floppy-eared Big Government, with its cradle-to-grave cuddles, or the shiny jet-smooth power thrust of Big Business--opulence at the cost of justice, beauty, and (for those on Wall Street) your immortal soul.

The intellectuals set the odds in the Great Struggle of the 20th Century at even-up. Esteemed gurus failed to note that the Iron Curtain blocked traffic in only one direction. The flow of desperate people-- masses of the poor, clutching only their dreams--excited few of those fashionably decked out in the interior section of the market economy. Instead, the wise men groused about corporate takeovers and produced epic cinema exposing the greedy irrelevance of the Reagan years. It was blockbuster stuff, and spiritually fulfilling.

Without a cheering section, there was no need for competitive economic forces to grandstand. They didn't. Instead, they proved their mettle in magical feats of technological transformation. Then they made tyrants disappear. Today's globe glows a rich hue from enterprise overturning doctrines of control.

In the 1990s dictators fell like dominoes. When economic competition with the West proved too much, the enlightened but nearsighted Gorbachev eased up. The mere loosening of authoritarian controls unleashed events that proved impossible to stop. The Soviet system--victim of a record-setting 70 consecutive bad weather harvests--retreated, sputtered, and splat. Five Year Plan no more.

The East Bloc satellites fell even before the Kremlin; when the tiniest cracks opened, humanity rushed through. Around the world, the common folk took their cue. In 1990, the peasants of Nicaragua voted out the Sandinistas--nice try, but The People weren't buying The Revolution. They lusted to be Chilean marketeers. The Chileans, for their part, quickly got rich under open markets, and then shrugged off Gen. Pinochet like a bad hangover. They embraced the marketplace in goods and ideas--so much so, they have now voted in a Socialist.

In a series of events, 1989-92, the Nationalist Government in Pretoria saw the Soviet threat dissipate, as did the African National Congress. With the issue of world domination decided, either side compromised their way to democratic reforms. Nelson Mandela went from 27 years in prison to six as president, and both the Nationalists and the ANC--each ideologically committed to socialism of one variance or another--have grown beyond their predilections.

But here's the funny thing about the end of history: The lack of serious disagreement on the superiority of economic freedom has not swept the policy slate clean. Champions of the Third Way, the Welfare State, or the Mixed Economy have adjusted to changing times. The political market sponsors its own tests of creative destruction, and the survivors are a hardy bunch. They engage in ad hoc governmentalism, forging an electoral demand for new programs without seeming to upset the market economy. Craftsman of back-door incrementalism they attempt to beef up the state by clever use of levers. The era of Big Government is over, they say, but pat them down at the door.

Alas, the opportunists are playing on someone else's turf. The epic belongs to the beast of capitalism, roaring with the thrill of tumult. The long-awaited efficiencies of the communications revolution are swelling growth rates and fueling wealth. Seven million millionaires now dot the American tax rolls. Fifty million are projected by 2020. The wildest imaginations today puff a dot.com IPO. The career paths of our top youth converge in bustling bazaars where virtual continents are concocted, wired, and set streaming to the benefit of mankind. Empowered by commerce, the silent speak and the riff-raff gain admission to the club.

Without flacks, spinners, or even a vice president of sales, the triumph of the market is as natural as a volcanic eruption. It has made the government class smile--after all, they're sort of on commission--and yet quiver, too. How might they tap into power without paying homage to this wellspring? Only by leading the dual life of the serial incrementalist, touting the Grand Program while leaning on free minds and free markets to get the job done.

Toll Calls

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Mon, 01 May 2000 00:00:00 EDT

The Wall Street Journal and the Heritage Foundation annually rank the countries of the world on a scale of economic freedom. It's an arduous task, involving a multitude of judgment calls about comparisons of legal liability, tax policy, immigration laws, and more.

Here's a database which saves everyone a lot of work: the rate card from U.S. long-distance provider Startec (see Table). Simply by listing the price-per-minute of calls, it delivers a useful metric of how governments screw with people's economic well-being and, literally, freedom of speech.

Robert Crandall, a superb economist at the Brookings Institution, has estimated the actual costs of providing phone service around the globe. In the United States, he figures the expense, including fixed capital costs, to deliver a minute of long-distance is less than 2.5 cents. Administrative and billing costs go on top of that, but are modest and can be covered by monthly charges of $3 to $4 per subscriber.

International long-distance charges are roughly analogous. Vast fiber-optic cables deliver huge, cheap capacity to every corner of the planet. Even in the most remote, landlocked zones, satellites can beam down a dial tone for about 5 cents a minute. Bundled with local service, Crandall says the actual cost of reaching out and touching someone anywhere on Earth is less than 7 cents per minute.

But you'll pay more. Charges vary from about 8 cents in the U.S., U.K., and Canada to 19 cents in Mexico to a whopping 79 cents in Pakistan. Is that because Pakistanis are such stimulating conversationalists that callers are willing to spend oodles more to chat with them? Not exactly.

When permitted, competition drives down the price of long-distance service almost to the cost of service. The political climate can preempt that natural process, however. So the cost of doing business swings wildly, as do fee schedules for connecting with state telephone monopolies.

The differences in per-minute charges are essentially attributable to public policy--imposed charges, taxes, regulations, and monopoly barricades sealing off a nation's citizens from the efficiencies of markets. The variance on the rate chart says a lot about political behavior. Economic freedom flourishes when government opportunism is constrained through relatively free elections and open markets.

Where rulers lounge comfortably in their castles, the peasants are routinely treated as hostages. The king exacts a tribute every time a serf touches a dialpad or answers the phone. The mark-ups are rich--20 cents a minute here, 60 cents there--but are not simply cream skimmed by the potentates. That money gets spread around to tollkeepers and to cronies awarded fat franchises. Most of the lucre is squandered in inefficiencies, including regulatory uncertainty (tyrannical governments are known to confiscate private property).

Even in the good old U.S. of A., phone costs are politically padded. Hefty "access fees" are tacked onto bills to pay for universal service subsidies, while major competitors (you know them as the Baby Bells) are still largely barred from competing with AT&T, MCI, and Sprint for long-distance customers. In developing countries, huge surcharges on incoming long-distance calls are justified as bilking rich foreigners. In some places, nine in 10 international phone calls originate from outside the country, so the domestic government argues that such a policy helps locals by getting non-locals to generate revenues.

In truth, it establishes a quarantine more effective than any set of sanctions a foreign power could mount. Residents of such realms are effectively cut off from international commerce and a host of global opportunities. Modern communications are stalled, free speech stifled, economic development thwarted. Hell, in our kingdom even a criminal suspect gets to make a free phone call. Thanks to kleptocrats around the world, billions of our brothers and sisters regard such a modest consideration living large.

President Scarface

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sat, 01 Apr 2000 00:00:00 EST

By the time the president's obstruction-of-justice episode concluded last year in a mock-impeachment trial in the U.S. Senate--that made-for-TV drama in which "jurors" declared the man guilty of "high crimes and misdemeanors" but then voted to acquit--Bill Clinton had proven himself bulletproof. Even when the press asked him about the compelling, specific, and credible rape allegation lodged by Juanita Broaddrick, all he had to do to shut them up was bark like a Mafia don: Talk to my mouthpiece! I ain't got nuttin' to say to youse!

Counselor David Kendall's pro forma denial--"Any allegation that the president assaulted Broaddrick more than 20 years ago is absolutely false"--got the job done, even as it opened up multiple windows through which Clinton might easily wriggle, (Hey, I wasn't even president 20 years ago!). As The Washington Post, obviously exhausted by its minutes-long pondering of the issue of presidential rape, dejectedly concluded, "Mr. Clinton's word in this realm by now has no value." Clinton was an uncooperative witness, see, so the Post had to drop the case. The New York Times was similarly outraged by "The President's Missing Voice." But rather than fully and vigorously investigating the charges, the Times simply fretted that Clinton's reputation as a "recreational philanderer" may actually mask something considerably more sinister. The paper of record must have sent chills down the president's spine: "Surely there is a limit to how long Mr. Clinton can speak through his lawyer on these matters," sternly warned the Times.

Now a millennium has passed. The Broaddrick story has simply floated on downstream in the toxic runoff from this most ethical administration in history. Even as a lame duck, William Jefferson Clinton effortlessly assumes the swaggering stride of a mobster, brushing off questions any public servant is morally bound to answer. He runs the press like Capone ran Chicago. "No one will ever know the complete truth about Juanita Broaddrick's allegation," mumbled the Times. But of course Bill and Juanita do! That's why investigative journalism to uncover corroborating facts ought to be pursued.

But the Godfather rules this village, flanked by wise guys and hit men on retainer. When Ken Starr popped up as nuisance under Clinton's own special prosecutor law, James "The Ragin' Cajun" Carville took out a contract. Starr, he said publicly, was one mistake away from "two broken knee caps."

Sid "Vicious" Blumenthal spewed presidential lies to journalists on the take. Larry "Hustler" Flynt, a guest at White House functions and a friend of the church-going First Family, gleefully whacked Bob Livingston and Bob Barr. Like a couple of Mafia molls, Cabinet Secretaries Donna Shalala and Madeleine Albright ostentatiously vouched for the Big Fish. And then there's the bottom-feeding administration bag man, Al "No Controlling Legal Authority" Gore, who never missed a chance to finger his capo as "da greatest I eva' seen."

A gutter-based attack on all the dirty rotten squealers saved Bill's operation. Pressed to account for their deceits, mendacities, and cattle-future profits, the First Couple demonized their critics while rallying their henchmen. They pinched the press between its journalistic ethics and its career goals. To question the Godfather was to side with that "vast right-wing conspiracy," and that was an offer the press was all too ready to refuse.

Like a crime boss who blossoms into a local hero, the president has cultivated a sensational market niche: John Gotti as commander-in-chief. No one respects him as a man. Even his defenders in Congress concede he "lied," "debased his office," and "abused the public trust." Yet he has achieved notorious celebrity. He's audacious and flashy, and the rising Nasdaq is giving jobs to all the neighborhood kids.

The economy is Clinton's consigliere. It deftly fixes the little messes and makes everybody happy. Hush money makes up for a few broken knee caps, capisce?

The sad reality--and happy fact--is that America operates pretty well without great leaders. The top slots in our national government are close to modular, and even mobsters plug in smoothly. The Invisible Hand, not the Black Hand, springs for drinks all around, and a half-convincing argument can be made that having Carmine and Guido hanging around the Oval Office is actually healthy for the private sector. After all, when the president has certain, shall we say, image problems, he needs the help of his consigliere all the more. No need getting crazy with a new national health care plan during impeachment week.

Lowlifes and sleazeballs in high public places good for business? Sure. It's just a little annoying having to explain to the youngsters why con men and hustlers live in such nice White Houses. Next time they ask, tell 'em: "Fuggitaboutit kid."

Easy Money

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Wed, 01 Mar 2000 00:00:00 EST

"I don't think it's right for a business to charge money for a service it provides." So says "Theresa Bossy, student," in the online publication The Onion.

It so happens that The Onion is a satirical effort, so the "news" it publishes is merely farce. No such excuse is available to residents of San Francisco and Santa Monica, California. They and their elected officials live the Bossy mantra to its utmost. Last fall San Franciscans approved an initiative outlawing automatic teller machine fees for access to cash. In Santa Monica, the popular city council passed a law to the same effect.

That voters and elected officials may decide the appropriate market price for a service is a charming affectation in the nation's trendiest precincts. I know the reasoning well. Since first writing about the ATM fee controversy a couple of years back, I have received a stream of e-mails from disgruntled bank customers. Here's the standard take: "As a staunch capitalist, I oppose any attempt by the government to regulate private business activity. But ATMs save the bank money, because it doesn't have to pay a teller to deal with my transaction. To take advantage of the fact that I'm not able to go to my bank and have to withdraw cash elsewhere is just a consumer ripoff."

Embedded in this plea for help is what we shall call the Fallacy of the Movable Object. Just because Item X has certain properties at Point A doesn't mean that all those same properties remain at Point B. A corollary: location, location, location.

Where the consumer really does choose straight up between the ATM transaction and the teller interface--at the bank's own branch--the ATM operates for free (and, typically, more quickly and pleasantly). So the "ripoff" is literally somewhere else--between a bank teller and a remote ATM location. But now the situation is complicated, not least of all by the fact that keeping ready cash in convenient remote locations is both costly to the bank and valuable to customers.

The powers that be in San Francisco and Santa Monica disagreed, and staged rebellions to prove their point. Immediately, California's two largest banks, Wells Fargo and Bank of America, staged a revolt of their own and axed remote ATM network access. Class, can anyone explain why at a price of $0, quantity supplied is nil?

Some Santa Monicans, at least, know the answer. Consider George Safaris, an S.M. resident who talked with The New York Times. He didn't have a problem with the $1.50 the banks charged for producing cash on demand. In fact, his troubles began only when the price for cash money was ruled illegal--and his service disappeared. "I'm happy to pay the small fee for convenience," he fumed. "You spend $5 just to park your vehicle."

Of course, one can look about the economy and see pricing patterns which seem odd. Airlines use complex revenue optimization programs, attempting to fill every seat at the maximum price possible. Although the cost of providing service is identical across all customers in the same class of service, everyone pays differently. How wide can the spread get? If you have the stomach for it, ask your seatmates how much they shelled out for the ride the next time you reach cruising altitude.

What is puzzling is how docile voters are when victimized by true rate gouging. Consider plain old telephone service. For decades, regulators have set the price of local telephone service artificially low. This is especially true in fancy suburban neighborhoods or far-out rural communities, where low population density makes systems expensive to build. To pay for this, regulators have imposed a system of artificially high long-distance and business charges. (You may have noticed that if you install a "residential" line in your house, it will cost something like $20 a month, while the same exact "business" line costs $40.)

The policy is perverse. While failing to noticeably increase telephone penetration (steady at about 95 percent of U.S. homes for decades now), it has driven long-distance charges much higher, hurting low-income people, who tend to spend a fairly large percentage of total income on long-distance or international calling. It has also stymied competition for residential telephone service (why compete where prices are already below cost?) and deprived customers of advanced services that such competition would bring. And businesses, which pay more in telephone charges, stick consumers with higher prices.

This public policy debauchery was actually juiced up in the Telecommunications Act of 1996, a bipartisan piece of legislation. Meanwhile, banks investing millions in new ATM networks for customers feel the anger of customers in San Francisco and Santa Monica, who can only get increasingly surly. After all, now they're driving around all day trying to score some cash.

Wiring Washington

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Tue, 01 Feb 2000 00:00:00 EST

Back in 1985, the bidding for the cable TV franchise in the nation's capital brought out 100 brave entrepreneurs who invested $1.4 million in a company called District Cablevision. In November 1999, those selfless risk-takers finally cashed out. When the register stopped cha-chinging, they had ended up with $41 million--a whopping 29-to-1 markup. To understand just how fat a return that is, consider that over the same time the S&P 500 has grown a relatively lean 7-to-1.

To get into a deal as superb as the District Cablevision scam, you had to know someone. To be precise, you had to know Mayor Marion Barry--and know him well. The District Cablevision "investment team" included Barry's advisers, friends in government, pals in business, and associates in politics--including a city department head, a Democratic National Committee member, and a big contributor to the mayor's campaigns. These important folks were given 25 percent of the District Cablevision franchise, a $130-million investment, in exchange for about 1 percent of the actual capital cost.

This sort of deal--typical of the arrangements that helped wire America for cable--sanctioned a form of graft in the name of "the public interest." In the late 1970s, when the feds finally allowed cities to issue cable franchises, it took only an instant for local bigwigs and cable operators to realize that they could combine forces and end up really rich.

The key was monopoly--not the Microsoft variety, hashed out in a competitive marketplace, but the real thing, the government-granted-and-enforced type. Cities had the legal authority to control access to municipal rights of way. They seized the opportunity to block multiple cable companies from entering town and gaining market share through open and fair competition. Instead, municipal franchising authorities were commissioned to select a sole licensee who would best serve the public. (Technically, these firms were issued "nonexclusive" franchises, meaning that other companies could theoretically get licenses of their own and compete. I personally know individuals who have spent more than a decade trying to get a second "nonexclusive" franchise. And who have won a Supreme Court case. And still haven't gotten City Hall to issue that franchise.)

To be sure, monopoly franchises were a tough sell. There had to be a cover story, a "public interest" reason why rivals should be blocked from risking private capital in pursuit of customers. The favored rationale: Cable was a "natural monopoly," and hence competition could not be sustained. Only local government was in perfect position to extract promises from franchisees--low prices, excellent service, state-of-the-art technology, "free" infrastructure for schools and libraries.

To get the franchise, cable companies would set up a dummy corporation and issue 20 percent of the stock to "rent-a-citizens," local investors selected for their influence with the mayor and city council. (In D.C., the local distribution was 25 percent, perhaps owing to the area's greater sophistication in such matters.)

The companies did in fact make promises to get the franchises. Big, fat, juicy promises. District Cablevision, for instance, pledged to provide 78 channels of programming, an "Information-net" for local government, quick implementation, and low prices. And, of course, it promised to keep control local, running the system with minority investors who were active in the community.

So what happened once District Cablevision won the franchise? Within two months the company came back to the city council to renegotiate its terms. The system was quickly sold to TCI, the world's largest cable firm, and the photo ops with local African-American "owners" quickly faded into the misty watercolors of the parent corporation's annual report. The system took forever to construct; nearly half the city still could not get cable service into the 1990s. The I-net has never been built, and the bargain prices never materialized--rates began at nearly double the promised level. Even today, some 15 years and generations of telecommunications technology later, the system boasts less capacity than originally promised.

That's the sizzling performance that led to the 29-to-1 return. With the sale of TCI to AT&T in 1999, the Courageous 100 lined up to cash in. As per the terms of the deal, they needed the city council's permission to sell. According to all reports, the city council was outraged--at the decade-plus of broken promises, the years of abysmal service, the shoddy technology, the rising prices, and the arrogant attitude that have made "District Cablevision" a swear word throughout the city.

So how did the council vent its righteous anger? In a way that seems a fitting end to an affair conducted not merely in the name of but at the expense of the public. The council approved the franchise transfer in a unanimous vote.

Brooklyn Bums

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sat, 01 Jan 2000 00:00:00 EST

The New York Daily News--which touts itself as "the eyes, the ears, the honest voice" of the Big Apple--is very concerned about censorship. So when Mayor Rudolph Giuliani declared he would withdraw funding for the Brooklyn Museum of Art for rolling out the shocking "Sensation," a show featuring a portrait of the Virgin Mary decorated with clumps of elephant emissions, they explained it thusly: "SOUR ON RUDY: Poll Shows Most N.Y.ers Back Museum."

"They should be able to display whatever they want," the News quoted one city resident as saying. Giuliani "has no right to censor it, it's just art. One man's sense of art is another man's garbage." "It's like a preacher in a church," said another random New Yorker. "If you don't like what the preacher's saying, you can get up and leave."

Well, not this church. This friendly congregation takes its tithe right out of your paycheck, without so much as a mumbled benediction.

Why is it so difficult to explain the intrinsic link between censorship and subsidy? The News poll found that 58 percent of New York City residents believe no city official--not the mayor, not city councilmen--should have the power to cut off funding for offensive art projects. But the very essence of art funding is to selectively enhance some work to the exclusion of others. That's a reality dictated by economic scarcity. To say yes to dung artist Chris Ofili is to say no to street performer "bOINk." And when it's city cash flowing, it's city officials--through their appointed loyalists and budgetary controls--who ultimately make the call.

The Village Voice crowd, so vocal in support of the Brooklyn Museum's claim on the working man's taxes, embarrasses itself. The Voice's editor defended "Sensation," claiming that the dung was itself inoffensive and that the show was a paean to the "sacred and the profane." All right, we'll go with that on the mid-term.

But the very exercise--explaining High Art to the unwashed--was as phony as a Village Voice personal ad (so I hear). The liberals were only pretending to defend the work as genuinely Catholic. After all, they're not "viewpoint neutral," to use the legal phraseology. They don't lobby for public funding for born-again Impressionists from the Bible Belt.

Indeed, at "Sensation," what's the Virgin Mary doing with government subsidies? Surely it was only the dung that enabled this modern masterpiece to pass the church/state smell test. Otherwise, it would have been as reviled as a City Hall nativity scene.

Yes, but--Mayor Giuliani is a cheap, pathetic self-promoter playing to the crowd's emotions. Exactly. And here his grandstanding is an excellent exhibition of the performance art formerly known as democracy. The system doesn't always get it wrong.

So long as Rudy sticks with the theme that taxpayers shouldn't have to support what they are offended by, he's the true civil libertarian. It is a testament to the flimsy individualism affected by many ACLUers that they could be out-libertied by Giuliani, whose soul feasts on jailed defendants.

But he can't hold that single note. Like Republicans generally, the mayor eagerly cadges government dollars for galleries patronized by the upscalers who sip a lot of election-year coffee. As it is in the Village, so it is in the affluent suburbs: Art with a message is perfectly acceptable on the public tab, so long as the message is perfectly acceptable.

Even the intellectual right has turned soft on subsidies. Key right-wing thinkers have come out for censoring popular culture, and Robert Bork has brutally severed censorship from the issue of who pays. Commenting in Slouching Toward Gomorrah (1996) on Robert Mapplethorpe's NEA-funded "homo-erotic photos," Bork wrote, "To complain about the source of the dollars is to cheapen a moral position. They would be just as offensive if their display were financed by a scatterbrained billionaire." The moral position the conservatives would discount--apparently to zero--is that of individual liberty.

The position against public funding for the arts is marvelously libertarian, constitutional, and progressive. Art is expression. If you oppose censorship, you must oppose the handicapping of government-sanctioned viewpoints, inherent in decisions to fund this but not fund that. If you believe in eliminating welfare for the rich, then forcing the art community to become self-sustaining relieves the middle and lower classes of subsidizing what they so rarely enjoy or even understand--take it from The Villiage Voice!

"Scatterbrained billionaires" should be paying for the museums, not Joe Sixpack. The Pro Football Hall of Fame in Canton, Ohio, is private and all paid up. Why not the Brooklyn Museum?

It's a perfectly reasonable position. All it lacks is adherents.

Hayek's Heroes

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Wed, 01 Dec 1999 00:00:00 EST

To close out this century, I decided to read a book about what was arguably its most important day: June 6, 1944. Hey, call me a party animal. But you, too, might want to welcome the millennium by checking out 1994's D-Day: The Climactic Battle of World War II, by historian Stephen Ambrose.

Even today we think of the Wehrmacht as a mighty force. Certainly, its well-trained, well-armed, battle-tested soldiers struck a fearsome pose at Normandy, the most heavily fortified coastline in history. The Allies viewed the Germans as an unforgiving piece of iron.

So doubts ran high as 175,000 Allied troops--Yanks, Brits, Canadians, and Aussies--traversed the English Channel. Could the children of democracy prove themselves warriors? Would they freeze in mortal combat? Adolf Hitler, who slept until noon on D-Day, believed the disciplined defenders of Third Reich would crush the soft soldiers of the liberal West.

Yet Ambrose shows that it was the rigid Nazi war command that fell apart on D-Day. The Allied soldier kept his head while all about him were (all too often) losing theirs. Such resilience proved necessary. The best-laid plans of the Supreme Allied Command were almost immediately rendered moot; the massive landing amounted to a chaotic dumping of troops into a very hostile environment. Allied forces landed out of position, units were a shambles, and radio communications were knocked out.

But Ambrose identifies a crucial difference between the German and Allied fighting men. The Germans were hamstrung by sweeping orders issued from far away. In contrast, the Allies relied on mid-level and junior-grade officers issuing impromptu commands based on facts gleaned first-hand.

There is no more dramatic example of F.A. Hayek's seminal discovery: the importance of dispersed information--"knowledge of time and place." Hayek, who was to win the Nobel Memorial Prize in Economic Science in 1974, published his memorable essay, "The Use of Knowledge in Society," in the American Economic Review just the year after D-Day. It explained the motive force driving Adam Smith's "invisible hand" by noting that great efficiencies resulted when millions of dispersed individuals, motivated by market incentives, utilized the information uniquely available to them to make decisions. It's why a decentralized competitive system beats a top-down bureaucracy, even when the planners are "experts."

The bloody beaches of France graphically illustrate the advantages. German soldiers had been commanded to defend every inch of coastline. They were rendered immobile by strict orders to stay put--why trust low-level soldiers to freelance when the High Command had it planned out already? But that strict Wehrmacht policy saved Allied troops even in places where they were extremely vulnerable. The ferocious Panzer tank divisions set aside for counter-attack were too precious to trust to field commanders; only Der Führer had the right to deploy those. As the military genius in Berlin snoozed, German positions were overrun. Even then, despite reports from the front, Hitler held back his elite motorized units, convinced the real landing was to come at Pas-de-Calais.

Meanwhile, Allied soldiers dodged mines and intense enemy fire. They were hopelessly ill-equipped--in the chaos of the landing, their best heavy equipment never made it to shore--but they improvised. Mid-level commanders--sometimes a sergeant was the highest-surviving rank--seized the moment, issuing orders and rallying soldiers. Empowered by a flexible command structure, leaders emerged instantly, spontaneously. Fighting units were reconstituted and assault plans redefined on the fly.

Perhaps the classic demonstration was the landing on Utah Beach at 6:30 a.m.--the first wave. Due to unexpectedly strong tides, landing craft deposited units over 1,000 meters from their pre-arranged positions. Heavy machine gun fire pinned down those who managed to survive long enough to reach the beach. Crouching for cover, U.S. infantrymen assembled and spread out their maps. They had no radio contact, and most of their commanders could not be located. What the hell to do? Should they get down the beach to where they were supposed to be, or attack the German artillery directly in front of them?

The ranking officer quickly made a decision: "Let's start the war from here." With that, brave Americans charged Nazi fortifications straight ahead, knocked out guns, scaled the bluff, and circled around to capture the ground they had originally been assigned to take.

While no lowly soldier in the Wehrmacht had the authority to revamp official orders, the Allied invasion consisted of little besides ad hoc heroism. Decentralized information stormed the beaches on June 6, 1944, and irreparably breached the Atlantic Wall by dusk. Pretty good theory for one day's work. Pretty good work for one day's theory.

Censory Deception

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Mon, 01 Nov 1999 00:00:00 EST

"As a nation we are concerned about pollution, about pure air and water....Is there no such thing as moral pollution?" So inquires political scientist David Lowenthal in his recent Weekly Standard cover story, "The Case for Censorship." Three of four conservative thinkers responding to the provocative piece (William J. Bennett, Terry Eastland, and Irving Kristol) were dubious on implementation issues but applauded Lowenthal for thinking outside the box. Lowenthal's not exactly breaking new ground on the right, of course. Back in his 1996 book, Slouching Towards Gomorrah, Robert Bork asked, "Is censorship really as unthinkable as we all seem to assume?"

All these large visionaries ruminate on the depths to which Madonna and Lethal Weapon 4 have taken us, displaying unmistakable affection for strict legal limits on expression. Yet they ignore the ghastly ways in which official censorship has functioned in the good old U.S. of A.

Regulation of radio and TV--media licensed according to "public interest, convenience, or necessity" by the Federal Communications Commission--brutally demonstrates that federal regulators will indeed restrict expression, though perhaps in ways conservatives might find unappealing. Time and again, lowest-common-denominator programming has been protected at the expense of the informative or innovative. For instance, the FCC suppressed cable TV for many years--call this a federally mandated "silence of the Lamb," in deference to Brian Lamb, creator of C-SPAN, the network that has done more to open the democratic process to daylight than a thousand "sunshine" laws. Only with deregulation were niche cable networks able to blossom. Given that Newt Gingrich started the congressional Republicans' long march out of the wilderness by giving special-order speeches on C-SPAN, you might think that conservatives, of all people, would understand how they were stymied by censorship.

You might also think that they would recall the notorious Fairness Doctrine, which was used to "harass and intimidate" right-wing radio broadcasts, in the words of one unabashed Kennedy-Johnson operative. When that censorious policy was ended in 1987 by former broadcaster Ronald Reagan, there was an explosion of talk formats that gave voice to popular concerns (for a while, Rush Limbaugh even billed himself as equal time).

In short, the censorship our conservative commissars sorely desire and soaringly extol has long been with us--and has long been used to suppress their own views. But Lowenthal wipes the slate clean, condemning the extant system "where a few hidden figures in movie studios and television networks, motivated primarily by profit, decide what will be available for our viewing." He buttresses his quaint attack upon the market system in entertainment services by invoking Al Gore's favorite regulatory premise, the externality. Bad programming, says Lowenthal, spews costs on third parties like so much car exhaust. Bork attacks the "libertarian virus" that infects "free market economists...[who] ignore the question of which wants it is moral to satisfy."

Such claims are simply incorrect; to suggest that ordering up an adult flick on pay per view harms innocent third persons is nonsense. And free market economists are quite explicit about their belief in "consumer sovereignty." That is, individuals should be free to decide what they consume so long as that consumption does not require the curtailment of another's freedom. Strangely, Lowenthal and Bork deliver conservatives to the altar of collectivism, upon which they sacrifice individual responsibility.

Alas, the cons face another problem: As American culture got raunchier in the 1990s, violent crime rates plummeted, even among kids (hmm, could increased incarceration of criminals have been a factor?). Across the world, societies enjoying American audio and video do not uniformly suffer from the experience. The street-safe Japanese, for instance, devour American movies--and supplement our own blood-and-guts exports with domestic products that jack up the sex-and-violence quotient to levels that would make Oliver Stone cringe.

As sweeping economic changes transform the information options available to Americans, conservatives seem bewildered by the moment. "It's enough to make one a Luddite," exclaims Bork. An odd reaction, that. And one that the late Ithiel de Sola Pool had already countered in his 1983 classic, Technologies of Freedom: On Free Speech in an Electronic Age. Wrote de Sola Pool, "The democratic impulse to regulate evils, as Tocqueville warned, is ironically a reason for worry....The easy access, low cost and distributed intelligence of modern means of communication are a prime reason for hope."

Conservative intellectuals see this wave coming and, rather than scrambling to ride it, try to hold it back. Bad strategy. Surf's up, and the War of Ideas is now happening on Channels 279 to 437.

Tiny Bubbles

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Fri, 01 Oct 1999 00:00:00 EDT

In the mid-1980s, the United States struggled to keep pace with the Japanese industrial juggernaut. The conventional wisdom went something like this: American capitalism was preoccupied with short-term results. We should follow the lead set by the Land of the Rising Sun, where managers were committed to the long haul. Hence, they made better--i.e., more farsighted--investments and routinely offered lifetime employment opportunities. American firms, in contrast, rewarded executives based on quarterly reports, leading them to ignore the long run and to abandon workers at the drop of an investment analyst's downgrade.

Nippon envy, of course, crashed with the Nikkei Index, which struggles to stay airborne at around 18,000 after soaring upwards of 39,000 a decade ago. The very rigidities lauded as the backbone of Japanese capitalism held the country in the consumer electronics epoch just as the world raced to embrace the dawning era of digital networks.

But note the shift in the contemporary conventional wisdom in the United States: Now, say critics, American capital markets are way too speculative, wildly tossing investment dollars at any cockamamie "dot-com" IPO, whether the company makes money or not.

The grumblings about America's "bubble economy," as The Economist likes to call it, are ubiquitous. The old-line pillars at the country club and scruffy intellectuals at sidewalk cafés alike bemoan those wacky Wall Street valuations. "No earnings!" exclaims the clubber. "Paper wealth!" shrieks the intellectual. Both unwittingly point to the most dynamic and progressive element of modern American capitalism: its ability to liquidate obsolete investments at warp speed in favor of promising new ideas. In an era in which so many innovations are being hatched, the transition is awesome to behold.

An online bookstore operated via a Web page? Amazon.com, whose equity value appreciated 966 percent per share in 1998, found itself worth more in January 1999 than all other bookstores in America combined. Wireless telecommunications operator Teligent is worth $4 billion at its NASDAQ share price on July 28, 1999--a staggering 1,681 multiple of sales. Some believe that paying 36 times earnings--the average Standard & Poor's price/earnings ratio--makes stocks outrageously expensive, but others are willing to toss the dice.

This is phenomenal to many, irresponsible to some, the prelude to a crash to others. What is curious is the lack of deference shown toward those brave enough to take risks. Amazon.com may well fail to deliver profits over time, but it has already revolutionized retail markets and driven both online and brick-and-mortar businesses to deliver more to customers. Few critics remember that where financial returns do not ultimately materialize, financiers engage in unintended charitable activity.

Yet this socially useful behavior is mocked and condemned by status guardians in danger of losing their quo. Just offstage, in fact, there is an audible lust for a stock crash. Critics are appalled by Bill Gates and the billionaire boys club of Silicon Valley. Even those who are self-made and bring enormous benefits and wealth to millions of their fellow citizens cannot properly atone for the financial success they enjoy.

Back at the country club, Chauncey and Biff ridicule the fast-buck artists of the New Economy as a bunch of hippies high on capital gains. How dare these pipsqueak upstarts, some without even so much as four generations of landed wealth to their names, surpass the magnificence of Ye Old Money?

It is staggering to observe the rapidity with which capital abandons the crusty old-timers to embrace the daring newbies. Sears is now worth $16 billion and U.S. Steel $2 billion, while Yahoo! is valued at about $28 billion and America Online at $107 billion. These latter companies are considered Internet Blue Chips because they actually have P/E ratios (349 and 171, respectively). Investors are plunking down billions and counting on robust growth--and the luck to survive in the very long run. Investors see a big future in the efficiencies of e-commerce, and if they are right, we will all reap handsome rewards.

Eighty million individual investors in U.S. financial markets will make their mark in dividends and capital gains, and, by doing so, deliver the U.S. Treasury a nice tax bonus (how do you spell surplus?). But the rest of us will gain, too. We will get access to better products and a more efficient economy. The resources piled high on entrepreneurs will sort out the technologies and business plans that make sense, filtering unlimited possibilities into an operational leap forward.

The revolution is on, curiously fueled by the same shortsighted capitalists who cared only about the next quarter's earnings in 1985. Now they care nothing about earnings for 40 quarters into the future. Amazing how visionary these myopic dolts have grown. Incredible how shortsighted the conventional wisdom has become.

Bill's Excellent Adventure

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sun, 01 Aug 1999 00:00:00 EDT

When Bill Clinton's felonies got him into hot water, the smart money began shorting innocent civilians around the globe. First came the Starr report attack in September: U.S. cruise missiles took out a pharmaceutical factory in Sudan. Then, with impeachment going to the House floor in December, massive air strikes against Iraq had to be launched to avoid the holiday rush (Muslim holy days were just around the corner). And soon after beating the rap and "getting back to the business of the American people," the president celebrated his Easter with a rain of terror on the imperial Serbian menace.

We've heard much of the ethnic cleansing by Slobodan Milosevic, and objective character references strongly suggest that Slobo will not be welcomed to a cool, crisp hereafter. How his eternal damnation can be moved up in real time is, for we mortals, quite a difficult question--one whose complexity seems not to interest our American commander in chief. Clinton now clasps the war machine joystick as maniacally as a suburban high school sophomore addicted to Doom, and he finds the Yugo socialist a convenient pop-up target in his own ultra-violent video game.

It is becoming more and more apparent that impeachment was, for Clinton, a truly liberating experience. Having for an instant flatlined politically, he has confounded his friends and foes alike by the mere act of surviving. He has, in his amoral view of things, achieved superhuman status. He is no longer subject to the constraints of lesser men--which is to say, anyone with a conscience.

This, needless to say, is a dangerous state of affairs for America. But as the chart shows, it is far riskier for those foreign civilians whom Clinton is liberating from the dictator Milosevic.

Add to that total, of course, the 1.5 million refugees and displaced persons who in the wake of Bill's excellent adventure elected to leave their homes and worldly possessions to camp out elsewhere. "Cheer up, you lucky bastards," NATO spokesmen chirp, "Slobodan Milosevic would have gotten around to this sooner or later, anyway."

In Clinton's world, all of this makes eminent sense. He has taken dramatic, headline-grabbing action. Republicans are afraid to criticize him too openly, except for the likes of John McCain and Liddy Dole, who flacked for military escalation including ground troops. And there is a story: Clinton, a man who is rapidly destroying irony by fantastic storytelling, waxes eloquent about our moral obligation to stop "ethnic cleansing."

There is such a duty. But do not for a moment think that Clinton is moved by it. More important, there is simply no doubt that in this very brutal world, moral obligation is not the only--or even the primary--justification for killing people we do not know. Self-defense trumps all else, and the merry ballistic escapades of the late Clinton months are high-risk gambits actively undermining America's actual security interests vis-à-vis real world powers with real nuclear weapons.

Beyond self-interest there is the morally important matter of human impact. In general, the United States has elected not to stop ethnic cleansing in Biafra, or Ethiopia, or Cambodia, or Rwanda. The Persian Gulf War was successful precisely because it pursued a limited and clear objective--eliminating the Iraqi invaders from Kuwait--and did so with massive force involving widespread domestic and international support.

War needs more than righteousness--the bright line of international aggression, for instance, allows a military objective to be seized and a military exit to be staged. Conversely, where one rides into a civil war, the moral obligation to end strife instantly morphs--under the best-case scenario--into a more powerful obligation to preserve the peace. Indefinitely.

Years ago, the Chinese were slaughtered wholesale in Mao's Cultural Revolution; just a decade ago they were murdered retail at Tiananmen. But not only is our military response nil, our morally obligated president today touts a "strategic alliance" with China. Is this right? Sadly, on the whole, yes. What could be gained by military intervention? The loss of much innocent life is the only dependable outcome; all other bets are off. We are properly slow to report for duty that entails mass civilian deaths, or that raises the probability of nuclear holocaust even a small fraction. Discretion is the better part of valor, said Shakespeare. Good consciences themselves constrain.

Those who have them, that is. Back at the White House, meanwhile, scribblers script tales of the atrocities of enemies and the heroism of allies. Polls surge, history salutes, civilians die. And you thought they didn't have a plan.

Hostage Rescue

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Thu, 01 Jul 1999 00:00:00 EDT

The corpses weren't even cold when the tragedy in Littleton, Colorado, triggered yet a new assault by political opportunists. Those pushing gun control exploited the situation to greatest effect, but the crusaders against TV violence and video game brutality, along with evangelists for family values and Internet censorship, also made very strong showings.

The senseless violence we observe at irregular intervals in our public schools freezes the national psyche. Gripped by fear, we are sitting ducks for each new policy fix. We will almost certainly embrace a new gun control measure to join existing state and federal bans on firearms within 1,000 feet of a school; doubtless, the new law will prove just as effective a deterrent as the old ones.

Through Election 2000, we will read about the Special Commissions, the congressional hearings, and the White House Task Forces on Violence in the Media. No one, rest assured, will rudely call attention to the failure of previous "solutions," such as the 1996 Telecommunications Act's "V-chip" and "voluntary" TV ratings.

Time to look elsewhere for answers. Rather than wondering what Congress can do, why not ask a different sort of question, such as, What kind of institution considers it ordinary for children to daily quench a thirst for hatred?

The answer, of course, is the American public high school. In middle-class Littleton, the rights of pre-adult man have evolved such that dressing "gothic" or issuing a sensational death threat is a free and accepted lifestyle choice. Of course, the in-crowd's taunting of the socially awkward is equally respected by "authority." After all, for public schools to slap down such behavior would trample the Constitution. While citizens rightly do not want government bureaucrats freelancing with their own moral codes, our children can't afford principals without principles.

The principal of Littleton's Columbine High said he had no idea that students at his school were members of a "Trench Coat Mafia"--the sobriquet, well-known among the students, was news to him. As a government official, his live-and-let-live approach is admirable.

But this man runs a school and his abdication creates a leadership vacuum into which punks get sucked. It seems incomprehensible that the adults at Columbine were unable to recognize, much less police, the anger, confusion, and raging hormones of the young men under their charge. In delegating education to state operators, we have kidnapped our own children and delivered them to inattentive captors. Yet we fail to appreciate the serious hostage situation thereby created.

Something similar operates in housing markets. In What It Means to Be a Libertarian, Charles Murray notes that with the formal protections now enjoyed by tenants in rental housing, the landlord is no longer "arbitrary and capricious." Pretty good up to a point. But with eviction tightly regulated, neighborhood troublemakers, who used to fear getting the bum's rush, enjoy domestic security. The landlord, who otherwise would have an incentive to kick ne'er-do-wells out--all things being equal, he ups the rent when the neighborhood improves--is emasculated. And the miscreant, who would otherwise have an incentive to shape up, is empowered.

The Social Uplifters declare that tenant-protection laws have ended the reign of terror inflicted by surly and dyspeptic landlords. But such laws have eliminated one of society's natural mechanisms for keeping communities and the people in them nice. When it is impossible to get rid of troublemakers, it is impossible to get rid of trouble.

It is readily understandable how anarchy came to reign supreme in our schools. It is also readily understandable how to redress the problem.

If parents were free to abandon the scene of the crime, moving their children--and tax dollars--to secured venues where brotherhood and respect were not simply electives but part of the core curriculum, school administrators would not be so clueless about the evil that lurks in their hallways. Were students not quite so liberated from the judgments of their teachers and the codes of adults, their schools would be better, safer places.

Given the choice, what parent would search for a school that opposed the Golden Rule? That was agnostic on the issue of classroom discipline? That tolerated belittling and hatemongering? Freed from the constraints of governmental power, what school teacher would not demand respect and dignity from those young rascals yearning for guidance?

Is it far-fetched to believe that the suppliers and the demanders of decency would flood the market for educational services? Hardly. Indeed, a recognition that they would is precisely the reason why vouchers and the like are bitterly resisted--opponents know that the choice to go elsewhere would empty our public schools more quickly than the next burst of gunfire.

Roll Reversal

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Tue, 01 Jun 1999 00:00:00 EDT

NOW President Patricia Ireland, a Clinton supporter, said her organization "would not lift a finger or raise a penny to help a president who would plunge 1 million more women and children into poverty."

So reported the San Diego Union-Tribune on August 23, 1996--the day after the president signed a law ending welfare as we knew it (and as NOW preferred it). In the intervening months we have witnessed the depths of NOW's sincere commitment to the women and children who suffer at the hands (and other body parts) of Bill Clinton. But much more interesting is the great commitment to the job market made by poor people forced to move off the welfare rolls.

That we do not hear more about the overwhelming success of welfare reform is evidence that a fine mist of public policy peyote has been sprayed at the Cumulo- Nimbus level. Our political discourse drifts daffily at ground zero. The Urban Institute's projection that 2.6 million poor souls would be delivered into poverty; the outpouring of Democratic Party support during the '96 election for President Clinton as the one man who could fix what he had wrought; the "where are the jobs going to come from?" taunts by welfare advocates--all are now stashed in some forgotten bin with those New Year's predictions by National Enquirer psychics.

Charles Murray set us up for all of this. When pressed to come up with a helpful solution in his 1984 book documenting the failed legacy of welfare, Losing Ground, Murray shrank from the challenge: Simply abolish welfare, he said, cold turkey.

It was irresponsible, cowardly, unthinkable--and exactly right.

Indeed, within a decade, states began playing with the notion in a politically thinkable way. The problem of long-term welfare dependency was seriously addressed when new and improved programs were ditched in favor of time limits, which made work "requirements" credible. The effort quietly starting taking off in the states about 1993, and federal legislation bolstered the trend in 1996. In the past five years, some 1.92 million welfare cases, 41 percent of the total, have been eliminated nationally. Three million remain.

Maryland's system was the subject of a 1998 study analyzing more than 2,000 welfare recipients who had gone off the dole. According to the Baltimore Sun, the study "found that many fears about welfare reform have not come to pass. Foster care has not been overrun with children whose parents left the welfare rolls...and recipients were not thrown out of programs, as many feared." Indeed, 93 percent of ex- recipients left prior to being kicked off.

But the horror story remains a popular genre. As the Los Angeles Times reports, "In states where welfare rolls have been driven to near unprecedented lows, officials are discovering that it is no longer enough to issue a `get a job' edict and offer some firm prodding to help them make the transition." As heartening as it is that the L.A. Times is discovering such venerable economic concepts as diminishing returns, the bad news for horror fans is this: Florida has successfully pared its rolls by 64 percent, while Wisconsin is down 90 percent, suggesting that states like California--which has cut its rolls only 16 percent since 1993--have a ways to go before the "low-hanging fruit" get scarce.

Still, warns the Times, any further reduction in the Golden State's rolls is likely to stall because various problems--from "substance abuse to low literacy levels to clinical depression--are posing stubborn obstacles to employment." If nothing else, such analysis concedes that pre-reformers ignored such obstacles, bestowing a blanket welfare entitlement on all. You think that might have led to incentive problems? Can you spell enabler, boys and girls?

Now, much as the welfare recipient is given a deadline, policy makers are being forced to deal with choices. Having demonstrated that an open-ended, no-obligation welfare check is about the worst we can do to our fellow man, and having seen the speed with which "work-first" mandates moved people up from relief to jobs, a tougher question arises: What to do with the social service bureaucrats who work in the welfare agencies?

Indeed, the debilitating effects of dependency have surely gone furthest within this cohort. Thus far under the new rules, they have performed professionally, meaning that they have adroitly protected their turf. Amazingly, the old flow of dollars continues, even as there are fewer and fewer "clients" to service.

These vestigial civil servants will continue to scare up rationales for why diminishing welfare rolls will reverse and why "new programs" are more necessary than ever. They pray every night for an economic crash and ponder sophisticated political strategies to stem their loss of market share. After all, they need the work --and good jobs at high wages is what welfare reform is all about.

Prosecutorial Abuse

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sat, 01 May 1999 00:00:00 EDT

"It is my firm conviction that the law has been a good one, helping to restore public confidence in our system's ability to investigate wrongdoing by high-level executive branch officials."

So spake Attorney General Janet Reno on May 14, 1993. She was announcing before Congress "that the [Justice] department and the administration fully support re-enactment" of the Independent Counsel Act. Spending $48 million to hunt down political opponents; issuing sensational indictments only moments before national elections; grilling the wives, lawyers, and ministers of key targets; attacking public officials in reports even when the evidence did not merit indictments; dragging investigations on and on for years--all the proud work of Lawrence Walsh as Iran-Contra special prosecutor--not a problem. "The Iran-Contra investigation, far from providing support for doing away with the act, proves its necessity," opined Reno.

It appears that the Clinton administration and other supporters of the independent counsel law have jogged a few miles down the Damascus Road. Yes, it's possible that a flash of lightning and a few words from the Almighty changed their minds. But a conversion experience this eye-opening has not been seen since Sports Illustrated's swimsuit issue hit the library at Holy Innocents High. Archibald Cox, who gained fame when terminated as a prosecutor in Watergate, argued in 1975 that independence had to be guaranteed in a new law (eventually enacted in 1978). "The pressure, the divided loyalty are too much for any man," he said. "Some outside person is absolutely essential." Today, he disagrees, saying the law "contains more evils than benefits."

Fair enough--people learn from 21 years of experience. But what to make of Sen. Carl Levin (D-Mich.), an author of the 1978 act and a key supporter of reauthorization in 1982, 1987, and 1994? Despite such firm commitment, Levin has flipped. So has Georgetown law professor Susan Block, a once-staunch supporter of the statute, who now says: "With unlimited time, an unlimited budget, and a single purpose, the independent counsel can become fanatical and obsessive."

We've heard that before. In a 1988 dissent, Supreme Court Justice Antonin Scalia argued, "How frightening it must be to have your own independent counsel and staff appointed, with nothing else to do but to investigate you until investigation is no longer worthwhile." The losing plaintiff in that case, Theodore Olson, was an assistant attorney general hounded by a special prosecutor because of some memos he had written to Reagan administration officials regarding how they should respond to congressional requests for Superfund information. No indictment was brought, but Olson was left with $400,000 in unreimbursed defense costs. Pondering Olson's case and Scalia's logic, 22 senators did vote against the independent counsel statute when it came up for reauthorization in 1994. But the champions of the "most ethical administration in history" were decidedly not among them.

We understand the back and forth of politics, but what is also on display in this tidy episode is the short-circuiting of the policy feedback loop. In most institutions of social life--your job, your family, your basketball team--proposing a Great Scheme puts the idea's creator on the spot: If the thing works, you're a hero; if it's a bust, you're a pinhead. Heroes enjoy perks which pinheads do not. Markets are particularly effective--and ruthless--in meting out rewards and inflicting punishments.

In the policy world, however, those whose schemes lead to Great Destruction --even by their own admission--routinely benefit from the debacle. Let's go to the videotape! See the leaders who crafted the Independent Counsel Act? There they are, noisily baiting a bear cub escaped from their own cave: Ken Starr. (Bless his soul, Starr argued against the act before he was appointed under its auspices.) There they are, pledging to end this partisan travesty. There they are, leaders of foresight and courage, now saving America from out-of-control prosecutors appointed under their own law!

It's the public policy version of one-stop shopping. Those who manufacture the problem sell you their solution. When a policy flops--hey, who better to peddle the next sure-fire fix? The marketing campaign is impressive and well-established: congressional hearings, press conferences, cable talk shows, the televised speech on C-SPAN.

Most important, it doesn't require any admission of past mistakes. You just denounce last year's model as defunct and bravely announce the next product cycle. Indeed, there's money in it: White House fund-raisers boast that, driven by Starr hate, $5 million poured into "Save the Big He" coffers in 1998. Just one more year of that revenue level means Bill Clinton will profit from the Whitewater special prosecutor. Sign a bad law? Get a check.

The fuse in our feedback loop is blown. And that's what is truly out of control in our policy-making structure.

The Education Precedent

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Thu, 01 Apr 1999 00:00:00 EST

It's time to paraphrase George Santayana: Those who cannot remember the past are condemned to repeatedly pay for failed education reforms. Today, every elected official in the country--from the president to mosquito-abatement district representatives--is stumping for strict "national standards" and billions to hire more teachers to reduce class sizes.

There's a growing consensus that now is the time to make the down payment on such unprecedented measures. The result, we're told, will be better schools and smarter kids who will do their parents proud (and who will make enough money to support them in their old age).

One question: What happened last time? In his 1990 State of the Union address, self-described "Education President" George Bush pledged that "national standards" would push our students into the next century with maximum academic momentum.

What kind of results spewed from this grand fountain of enlightened public policy? "Almost 10 years ago, President George Bush and the state governors set goals aimed at preparing all the nation's children to improve their achievement in core subjects and outpace the world in at least math and science by 2000," reported Education Week recently. "With one year remaining, the prospects of reaching those goals...appear practically nil."

Of course this time will be entirely different, right? But let's think for just a moment about hiring 100,000 additional public school teachers, the proudest pedagogical boast of last year's federal budgeteers. In 1994-95, the latest year for which the Census Bureau Web site posts such numbers, there were 3,763,312 elementary and secondary public school instructors on the payroll, serving some 44,111,482 students. That breaks down to a nationwide student/teacher ratio of 11.7. Dumping 100,000 new instructors into the mix brings the ratio all the way down to 11.4.

It seems safe to assume that not all instructors on payroll end up in the classroom, so the true student/teacher ratio is, in all reality, much higher. Fair enough. The 11.7 figure sounds low to me, too (let's just skip the potentially embarrassing question as to where those non-classroom instructors are hiding).

Let's figure that only half of all paid teachers make it to class. That means adding 100,000 new teachers lowers the average class from 23.4 to 22.8. And that's with the heroic assumption that we get 100 percent of the new teachers actually into the classroom.

What learning improvements will follow from diminishing the average class size by three-fifths of a student? The scientific evaluation of educational methods has looked extensively at pupil/teacher ratios, and has arrived at an answer: none. Reductions from very large class sizes are correlated with improved learning, but the gains diminish around 35-40 per class, and essentially disappear in the 20-30 range.

Moreover, the 100,000 new instructors--having less experience and less motivation (else they would already have been teaching)--are likely to be inferior to those already in the classroom. This means that the net effect is to divert hundreds of thousands of students into classes taught by worse teachers. Even ignoring the multi-billion dollar expense, the scheme may well result in declining educational opportunity for public school children in America.

But then, perhaps it's naive to assume that the new teachers are about education. Like the guys who run three-card monte games on the street, politicians know that misdirection is the key to a successful scam. If you look only where they tell you to, you miss all the real action.

The 100,000-teachers program successfully funnels lots of money--and recruits--to powerful teachers unions while setting off those sensors taped to the wrists of America's soccer moms, the suburban swing vote that matters most to Big Thinkers casting about for electoral votes. That U.S. per-pupil spending--$6,035 in 1995 --exceeds that of all other developed nations while results lag far behind seems not to matter.

But why sacrifice the children? I sug-gest a therapeutic alternative to more and less-qualified public school teachers: Give generously to the Milton & Rose D. Friedman Foundation for Educational Choice, which supports vouchers. (One American Square, Suite 2440, Indianapolis, IN 46282).

Or lay a little green on a good strapped-for-cash private learning institution saving kids in tough neighborhoods from hopelessness, poverty--and public schools. A prime candidate is Providence, Rhode Island's Community Preparatory. My friend and fellow American Enterprise Institute economist, Bob Hahn, helped Dan Corley start this school in 1983, and today it educates 120 low-income kids.

If you check out the school's Web site (www.ed.uri.edu/CP/cp2.html), prepare for goose bumps. And a glimpse at what real education reform might look like.

Back in the USSR

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Mon, 01 Mar 1999 00:00:00 EST

There is now a rolling undertow in many of the news stories about East European countries, particularly Russia: Capitalism is by its nature corrupt, and only a generous dollop of governmental control--a check on the thugs who inevitably rule the marketplace--can save the wretched masses since the communist state has withered away. As The Nation, yet tearful over the collapse of serious socialism, frames the lesson: "After seven years of economic 'reform' the majority of the Russian people find themselves worse off economically. The privatization drivehelped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy."

Curiously, the media has mostly ignored the successes of places such as Estonia and the Czech Republic, where rapid and sweeping privatization programs--along with relatively secure property rights --created momentum for the legal, political, and cultural changes necessary to make the transition from a command economy to a market-based one.

When the Soviet Union imploded in 1991, virtually all productive assets (not counting human beings) belonged to the state and were controlled by Communist Party hacks--the nomenklatura. The government owned the factories, shops, stores, airlines, telecoms, energy sources, land, farms, houses, hospitals, schools--you name it. With the collapse of the socialist regime, do you simply flick a switch and put these productive resources in the hands of new, private owners?

Sure---in the made-for-TV version. In fact, the managers of these enterprises maintained their power: Only they knew where the inventory was kept--the state had barely the roughest idea about what assets were held by the various entities. There's no question that these greedy denizens of socialism made Donald Trump look like Mother Teresa.

Since the reformers who brought on capitalism and democracy in Russia consciously chose not to employ Bolshevik methods to pry assets loose, they "left 'red directors' in possession of all the economic assets and privileges that they enjoyed in Soviet times," observes Russia expert Leon Aron of the American Enterprise Institute.

Rejecting civil war, however, left the reformers with little choice but to privatize assets in a way that mitigated opposition from entrenched interests. The path chosen in the 1992-94 period was to award two-thirds of the ownership rights to workers and managers, with the remaining shares distributed via vouchers to 144 million Russians (each man, woman, and child). This strategy left company insiders in charge, immune to the pressure of outside shareholders or the threat of takeover. By 1996, just one-fifth of Russian firms featured majority shareholding by people outside the company they worked for.

The result, in other words, was capitalism without capital markets. Bad things are bound to happen in such a scenario. And they certainly have in Russia, most notably the pilfering of firm assets (and the interests of minority shareholders) by firm management.

But far from demonstrating the inherent logic of capitalism, such unproductive shenanigans have been exacerbated by market reforms not taken. Price controls to avoid "shock therapy" led to political insiders brokering their access to cheap energy. Export licenses provided monopo-ly profits for the politically connected. Loans issued at below-market rates created a brisk business in currying favor with central bankers. And massive subsidies to inefficient factories further tilted the competitive struggle in favor of politics and away from economics.

So terrible things have befallen the former Soviet Union. But the overwhelming task of turning around an entire system of ownership rights while not killing anyone and while holding truly democratic elections is not a job for sissies.

Fortunately for the reformers, Soviet history set a low baseline for progress. With Gorbachev's communist economy as their starting point, Yeltsin's capitalists are actually making headway. A key metric on social progress is that Russian auto ownership has risen from 18 per 100 families in 1990 to 31 per 100 in 1997, a statistic that becomes all the more impressive when it is remembered what kind of jalopies those 18 lucky Soviet families owned in 1990. Here's another sign of progress: Average monthly wages, just $75 per worker in 1993, rose to $175 in 1997.

Buying off old communists has been an expensive proposition for the Russian people, but paying the ransom to avert a bloodbath was a wise and noble choice. To be sure, crony capitalism seriously under-performs what will obtain once real capital markets develop and bring about true competition. That will take further liberalization and more time.

But the biggest job has been done. As Anatoly Chubais, Russia's privatization guru, has put it, "Controlling managers is not nearly as important as controlling politicians." In the end, history will record that the corruption of post-communist Russia handily outperformed the corruption of the late--and strangely lament-ed--USSR.

Contributing Editor Thomas W. Hazlett (hazlett@primal.ucdavis.edu) is an economist at the University of California at Davis and a resident scholar at the American Enterprise Institute.

HMO Phobia

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Mon, 01 Feb 1999 00:00:00 EST

Dr. Ken Smith has a mission: to de-stroy the HMO system which today enrolls 85 percent of insured Americans. The Boston-based physician's reasons are simple and humane: "We are for patients, not profits." And his disgust is real: "How dare somebody in some board room in Connecticut decide what I'm worth, and on a whim decide that my worth should be reduced?"

The elements of the current crusade against managed care combine the front-page horror story of the access-denied victim with the political clout of a network of influential millionaires. In swank country clubs all across the land, high-powered attorneys are burying the hatchet with prosperous physicians, getting beyond that little multibillion-dollar spat over medical malpractice. Now they're toasting martinis and swearing litigation against the common enemy: HMOs that clamp down on medical costs.

It may shock the good Dr. Smith, but many of the common folk are quite used to having distant big shots in faraway boardrooms establish the price for their labor. And as for the purity of spirit to which Smith appeals, we do appreciate the thought. But it's best to avoid any kind of competition regarding who's been more successful in bringing health care to the masses, the typical HMO shareholder vs. the typical M.D. After all, who is more likely to be recreating out on the golf course Wednesday afternoon?

The health care market is tricky, and the shadow under which all discussion takes place is the cost explosion tied to third-party payments. When Dr. Smith was perfectly free to prescribe for "his" patient and push the costs onto others--well, that was the Golden Age for doctors. And, coincidentally, 9.9 percent annual medical cost inflation (just to pick the peak year, 1991) for the rest of us.

Managed care stepped in--indeed, it arrived in an ambulance answering a 911 call from ratepayers. HMOs had a tough job to do, teaching lots of doctors with egos the size of Smith's that there ain't no such thing as a free surgical procedure. They have yet to succeed; a group Smith has helped to organize, The Ad Hoc Committee to Defend Health Care, protests the "HMO bean counters" and advocates a single-payer system.

The reality is that the rationing that accompanies state-run systems makes the HMOs look like big spenders. That's not because the government hires better "bean counters." Quite the reverse--the beans sort of just disappear. And then it's, "Sorry, you'll just have to wait on that heart bypass until some more beans turn up."

Marc Roberts, a Harvard economist specializing in health care markets, claims that the doctors' real aim is "to regain status, power and income that they lost in this for-profit industry," and that holding the patient's welfare out as a bargaining chip is a smart stratagem. "They wouldn't gain any support if they stood up and said, `Instead of making $300,000, I now make $200,000, and you should all feel sorry for me.' " The blunt fact is that letting doctors run up medical tabs resulted in runaway expenditures, stealing money from the pockets of wage earners, who ultimately pay in the form of reduced take-home.

Unaffordability is itself a cause of illness, as it puts more Americans outside the health insurance system altogether, lessening their access to regular checkups and preventive medicine. Instead, they increasingly resort to visits to crowded hospital emergency rooms. Treatment there is inefficiently administered--and quietly tacked onto the bills of paying customers, further driving up costs and pushing more working people out.

As consumers, many of us prefer plans which offer a wide range of choice among doctor and treatments. But to receive the benefits from that high-cost deal, we do--and should--pay more via higher premiums and lower reimbursements. Government surely has a role to play enforcing contracts with insurers who attempt to renege and as a smart shopper purchasing large volumes of health care directly. (My understanding is that neither courts nor Medicare and Medicaid are as yet perfectly administered.)

The pressure to realistically assess the cost-benefit tradeoffs in medical care should be welcomed by those outside the fashionable salons where "for-profit" medicine is profitably denounced. In fact, the overwhelming majority of Americans find their HMOs good to excellent, and most rate them as superior to traditional health insurance on the value/dollar scale.

That's a state of affairs that the HMO reformers aim to change. Stuart Altman, professor of health policy at Brandeis University, notes: "The more we reduce the power of managed care to control spending by restricting services, the more we are going to take [away] the pressure of providers to constrain spending."

That's what doctors want, that's why lawyers will sue, and that's the reason Congress will legislate. But don't feel left out--you'll get the bill.

Sluggers Row

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Fri, 01 Jan 1999 00:00:00 EST

It was a decade ago that I heard a joke so remarkably on point that I still delight in inflicting it on others.

God decides to end the world. He calls the editor at The New York Times with whom he discusses all his major decisions. The editor tries to talk God out of it, to no avail. So the editor asks if the Times can at least have an exclusive. God thinks it over, but decides that would be unfair. He rules that he will share his decision with three other dailies: The Wall Street Journal, USA Today, and The Washington Post.

The papers rush to put out their truly final editions. First out is The New York Times: "World to End Tomorrow," runs a tasteful, smallish headline atop the front page's right-hand column, "News & Analysis, Page B11." The Wall Street Journal is next: "World Ends Tomorrow," blares the banner running across the top of page one, "Market to Close Early." Then comes USA Today. The paper's entire front page is consumed by just two words: "WE'RE GONE!" Finally, The Washington Post hits the streets. In bold letters standing six-inches high, it grimly announces: "World to End Tomorrow, Women and Minorities Affected the Most."

You may now share my moment of instant recall when reading The Washington Post headline of September 5, 1998: "The Home Run Chase in White and Black; McGwire, Sosa Draw Diverse Fans." Yes, the National Pastime's greatest-ever home-run derby had been subtitled "Women and Minorities Affected the Most." The whole fan frenzy involving two sports heroes was reduced to a racist melodrama starring that perennial bad boy, Amerikkka.

While the Post's crack journalists admitted finding trace elements of what was once called "sportsmanship," they focused on a disturbing sub-theme: "For all that is inspiring and wholesome about the home run derby, it also illuminates the eternal American dilemma of race. It is McGwire who has the overwhelming advantage over Sosa in the competition for the public's heart. (Internet search engines find McGwire's name more than twice as often as Sosa's.) Is that because the Cardinal is the better slugger, or is it a matter of color, ethnicity and language?"

The Post wanted you to believe that of the four possible hypotheses explaining the alleged public preference for McGwire over Sosa, three reflected ugliness in our public soul. The technical term for this is "stacking the deck." Assuming that McGwire was the sort of national hero that Sosa was not--something the Post reporters never really established--that "fact" could most easily be explained by benign considerations.

A preference for McGwire may be a reflection of what economists call "sticky expectations," a tendency for people to be strongly influenced in their views about the future by what has already happened in the past. In that Mark McGwire had hit many hundreds of home runs while Sosa was gearing up for his first-ever shot at the big time, more people tended to know and root for McGwire. This was hardly irrational: McGwire--in the end--did win the home-run race, 70 to 66.

Additionally, recall the preseason hype touting McGwire's anticipated rival--not Sammy Sosa, but (the similarly black) Ken Griffey Jr. Lots of early-season excitement (and Internet hits) went Junior's way. That fan-favorite Griffey was so widely heralded over the ultimately more sluggingly successful Sammy Sosa is indeed a potential source of injustice for the easily offended to explore. But the topic seems not to have penetrated the Post's black-and-white editorial news filter.

Instead, the paper's quest for proof of racial preference led it to interview one Jorge Camelia, a "17-year-old immigrant from Argentina," who opined: "It's like when Hank Aaron broke Ruth's home run record--the white Americans were against Aaron." Here's another moment of instant recall: As a Los Angeles Dodger fan, I well remember white Atlanta Braves fans, deep in the heart of Dixie, cheering wildly for Hammering Hank on the day he hit Al Downing's pitch over the left field wall to break the Bambino's career mark.

Camelia would no doubt be greatly disappointed to know that the slugger America disparaged was pink-skinned Roger Maris, who, when clubbing 61 homers to break Babe Ruth's single-season record, was rewarded with a footnote in the record books suggesting he hadn't really topped the Sultan of Swat.

Mark McGwire has proven an extremely likable sports hero in an era when star players don't quite measure up as role models. He's a good sport, a hard worker, a dedicated dad, and thus far appears not to have murdered any ex-wives. But ditto for the NBA's Michael Jordan, and a sharp investor will trade 107.8 Marks for 1 Jordan any day. Sammy Sosa, for his part, performed magnificently in 1998, both at the plate and in the media. The Dominican Republic native's refreshing innocence had all sorts of people cheering him on. Had the Post's reporters tuned into any "all sports all the time" radio station, they would have discovered legions of devoted sports fans who loved Sammy all the time.

Leave it to the Post to salvage bitterness from triumph: A moment when the culture embraced two talented athletes who competed fairly, behaved as gentlemen, strove to win, and were cheered on by millions--all so glorious a testament to the social order that the immigrant Sosa adopted "I love America" as his mantra. But the Post got its exclusive: "Secret Hatreds Were Harbored. Read All About It!"

Go ahead, God: End it now.

Hope Springs Paternal

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Tue, 01 Dec 1998 00:00:00 EST

On May 3, 1998, readers of The New York Times were treated to an amazing front-page story by science writer Gina Kolata, "Hope in the Lab: A Cautious Awe Greets Drugs that Eradicate Tumors in Mice." It began, "Within a year, if all goes well, the first cancer patient will be injected with two new drugs that can eradicate any type of cancer, with no obvious side effects and no drug resistance--in mice.

"Some cancer researchers say the drugs are the most exciting treatment that they have ever seen. But then they temper their enthusiasm with caution, noting that the history of cancer treatments is full of high expectations followed by dashed hopes when drugs with remarkable effects in animals are tested in people."

The story ignited the vaunted media frenzy. But was this flame of interest sparked by the tremendous scientific breakthrough? A celebration for the sick? The need to speed such promising developments to market? No. Just about every enlightened quarter of the press offered its own analysis of Kolata's story--and trashed it. Not for its presentation of the medical facts, but for its audacity in putting such good news on the front page. This, the conventional wisdom held, cruelly subjected cancer victims to spasms of "false hope."

Take it from the new conscience of American media, Brill's Content: "Kolata did get the science right....And Kolata made it clear that the drugs had been successful thus far only in rodents. But that caveat was lost amid the article's optimism and its placement." Scientific progress is fine when given an indecipherable blurb back on page D-74, or tucked away in obscure professional journals. But putting that stuff on the newsstand for all to see?

The esteemed Bernard Kalb, host of CNN's Reliable Sources, feared that Kolata had put out the news too quickly. "Did the Times and the pursuing media get ahead of the science," he fretted, "provoking false hope for cancer patients and their families?" This was the concern of CNN's medical correspondent Steve Salvatore, who suggested the real problem is "the mentality and the mindset of the cancer patient. ...Put [that research] in the hands of a person who is desperate, who's been told that they have cancer spread throughout their body, they have six months to live. None of the latest treatments are going to help them. Their family's upset, they're upset, and they're grasping at straws. You put this article in front of them, they're going to be hopeful."

How mean-spirited can one reporter be? Better to hide this stuff in a safe place so those pesky terminal cancer patients won't be getting all excited, calling their doctors and asking obnoxious questions. Otherwise, these folks are apt to be stricken with "False Hope Syndrome," a condition which leads people to act as if they have a chance of surviving when any responsible person would just lie down, take his chemotherapy, pull out his hair, puke up his innards, and fade off into the statistically bleak horizon.

Indeed, some think the dread disease of unwarranted optimism is a killer. Take ABC's medical editor, Dr. Tim Johnson, who agonizes over how much information the little people can handle. "There is a large part of me which says my most important responsibility is to keep things off the air," he said.

Keep that in mind during the next ABC medical update. You'll be enjoying the luxury of knowing that your reporter is delivering all the news he thinks you can handle. Most important, he'll be filtering out any potentially dangerous germs which could touch off a bout of the dreaded "false hope."

But who will protect you from that vastly underreported--and infinitely more lethal--syndrome, "false despair"? I do not know if the gatekeepers of scientific knowledge have bothered to quantify the costs and benefits of hope, but I'd be interested to see the balance sheet. By its very nature, hope implies a statistical chance; one cannot claim to be "hopeful" and yet fail to understand that failure is a potential outcome. To remain hopeful in the face of such grim possibilities is to claim at least a moral victory over death and defeatism.

Cancer patients are often said to be "terminal," but some bright thinkers have asked: Who among us is not? In electing to be hopeful, and taking all reasonable measures to get well, those ailing bodies who resolutely search for the best medicine do nothing but make life better. Maybe optimism is itself a partial cure; great healers like Yale's heroically hopeful Dr. Bernie Siegel think so. In any case, what is the downside? Too many phone calls to the receptionist at the oncology clinic? Too many requests for Science reprints at the public library? Too upbeat an attitude when fighting the good fight?

Great advances are being made in many disparate branches of cancer research, and much of the progress rests with cheerful souls who smile when they read what Kolata writes, eagerly volunteering for the clinical trials that will decide the issue. More interest should accompany their brave efforts--more funding for research, more investment in the pharmaceutical firms that sponsor trials, more publicity for signs of life in the battle against the most brutal murderer of our friends and loved ones. That accurate reporting on the marvels of science should become a cause for elitists pushing self-censorship is itself a stunning reminder of the life-giving benefits of the public's right to know.

Bull Clinton

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sun, 01 Nov 1998 00:00:00 EST

The Clinton administration has contributed mightily to American civic life. Indeed, in spurring a long overdue debate regarding what precisely constitutes "high crimes and misdemeanors," our president can claim credit for tripping yet another "national conversation." He has reinvigorated popular interest in the words and meanings embodied in that most remarkable document, the U.S. Constitution. How refreshing it is to hear impressionable young school children, curious about original intent and brimming with knowledge about the affairs of state, excitedly passing on the most minute details of presidential leadership. Another kudo for the "most ethical administration in history."

This rosy scenario seems inappropriate to those who cannot forgive the president for the little trick he played on the public. Lying, after all, is a no-no. But he didn't really intend to lie. You--I'm talking to you, Mr. and Mrs. America--made him do it. Clinton campaign consultant and spiritual counselor Dick Morris spoke to the president just after the Lewinsky matter broke in January and assures us that Clinton seriously considered telling the truth about the whole affair--until the poll numbers came in.

"If [the American people] feel that you lied under oath, and they feel that you suborned perjury in any way, you're cooked," Morris said he told Clinton. "Forgiveness won't work."

January polls indicated a confession would indeed be politically devastating. By August, polls indicated the truth was pretty much of a yawn. But the real windfall was that Clinton's political sleaze factor--bargaining for Chinese campaign cash, the rate card on the Lincoln Bedroom, a Cabinet that qualifies for a volume discount from defense attorneys, the litany of scandal stretching from Arkansas futures to stolen FBI files--had been blasted off the public's radar screen.

The truth has never tested very well for Clinton, and his abilities as a statesman have been most spectacular when crafting cover stories for actual public policy. In 1993, Clinton failed to deliver his promised middle class tax cut, and the country's recovery sputtered: First-quarter gross domestic product growth fell nearly to zero, and full-year growth barely matched that of 1992, the year dubbed by candidate Clinton as showcasing "the worst economy in 50 years."

That was also the year in which a Republican filibuster nixed the president's magic economic elixir, $16 billion in government infrastructure "investments." In 1995, Clinton's Office of Management and Budget was projecting $200 billion deficits into the next millennium.

Budget surpluses and robust economic growth coincide with the Republican congressional era (the creation of which Clinton can take credit for). These real accomplishments occurred while the president engaged in recreational demagoguery over minimum wages, school uniforms, and Social Security "reform."

The observation by Sen. Bob Kerrey (D-Neb.) that the president is an "unusually good liar" may yet be borne out, especially if one takes into account degree of difficulty. While many of our maximum leader's mendacities have landed him in a hot tub of job-security risks, he has continued to sell both the elites and the Booboisie the incredible line that diddling employees, lying under oath, and directing a lengthy and costly government campaign to cover-up a string of falsehoods is a matter to be adjudicated not by the public or the legal authorities, but by his wife. "If Hillary forgives him, then it's none of our business," the man on the street recites.

Of course, if the Clinton affairs were truly none of our business, then it would not matter one whit if his wife forgave him. But in the soap opera that is the Clinton presidency, Ms. Rodham-Clinton--issuing hourly press releases on the state of her forgiveness process--has been propped on stage as judge and jury to render a verdict on the abuse of office to whom she is married.

To Bill Clinton, the bright line which marks his "private life" is as imaginary as the stories he poll-tests when choosing what to testify to under oath. Not only does our president drag us, kicking and screaming, into the world of Hillary and Chelsea and Buddy and Socks, his official acts are what prompted this whole "private" mess.

The president claims to be the victim of an out-of-control independent prosecutor. A prosecutor that is mandated by the very 1994 law his party passed, and he signed, over the strenuous objections of the "vast right-wing conspiracy." The Paula Jones suit, the embarrassing stain which the king could not quite make disappear fast enough, is the sort of case trial lawyers claim as an inalienable right; who has been a greater champion, or richer PAC recipient, of the litigation lobby than the president?

Clinton has reveled in the trappings of power, and via his actions has bared his soul. Not much there. He used his office to get chicks and have kicks; he lied, he obstructed, he conspired. The system did indeed motor on pretty efficiently without him; perhaps his diddle time spared us from another Health Care Plan or two.

America must now decide how egregious an offense it is to turn the White House into Animal House and reach a consensus as to which felonies constitute behavior unbecoming a president. High crime? Misdemeanor? Oh, how masterfully Clinton has set the national agenda in the year of our lord, 1998.

Let's Regulate Cable Now!

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Thu, 01 Oct 1998 00:00:00 EDT

The outrage is palpable. Cable TV rates are increasing at four times the rate of inflation, and subscribers are mad as hell. Local monopolies are gouging consumers, who need protection from evil video conglomerates. Let's get Congress to regulate rates now!

That's what groups with consumer in their names are telling reporters and politicians, and the pleas of the Consumers Union and the Consumer Federation of America are not going unheeded. Articles have been written, hearings have been called, action will be taken. There's just one glitch: Cable rates are already regulated.

Six years ago, the Cable Television Consumer Protection and Competition Act of 1992 directed the Federal Communications Commission to clamp an extensive set of price controls onto some 11,000 U.S. cable systems. The FCC quickly created a new Cable Services Bureau, hired 240 additional staff members, and promulgated a series of rate rollbacks between April 1993 and July 1994. By the time the dust had settled, the FCC claimed that subscriber charges had been reduced by 17 percent--about $3 billion annually.

Nice going, Washington. That ought to prove that government really can work for the people. Indeed, the Clinton administration--which appointed a new, Gore-affiliated FCC chairman to spearhead the cable regulation effort--claimed the rate controls as a prime-time example of "reinvented government."

And then, reality. Who could have predicted it? When the feds clamped new limits on rates, cable system operators responded. They chopped back plans to expand capacities; they froze spending for new channels; they rejiggered tiers and squeezed additional revenue out of unregulated services. (Premium channels, such as HBO and Showtime, weren't subject to rate controls.) Most embarrassing to the FCC was the explosion in home shopping networks, which, unlike other channels, actually pay cable systems to be carried.

In the end, even with lower rates, customers found themselves getting a worse bargain--evidenced by the fact that basic cable subscriber and viewer growth rates plunged in the wake of FCC rate rollbacks. Subscribers were voting with their feet, rejecting the rate regulation scheme. By November 1994, under intense pressure from the owners of new cable networks (who had borne the brunt of the industry retrenchment under controls), the FCC relented. It allowed cable operators to raise rates at twice or three times the rate of
inflation--just like before controls. Subscriber rates immediately began rising,
as new services and higher quality programming were offered to customers.

There is little doubt that greater competition would redound to the advantage of consumers, although some of the remedies available to policy makers are curiously low priority. For instance, the "wireless cable" industry today languishes as a potential competitor, largely because the FCC refuses to move forward with rules which would allow such operators to deliver high-speed digital services (including Internet access) to local subscribers.

But one thing has been learned via bitter experience at the FCC: It is possible to do worse than unregulated monopoly. Price controls which inspire suppliers to screw around with services, marketing, and packaging to evade rate caps can result in falling subscribership--indicating that consumers consider themselves worse off when "protected."

These findings are not particularly con-troversial among those who have studied the matter. Even the Clinton FCC has given up the pretext; it has quite intentionally allowed rate ceilings to drift skyward. Despite its good-faith effort to quash the evil cable cabal, the wreckage of new programming--and the destruction of industry growth rates--proved too high a cost.

No matter underlying realities, pols must pose. Congressional Republicans understand the futility of re-regulating cable TV, but that doesn't mean that Trent Lott can't make the evening news by issuing a "stern warning" to the cable moguls that "people are not going to stand for [double-digit price increases in their cable bills] and neither are we."

Never one to miss its turn, the administration has ordered a study of the cable rate problem by the Department of Commerce. This bold move puts one agency of Clinton appointees to examining the fruits of another agency of Clinton appointees; what you get here is great fanfare on announcement of the "investigation," and then...years of diligent study. For good reason. Even former FCC staffers who were in charge of cable policy in the glory regulation days of the "17 percent rollback" now openly concede that the industry--and its complicated video programming product--was much too elusive a target for effective rate controls.

Cable regulation was a very useful social experiment--and continues to be. For now we may view the spectacle of "public interest" groups championing rate controls to be imposed by regulators who have given up on them.

As reported by the A.P., the Consumers Union now urges Congress "to take whatever steps are necessary to make the FCC do its job to protect cable consumers." In short, C.U. feels regulation is too important to be left to the regulators. Which, in turn, suggests that consumer protection is far too important to be left to the consumer advocates.

Texas Swing

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Sat, 01 Aug 1998 00:00:00 EDT

Journalist Jacob Weisberg stared deep into the heart of Texas--and was shocked. Lone Star State Attorney General Dan Morales had gained notoriety as the leader of the anti-Microsoft vanguard, launching antitrust investigations, filing suit, and organizing a national campaign to inflict mortal legal damage on the alleged software monopolist. But when the Texas-based Dell, Compaq, and CompUSA folks paid him a visit, he curled up like a cuddly little kitty. Morales yanked Texas out of the suit filed on May 18 by 20 other state attorneys general and the U.S. Department of Justice, noting that "several officials of Texas' computer industry have expressed concerns that the filing of a lawsuit against Microsoft may negatively impact their companies as well as the consumers of the state."

Weisberg, who covers politics for Slate, reacted in amazement: "The antitrust case against Microsoft may or may not have merit....But Morales' decision is pretty shocking in any event...the decision should be based on whether he believes the company has violated the law. Instead, Morales openly interpreted his duty as promoting the state's commercial interests."

There is something quaint in the innocence Weisberg exudes, and in his assumption that the enforcement of economic regulations is a pristine, nonpolitical endeavor. But what is truly "shocking" is that a political journalist--one whose column is titled "Strange Bedfellows"--would fail to appreciate the financial interests that, just to pick a random example, would drive a crusading attorney general into the toasty warm bed sheets of a few hot computer magnates.

Political science quiz: Today's category is decision making at the Federal Trade Commission and the Department of Justice (the two agencies have joint jurisdiction for antitrust enforcement). The question is, Which is more important in the merger approval process: 1) a sophisticated economic study prepared by staff economists, complete with extensive industry data, statistical analysis, and tight reasoning, or 2) a scratchy, three-minute cell-phone call from the secretary of commerce?

In 1991, the Time Warner buyout of Turner Broadcasting zipped past the FTC, despite a staff report branding the merger as anti-competitive. After Ted Turner and Gerald Levin, the two CEOs involved, visited top officials in Washington, the commissioners tossed the staff work out the window.

Did they disagree with the competitive analysis? Was it a difference of opinion as to the cross-elasticity of demand? Or were the politically appointed regulators moved by a higher voice?

It would be nice if the pundits who explained our politics to us could see where the politics goes. Most of our government's key decisions are made in meetings like the one Morales had with the computer boys before dropping his suit.

That's what "access," and the campaign contributions used to purchase it, are all about. The chitchat and photo-ops which form the press's interpretation of politics are really just campaigning, and campaigning is to government what the regular season is to the NBA: a very tedious drumroll.

Apparently Weisberg believes that astute government prosecutors can (and should) seal themselves off from grubby business interests, thus removing politics from the process. Cases would be decided only on the merits, not on whose ox is gored--or whether he knows the vice president personally.

There are only three problems with that view. First, it is absurd. Not until the 12th of Never will politicians not talk to the folks they regulate; the chance to cut a deal is why they got interested in this line of work in the first place. Second, private interests will always exercise their constitutional rights to threaten--or cajole--their patrons in high places. Sorry, but that's just America, and we've got a Bill of Rights to prove it. Third, the regulators have to talk to interested parties because they are the ones who actually know what's going on.

Does Weisberg not recognize that the big Microsoft suit has been made possible only through the cooperation of Microsoft's many private sector foes, who have plied the DOJ with juicy memos and cheap data? Is it really a secret that the rulings of all Washington agencies rely almost completely on information provided by private businesses? Or that without such cooperation, the regulators don't have a fighting chance to get anything right?

Here's the kicker: Often, the information is excellent. Take the very example that appalled Weisberg. If the Microsoft lawsuit would actually help make the software market more competitive, the evil corporate lobbyists from Dell and Compaq would have been urging the trustbusters onward. After all, these companies are the world's biggest customers of the monopolist in question. If anything can be done to make operating systems cheaper or more functional, they'll not only show up at the party, they'll bring the beer.

So it turns out that Morales, who was no doubt acting out of political self-interest, was led to do the right thing for the people of his state. That Morales's motives were not pure does not make him an unusual state attorney general. That he lives in Texas, where the Microsoft customers whom the do-gooders purport to help are big enough to frighten the bejesus out of an ambitious public servant, does.

Squeeze Play

hazlett@primal.ucdavis.edu (Thomas W. Hazlett) — Wed, 01 Jul 1998 00:00:00 EDT

Ah, the national pastime. Baseball is enjoying a fine season, spurred on by the expansion of both leagues, a fortuitous act that welcomes the civilized sport to new venues and, incidentally, calls up a pride of eager young minor league pitchers to the Big Show. Small wonder that an all-star team of power hitters, led by Ken Griffey Jr. in the American League and Mark McGwire in the National, is on pace to break Roger Maris's single-season home-run record.

But the big baseball news has increasingly little to do with earned-run averages or pennant races, but with public financing of new stadiums. The idea of the ballpark as municipal development project has become as American as Cal Ripken Jr., who as a Baltimore Oriole plays in Camden Yards, the Taj Mahal of government-subsidized sports palaces.

The theory is that building a gleaming new stadium is a great high for fans. Let me confirm the allegation: I know I heartily enjoy a trip to Camden Yards, even though I have no interest in American League teams or players. But I also heartily enjoy, as does ex-Rep. Dan Rostenkowski, a trip to Morton's steak house. The question really is: Why is one a legitimate claimant for taxpayer funds?

The main argument is that ballparks generate massive economic development, revitalizing cities almost as fast as the Florida Marlins can liquidate a championship team. New York Mayor Rudolph Guiliani points to a study by his administration that shows consumer spending in Manhattan would rise $1 billion per year if a new Yankee Stadium were built on the West Side--plus "thousands and thousands and thousands of jobs," in the mayor's precise calculation.

The reality is that the studies trotted out to justify the public subsidy are as phony as the zeros they arbitrarily tack onto their empirical estimates. Not only don't city planners know what new benefits will materialize, they have little idea--or incentive to discover--what existing spending will be quashed by the diversion. Folks who blow $100 on a Yankees-Indians game, two hot dogs, four beers, and a nonfat double latte are not going to spend that same sum that same night dining out at Elaine's. In New York, the opportunity cost of moving the Yankees' home to 33rd Street and 11th Avenue is painfully apparent to those in the Bronx, "a borough whose identity is inextricably linked to the ball club," as The New York Times put it.

Yet sports stadiums are perfect vehicles for city hall insiders to wheel and deal; the mayor gets a ribbon-cutting to die for, and all the local hacks can wangle a piece of the consulting or contracting business. City officials typically obtain box seats at the new park as freebies, without all the fuss and muss of an indictment for bribery. Add a media blitz: the daily newspaper and the AM sports-talk outlet will flack shamelessly for their financial self-interest in promoting local sporting events (and the accompanying ad revenues). How curious that William Wrigley and so many baseball owners in a far less lucrative sports era were able to build great ballparks with private funds--think of the billions and billions in public benefits that may have been lost!

The comic aspect of taxpayer-funded sports stadiums is that it would be difficult to devise a source of revenue generation which would more perversely skew incomes. The subsidies are borne by working stiffs who consider themselves lucky to sneak the family into the bleacher seats once a season at the Pleasure Dome they labor to provide through taxes, fees, and the like. The pretty new facility, however, will enable their bosses to sip sauvignon blanc while lounging in luxury boxes, while the team rakes in the bonus revenue. These funds are divvied up among millionaire owners and millionaire players, and then tucked away in diversified portfolios comprising shares in Chilean ostrich farms, Czech Howitzer factories, and Wyoming ski resorts. The ballpark subsidy seems almost a perfect way to actually suck disposable income out of a regional economy.

Which is exactly what the real science on the matter has found. According to Andrew Zimbalist, the Smith College economics professor who edited a book on the topic of Sports, Jobs, and Taxes (Brookings, 1997), "There has not been an independent study by an economist for any stadium built over the last 30 years that suggests you can anticipate a positive economic impact....The overwhelming majority of any new revenue generated by a [New York] stadium would go to Steinbrenner and the Yankees' players."

The Camden Yards situation is illustrative, because it's a success by any measure--except economic rationality. Attendance increased by two-thirds, and great benefits were generated: $41 million in local spending by out-of-town fans. But the Camden Yards "investment" has created a paltry 460 permanent jobs in downtown Baltimore (offset by job losses elsewhere). While the Orioles sell an extra $16 million in tickets a year, the public loses $9 million on the stadium annually. On net, private Maryland incomes would be $11 million higher each year without Camden Yards, estimate Johns Hopkins economists Bruce Hamilton and Peter Kahn.

So here's the play of the day: Public money is used to buy fluffier seat cushions for corporate fat cats attending their favorite sports show in architectural splendor, fattening the bulging offshore accounts of team owners and players. And the cities tell us that they are starving for tax dollars. Imagine that.