Trends

Freedom of Choice Wins Again

Two more court cases have upheld the principle of freedom of choice in medical care. In both cases courageous judges ruled that individuals may use "prohibited" substances in medical treatment.

In El Centro, California, Imperial County Superior Court Judge Donald Work ruled that a 21-year-old man may receive marijuana as an adjunct to cancer therapy. The patient, Craig Reichert, is undergoing chemotherapy at Scripps Clinic in La Jolla. The THC in marijuana has been found effective in curbing the nausea that frequently accompanies chemotherapy. Reichert will receive up to three joints per day, under his doctor's supervision.

In Oklahoma City US District Judge Luther Bohanon continues to uphold the right of cancer patients to import and use Laetrile. Bohanon denied a request by the Food and Drug Administration to delay enforcement of his Dec. 5 ruling that removed restrictions on the importation and use of Laetrile. After conducting a lengthy hearing on the FDA's plea, Bohanon found no basis to grant the agency's request. Thus, Laetrile may now be imported legally, in addition to being used within the 13 states that have decriminalized it in the past year.

SOURCES:
• "Judge OKs Marijuana Use to Aid Cancer Patient," Penelope McMillan, Los Angeles Times, Jan. 25, 1978.
• "Judge Reaffirms Rule Allowing Laetrile Use," AP (Oklahoma City), Dec. 23, 1977.

Natural Gas Consensus: Deregulate

"We cannot accept the notion that our people are best served by a policy based upon the inevitability of energy shortage and the need for government to allocate an ever-diminishing supply among competing interests." So saying, the NAACP released one of the most stinging attacks to date on the Carter energy program. Condemning administration policies for stressing conservation rather than production, the NAACP urged deregulation of the prices of new oil and gas rather than continued controls and new taxes. If the present high rates of unemployment among some groups of blacks are to be reduced, said the NAACP statement, the economy must grow rapidly. And that requires more energy, not just conserving what we have.

The NAACP is not the only erstwhile liberal organization to have seen through the sham benefits of energy price controls. In the last few months both the Washington Post and the New York Times have editorially endorsed deregulation. Last November 12 the Post pointed out the absurdity of administration efforts to keep the price of domestic gas within the $1.50-$1.75 range while attempting to make up the resulting shortages with gas from Alaska at $3.00 and Algeria at $4.50. And on January 1st the Times complained that "rigid defense of price controls makes little sense," that "controls create artificial shortages," and that "increased production, and allocation of gas through competitive bidding to those who need gas badly" would be beneficial. The Times therefore endorsed phased deregulation.

That seems to leave only Jimmy Carter, James Schlesinger, Henry Jackson, and a few other self-styled energy expert politicians still defending price controls. It is long past time for Congress to acknowledge economic reality and return oil and gas to the realm of the marketplace.

SOURCES:
• "NAACP Hits Carter Energy Plan," Washington Post, Jan. 12, 1978.
• "Algerian Gas—At a Price," Ibid., Nov. 12, 1977.
• "Time to Compromise on Energy," New York Times, Jan. 1, 1978.

Electric Productivity

Every once in a while you'll run across somebody who urges that the government own and operate electric utilities. After all, he will argue, if the government owns them, electric companies will be able to sell electricity more cheaply, since they won't have to cover taxes or profits from the rates they charge.

Unfortunately, this little dreamworld picture ignores what actually happens when governments attempt to operate utilities. A good example was provided recently by John Moore, a member of the British parliament. Moore compared nationalized electricity production in the UK (excluding Scotland) with private enterprise electricity production in California, New York, and Pennsylvania—both areas of about 50 million people. The results are enough to make even dedicated socialists stop and think.

To provide electricity to 50 million people, the nationalized UK industry requires 172,483 employees. In the United States, the same job is done by 73,046 employees. In the UK, production is 211 million kilowatt hours; in the three states, 268 million kwh. Thus, output per employee is three times as great under private enterprise.

But that's not the end of the story. The American utilities paid $5.25 billion in taxes from 1970 to 1975—thus contributing to the support of government. But the nationalized utilities soaked up $920 million in subsidies during the same period. In sum, nationalized electricity is a bad deal, not only for consumers but also for the government itself.

SOURCE:
• "Notable and Quotable," Wall Street Journal, Jan. 20, 1978.

Beneficent Speculators

People who speculate in commodities have taken a bum rap for too long. Frequently blamed for creating wild price swings and driving up prices in times of shortages, speculators actually do just the opposite. Economic theory can demonstrate why this is so. But politicians who find speculators to be handy scapegoats have long ignored economic theory. Perhaps they will be less able to ignore the results of several new studies which support the theory's conclusions.

The basic idea is to test whether a particular futures market is "efficient" in transmitting new market developments to all participants. An "efficient" market, much like the classical model of "perfect competition," is one in which no single participant can significantly affect prices, and in which prices can move freely in any direction. Economists can test for this condition by seeing whether successive price movements are in the nature of a "random walk."

One economist who has studied commodity markets is Stanford's Holbrook Working. His studies of numerous cases indicate "overwhelmingly that futures markets are highly efficient." Adds Harvard's Hendrik Houthakker, "They come as close to perfectly efficient markets as we are likely to get in the real world." This means that speculators, acting through futures markets, actually help stabilize prices by making use of new information almost instantaneously. This allows the market to adjust more rapidly to supply and demand changes, reducing the size of potential shortages or surpluses.

Studies of particular commodities provide further evidence. Economist Roger Gray of Stanford examined the1973 runup in agricultural commodity prices and found that speculators on the whole were short, not long, during that period. "Rather than contributing to the runup in prices, they helped contain it," concludes Gray. Ronald Ward of the University of Florida found that the greater the amount of speculation in orange juice futures, the smaller the spread between near-month futures prices and actual market prices. Yet another study, by Gray and Working, examined onion prices during 10 years of futures trading (1949-1958), compared with prices before trading began and after it was banned by Congress in 1958—for allegedly causing "price distortion." The result? Onion prices made wider swings when there was no futures trading; trading also significantly reduced the sharp adjustments that occur at the end of a marketing season.

Yet politicians continue to attack speculators. "The critics are putting the cart before the horse," concludes economist Thomas A. Hieronymous of the University of Illinois. "It's not the increased use of futures markets that has caused price stability, but increased instability that has inspired greater use of the futures markets."

SOURCE:
• "Stability in a Swinging Market," Business Week, Aug. 8, 1977, p. 70.

Laissez-Faire TV

Leave television to the unregulated marketplace and what do you get? A least in Italy, sex and nudity. In Church-dominated Italy, there appears to be a huge untapped market for sexy shows. Consequently, many of the 150 private TV stations which have arisen in the last few years (since the State broadcast monopoly was ruled unconstitutional) are cashing in on this demand. Two of the most popular shows in Turin are a strip-tease amateur hour and "Strip Quiz," in which a model removes one article of clothing every time a viewer phones in a correct answer. Others include nude exercise shows, sex questions and answers, and X-rated movies (which are seldom available in Italian theaters).

In order to receive the private stations viewers must purchase a special $40 antenna. Regular Italian TVs can receive only the State-run RAI-TV. Thus, only those who want the new channels can be "exposed" to them. Appliance stores reported antenna sales up 70 percent in the last quarter of 1977. Private stations claim their share of the market is growing rapidly. And to bolster its shrinking market share, RAI-TV is adding nudity and sexier films to its own programming.

Thus far the Italian parliament has paid no attention to the situation. Its members are far too concerned with weightier issues, like forming a government that can survive more than six months. Thus, Italy's laissez-faire TV industry continues to boom.

SOURCE:
• "Private Italian Stations Broadcast Nude Fare," Jack R. Payton, UPI (Rome), Dec. 26, 1977.

Ads Spur Medical Competition

One by one the prohibitions against advertising—and therefore against price competition—by medical professionals are falling. Some of the more recent developments include the following:

• New York State has repealed its broad ban against advertising by professionals in all fields.

• California has removed all State restrictions on advertising by health professionals: doctors, dentists, pharmacists, nurses, dental hygienists, etc.

• The attorney general of Virginia has issued an opinion that the state's ban on dental advertising violates the US Supreme Court ruling overturning the ban on lawyer advertising.

• The American Dental Association's House of Delegates has voted to advise local affiliates to stop imposing sanctions against members who advertise.

The reaction to these developments among medical professionals is mixed. Some, like the California Medical Association, are stoutly resisting the trend. The CMA (like its parent American Medical Association) still plans to expel members who advertise, despite the Federal Trade Commission suit against the AMA on precisely this issue. By contrast, the ADA appears to see the handwriting on the wall and has moved to keep in step.

Indeed, there are signs of growing price competition in dentistry. In Silver Spring, Maryland, Dr. Daniel Maloof has received a lot of publicity for advertising cut-rate denture services. Likewise, dentists and dental technicians in Arizona are competing for the denture business, with prices already cut from $600 to about $350 for a set of upper and lower plates. Local dental association officials support ads by dentists trying to meet the competition from technicians. Dr. Sidney Wolfe of the Citizens Health Research Group in Washington supports dental advertising as a welcome step towards more such competition in dental services.

More chapters remain to be written, but as of now the trend is clearly toward more advertising—and more real price competition in health care.

SOURCES:
• "Amid the Gnashing of Teeth, Dentists Start to Advertise," Wall Street Journal, Nov. 30, 1977.
• "Medical Ad Ban Removal Gets Quiet, Ho-Hum Reception," Santa Barbara News-Press, Dec. 6, 1977.

Apartheid: Bad for Business

South Africa's policy of legally imposed racial segregation—apartheid—has come under attack from white business leaders in Johannesburg. The city's recently formed Central Business District Association is asking the central government to declare Johannesburg an "open city"—i.e. to allow any business to open its doors equally to people of all races.

The business owners' motivation is primarily economic. Seven out of 10 people living within 15 miles of city hall are black, and the city is already considered South Africa's most cosmopolitan. Most stores are already open to black shoppers, but restaurants, theaters, and toilets are still segregated by law, unless the owner can obtain a special permit—a cumbersome, time-consuming process. The result is a loss of black business in the entire area.

Until the Association can achieve its "open-city" goals, it is helping individual owners to apply for permits. So far 30 restaurants have applied for permits to go multiracial. The Ster-Kinekor Films chain of movie theaters wants to go multiracial "to help the box office take." A number of hotels want to join the few "international" hotels allowed to take blacks as tourists.

Even in less progressive Durban, Cape Town, and Pretoria a number of restaurant owners are pressing for multiracial status. The rising number of blacks seeking (and able to afford) service makes continued segregation a money-losing proposition. Gradually, the inexorable force of (dare we say it?) self-interest is chipping away at the absurd anachronism of apartheid.

SOURCE:
• "Businessmen Seek Black Customers," Jack Foisie, Los Angeles Times, Dec. 29, 1977.

OSHA Loses Two More

The Occupational Safety and Health Administration, bane of businesses across the country, has lost two more court cases, both of some significance.

In Alaska the state Supreme Court ruled that an OSHA inspection of a business without a search warrant is an unconstitutional search. The case was decided under the Alaska Constitution. Article I, Section 14 of that document contains an even broader protection against search and seizure than the US Constitution, to wit: "The right of the people to be secure in their persons, houses, and other property, papers, and effects, against unreasonable searches and seizures, shall not be violated." In ruling against OSHA the Alaska court agreed with the judgment of a federal district court in Idaho (the Barlow case). That case is now pending before the US Supreme Court.

The other decision limits the extent to which OSHA can order companies to make costly changes. The US Court of Appeals in Chicago has ruled that OSHA must weigh the costs of a proposed change against its alleged safety or health benefits, before deciding whether or not to impose it. The case concerned OSHA's attempt to force Turner Division of Cleanweld Products to install $30,000 of equipment to reduce noise below 90 db—a result the company said could be achieved by using earplugs. The court agreed, and OSHA is not expected to appeal. The decision was the first time the agency has been forced to consider the cost of a proposed regulation.

SOURCES:
• "Woods & Rohde, Inc. vs. State of Alaska," Supreme Court of Alaska, File No. 2903, June 2, 1977.
• "A Court Orders OSHA to Consider Economics," Business Week, Oct. 3, 1977, p. 47.

Usury Laws Abolished

California's 1934 law imposing a ceiling of 10 percent on the annual cost of certain types of loans has been declared unconstitutional. Los Angeles Superior Court Judge Lester E. Olson found that the laws violate the interstate commerce and due process clauses of the US Constitution. By prohibiting insurance companies, mortgage bankers, and out-of-state banks and S&Ls from making loans when market interest rates exceed 10 percent, the law violates those firms' and consumers' right to do business. During 1974, the judge pointed out, "millions of dollars" in loans were not made available because of the usury laws.

Predictably, California's principal banks, which have always been exempt from the usury laws, filed friend-of-the-court briefs urging that they be upheld. It was their competitors, mainly the large insurance companies, which banded together as the Committee Against Unfair Interest Limitations and filed suit. California banks may legally charge up to 30 percent on certain types of loans. "How can one justify the fact that Prudential Life Insurance Co.…can't lend $4 million to a creditworthy California corporation at 10.5 percent, whereas the Bank of America…can lend the same amount to the same corporation at 10.5 percent?" the judge asked. The law does not permit such "unequal treatment of the two groups of lenders," he ruled, in striking down the laws.

SOURCE:
• "Judge Lifts Loan Rate Ceiling," Roger Smith, Los Angeles Times, Feb. 8, 1978.

Milestones

• Dolphin Lib Fails. A graduate student who released two experimental dolphins to the ocean has been convicted of grand theft in Hawaii. Kenneth Le Vasseur argued that "human beings have no rights to hold intelligent, feeling beings like dolphins in captivity." Thus inspired, LeVasseur, then an employee of the University of Hawaii Institute of Marine Biology, removed the two dolphins from their tanks and dumped them into the sea. Le Vasseur and his colleague (who has not yet been tried) were supported in court by Greenpeace, an environmentalist group which issued a "declaration of dolphin rights" during the trial. But the jury remained unimpressed. (Source: Science, Jan. 6, 1978, p. 37.)

• Profs Back Capitalism. It may seem hard to believe, but 81 percent of American college professors agree that "the private business system, for all its flaws, works better than any other system devised for advanced industrial society." And 69 percent agreed that "the growth of government in the United States now poses a threat to the freedom and opportunity for individual initiative of the citizenry." Not only that, but 54 percent believe that "economic growth, not redistribution, should be the primary objective of American economic policy." These findings come from a survey of 4400 professors conducted by Everett C. Ladd, Jr. and Seymour M. Lipset of the Hoover Institution. Perhaps there's hope for higher education after all. (Source: Wall Street Journal, Jan. 16, 1978.)

• Workers, Unite! A group of Russian workers, fed up with the State's official trade union, are risking their jobs and lives by forming an independent trade union. Some 200 workers in Moscow have joined the Trade Union for the Defense of Workers—the USSR's first independent union. Similar efforts have begun in Rumania and several other Eastern European countries. Last summer Rumanian coal miners carried out that country's first strike since the Communist takeover three decades ago. (Source: AP (Moscow), Jan. 27, 1978.)

• Prostitution as Recreation. A New York Family Court judge has ruled that the state's prostitution laws unconstitutionally make criminal an activity that is essentially recreational. Not that that's such an unusual position. But Judge Margaret Taylor is drawing criticism because the prostitute in question was a 14-year-old girl. Judge Taylor's chain of reasoning, however, is impeccable. Adult prostitution, she held, is allowable due to the constitutional right to privacy clearly established in prior cases. But an act that is not a crime if committed by an adult can no longer be considered an act of juvenile delinquency, according to much recent thinking, legislation, and case law. Ergo…case dismissed. (Source: AP (New York), Jan. 26, 1978.)

• Toward Postal Freedom. While Congress debates putting politics back into the management of the government's postal service, and greatly increasing the annual subsidy, a voice of sanity has been raised. The Wall Street Journal has joined those urging one simple change that could make a big difference. In a recent editorial, the Journal called for repeal of the Private Express Statutes, those nasty laws that make it a crime to compete with the US Snail in delivering first class mail. As the editorial concluded, repeal "would be a big step toward solving the postal problem." (Source: Wall Street Journal, Jan. 10, 1978.)

• Veto Postal Service. "We don't want to take the risk" of losing more vital mail. "Our last two mailings we sent by United Parcel Service." The head of a corporation? No, the speaker is Kenneth Duff, senior staff officer at the Department of Agriculture. Duffs decision came after the Postal Service inadvertently destroyed 1400 letters containing important field survey results. Though packed in cardboard boxes capable of withstanding 90 lbs. and sealed with glass-fiber tape, the boxes were destroyed by mechanical bulk sorting equipment. "They don't mess around in Washington when they destroy mail," said Duff. (Source: Newsday, Nov. 6, 1977.)

• Deregulated Gas. At least one form of natural gas may soon be deregulated, in order to spur production. Methane found in coal mines, which could provide 250 trillion cu. ft. of recoverable gas, would be free of price controls, according to a recent proposal by the Federal Power Commission. Currently this gas is being vented or flared, since it is a hazard to miners. Existing controlled prices make recovery of the gas uneconomical. (Source: "FPC, In Bid to Bolster Sales of Methane, Proposes Deregulation," Wall Street Journal, July 11, 1977.)