Senator William Proxmire, the taxpayer's champion in the SST and Lockheed subsidy cases, has publicly announced that eight months of wage and price controls have shown that the controls are unfair and do not work, and that the nation would do better to scrap the controls and "learn to live with inflation as the lesser of two evils."

Proxmire's Joint Economic Committee recently released the first truly comprehensive study of government subsidies and their economic impact. The report estimates that the total economic impact of federal subsidies in fiscal year 1970 was $63 billion, including $12 billion of direct cash payments, $4 billion of credit subsidies, $9 billion in "benefit-in-kind" subsidies, and $38 billion in "tax subsidies" (i.e., tax exemptions and loopholes, whose inclusion in this definition is, of course, questionable). The impact of this report is devastating, and it will probably provide the basis for a number of books. As the WASHINGTON MONTHLY put it, government subsidies represent a "$63 billion screwing" of the average man. Proxmire's committee has done us all a service.

• "Proxmire Urges Halt to Economic Controls," Associated Press, 1 May 1972
• "The Economics of Federal Subsidy Programs," U.S. Government Printing Office, 11 January, 1972 ($1.00 from GPO, or free from Sen. Proxmire or your Senator)
• "The Average Man and Government Subsidies: A $63 Billion Screwing," Taylor Branch, THE WASHINGTON MONTHLY, March 1972.


It has long been the goal of many statist-minded businessmen to achieve a comfortable partnership with government, so as to limit competition and ensure profits regardless of market conditions. The Japanese government's Ministry of International Trade and Investment (MITI) is increasingly held up as a model for the kind of protection desired. Yet moves toward establishing such a relationship recently received an unexpected setback. On the very day that the chairman of U.S. Steel called for "immediate [government] action to help the nation's steel industry compete" in foreign markets, Consumer's Union challenged the legality of the existing "voluntary" import quotas on steel from Japan and Europe. In a suit filed in U.S. District Court in Washington, D.C., the nation's largest consumer organization charged that the quotas illegally restrain trade in violation of the Sherman Act, and will cost U.S. consumers up to $1 billion per year in higher product prices. The organization noted that when steel import quotas were in effect between 1969 and 1971, U.S. steel prices rose five times as much as in the preceding eight years when there were no quotas.

The Consumer's Union suit is a continuation of the healthy new phase in the consumer movement, based on the growing realization that the greatest source of consumer grief is government intervention in the economy (see "Prescription: Free Competition," Trends, March 1972 REASON). Given the revelations of the Ralph Nader study groups regarding the true nature of government regulatory agencies like the ICC, CAB, and the FDA, it was only a matter of time until the consumer movement began to get the idea. Until recently statist-minded business interests were able to obtain government protection from competition (in the name of "the public interest") with scarcely a voice being raised in protest. Those lobbying for the protection were well-organized, while the average citizens, as consumers and taxpayers, lacked a voice to protest and consequently ended up paying the bill. All that may change as the new consumerism realizes the wealth of targets open to it in our mixed economy.

• "Imported Steel Quotas Illegal, Suit Charges," Ron S. Heinzel, LOS ANGELES TIMES, 25 May 1972.


Galloping statism in the Province of Ontario (Canada) seems to have taken a pause in mid-stride with two small experiments that may change the whole character of government services. The Provincial Department of Health recently decided to invite tenders from private enterprise to provide Home Health Care Services in Halton County, east of Hamilton.

Doctor R.M. King, in charge of the Home Care Division, says it's the first move in a government plan to "mobilize the creative and innovative resources of business to improve government cost control and inefficiency."

Doctor King says the aim is to curb bureaucratic growth and return to private hands many services that became government responsibilities "by default." He says the experiment could affect all government departments and open new channels of "public service" for many different industries.

Whether this is actually a move toward free enterprise services or simply a shift from Socialism to Fascism remains to be seen.

Another experiment, in a small town northwest of Toronto, is an even more radical departure from the status-quo. The Orangeville Town Council has invited proposals for the operation of its police force! Faced with skyrocketing wages and police costs, the town of 8,500 is prepared to turn over the enforcement of all Federal, Provincial and Municipal laws to a private agency. There's only one catch: it's forbidden by the Ontario Police Act.

Mayor Victor Large says he's encouraged by the above noted switch to private contract servicing of government health responsibilities. He says the town will press for a change in the Police Act or a Pilot Project exclusion—if an acceptable proposal is received.

The two ventures have received little encouragement from provincial politicians, and the government has made no public comment on the projects. If either, or both, prove fruitful, the consequences could be enormous.

•William Westmiller, based on Canadian Press Wire Service report of 12 April 1971.


An early libertarian button neatly summed up the convergence between economic and personal liberty with the slogan "Support Free Enterprise—Legalize Prostitution." That proposition was recently defended by none other than the recently-elected Sheriff of San Francisco County, Richard Hongisto. Appearing in a debate on prostitution on the nationally-televised (NET) "The Advocates" program, Hongisto expressed a very practical law enforcement perspective. Because there is a demand for the services of prostitutes, laws against this form of business are "totally ineffective" in changing people's behavior, Hongisto explained. Hence, the usual efforts to enforce these laws involve using "decoys, surveillance mechanisms, and other tactics such as physical force, which are the most degrading tactics of all to law enforcement." Most important of all in an age of ever-increasing crime and rising taxes, the attempt to forbid prostitution "takes forces away from more serious crimes and involves a lot of expense that should be avoided."

Viewer response to the 4 April telecast was enthusiastic. 60% of the 12,277 viewers responding by telephone agreed with the Sheriff that prostitution should be legalized, as did 72% of those mailing in responses.

• "Viewers Vote for Legalized Prostitution," LOS ANGELES TIMES, 3 May 1972.


Shortly after REASON reported on the success of performance contracting in education in Gary, Indiana's school system (Trends, March 1972 REASON), the U.S. Office of Economic Opportunity released a report purporting to be an objective evaluation of performance contracting. According to OEO, the report proved once and for all that performance contracting was a failure. But now two of the nation's leading authorities in the field have challenged that conclusion. Dr. Donald Goldenbaum, head of the quantitative analysis division of Indiana University's School of Public and Environmental Affairs, and James A. Mecklenburger, a research assistant and doctoral candidate in instructional systems technology, argue that the actual results of the OEO experiment were inconclusive at worst, and promising at best, and that OEO's pessimistic conclusions were politically motivated.

Goldenbaum and Mecklenburger point out that the one-year OEO-funded performance contracting experiments in 18 school districts were far from rigorously designed or carried out. "OEO actually began the experiment in whirlwind fashion, forcing companies to create and staff programs, purchase materials, train teachers, and refurbish facilities during the summer months." Many contractors were therefore unable to get their programs going until mid-autumn or later. Despite these problems, and despite other differences between contractors and methods, the OEO report lumped all the results together and claimed that overall, performance contracting was ineffective. In fact, the Indiana researchers point out, pupils (grouped in grades) in 10 of the 18 schools outperformed those in regular classrooms, and overall 61 of the individual performance contracted grades were superior, while 44 were inferior to regular classrooms. OEO's analysis "intentionally neglected whether any site did very well or very poorly. In fact, some did each…" The researchers note that the schools which did poorly with private contractors experienced a greater degree of teacher resistance, conflicts between schools and contractors, problems with testing, and threats of cancellation by contractors. All of which differences were conveniently omitted from OEO's explanation of the results.

In short, despite an extremely limited test period, under relatively poor conditions, performance contracting demonstrated significant potential, both for improving educational performance and for reducing costs. OEO's hasty overreaction is an indication of the degree to which performance contracting is seen as a threat by the public school establishment. (Incidentally, the successful Behavioral Research Laboratory contract in Gary, Indiana was not one of those evaluated in the OEO experiment.)

• "Contract Classrooms Abandoned Too Soon?" Jack McCurdy, LOS ANGELES TIMES, 30 May 1972.


Increasing numbers of citizens are defying the Internal Revenue Service's claim on their income—and apparently succeeding. Dr. Paul Hayes, a Paradise Valley (Calif) dentist, received extensive newspaper coverage for flying a skull-and-crossbones flag over his home during April to protest the fact that "the government uses force to take our money like a bunch of pirates." Hayes' black flag showed a white skull-and-crossbones and the initials "IRS." Hayes complains that "people are punished for producing…They've [IRS] got a whole 'Gestapo' behind them. If you want to fight them you have to go into their courts and pay the costs…you're guilty until proven innocent; you have to prove your innocence."

Exactly these points about due process are being raised by a number of people as the legal basis for refusing to pay income taxes. James Scott of Fresno, Calif., has not paid federal or state income tax, Social Security tax, utility taxes, personal property taxes, or gasoline taxes for the last three years, as a protest against government spending and illegal taxation. Scott expects to be indicted but thinks he will win on constitutional grounds. So do the 250 members of his Tax Rebellion Committee, with branches in California, Oregon, New Mexico, and Michigan. "Withholding [of income taxes] violates the Fifth Amendment because the government has no right to take your money without a hearing," the group alleges. Furthermore, the coercion of employers to devise and use withholding schedules for the government's convenience violates the 13th Amendment against involuntary servitude. The group urges people to inflate their W-4 (withholding) form by claiming 15 or 20 dependents, thereby resulting in no tax being withheld. Then when the IRS attempts to collect directly from the individual, Scott advises, "sit tight, sign nothing, and make no statement."

A full-fledged battle with the IRS was recently joined in San Diego. When the IRS issued a seizure order for Heck Transfer and Storage Company (for nonpayment of taxes), a group of 80 libertarians and conservatives held a demonstration in front of the property, arguing that the seizure was illegal since it was being done by IRS fiat, without establishing tax liability or obtaining a seizure order in a court of law. As the owner attempted to re-enter his business property, a scuffle ensued during which seven individuals were arrested. The defendants were charged with conspiracy to rescue seized property, conspiracy to assault federal officers, attempt to rescue seized property, and assault on federal officers. Apparently federal officials hope to make an example of the defendents by obtaining quick felony convictions. However, two lawyers have been retained by the defense, and a strongly-libertarian constitutional test case is in the making.

• "Jolly Roger Flies High at Tax Time," RAMPART COLLEGE NEWSLETTER, May 1972
• "Fresno Man Refuses to Pay His Taxes," UPI, 28 May 1972
• Personal communication, 24 May 1972.