Trends
Budget Balancing Comes of Age "In the past 12 years, leaders of both parties have tried in vain to slow [inflation's] reckless course. At the same time, states compete with each other to extract more and more federal grants that are financed out of the deficits and not the productivity of the nation. It is therefore right that these same states join together to demand a constitutional amendment that will serve as the occasion for finally restraining the inflationary spending of the federal government."
That was how California governor Jerry Brown phrased his endorsement of the National Taxpayers Union's constitutional amendment to require a balanced federal budget. At the time of Brown's speech, 22 state legislatures had called for a convention to write such an amendment. In the subsequent month, Arkansas. Idaho, North Carolina, South Dakota, and Utah joined the list and at press time, in three other states (California, Indiana, and Iowa) one house had endorsed the move. If the other house in those three states concurs, that would bring the total to 30 states, just four short of the necessary two-thirds required.
Reaction to Brown's "heresy" was swift. President Carter, Sen. Edward Kennedy, and other liberals condemned the idea of such a constitutional convention, Carter calling it "extremely dangerous" and "completely uncontrollable." Brown lashed back sharply at Carter and the other critics, saying that the opposition "reminds me of scare tactics and the rhetoric that I heard during the Proposition 13 campaign." And Brown pointed out that the most likely scenario is that the specter of such a convention would force Congress itself to enact a constitutional amendment. "If they take action and balance the budget and give us an amendment, fine. Then maybe the convention won't occur. If they don't take action, then the states of this country will call for a convention to balance the budget."
The president of the National Conference of State Legislatures—Oregon state senator Jason Boe—predicts that the necessary 34 state resolutions will be in hand by June or July. "It's time Congress recognized this thing is coming at them like a 100-car freight train and they haven't done a thing about it." Added Jim Davidson, chairman of the NTU, "There is no question in my mind whatsoever that the necessary additional states will adopt this resolution in this legislative year."
Perhaps in an effort to head off passage of the balanced-budget amendment, President Carter resurrected his near-forgotten commitment to a balanced budget by the end of his fourth year in office. An administration official told the Los Angeles Times that Carter is projecting a small surplus for the fiscal year starting October 1, 1980—despite an unprecedented $29 billion deficit for the coming fiscal year, four years into an economic recovery.
Private Building Codes Yet another government-appointed commission has lived off the taxpayers for a year and produced yet another volume of findings. This one was the National Commission on Neighborhoods. As with most such bodies, being appointed and paid by the State, it found little to object to, in principle, in the decades of State meddling that have destroyed viable neighborhoods. But unlike most government commissions, this one included a dedicated antistatist, and he managed to sell the group on one powerful idea. His name is John McClaughry, and his cause was the unviability of building codes.
Indeed, thanks to McClaughry's research, the commission became convinced that there is no evidence that the traditional building code system has any identifiable benefit in protecting the public health and safety—and at the same time that it frustrates and inflates the costs of both new construction and rehabilitation. The commission is therefore recommending that the present system be scrapped, to be replaced over a period of years by voluntary standards akin to those existing in France.
France, McClaughry learned, has never had an equivalent of the US code-enforcement system (except for fire-safety regulations in public-access buildings). The key elements of the voluntary French system are (1) an elaborate body of codes and standards developed jointly by designers, manufacturers, and public officials and (2) strict liability of builders to purchasers for the quality of construction. For main structural components, the builder remains liable for 10 years; for secondary components (such as windows), he remains liable for 2 years.
To protect themselves against claims, most builders purchase warranty insurance. The insurance company hires one of several inspection firms to make inspections during construction to ensure that the building meets the applicable national standards. Banks will usually not make mortgage loans unless the builder has warranty insurance, nor will casualty insurers write policies unless the building has passed the inspections.
Thus, the voluntary system is neatly self-enforcing, while avoiding compulsion of those who really want to opt out (rehabilitators, small owner-builders, design innovators.) As such, it is far more flexiible—and more just—than the rigid, compulsory US code-enforcement system. Moreover, since it is private, it is paid for by the users rather than being yet another burden on the taxpayers. The commission is to be commended for bringing this welcome alternative to light.
Speed Limits Start to Crumble The revolt against Washington is manifesting itself in yet another way—overturning the federally imposed 55 mph speed limit. After several years of widespread individual defiance of the law, state legislatures in western states are in the process of repealing it, despite threats of cutoff of federal highway aid.
First to act was the Wyoming legislature. Its Senate voted 20 to 10 to raise that state's limit to 65 mph. At press time, House action was pending, in the face of a threat by the feds to cut off some $50 million in highway aid. And similar bills had been introduced or announced by legislators in 13 other states. In New Mexico a bill has been introduced that would leave intact the 55 mph limit but replace speeding tickets with a flat $5 penalty for "excessive use of energy" for anyone caught driving over the limit.
The sponsor of the Wyoming bill, Sen. Cal Taggart, stated that "Washington doesn't understand" that the 55 mph limit is inappropriate in the wide open spaces. Added Sen. Dick Sadler: "It's time to start telling the feds where to go. If this state has the guts to stand up to them, maybe other states will join us." The Colorado bill's sponsor voiced similar sentiments. "If just one state makes a stand…the feds will choke them out," said Rep. Bob Stephenson. "If a lot of states say enough is enough, the feds wouldn't dare cut everyone off."
Limiting the Federal Government The 96th Congress had barely convened when a number of bills were introduced to reduce or restrict the federal government. That in itself is not new; what is news is that these proposals seem to be picking up considerable support.
Sen. William Roth and Rep. Jack Kemp checked in with a new version of their tax-cut plan. Kemp-Roth II would reduce federal taxes by $180.9 billion and individual income tax rates by 30 percent, over a three-year period. The top rate would fall from 70 to 50 percent and the bottom rate from 14 to 10 percent. In addition, the bill would index the tax system to prevent people from being forced into higher tax brackets by inflation. A companion bill would limit federal spending to 21 percent of GNP in 1980, 20 percent in 1981, 19 percent in 1982, and 18 percent in 1983. That would hold federal spending increases below seven percent a year, compared with double that amount in recent years, said Roth.
The congressional version of the balanced-budget constitutional amendment was reintroduced as the session began. By the Congress's second day, it had picked up over a quarter of the members of both houses as sponsors.
Joining the parade for limits on government was the Senate Governmental Affairs Committee. It issued its final report on a two-year study of federal legislation, calling for regulatory agencies to be required to conduct economic impact analyses before issuing new regulations. The impact statements would tally up costs as well as benefits. An appendix to the report contains a study by two Harvard professors recommending that the government abandon its efforts to set job-safety standards (as does OSHA) and instead try to create economic incentives to make workplaces safer.
Bank Privacy Gains The privacy of the bank/customer relationship suffered a major blow when the Supreme Court ruled in 1976 that bank records are not "a man's private papers" and therefore not protected by the Fourth Amendment from unreasonable search and seizures. But what the Court proposed, Congress has now disposed. The Bank Control Act of 1978, passed in the closing minutes of the 95th Congress, includes Title XI, which provides that "no government authority may have access to or obtain copies of the information contained in the financial records of any customer from a financial institution" without following strict new procedures.
Under these new procedures, before the IRS, DEA, or any other government agency can examine your bank records, it must advise you of an administrative subpoena and give you 10 days in which to take the matter to court. The court, of course, may approve the search if probable cause is established. But the new requirements ought to go a long way toward curbing the kinds of fishing expeditions that have become common in the last two years.
Meanwhile, sales of bright red checks impervious to microfilming continue to boom. Jim M. Blackley's Liberty Graphics in Charlotte, North Carolina, was recently the subject of an article in American Banker. Blackley recounted the efforts of federal agencies—including the Federal Reserve Board, the Federal Deposit Insurance Corp., and the Comptroller of the Currency—to discourage banks from accepting the checks. But as Blackley is quick to point out, the checks are not illegal, and most banks—including North Carolina's two largest—do accept them. Do the banks actually have a way to duplicate red checks? Nobody is saying, which would imply that the answer is no.
Cancer Revisionism The last few years have witnessed a major escalation in alarm about cancer. Every few months a new study, report, or article appears indicting yet another substance as carcinogenic. The impression is growing that we can live in a soup of cancer-causing pollutants and industrial chemicals and that cancer is becoming an epidemic.
To shed some objective light on subjects such as this, a Harvard researcher named Elizabeth Whelan last year joined forces with a number of other respected researchers (including Dr. Norman E. Borlaug, Dr. Thomas H. Jukes, and Dr. Frederick J. Stare) to found the American Council on Science and Health. The aim of the group (which accepts no corporate funding) is to "promote scientifically balanced evaluations of chemicals, the environment, and human health." ACSH has just issued its first two reports, both dealing with the cancer scare. They do their job of debunking emotional rhetoric with calm presentations of fact.
The first is titled "Cancer in the United States: Is There an Epidemic?" In a word, the answer is no. Using all available statistics, the report shows that the overall cancer incidence rate in the United States has been declining since 1947; the only form of cancer that has been increasing significantly for the whole population is lung cancer. The same is true of cancer death rates. For reasons which aren't clear, a few individual rates of incidence and death—for specific population subgroups and organs—are going up (prostate cancer in black males, for example), but overall most trends are downward.
How about the widely quoted claim that "80 to 90 percent of all cancers are environmentally induced?" The report identifies the source of this assertion—the International Agency for Research in Cancer, in Lyon, France. But it explains that this estimate was derived by comparing the high and low cancer death rates around the world and finding that since they varied so widely, some aspects of people's overall environment—rather than simply their being human—must account for such variations. The fact is that the majority of known causes contributing to the 80 to 90 percent are cultural rather than industrial in origin—such as smoking, drinking, and exposure to sunlight. Although much remains to be discovered, it is by no means clear at this point that workplace hazards or industrial pollution figure significantly in cancer causation.
The second report, "New Jersey: Garden State or Cancer Alley," deals with recent alarm over a National Cancer Institute report that found New Jersey to have the highest cancer death rate in the country from 1950 through 1969. Since that state has a high concentration of chemical industries, many people concluded that a cause/effect relationship exists. The report puts the cancer death rate figures in perspective, pointing out first of all that New Jersey ranks first only for white males; for white females, nonwhite males, and nonwhite females it ranks second, sixth, and fifth respectively. Furthermore, although New Jersey's white male cancer death rate of 205 per 100,000 population is high, many large cities and counties have even higher rates: Baltimore's is 233, Philadelphia's is 221, New York City's is 215, and San Francisco's is 206. By comparison, the national average is 174 deaths per 100,000.
The report also raises questions about the link between air pollution and cancer, pointing out that although lung cancer death rates are higher in urban areas, this is true only for males, not females. This suggests that factors such as cigarette smoking—which occurs more frequently for males—may be more of a causative factor. The report also finds that of the three types of cancer most likely to be caused by industrial by-products—lung cancer, bladder cancer, and leukemia—only bladder cancer death rates are higher in New Jersey.
Thus, the report concludes, "cancer mortality patterns in New Jersey are similar to those of other urban areas.…There is no evidence to support the proposal that New Jersey needs a unique program of cancer control or prevention."
Road/Rail Deregulation Progress Late last year Transportation Secretary Brock Adams reported that the administration was preparing for a truck deregulation battle that would make the 1978 airline deregulation fight seem like a picnic. The companion rail deregulation measure Adams expected would have easier going—but would still be a battle. "We will start with the railroad industry," he announced, "not by choice but by necessity. That industry is sinking rapidly and we've got to free it from a lot of that regulation and let it try to adapt to the modern economics of the country."
Besides preparing draft deregulation legislation, soon to be introduced, Adams is attempting to keep his own house in order. At the end of January he announced the elimination of 40 percent of Amtrak's passenger-route miles—including some of the system's biggest money losers. (The Floridian, for example, between Chicago and Florida, loses $105.55 per passenger, according to a study by the General Accounting Office. Overall, GAO found that 11 of Amtrak's routes are so lightly traveled that they are actually less fuel-efficient than automobile travel. The average loss for the 11 routes was $64.16 per passenger—a total 1977 loss of over $10 million.) The cuts will be final in May unless blocked by Congress.
Meantime, the Interstate Commerce Commission continues its efforts to deregulate piecemeal, in an effort to stave off abolition by Congress (as has happened to the Civil Aeronautics Board). In recent weeks the ICC has issued tentative rule changes that would (1) eliminate regulation of fresh fruits and vegetables moving by rail (raw agricultural products already are exempt when moving by truck), (2) abolish its control over the portion of inland and coastal waterway traffic that it regulates, and (3) shift the burden of proof on the need for new service from truckers seeking to enter the field to those already in business who seek to prevent the new service.
Commission member George M. Stafford, sounding very much like Alfred Kahn, told the Contract Carrier Conference that "free entry is clearly the wave of the future" and that "if free entry is coming, then let it come all at once and let it come now. The ball has begun rolling and it is gathering speed and momentum. There seems to be no one with the power or the inclination to stop the deregulation bandwagon. So, why don't we all just climb aboard?" Two key congressmen apparently decided to do just that in January. Reps. Harold Johnson and James Howard, who had objected strenuously to ICC chairman O'Neal's deregulation efforts a month before, issued a statement saying that they basically agree with his view that the agency must adopt some new regulatory policies on its own.
Thus far the only legislation actually introduced is Sen. Edward Kennedy's bill to abolish the antitrust immunity now granted to trucking rate bureaus to enable them to fix prices. The administration's rail and truck deregulation bills are expected to be put into the hopper sometime in March.
Private Fire Departments Catch On As the tax revolt reverberates across the country, wise local officials are seeking out ways to deliver public services at less cost. Last November 5, CBS-TV's "60 Minutes" showed how Scottsdale, Arizona, obtains fire protection under contract from a private firm, at half the per capita cost of comparable protection in neighboring cities (see "Fighting Fires for Profit," REASON, May 1976). The fact that it is a private firm that has to compete for the business has forced the company, Rural/Metro Fire Department, Inc., to develop more efficient methods.
And now it looks as if the private fire department concept is catching fire across the country. On January 1 the residents of Elk Grove Township, a Chicago suburb adjacent to O'Hare Airport began receiving fire protection from American Emergency Services Corp., a new company modeled after Rural/Metro. Headed by an experienced fire fighter/engineer/ businessman, Gary Jensen, the firm is providing full-fledged fire and paramedic services to the unincorporated community. Because of the large numbers of office buildings (including the United Airlines headquarters) and industrial plants in the township, the average daily population is around 20,000. On that basis, the annual contract price of $300,000 works out to be $15 per capita (compared to about $10 per capita in largely residential Scottsdale).
Rural/Metro itself is not resting on its laurels. After expanding several years ago into Tennessee, the firm recently signed its first contract in Georgia. The Hall County Commission has abolished the county-operated fire department, contracting instead with Rural/Metro for $862,000—a move the commission said would save at least $100,000 a year. The Georgia State Fireman's Association (union) has vowed to fight the move.
Another local government that is talking to Rural/Metro is Rochester, New York. That city is under a court order to cut $32 million from its budget to remain within a state constitutional tax ceiling. In this case the city is talking, not about hiring the company (in which case it would still collect taxes to pay for the service), but about franchising it to operate in the city, charging those who subscribe an annual fee for fire protection service. (Rural/Metro operates on a subscriber basis in a number of Arizona communities other than Scottsdale, as do other private fire departments in Oregon, Montana, Tennessee, and Georgia. When nonsubscribers request service, they are billed on an hourly basis—costing considerably more than the annual subscription fee.) Eliminating the fire department from the city budget would save Rochester $18.5 million a year in taxes.
Companies Strike Back Quite a few corporations are no longer lying back and letting government regulators have their way with them. Instead, they are fighting back in the courts, often turning the State's own weapons against it.
A case in point is Sears, Roebuck & Co., the nation's largest retailer. In April 1977 the Equal Employment Opportunity Commission voted two to one that Sears was discriminating against blacks, women, and the Spanish-surnamed on the basis of race, sex, and national origin. Sears contends that it is not discriminating and objects to such restrictions as the new law preventing firms from requiring retirement at age 65—thereby making fewer openings available for upwardly mobile women and minorities.
Consequently, Sears has filed a class-action suit against 10 federal agencies, on behalf of itself and all other US retailers with 15 or more employees. The suit alleges that a tangle of conflicting rules, regulations, policies, and laws has "created an unbalanced civilian work force which restricts employment opportunities of American citizens." The suit asks the government to put its own house in order before trying to tell businesses how to run theirs. It claims that such actions as the government's failure to enforce school desegregation, failure to eliminate discrimination in its own work force, preferential treatment of veterans, and restrictions on the number of women and blacks in the armed forces have created a work force dominated by while males.
Other firms are becoming more militant in resisting the demands of inspectors from the Occupational Safety and Health Administration and the Environmental Protection Agency. Dow Chemical refused entry to an EPA team that wanted to photograph a power plant at the firm's Midland, Michigan, chemical complex, telling them to obtain a warrant. Instead, EPA chartered a plane and took aerial photos—and Dow sued, alleging invasion of privacy, unreasonable search, and denial of due process. The company says trade secrets could be revealed by the photos and has won an injunction impounding them until the case is settled.
Another firm that tangled with EPA is Polaroid. Under the Toxic Substances Control Act, EPA ordered the company to turn over data on 20 secret substances it uses in producing its instant-developing film. Polaroid sued, arguing it was denied due process because EPA regulations allowed the data to be shared with other agencies and Congress, as well as the courts. After EPA modified its rules, Polaroid dropped the suit.
Companies continue to resist OSHA inspectors in the wake of last year's Supreme Court decision that search warrants are required if the business otherwise refuses entry. The Burlington Northern Railroad has won court rulings limiting OSHA inspections solely to cases involving a specific accident or complaint. In November the US Fifth Circuit Court ruled that Congress has not granted the secretary of Labor the power to bring suits to compel businesses to submit to OSHA inspections. According to Rep. George Hansen, the implication is that OSHA agents cannot inspect without the owner's consent. If upheld on appeal, the ruling could force OSHA to request new authority from Congress—which may be reluctant to grant it, given today's antigovernment mood and the fact that a bill by Rep. Steve Symms to abolish the agency is pending.
In an effort to head off further attacks, OSHA announced in December that it is eliminating 2,400 "nit-picking" fire-safety rules. The 400 pages of regulations will be replaced by just 10 pages. The move is the second phase in the agency's simplification campaign; in November it axed 928 other nit-picking rules. Whether such efforts will ensure OSHA's survival is difficult to gauge.
The Not-So-Red East The liberalization of China's once-red regime continues. Late in January the official China news agency Hsinhua announced that the money and property confiscated from former capitalists during the Great Proletarian Cultural Revolution will be returned. Former businessmen and industrialists, termed "national bourgeoisie," will "recover huge sums in bank deposits and property" that were confiscated between 1966 and 1969, the agency stated.
Most large Chinese businesses were nationalized in 1956, and as compensation the "national bourgeoisie" were paid five percent interest per year on the value of their seized capital. Some were also paid high salaries to continue in technical and managerial positions. But during the Cultural Revolution, Red Guard gangs ransacked their homes and confiscated their valuables and bank accounts.
All that will supposedly be reversed, now that the "Four Modernizations" drive is underway. Politburo member Ulanfu, from Inner Mongolia, announced the restoration of property at a Peking meeting attended by "some 200 of the largest capitalists and leading members of democratic parties," according to the news agency.
Meanwhile, Chinese Vice-Premier Teng Hsiao-p'ing, on his visit to the United States, repeated his promise that Taiwan could retain its army, political autonomy, and separate economic system after reunification with China. The main requirement would be for Taiwan to fly the Chinese flag and acknowledge the Peking government's sovereignty.
At press time, the Taiwanese were having none of it. Uncertain regarding vague US promises of further sales of defensive weaponry and bitter over US denial of earlier requests to buy F-5G, F-16, or F-18 fighters and Harpoon and Sidewinder missiles, the Taiwanese turned to Israel. They have already purchased two types of Israeli missiles–the Gabriel ship defense missile and the Shafrir air-to-air missile. Israel Aircraft Industries is now offering to supply its Kfir-C fighter, a derivative of the French Mirage series. And the Taiwanese may well take them up on the offer.
Milestones • OTRAG Update—The private firm developing low-cost satellite launchers from a controversial base in Zaire has opened its operations to international inspection. The firm, Orbital Transport and Raketen-Atkien Gesellschaft (OTRAG), has invited the United Nations to provide continuous supervision of "its total transport activities in Zaire." It has authorized Prof. Martin Loeffler, member of the presidency of the German Society of the United Nations, to enter negotiations with the UN and to keep the West German government informed of its activities via regular briefings.