Toppled Idols

"In the long run we are all dead," wrote British economist John Maynard Keyes. The fate of men can also be the fate of their ideas, as demonstrated by the sudden fall from grace of the teachings of two of history's leading collectivists: Karl Marx and Lord Keynes himself.

The repudiation of Keynes has occurred in both Great Britain and the United States. It seems to be an outgrowth of the simultaneous persistence of inflation and unemployment over the last several years—a condition Keynes thought to be impossible. Now, however, even liberal "neo-Keynesian" economists have come to realize that inflation, rather than curing bad times, can actually cause more unemployment and recession. Why? Because the expectation of inflation gets built into wage demands, interest rates, and investment decisions, leading to less employment and reduced capital spending.

British Prime Minister James Callaghan stated this unequivocally at the Labor Party convention last fall: "We used to think you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candor that such an option no longer exists, and insofar as it ever did exist, it worked by injecting inflation into the economy. And each time that happened the average level of unemployment has risen." American liberal economists such as Walter Heller and Council of Economic Advisors chairman Charles Schultze tend to agree with Callaghan. "We've all learned something about inflation," concedes Arthur Okun, chairman of the CEA under LBJ.

While Keynes is being buried in England and America, it is Marx who is being put to rest in France. The gravediggers are a group of young ex-marxist intellectuals dubbed the "new philosophers." Led by Andre Glucksmann and Bernard Henri-Levy, the young radicals attack "the bankruptcy of socialism" as a path to freedom from oppression. In fact, writes Levy in his best-selling Barbarism with a Human Face, the ideas of Marx and his followers paved the way for the emergence of 20th century totalitarianism. Indeed, "the 20th century's great invention may prove to be the concentration camp, which is generalized murder for reasons of state," he writes. Glucksmann, drawing on the works of Alexander Solzhenitsyn, attacks as naive the view that "Marxism [was] good but the [Soviet] interpretation was wrong." In fact, it is Marxism itself that is evil. "The Soviet prison camp is Marxist, as Marxist as Auschwitz was Nazi," says Levy.

What must be fought is the State, with all its sophisticated means of control, and ideologies such as Marxism that lend it an air of legitimacy. That message, profoundly anticommunist and pro-individualist, is the truly revolutionary voice of our times.

"Inflationism," William H. Peterson, The Freeman, August 1977, p. 454.
• "Is Keynes Dead?" Newsweek, June 20, 1977, p. 74.
• "The New Philosophers," Time, Sept. 12, 1977, p. 29.
• "Those Magnificent Marx-Haters," The Economist, Aug. 20, 1977, p. 54.

Medical Schools Fight Back

Federal aid without federal controls? Medical schools were among the many sectors of society that wanted to believe this siren song of the 1950's and 1960's. But the mailed fist has been showing through the velvet glove with a vengeance in the 1970's. First came affirmative action programs, then controls on research, and now the latest move—an attempt to force the schools to accept minimally qualified third-year students from abroad.

Under a provision of the Health Professions Educational Assistance Act of 1976, all federal tuition grants (known as capitation money) would be cut off from schools that refuse to take US foreign medical graduates who can pass a single basic exam. In the words of Science magazine, the provision "suspends all other academic criteria and establishes the federal government as the medical schools' chief admissions officer."

Twelve medical schools have decided they'd rather fight than switch. And four of them—Johns Hopkins, Harvard, Yale, and Stanford —have hired attorney Philip Lacovara to prepare a legal brief challenging the law's constitutionality. Lacovara thinks the law violates the First and Fifth Amendments and seriously invades academic integrity. Science editor Philip Abelson agrees. In a recent editorial he stated flatly, "The medical schools should reject the new strings on capitation as a matter of principle as well as on financial and egalitarian grounds."

Those are strong words from one who has argued over the years for federal support of science and medicine. And hopefully, they are one more sign that times are changing.

"Four Medical Schools Draw the Line on Capitation," Science, Sept. 9, 1977.
• "Coercion of Medical Schools," Ibid, Sept. 16, 1977.

Volunteer Military Works

A comprehensive study of the all-volunteer military by the Rand Corporation shows it to be a success. But that success is being jeopardized by costly personnel practices carried over from the era of the draft—policies that cost the taxpayers $5-10 billion per year. It is these policies that provide advocates of a return to the draft with spurious evidence about the high cost of today's military personnel.

Basically, found Dr. Richard Cooper, today's military still operates as if it were using a cheap, conscripted male labor force. Consequently, it still uses too many first-term enlistees, vastly underutilizes women, relies too much on labor for jobs which should be mechanized, and keeps too many civilians on a permanent payroll (instead of hiring them on an as-needed, contract basis). In addition, the military's "up or out" promotion policies fail to provide an alternative for talented people who do not wish to assume supervisory roles, thereby losing "an uncounted number of valuable technicians each year." And military pension policies are grossly out of line with those in civilian life, again costing taxpayers far too much.

Cooper's research also shatters a number of myths about the all-volunteer force. For one thing, he notes, today's military is not taking in "too many" blacks. What is happening, and would be happening even with the draft, "is that an increasing proportion of blacks is meeting the qualifications for service—from 12 percent who were classified as average or above-average mental aptitude in the mid-1950's to 45 percent today," due to better education and other social changes. The main policy difference is that "the [volunteer military], by paying competitive wages with civilian jobs, is not discriminating against blacks the way the draft did." Cooper also analyzes the cost of military manpower over the past decade, including retirement costs, and finds that, discounting for inflation, "the volunteer force has added less than $300 million to the cost of defense manpower—about two tenths of one percent of the defense budget."

Cooper proposes a number of reforms that would cut military personnel costs: revising military pension policies to be more in line with civilian ones, instituting a two-track promotion system, revising upward the ratio of careerists to first-termers from 40-60 to 50-50, substituting machines for manpower wherever possible, hiring more civilians on a contract basis rather than as permanent employees, and greatly increasing the use of women.

The latter proposal was also the conclusion of a recent Brookings Institution study which found that women could easily fill about one-third of all military jobs, instead of the mere five percent they hold at present. The study found that today's women in the military on the average are smaller and less strong than men, but tend to be brighter, better educated, and much less likely to become disciplinary problems. And because they have fewer dependents, their cost of upkeep averages $982 per year less than that of men.

Brookings recommended an experimental program in which women would be assigned to such combat roles as Army and Marine combat battalions, Navy ships, and Air Force missile launching crews, fighter squadrons, and bomber squadrons. A bill to permit women to hold combat assignments was introduced in the House by Rep. B.F. Sisk late in September.

"Volunteer Military Force Works," Rand News Release, Sept. 25, 1977.
• "Test Women for Combat, Study Urges," Los Angeles Times, July 25, 1977.
• "Bill Introduced to Let Women Serve in Combat," Ibid., Sept. 28, 1977.

Education Tax Credit

Though public schools are widely acknowledged to be failing, and private school enrollment is growing, the ability of most parents to opt for private schools is severely limited. They, along with everyone else (parent or not), are forced to contribute up to several thousand dollars a year to the public school system, via federal, state, and local taxes. Small wonder that few families have enough left over to send one or several children to private schools.

Help is on the horizon, though, in the form of a bill currently before the Senate. Sponsored by Sens. Packwood and Moynihan, and cosponsored by 41 other Senators, the bill would grant taxpayers a federal tax credit of one-half of all tuition payments up to $500 per person. The credit would be a direct reduction of the family's total income tax liability, rather than simply a deduction from taxable income. It would apply to tuition paid for any level of schooling, from elementary through college, including adult education and trade/vocational schools.

The tax credit measure was introduced in September and Moynihan expects action during next year's session. Unlike many earlier efforts of this sort this one has strong, serious backing. If this "revolutionary concept in self-help education" passes, educational freedom of choice would finally become a meaningful concept in America.

"43 Senators Back $500 Income Tax Credit on Tuition Cost, Entrance Fees," AP (Washington), Sept. 27, 1977.

Freed Milk

Consumers in two more states will now be able to benefit from free market competition in selling milk. In California, where wholesale milk price controls were suspended two years ago and minimum retail prices temporarily suspended last January, all price control authority has now been abolished. Gov. Jerry Brown has signed into law a bill that repeals the state Agriculture Department's power to regulate milk pricing. Milk prices around the state dropped when the controls were lifted in January, and have increased only slightly since then.

In Alabama pricing freedom has come via the courts. The State Circuit Court has declared null and void the milk price controls administered by the State Milk Commission. The court found that such controls "have resulted in subsidizing the inefficient producer, processor, distributor, and retailer at the expense of the more efficient…as well as…at the expense of the consuming public." The case was brought by Sam Pilliterri, a food store owner in Bessemer. Pilliterri defied the Commission by cutting milk prices, then counter-sued the Commission when it attempted to enforce its regulations.

"Brown Signs Bill Ending Milk Pricing Authority," UPI (Sacramento) Aug. 30, 1977.
• "What's Right with Our Country," Robert M. Bleiberg, Imprimis, August 1977.

Victims' Rights

When a government agency—the IRS, OSHA, the SEC, the FTC, etc.—comes after you, defending yourself can be very costly. It often happens that victims of such attacks, even though innocent, decide to settle, simply to avoid crushing legal defense costs. But relief may be on the way.

The first sign of hope is the Civil Rights Attorney's Fees Award Act, passed in 1976. This new law contains a clause allowing (though not requiring) judges to award a victorious taxpayer his "reasonable" attorney's fees in cases of IRS-citizen conflict. So far, it is unclear what effect the provision will have. Some tax experts think it will apply only to cases of government harassment or bad faith. Others contend it applies only when the IRS sues the taxpayer, not the other way around. And of course there is no requirement that judges award attorneys' fees, or that the award cover all such costs, only "reasonable" ones.

Most of these defects would be remedied if a bill proposed by Rep. Steve Symms were to become law. His H.R. 1817, cosponsored by 75 other members of Congress from both parties, would require every federal agency to pay all legal costs for victorious defendants in civil actions brought by the federal government. The money would come from the agency's budget for the year in which a case was decided. Thus, the law should have a restraining effect on what is politely referred to as the "excessive zeal" of some of Washington's bureaucracies. It would certainly make it more feasible for citizens to stand up for their rights.

"Tilting at IRS Windmill? Take Heart," Paul Ziffren, Los Angeles Times, May 11, 1977.
• "Fighting Big Brother?" Steve Symms, The Washington Report, April 4-8, 1977.

Malpractice Prescriptions

Groups of doctors and hospitals across the country have gotten together to do something about high-priced or unavailable malpractice insurance. Instead of running to the government for relief, like many of their colleagues, they are forming their own hard-nosed insurance companies. And so far, they seem to be succeeding. The key to their success is that medical professionals, though not experts at insurance, are experts in medicine. They are therefore able to be tougher on their colleagues than most insurance companies are, taking sophisticated approaches to weeding out poor risks.

Two different types of companies have been organized. The first is referred to as the "bedpan mutual" approach. This is simply a conventional malpractice insurance company owned by physicians, set up under existing state regulatory laws, and charging rates comparable to those of existing firms. The advantage to doctors is that these companies are continuing to write policies, while many conventional insurers have stopped. So far the 15 bedpan mutuals are making profits, thanks to their stringent standards for insurability of those they insure. The American Medical Association recently set up a subsidiary to reinsure the policies written by these firms.

The other approach is to reduce costs substantially by setting up a doctor-owned company overseas. No one knows how many of these offshore malpractice insurance firms exist, but one such firm has counted seven of them, now insuring some 400 US hospitals. Others insure groups of doctors, such as the offshore firm that insures all Harvard-affiliated physicians. By incorporating in a tax haven like the Cayman Islands or Bermuda, the companies need not comply with costly state capitalization requirements, and they also avoid US taxes on their capital and premiums. It is also easier for such firms to restrict their policy holders to carefully selected members. Because of all these advantages, some offshore firms are able to charge as little as one-fifth the rates charged by conventional malpractice insurers.

Whether the new doctor-owned companies will succeed in the long run remains to be seen. But it's refreshing to see professionals devise their own solution to a problem rather than turning to the State for relief.

"Malpractice Policies that Earn Profits," Business Week, March 21, 1977, p. 37.
• "Doctors and Hospitals Start Insurance Concerns in Caribbean," Wall Street Journal, July 6, 1977.


Financial Privacy Urged. The Federal Reserve Board should be "absolutely forbidden" to own and operate an electronic funds transfer (EFT) system among its member banks. So said the Privacy Protection Study Commission in its 620-page final report. Moreover, no other government agency should own such a system, either. The potential for government misuse of the records of millions of financial transactions is simply too great, the commission concluded, posing "an unparalleled threat to personal privacy." (Source: Electronic News, July 18, 1977, p. 28.)

Sue the Bastards. Remember the doctrine of "sovereign immunity" from your history classes? Chief Justice John Marshall proclaimed in 1821 that the State and its subdivisions cannot be sued without their consent. Fortunately, in the last 40 years 38 states and the federal government have abolished or modified that totalitarian doctrine. One of the 12 holdouts has been Massachusetts. But now the state's Supreme Judicial Court has given the legislature a December 1978 deadline for changing the doctrine, spelling out procedures and conditions permitting citizen suits. Or else, the court ruled, it will abolish sovereign immunity altogether in Massachusetts. (Source: Time, Sept. 12, 1977, p. 42.)

Moving Problems. Having trouble finding a household-goods mover without a terrible wait? Prices appalling? Blame the Interstate Commerce Commission. According to the Antitrust Division of the Justice Department, the ICC has limited entry into the industry and restricted firms from expanding, in the face of a "serious need for additional household goods carriers." The Division's comments marked the first time it has challenged an ICC decision in the moving industry. (Source: Wall Street Journal, Sept. 1, 1977.)

More Decriminalization. North Carolina has become the 10th state to decriminalize the use of marijuana. First offenders will now be subject to a maximum $100 fine, and will not be arrested or jailed. With the addition of North Carolina, 32 percent of the nation's population now lives in states where marijuana has been decriminalized. (Source: "One Third of Country Now Decriminalized," Normlnews, July 1, 1977.)