UNSTICKING THE GEARS
Spurred on by the intractability of inflation, there is growing discussion among economists and government policymakers regarding the many government-induced rigidities in the U.S. economy. These rigidities are various types of coercive interventions that prevent prices from being freely determined by supply and demand, and generally serve both to prevent price reductions and to shield price increases from competition.
A recent front-page article by Los Angeles Times financial editor Robert Wood high- lighted the following areas that are under active consideration:
• Regulated industries: The policies of the CAB and the ICC sanction legal cartels, forbidding the entry of new firms and preventing competitive pricing. The telephone industry is a legally-sanctioned monopoly, which uses the courts to harass would-be competitors in specialized areas. Assistant Attorney General Thomas Kauper plans to conduct an "intensive review" of government policy toward such industries, which account for some 10 percent of the GNP. Also, a Republican task force on antitrust headed by Rep. John Heinz, III is planning to seek substantial changes in the antitrust laws, aimed at subjecting regulated industries to competition.
• Farm policies: Former Council of Economic Advisors chairman Otto Eckstein points out that the Agriculture Department's policies on acreage allotments and commodity purchases aim at keeping farm income up, regardless of the effect on food prices consumers must pay. Recent government actions to boost the price of beef are even more blatant.
• Credit policies: Former Treasury official Murray Weidenbaum notes that a host of government credit programs subsidize favored groups of borrowers (farmers, home buyers, veterans, etc.), resulting in higher interest rates for everyone else. He estimates that the Federal Government now controls about 33 percent of all savings and investment funds, up from only 10 percent in 1960.
• Protectionism: Harvard economist Hendrik Houthakker has called for phasing out the quotas which limit imports of steel, textiles, and other products, thereby keeping domestic prices high.
• Antitrust: Rep. Henry Reuss of the House Joint Economic Committee notes the chilling effect of antitrust laws on preventing medium-size firms—of which there are vast numbers—from considering mergers which could promote efficiency and thereby lead to lower prices.
• Gold standard: Stanford economist G.L. Bach has pointed out the beneficial effects of the gold standard in imposing fiscal and monetary discipline. In his book The New Inflation, Bach laments today's lack of gold's "monetary religion that brought the government and the public up short when they felt the urge to spend more than they were taking in."
It seems clear that today's concern about inflation presents an unprecedented opportunity for rolling back government interventions in the economy. But how can such reforms be implemented in the face of determined and well-financed opposition from the special interests that would lose their subsidies? Charles Schultze of the Brookings Institution suggests that rather than propose the reforms on a piecemeal basis, the best strategy would be a package approach, relying on "widespread public abhorrence of inflation" to muster support. Libertarians would do well to propose such packages at every opportunity.
• "Competition Held Cure for Inflation," Robert E. Wood, Los Angeles Times, Aug. 5, 1974, p. 1.
• "Congress, Justice Dept. Map Antitrust Moves Against Regulated Industries," Telephony, Aug. 19, 1974, p. 14.
THE CASE FOR PRIVATE FORESTS
More than 10 years ago Milton Friedman pointed out the serious deficiencies inherent in government ownership and management of those huge tracts of land known as National Forests. Friedman's solution, echoed a decade later by economist Edwin Dolan, was for the government to auction off the National Forests to private owners. After years of being ignored by academicians, this proposal is finally receiving serious consideration. In a recent issue of the Journal of Law & Economics, economists Richard Stroup and John Baden examined the current management of the National Forests and projected the likely impact of their return to private ownership.
Stroup and Baden, like Friedman, point out the inherently political nature of current National Forest management, as the Forest Service attempts to balance the conflicting interests of the lumber industry, cattle and sheep grazers, hunters, water recreationists, campers, conservationists, etc. In the absence of market pricing, there is no rational way to make the necessary trade-offs among these competing users; consequently, the decisions are the result of pressure group influence in which minorities with clout (e.g., the Sierra Club, lumber companies, ranchers) often prevail. Further, use of the forests is generally on a no-cost or below-market-cost basis, thereby conferring subsidies on those user groups with the most influence.
After reviewing the defects of current practice, Stroup and Baden catalogue the likely effects of privatization. First, in selling the forests, the government would realize a large "revenue windfall" which could be used (depending on the political climate) either to reduce the national debt, to reduce taxes, or to fund other government programs. Second, with the forests privately owned, there would be shifts in the distribution of uses, as supply and demand came into balance at market-determined prices. Current subsidies to recreational and conservationist users would end, although the authors point out that "it is not clear that the consumers now being subsidized would be made worse off. The new pattern of goods and services provided with forest resources might be worth enough more that even at higher prices, the consumer would be better off. Services or experiences now unavailable might be marketed by imaginative resource owners eager to maximize the value of rents." In particular, some wilderness areas would probably be better protected than at present, as entrepreneurs catered to the desires of upper-middle-class conservationists. Another effect would be the production of valuable information as to the true demand for various types of forest uses.
Stroup and Baden also puncture the common myth that private ownership would lead to shortsighted "rape" of the timber, to the detriment of long-term productivity. It is only where the owner of the land cannot capture the long-term economic benefits of rational forest management (as in the case of government ownership) that such short-sightedness takes place. There is every economic reason to believe that private owners would maximize the long-run expected value of their timberland.
• Milton Friedman, Capitalism and Freedom (University of Chicago Press 1962), p. 31 (paperback).
• Edwin G. Dolan, TANSTAAFL: The Economic Strategy for Environmental Crisis (Holt, Rinehart & Winston, Inc. 1971), Ch. 7.
• "Externality, Property Rights, and the Management of Our National Forests,'' Richard Stroup & John Baden, Journal of Law & Economics, Vol. 16 (2), Oct. 1973, p. 303. ($9 per year from the University of Chicago Law School, 1111 E. 60th St., Chicago, IL 60637)
SETBACK FOR AIR BAGS
By the time you read this, the government's Big Brother plan to force automakers to install—and consumers to pay for—air bags may have been put to rest by Congress. Under strong pressure from the auto companies, the American Automobile Association, and individual car owners, the House passed by 337 to 49 a bill forbidding the government to require air bags and/or seat belt interlock/buzzer systems; only a dashboard warning light could be required. In the Senate a similar bill has been introduced by Senators James Buckley and Thomas Eagleton, and is given good odds of passage, considering its bipartisan support (e.g. Nelson, Church, Helms, and Hruska).
The auto industry, meanwhile, has finally closed ranks in opposition to the air bag requirement. Former holdout General Motors, having sold only 5000 of a planned 100,000 cars equipped with optional ($260) air bags, has joined Ford, Chrysler, and American Motors in planning to take the National Highway Traffic Safety Administration to court if it goes through with its plan to force air bags on all 1977 cars. Like most other auto safety experts (see "Trends," Sept. 1974), GM now supports lap-shoulder belts as the most cost-effective passenger restraint system.
The issue of Big Brotherism in this case unites many liberals and conservatives with libertarians. After all, as Sen. Eagleton recently said in support of his bill, "lf freedom is to have any meaning in this country, it certainly must encompass the right of an individual to lead his life as he sees fit, so long as it does not interfere directly with the similar pursuit by others."
• "Air Bags Head for the Courts," Business Week, July 6, 1974, p. 50.
• "Unhitching 'Big Brother,'" James Jackson Kilpatrick, syndicated column, Aug. 24, 1974.
• "Auto Devices Seen as Saving 15,000 Lives," UPI (Washington), Aug. 28, 1974.
CURBING EMERGENCY DICTATORS
Current U.S. law allows the President to assume dictatorial powers by simply declaring that a "national emergency" exists. For the past two years Sen. Charles Mathias, Jr. has been investigating and cataloging these powers (see "Trends," Nov. 1972) and in August he and Sen. Frank Church introduced legislation to curb them. Although the bill doesn't go nearly far enough, it's a clear step in the right direction.
At present the U.S. is under four states of emergency that have never been rescinded (one each declared by Roosevelt and Truman, and two by Nixon). Some 470 separate statutes and hundreds of executive orders can therefore be invoked, at the President's sole discretion, to call up the military reserves, seize the stock markets, commandeer broadcasting facilities, regulate industrial production, seize private property, close banks, impose censorship, halt traffic on Federal highways and airways, etc. In addition, a number of existing procurement regulations which suspend competitive bidding are in effect only because of the current national emergencies.
The Church-Mathias bill would abolish the four existing national emergencies and set criteria for when a new one could be declared: in the event of invasion of the U.S., internal revolt instigated by a foreign power, catastrophic natural disaster, or "economic disaster." The state of emergency would expire in six months unless extended by Congress, and would also be subject to court challenge. The bill also repeals some of the emergency powers statutes, such as the one empowering the President, the Secretary of Defense, or any general to declare the U.S. or any part of it a military zone.
Among the effects of ending the current national emergencies would be to render powerless the Trading with the Enemy Act of 1917 and the Emergency Banking Act of 1933, both of which take effect only during time of war or national emergency. The former is the basis for the current government intervention to halt trade with North Vietnam, North Korea, and Cuba, while the latter is the basis for most of today's monetary regulation. Another effect would be to make impossible such domestic uses of the military reserves as Nixon's use of troops to carry the mail during the 1970 postal strike. There will be strong pressures on Congress to pass new legislation restoring these powers, even without a national emergency—especially with regard to the Emergency Banking Act. Congress could do the country a real service by resisting these pressures.
• "A New Definition of National Emergency," Business Week, July 20, 1974, p. 26.
• "Presidential Emergency Powers Curbs Proposed," UPI (Washington), Aug. 23, 1974.
• Censorship. Boston city officials are making history by finally giving up their historic battle to wipe out obscenity. Instead, city officials have zoned a downtown district exclusively for porno shops, sex films, stripper bars, etc. The Boston Redevelopment Authority (BRA) hopes thereby to contain "it" to the district, which is known as the "Combat Zone." BRA will build two parks in the Zone, start a shuttle bus service, and help owners fix up their buildings. The Combat Zone developed over the past decade when a massive urban renewal project replaced Scollay Square, the former red-light district, with government buildings. (Source: "Boston Zones 2 Blocks for Porno Shops, Girlie Shows," AP (Boston), June 8, 1974.)
• Property Rights. In an important decision, the California Supreme Court has affirmed the property rights of shopping center owners. The Court ruled that the owners of shopping centers have the right to prohibit the gathering of signatures on political petitions, because the centers are private property. The ruling reversed the same court's 1972 stand on the issue, due to a subsequent 1973 ruling by the U.S. Supreme Court that an Oregon shopping center could prohibit political leafletting on its property (see: "Trends," Sept. 1972). The left-wing People's Lobby, which brought both the 1972 and 1974 California cases, said it plans to appeal the decision. (Source: "Petition-Gathering Decision to Have Big Effect on Politics," Thomas D. Elias, Santa Barbara News-Press, May 13, 1974.)
• Housing. Yet another liberal pipe-dream—the massive urban public housing project—is being consigned to history as a failure. With little fanfare, the Administration this summer announced the end of 40 years of public housing. The new government philosophy still retains heavy Federal involvement, principally in the form of rent subsidies. Operating subsidies for the nation's existing public housing (holding some 2.5 million residents) will continue, to the tune of $280 million per year. (Source: "U.S. to Quit Constructing Public Housing, Will Pay Rent for Poor," Thomas W. Lippman, Washington Post, June 27, 1974.)
• Criminal Justice. Victims of rape will no longer be subjected to detailed questioning on their prior sexual history, according to a bill signed into law by California Gov. Ronald Reagan. The law substantially limits the instances when such questioning can be used and is aimed at correcting the common situation in which the rape victim is made to feel she is on trial rather than the defendant. Frequently, rapists are acquitted if the defense attorney can demonstrate that the woman was "unchaste." The new law recognizes the fact that women, like men, are entitled to a sex life, and that exercising this right should not make them fair game for rapists. (Source: "Reagan Signs Bill on Rape Victim's Sex Life," Los Angeles Times, Aug. 31, 1974.)
• Broadcasting. Freedom of the press for broadcasters has been strengthened by a recent FCC decision. The agency has rejected a Federal Trade Commission proposal that broadcasters be forced to provide air time for replies to commercials. The decision represented a refusal on the part of the FCC to expand the scope of the controversial "Fairness Doctrine," but it left intact the doctrine as it currently applies to editorial matters. (Source: "Counter-Ad Proposal Turned Down by FCC," AP (Washington), July 5, 1974.)