British Retreat from Socialism

Change has come to the British Labor Party, once the Western world's leading force for socialism. The party that inspired the social-democratic left in Australia, Canada, New Zealand, and much of the Third World is backing off from the tenets of socialism and shifting to the political center. Two factors account for this shift; the disaffection of the workers and the defection of a number of intellectuals.

In 1974, as part of its attack on inflation, the Labor government lowered to zero the income threshold for payment of income taxes. This change added hundreds of thousands of low-paid workers to the tax rolls from the first time. Public opinion polls now show that becoming taxpayers has caused a profound change in attitudes among these people. A majority of British workers now disagrees with the policies of nationalization and egalitarianism which have been the core of Labor Party policy. Essex University's widely respected British Election Study confirmed this momentous change and concluded: "It is difficult to conceive of a party avoiding a long-term electoral decline if the majority of its surviving supporters reject the majority of its basic policies."

Prime Minister James Callaghan has apparently reached the same conclusion. In the past year he has orchestrated the defeat of the party's left wing on such issues as nationalization of banks and insurance companies. He has instead cut back welfare state benefits, given priority to fighting inflation rather than unemployment, and insisted that the profit motive is an essential factor in rebuilding Britain's obsolescent industry.

In the meantime, the Labor Party's intellectual base is being eroded by the defection of former socialists. Among them is Paul Johnson, former editor of the socialist New Statesman. In his 4500-word resignation statement, Johnson wrote that Labor has become a "collectivist party" run by "union bosses, few of whom have ever believed in liberty and democracy." Rather, their aim is "to crowd everyone into a giant firm," the end result of which could be "Auschwitz and Gulag." Similarly, former ambassador to the United States Peter Jay charged recently that Labor has "legalized the closed shop…opening the road to the corporate state of Mussolini…Hitler…Franco and Communist despots." Underlying the authoritarian trend is the kind of politics encouraged by unlimited democracy: "…the essence of democratic politics is a gigantic celebration of the fact that you can get something for nothing, or at least that you—the individual voter—can get something for nothing…for government, with its legalized power of coercion, can award benefits here while it charges costs there.…In other words, democracy has itself by the tail and is eating itself up fast."

The shift away from socialism in Great Britain is an encouraging sign. As Daniel Moynihan has pointed out, it was British Fabianism that inspired socialist policies throughout the former British empire. It's not too much to hope that the rejection of socialism in Britain will inspire like action elsewhere.

• "Changing British Attitudes Weaken the Far Left," John E. Pluenneke, Business Week, April 17, 1978, p. 61.
• "The Intellectuals Turn from Socialism," Allan C. Brownfeld, The Register, March 24, 1978.

Zoning Questioned

Once seen as the panacea for solving urban problems, strict government zoning regulations are increasingly coming into question. Some experts even see zoning laws as part of the problem rather than part of the solution to urban ills.

For example, Prof. George Sternlieb of Rutgers University completed a study last year of the rising cost of housing. Among his findings Sternlieb identified zoning and building code restrictions as accounting for 16 percent of the cost of a $50,000 house. Sternlieb rightly questioned whether such costs could possibly be justified by any benefits due to these regulations.

Zoning also tends to prevent or retard redevelopment efforts, says Martin Swartzman, president of New York's Glenwood Management Corporation, which builds high-rise apartment buildings. Swartzman told UPI that New York City's strict zoning laws have prevented much of the Bronx and Brooklyn from being rehabilitated—hundreds of blocks of buildings have simply been torn down to save on taxes. Swartzman blames part of the growth of zoning regulations on the federal government, which has made millions available to cities to hire planners. Zoning seems to follow Parkinson's Law—the regulations expand to use up the time and efforts of the number of planners who are hired.

The success of Houston in solving land-use problems without zoning (see "Houston Defies the Planners—And Thrives," REASON, February 1978) has finally begun to be noticed. The Grand Junction, Colorado Daily Sentinal last fall praised Houston's approach, noting that zoning "too often represents middle class planners' ideas of the good society and ignores poor and blue collar people's needs." The paper's editorialist then ticked off the benefits of nonzoning in permitting the marketplace to foster redevelopment, while keeping costs low.

Still, many skeptics just cannot believe that Houston's approach actually prevents or resolves land-use conflicts. They would do well to read a 1976 study of this subject by the Houston Planning Department. Replete with examples and statistics, the report identifies the (relatively small number of) land-use conflicts that do occur, and shows how Houston's methods (nuisance laws and private deed restrictions, enforceable in the courts) deal with them. It's an eye-opening example of how to solve problems with a minimum of cost and bureaucracy—and a maximum of individual freedom.

• "Is All Zoning Necessary?" LeRoy Pope, UPI (New York), Nov. 6, 1977.
• A Study of Land Use Conflicts in Houston, Houston City Planning Department, Sept. 1976.

Medical Costs—and Competition

Why are health care costs—especially doctors' fees—so high and continuing to rise? From 1950 through 1976 physicians' fees have increased 75 percent faster per year than prices for other goods and services, according to the Council on Wage and Price Stability (COWPS). The reasons are complex, but in one form or another most of them have to do with government.

During the 1950's and early 1960's, contends COWPS, most of the increase was due to anti-competitive practices of organized medicine, usually backed up by force of law (licensure laws and other state regulations administered by physican-controlled boards). Such practices included restricting medical school enrollments to limit the supply of doctors and inhibiting price competition and prepaid group practice. These restrictions have been weakened in the past decade. Today the largest influences keeping fees high are (1) the rise in government funding of health care via Medicare and Medicaid, thereby stimulating a large increase in demand, and (2) the "cost-plus" approach of most medical insurance, especially Blue Cross/Blue Shield plans, many of which are controlled by doctors. As a result, physicians' fees have been largely "exempted…from the usually restraining effects of market forces that exist for most other consumer products and services."

The COWPS report makes no recommendations on how to restore market forces. One approach would be for the government to stop stimulating demand by subsidizing health care, while simultaneously removing all restrictions on the ways in which medicine may be taught, practiced, and marketed. Minor steps toward the latter objective continue to occur. The California Medical Association has voted to allow doctors to engage in limited advertising (including fee listings) and to accept credit cards. It has also signed a consent agreement with the Federal Trade Commission to stop preparing and distributing suggested fee schedules for various operations.

Another welcome marketplace approach has been developed by privately owned Sunrise Hospital in Las Vegas. The 484-bed hospital found that most of its expensive equipment lay idle on weekends, despite being overworked during the week. This inefficiency led to higher costs. Reacting like a rational business, the hospital has begun running newspaper ads encouraging elective surgery on weekends—and offering a chance to win a $4000 vacation as an inducement. In the year that the campaign has been in effect, weekend admissions have increased by 60 percent. If more hospitals were run as businesses instead of as "public services," we'd have fewer problems of over- and under-capacity and less of a rationale for bureaucratic health planning agencies. And costs would be lower.

• "Doctors' Fees—Free from the Law of Supply and Demand," Science, April 7, 1978, p. 30.
• "Credit Card Billing, Fee Listing by Doctors OK'd," Harry Nelson, Los Angeles Times, March 22, 1978.
• "Come In for Surgery and Win a Vacation," AP (Las Vegas), April 5, 1978.

People Choose Gold

The new surge of interest in gold as an alternative to depreciating paper money has produced several interesting developments. Garnering much publicity was an announcement by singer Bette Midler's manager. For her British concert tour this fall, the "Divine Miss M" has arranged to be paid in gold bullion. Her manager was quoted as saying he believes all currencies are suspect these days and wants to make sure she doesn't take a loss six months from now.

Closer to home, Philadelphians who save at Lincoln Bank can now receive interest payments in gold. The bank's one-year savings certificates now carry the option of interest payments in gold coin or bullion. A saver depositing $3400 for one year, for example, earns six percent interest—$210.12. The bank will prepay one ounce of gold (worth $170-180 today) and pay the remaining interest in US currency at the end of the year.

For those who wish to shun paper money altogether, a Maryland man has begun issuing gold coin certificates. Lloyd Darland, a former quality control engineer and research analyst, is printing and issuing $20 notes, "redeemable in gold coin by bearer on demand." Darland told Coin World he has issued several thousand dollars worth of the notes—and has been asked to stop by the Secret Service. Last September SS officials told Darland they considered his activities illegal. He replied that he is not counterfeiting and has violated no law—and has not heard from them since.

• "Gold Bars for Bette," AP (London), April 12, 1978.
• "Market Briefs," Business Week, May 1, 1978, p. 81.
• "Economist Circulates Gold Coin Certificate," Coin World, April 26, 1978, p. 28.

Taxing Realities

The grim realities of today's crushing level of taxation are receiving a new round of publicity. The last few months have seen a number of major articles dispelling popular illusions about the burden of federal income taxes.

Leading the way was REASON contributor Paul Craig Roberts, with a hard-hitting article in Harper's. Using figures from the Internal Revenue Service, as analyzed by the Tax Foundation, Roberts pointed out that taxpayers whose earnings are in the top 25 percent paid 72 percent of all federal income taxes in 1975; the top 50 percent of earners paid 92.9 percent of the tax revenue (which is to say that the lower 50 percent paid only 7.1 percent). As Roberts pointed out, "That's why the government likes to cut taxes for lower-income groups. It doesn't cost much to buy half the votes.…"

Another way to understand these numbers is to look at particular income levels. Columnist Michael Novack found that in 1974 families earning over $50,000 a year made up just 1.1 percent of the population—yet they paid over 19 percent of federal income taxes. By 1976 (thanks to inflation) their numbers had grown to 1.4 percent but their share of taxes had increased to 23 percent.

One of the goals of "tax reformers" is to reduce the extent of tax deductions, which tend to be portrayed as loopholes for the rich. But, Roberts points out, the facts are otherwise. In the under-$10,000 adjusted gross income class, deductions amounted to 48.9 percent of adjusted gross income. As we go up the scale, however, the percentage drops sharply. Those making between $10,000 and $24,999 deducted only 31.1 percent, while those over $25,000 could deduct only 22.8 percent. The wealthy person who pays no taxes due to massive deductions is a rare exception, not the general rule. It is low and middle-income taxpayers who benefit most from these "loopholes."

Another myth concerns the progressivity of the income tax system. We frequently hear it claimed that despite the fact that marginal tax rates rise with income, the wealthy end up paying a lower percentage than those of more modest incomes. Not so. The Tax Foundation reports that in 1976 the percentage of gross income paid in each tax bracket rose "progressively" as follows:

Under $5,000—0.2 percent
$5,000-10,000—5.5 percent
$10,000-15,000—9.0 percent
$15,000-20,000—11.2 percent
$20,000-30,000—13.8 percent
$30,000-50,000—17.6 percent
$50,000-100,000—24.4 percent
$100,000-200,000—29.5 percent

Income taxes are not the only tax burden, of course. Reader's Digest recently profiled the taxes paid by a middle-class family of four with a 1977 household income of $22,247. While their state and federal income taxes came to $3749—17 percent—the other taxes they paid during the year (property, Social Security, sales, gasoline, liquor, etc.) totaled another $3258, for a total burden of $7007—31.4 percent of their income. And this fails to include the taxes hidden in the prices of everything the family buys (taxes imposed on business and passed on in higher product prices).

Altogether, taxes now eat up 42 percent of the national income, compared with 33 percent in 1960 and only 12 percent in 1929. During the past decade alone the growth in taxes was 144 percent, compared with only 119.2 percent growth in national income. Much of the increase in tax take came about due to inflation—as people's dollar income increases, they move into higher tax brackets. In fact, as Roberts points out, the federal government's revenues rise by 1.65 times the rate of inflation due to this effect. No wonder the government doesn't really do anything to halt inflation! Indexing the tax rates to correct for inflation would remove this pernicious incentive.

• "Disguising the Tax Burden," Paul Craig Roberts, Harper's, March 1978, p. 32.
• "Income Belongs to Those Who Earn It," Michael Novack, Washington Star, April 10, 1978.
• "Those Who Make $30,000 or More Pay 39% of Taxes," AP (Washington), March 13, 1978.
• "What's Your Real Tax Bite?" Trevor Armbrister and Katharine Clark, Reader's Digest. April 1978, p. 35.

More Postal Competition

As postal rates continue to rise, more and more magazine publishers are turning to "alternate delivery systems." Some of the methods being tested by these companies demonstrate the vitality and creativity of private enterprise—and lead one to wonder why people persist in thinking that government must deliver the mail.

One alternative delivery concept is to piggyback on an existing delivery service. Some 765 daily newspapers operate delivery services that reach 90 percent of American homes. Time is currently testing this approach, with the Racine (Wisconsin) Journal Times and the Louisville Courier Journal. The Journal Times provides same-day delivery of magazines, compared with two or three days for the Postal Service. Time expects to be delivering 100,000 copies per week via newspaper carriers by the end of the year.

Another way to cut delivery costs is to sell advertising inserts in the plastic bags used to deliver the magazines. Better Homes and Gardens is testing this approach in Grand Rapids, Michigan. Its distributor there, Midwest Postal Systems, has set up a subsidiary called American Field Marketing (AFM) to obtain local advertisers who wish to reach BH&G readers. The magazine charges AFM 2¢ per household for each advertiser insert; AFM charges the magazines 10¢ per copy delivered—minus the charge for advertising. Thus, if AFM sold more than five ad inserts, it would have to pay BH&G for the privilege of delivering its magazines! (Actually, the agreement provides for a minimum net payment to AFM of one cent per copy.) BH&G is operating similar delivery systems with local firms in Atlanta, Kansas City, and Los Angeles, and plans to expand soon to Boston and San Diego.

Reader's Digest is the leading user of alternate delivery thus far, with about 200,000 copies per month being delivered in southern California. The Wall Street Journal ranks second, with 160,000 copies, about 12 percent of its subscriptions. The Journal s average delivery cost is 7¢, compared with 7.2¢ for mail delivery.

Recognizing the disadvantages of a national publisher having to deal with a multitude of local distributors, nine alternate delivery firms have joined together to form the National Association of Selective Distributors (NASD). During 1977 the number of zip codes served by NASD's members increased from 106 to 160, and is expected to reach 244 by next year. Thus, when second class mail costs double again by July 1979, a flourishing alternate delivery industry will be in place to take over a substantial amount of the business.

• "Publisher's Notes," Folio, Feb. 1978, p. 6.
• "Circulation Prepares for Switch to Alternate Delivery Systems," Ibid., March 1978, p. 13.

New Secessionists

The right of individuals or areas to secede from the United States was abolished by the Civil War, according to most historians. But don't tell that to the citizens of Kinney, Minnesota—or to Congressman Jim Collins of Texas. Both consider secession a viable means of escaping from over-government.

Last year officials of the 12-square-block town of Kinney applied for a $186,000 federal grant for its water and sewer system. The experience so overwhelmed them with red tape that they declared the town independent of the United States. The new Republic of Kinney, which began issuing passports in April, has as its official motto: "Filed in Triplicate." The motto appears on the republic's passports and on all official papers. According to Kinney attorney James Randall, application for passports must be made in person—there are no forms to fill out. The republic has also formed its own one-vessel navy, to patrol adjacent Lake Vermillion.

Texans, meanwhile, are pondering the proposal of Rep. Jim Collins, Republican from Dallas, to hold a referendum on independence. In a recent Congressional speech Collins suggested that it was time for Texans to follow the example of Panama and re-examine the treaty of 1845 by which Texas was annexed to the United States. From 1836 to 1845 Texas was an independent republic—and Collins thinks Texans might prefer to return to that status. He has written to President Carter asking that Secretary of State Vance appoint a team of diplomats to negotiate with Texas.

Writer Kevin Phillips would see these developments as further examples of the Balkanization of America. Others will dismiss them as gags. Still others may see in them an understandable groping for self-determination in a world growing ever more centralized and controlled.

• "Minnesota Town Forms Navy," San Diego Evening Tribune, March 22, 1978.
• "Collins Brainstorm: Vote on Texas Treaty," Austin American-Statesman, April 14, 1978.

Tax Limit Progress

The idea of constitutional limits on state spending or taxing power (see "How to Draw the Line on Taxes," REASON, June, p. 47) appears to be gaining momentum. According to the National Tax-Limitation Committee, the New Jersey legislature has passed a resolution to limit taxation in that state, while the Illinois House has passed a constitutional amendment for the same purpose; the latter is now pending in the Illinois Senate. And, as reported here in May (Trends, p. 17), Tennessee voters have approved a constitutional amendment limiting state spending increases to the same percentage growth as the state's economy.

Can such measures actually restrain the tax bite? Initial indications from Colorado imply that they can. Last year the legislature there passed a law (not a constitutional amendment) limiting the growth of state spending to seven percent a year. (The state government had been growing at 15.8 percent a year during the previous decade!) The law provides that any revenue in excess of that rate of increase be returned to the taxpayers.

The legislature has just finished coping with its first state budget under the new law. To reduce tax collections to the level permitted, they have restructured 1978 tax rates to provide $101 million in tax relief. Of that amount, $35 million is being given to school districts so as to reduce local property taxes, and $66 million will take the form of direct cuts in state levies. Included in the tax reductions is a measure that increases deductions on state income tax returns by a percentage equal to the rate of inflation in the preceding year. This appears to be the first actual instance of indexation of tax rates to compensate for inflation.

• Newsletter, National Tax-Limitation Committee, April 1978.
• "Spending Limit Yields Tax Cut in Colorado," AP (Denver), April 26, 1978.

Socialist Cruelty

Those who consider the death penalty to be cruel and unusual punishment ought to take a look at Cuba. The socialist paradise has just promulgated a new penal code—and it's a lulu. The code specifies the death penalty for piracy, hijacking, genocide, and terrorism—and for rape, robbery, violent pederasty with anyone under 16, and sexual relations with a girl under 12. Seduction of a single girl under age 18 carries a nine-month jail sentence; so does any public display of homosexuality. Possession of marijuana can bring up to eight years in the cooler, as can gambling conducted for profit. It looks as if the western hemisphere has a new champion of repression: Fidel, the "liberator."

• "Cuba's New Sex Laws," Parade, April 16, 1978.


Credits Favored. By a wide margin, the public prefers tuition tax credits to expanded federal education grants. The Gallup poll reports that 51 percent favor tax credits, compared with 38 percent supporting grants in aid. One wonders what the party of democracy will make of that. (Source: Los Angeles Times, April 19, 1978)

Free Speech. Corporations, as "legal persons," may exercise a right of free speech. So ruled the US Supreme Court by a 5-4 vote. The decision struck down a Massachusetts law that prohibited a corporation from spending money in referendum campaigns unless the issue "materially affected" its business. The ruling opens to question laws in 30 other states that restrict the political activities of corporations. (Source: Los Angeles Times, April 27, 1978)

• Bang…You're Dead. A retired auto safety engineer has filed for a patent on a new type of execution device. The invention utilizes an automobile airbag. Emile P. Grenier, who once testified before Congress against the federal airbag requirement, recently retired from Ford Motor Company. His patent application points out that inflation of an airbag directly under a subject's head can bring to bear an instant force of 12,000 lbs., sufficient to snap the neck "far more effectively than the hangman's noose." His invention "takes advantage of this potentially lethal characteristic of the airbag." (Source: UPI [Ann Arbor], March 30, 1978)

• Drug OK'd—At Last. After considerable public pressure, the Food and Drug Administration has approved the sale of sodium valproate, the most effective known drug for use in treating epilepsy. Its legalization here is expected to prevent up to a million epileptic seizures per year. The drug has been in use overseas for years, but had been used here only in a few experimental cases, pending FDA approval. The delay in approval has been cited as an example of the "drug-lag" caused by the FDA's hyper-cautious approval policies. (Source: National Review Bulletin, April 21, 1978)


• The US Supreme Court has refused to review the conviction of Robert Black, the entrepreneur who challenged the constitutionality of the private express statutes by delivering first class mail in Pittsburgh, Kansas. (AP [Washington], March 27, 1978)

• The Louisiana Supreme Court, by a 4-3 vote, has reversed the ruling of a state district court which had overturned Louisiana's archaic "head and master" law. That law, which gives a wife no say in property decisions, now remains on the books. (AP [New Orleans], April 11,1978)

• The Federal Communications Commission has decided to appeal the federal appeals court ruling that had overturned its "access regulations" on cable TV operators. The Supreme Court will now have to decide whether the regulations do indeed violate the stations' property and free speech rights, as the appeals court had determined. (Wall Street Journal, March 27, 1978)