Trends

Freedom Brings TV Revolution

A modest relaxation of Federal Communications Commission cable TV rules has led to major changes in that industry. And if, as expected, cable is deregulated completely, TV in the future will bear little resemblance to the "vast wasteland" we've become accustomed to.

In 1975 the FCC began relaxing its restrictions on the importation of "distant signals" by cable operators. That same year saw the launch of RCA's Satcom I, the first domestic TV communications satellite. Its low transmission cost made feasible what the FCC's rule change had made legal—bringing programs from a major metropolis to communities all across the country.

A logical result of these two events was the development of the "super station"—a TV station that serves a national market, distributing its programs via satellite to numerous local cable systems. The pioneer super station was Atlanta's WTCG, Channel 17, formerly a lackluster, money-losing local UHF operation. Today its non-network programs—including the Atlanta Hawks and Atlanta Braves games and 2,500 movies—are being seen by viewers in 43 states. And numerous national advertisers pay premium rates to reach them. More recently, Chicago's WGN and New York's WPIX have become super stations, as well.

A parallel development is the growth of pay-cable services. Last year the number of pay-cable subscribers more than doubled, from 1.5 million to 3.1 million households. The pay-cable market consists of diverse segments of the population—opera buffs, sports fans, evangelical Christians, language minorities, etc.—willing to pay for specialized programming. It is only a matter of time until sufficient subscribers—and communications satellite receiving stations—exist to permit development of nationwide special-interest networks. Already the number of satellite ground stations has grown from two in 1975 to about 800 at the end of 1978, with 1,500 projected by the end of this year.

Another way to support special-interest cable TV is advertising. Manhattan already abounds in such programs, among them cable shows aimed at the gay community and at the city's Spanish-, French-, and German-speaking audiences. Advertisers seeking to reach these specialized groups seem delighted at the low rates involved, compared with broadcast TV—as little as $20 for 30 seconds in some cases.

In view of all these developments, it is not surprising to hear FCC chairman Charles Ferris predict the emergence of new TV networks, as he did in Los Angeles in February. (Indeed, the super stations are virtually networks already.) And it is encouraging that Ferris and at least two other commissioners, James Fogarty and Margita White, believe the agency should scrap its cable restrictions altogether. "Cable regulation has got to go," Fogarty told the Wall Street Journal last winter. Adds the new head of the FCC's cable bureau, Philip Verveer, "Cable and broadcast TV should compete in the viewer's living room, not the commission's meeting room."

Thus, whether or not Congress enacts a deregulation bill this session, it looks as though cable TV is about to enter the free market. And the results—for viewers—should be impressive.

Profits in Prisons

Virtually everyone agrees that today's prisons are a disaster. Imprisoning a criminal costs the taxpayers a fortune, fails to rehabilitate, ignores the victim, and frequently leads to improving the inmate's criminal skills, from contact with other inmates. About all that can be said for our prisons is that they keep criminals temporarily out of circulation.

That dismal picture is being challenged by a promising experiment now under way in Minnesota, and to a lesser extent in six other states. Going by the name of Free Venture, its basic idea is that inmates ought to engage in productive labor, reimbursing the prison for their care, paying restitution to their victims, and leaving prison with developed work habits and skills.

Free Venture is not the conventional "prison industries" concept—paying inmates 50 cents a day to stamp out license plates. In nearly every state, prison industries are a farce because (1) only token wages are paid, (2) the work is generally make-work unrelated to the marketplace, and (3) inmates are given no responsibility either to develop work habits or to manage money. And most states forbid prison industries from selling goods or services to private industry.

Minnesota's bold experiment at the Lino Lakes Correctional Facility is changing all that. Conceived by executives from private firms (Control Data, Toro Co., and others), the program involves actual profit-making business ventures inside the prison walls. Work for the prison shops is obtained by competitive bidding in the outside marketplace. Among the businesses are a telephone reconditioning shop (subcontracting to Western Electric), a lawnmower and snowmobile components shop (Toro Co.), a computer systems analysis and programming company (Control Data), and a food service company that provides the prison's food.

Inmates work a regular 40-hour week, under normal industry supervision. Wages average $1.85 an hour, with some inmates earning over $3 an hour. Inmates are charged for room and board on a sliding scale, as their incomes increase. Their wages also go toward family support payments, restitution payments, plus state and federal taxes. Inmates are responsible for their own clothes and are encouraged to open savings accounts to provide for themselves upon release.

Since the program is still experimental, it is not yet clear how successful it will be at saving taxpayers' money, giving inmates marketable skills, and motivating them to go straight. Last year the state government recouped only $100,000 in expenses from the inmates—a small portion of the $3 million a year cost of the Lino Lakes facility. But the shops themselves will be self-sustaining this year, says industry director Thomas F. Grogin. "The bottom line for measuring success here is profitability," he adds.

That is a refreshing change from the prison management philosophy that prevails elsewhere in this country.

Nix on Wage and Price Controls

Wage and price controls place totalitarian power in the hands of the State, cause shortages and surpluses, and are powerless against inflation. Yet polls reveal that a majority of the public still thinks them desirable. Hence, every new piece of evidence against them should be welcomed.

The latest such evidence emerged in February from the National Bureau of Economic Research, a highly respected private organization. NBER researchers Alan S. Blinder and William J. Newton of Princeton analyzed the Nixon controls of 1971-74. They found that during the various phases and freezes, the overall price level dipped only marginally (1.7 percent) below what it would have been without controls. More significantly, once the controls came off, the scramble to recover from their distorting effects led, not merely to making up for this short-term drop, but to a further permanent increase in average prices of about one percent above the trend line. Drawing the obvious conclusion for today, Blinder says, "The data are pretty clear—the Carter controls program should be scrapped. There's not much of a short-run payoff, and in the long run prices end up higher than in the absence of controls."

Two other organizations have weighed in against the Carter controls. The American Bar Association's Economic Resources Controls Committee concluded that the administration lacks the legal authority to deny government contracts to companies that don't comply with the "voluntary" wage-price controls. The plan is hardly voluntary, added the committee, since it depends upon "a fear of government retaliation."

The General Accounting Office issued a statement agreeing with the ABA analysis. In addition, a GAO official told a congressional hearing that applying the contract-denial provision could actually increase costs to taxpayers. That would occur if noncompliant low bidders were passed over in favor of higher-cost firms that were in compliance. In addition, since only the compliance of large firms will be monitored, significant inequities would exist in the treatment of contractors, he said.

Saving the Environment—Privately

For many years advocates of preserving wilderness areas have championed a brute-force solution: have the government confiscate the land and open it to the public. The drawbacks of this approach are several: the land is not really preserved (because it must be made accessible to hordes of tourists), and millions of people who will never see or set foot on it are nevertheless taxed to pay for it.

Advocates of national parks and monuments often argue that, despite these drawbacks, the governmental approach is the only way unique environments could be preserved. Fortunately, they are wrong, as the following three examples demonstrate.

Perhaps the best-known nongovernmental preservation organization is the Nature Conservancy. Operating on an annual budget of several million dollars, the Conservancy seeks out unique tracts of land to preserve—either for scenic or for ecological reasons. It then sets out to purchase the land—often taking advantage of its nonprofit status to arrange for a "bargain sale," netting the seller a tax deduction. Although it retains ownership of only about half of its acquisitions, when passing them on it takes great pains to ensure that the recipient is one with "demonstrated stewardship capabilities." The Conservancy is supported by 60,000 individual members (at $10 a year) and 182 corporate members (at $1,000 a year)—including IBM, Ford, and Atlantic Richfield.

Caves are a particular type of unique, scarce natural resource. To preserve such sites—and make them accessible under carefully controlled conditions—some 44 cave owners have formed the nonprofit National Caves Association. Based in McMinnville, Tennessee, the organization sets standards for cave preservation and operation and publishes a nationwide caves directory. Among the well-known members are New Mexico's Carlsbad Caverns and Virginia's Luray Caverns.

Finally, California has recently given birth to yet another form of private conservation: membership wilderness parks. The first, set up in 1971, was the 5,000-acre R-Ranch in Siskiyou County. There are now three parks and seven more in the planning stages. Each member (whose numbers typically are limited to several thousand) purchases an undivided share of ownership, entitling him to make recreational use of the entire property. Because the property is privately owned and access is limited, its environment is far more likely to be preserved than under public ownership. Further, the county government benefits as well, because the land remains on the tax rolls but requires next to nothing in the way of public services.

Private ownership is succeeding in preserving wilderness areas. And it is doing so while preserving the libertarian principle that only those who benefit from a service should pay for it—a sharp contrast to government ownership of natural resources.

Support Grows for Government Limits

The idea of constitutional restraints on federal taxing and spending continues to pick up support. Advocates of the National Taxpayers Union's drive to call a constitutional convention to draft a balance-the-budget amendment were heartened recently by Attorney General Griffin Bell's declaration that Congress has the power to limit such a convention to a single subject. That would discount the argument that such a convention could run wild, raised by liberals such as Sen. Edward Kennedy (see Trends, April). Former senator Sam Ervin, a leading constitutional scholar, has endorsed the convention approach as the only way around Congress's refusal to get serious about balancing the budget.

Apparently the public agrees that an amendment of this type is needed. A February Gallup Poll found that 78 percent—Republicans and Democrats alike—support a balanced-budget amendment. And the two leading items that people think could be cut, to achieve balance, are welfare (54 percent) and defense (29 percent). Despite the failure of the California Assembly to support the measure, balance-the-budget convention resolutions have now emerged from 28 states, just 6 short of the required 34.

Meanwhile, two constitutional amendments to limit federal spending are picking up supporters in Congress. One is the Crane-McClure amendment, which would limit federal spending to one-third of the average of net national income over the past three years. Had this amendment been in effect in 1977-78, federal spending would have been $22.8 billion less.

Competing with this measure is the one drafted by the National Tax-Limitation Committee and promoted by Milton Friedman. It would limit each year's federal spending increase to no more than the percentage increase in gross national product in the previous year. But if inflation exceeded three percent, the allowable increase would be cut by one-quarter of the excess over three percent—the more inflation, the less spending could increase. Had this amendment been in effect over the 1969-78 decade, federal spending would have dropped from 20.4 percent of GNP to 17.9 percent (instead of rising to 22.6 percent)—and the decade's deficit of $271 billion would have been a net surplus of $22.2 billion.

Support for a spending-limit amendment is widespread, too (though not as great as for a balanced-budget amendment). A nationwide Los Angeles Times poll in January found that 65 percent would support a spending-limit amendment, with only 19 percent opposed. Once again, a majority of both parties were in favor, as were black voters (by a 48-to-29 percent margin).

The same poll found that people consider government the number one cause of inflation, by a wide margin—43 percent picked government, compared with only 24 percent for the second choice, labor unions. And two-thirds of all those polled want their taxes cut so strongly that they would accept less government services if it meant a tax cut. The most despised tax in America, the survey found, is Social Security.

An Associated Press survey of members of Congress found that the lawmakers perceive the growing antigovernment mood. Perhaps Rep. George M. O'Brien summed it up best: "The message voters gave me was: 'Get the government off my back and out of my pocket.'"

Deregulate Buses

Almost unnoticed in the skirmishing over impending deregulation of trucks and trains is the call to remove the heavy hand of the Interstate Commerce Commission from bus lines. And—surprisingly—the leading advocates of this move are none other than the industry's big two: Greyhound and Trailways.

In an article in the New Republic (Feb. 3), Stephen Chapman explains why the bus companies favor deregulation. Although regulation shields them (like it does the truckers) from competition, it also forces them "to provide service on many sparsely traveled and thus unprofitable routes." Over the past decade, what with rising fuel prices and new competition from subsidized Amtrak, these money-losing routes have become an increasing liability. Chapman also points out that Trailways, distinctly number two, feels it could compete much better against giant Greyhound if it were free to cut prices (à la Freddie Laker in aviation). Greyhound, in turn, can hardly come out for regulation when its smaller competitor is willing to take the risks of open competition.

Deregulation of buses will most likely lead to effects similar to those in aviation: price cutting, more passengers, and many new competitors. Although the big two would eliminate service at some points, the vacuum might well be filled by local bus firms, which would face no legal barriers to entry under deregulation. Thus, the present erosion of bus service (1,800 small towns in the past eight years) might actually be reversed if the free market were permitted to operate.

Politically speaking, if the howls of outrage over cutbacks in Amtrak are to be stilled, a revitalization of bus service may be one of the best ways to do so. Intercity bus lines serve 15,000 communities, 14,000 of which have no other form of commercial transportation. Tax-gobbling Amtrak serves only 500—before the proposed 1979 cutbacks. By spurring competition and opening entry, bus deregulation could ensure low-cost transportation for the millions of Americans who don't fly or drive.

Underground Economies Thriving

Last year Prof. Peter Gutmann of the City University of New York caused quite a stir with his article on the underground economy (see Taxes, REASON, Sept. 1978). Analyzing the much higher rate of growth of cash compared with checking accounts, Gutmann estimated that some $200 billion of economic activity takes place each year unreported—and untaxed.

Economists argued for months over Gutmann's analysis, some contending he was altogether wrong (especially those working for the government). But last winter the IRS released the preliminary findings of its own investigation of the underground economy. While not agreeing with Gutmann's number, the IRS conceded that at least $100 billion does indeed circulate subterraneously—and only one-fourth of that can be attributed to "organized crime."

What accounts for the rest of it? A study by the Institute of Labor and Industrial Relations at the University of Michigan provides some insights. Their study team interviewed 284 families in nine Detroit neighborhoods; team members also lived there as observers for several months. They found that nearly 40 percent of the households patronized "irregular" sources for household maintenance and repairs, and 22 percent used such sources for personal services such as child care and auto repairs. Over one-third of all cement, electrical, and plumbing work was done by unofficial entrepreneurs, as was a majority of all babysitting, lawn mowing, painting, paneling, and carpentry work. Much of the work was done on off-hours by wage earners, supplementing their regular paychecks.

Avoiding taxes, union rules, and government regulations motivates Americans to participate in the underground economy. In Sweden, it's mostly outrageous income tax levels. Average annual working time has dropped 24 percent in Sweden since 1960; absenteeism has climbed by 63 percent. Rather than pay high prices for services like painting and remodeling, Swedes increasingly take unpaid time off and do the work themselves. Barter, too, is on the rise. The disincentive effects of Swedish income taxes are so pronounced that socialist economist Gunnar Myrdal has called for abolishing the progressive income tax, in favor of a "consumption tax"—essentially a sales tax.

In Italy, too, the underground economy is thriving, encompassing between 4 million and 7 million workers. A recent study found that 70 percent of government workers have a second job, many of them underground. Experts place Italy's true output as high as 30 percent more than shown by official figures. The village of Mantua, for example, produces 35 percent of the women's tights sold in Italy—completely "unofficially."

What all of this implies is that once taxation reaches a point where ordinary people consider it a mere exaction, they will seek out means of avoiding it. And since there are a lot more of them than there are bureaucrats, for the most part they will succeed.

Firearms Rights

Defenders of the Second Amendment right to keep and bear arms have won two more battles. In Washington, the Treasury Department has thrown in the towel on its proposal that all new firearms carry a federal serial number. Congress, under heavy public pressure, had already deleted $4.2 million in funding to prevent implementation of the plan. Opponents of the measure considered it the first step toward federal gun registration.

On another front, the American Civil Liberties Union has taken on a case involving the right to bear arms. Richard E. Harbert is challenging a California law that prohibits ex-felons from ever again carrying a firearm. Harbert, who was convicted in 1945 of mailing threatening communications, was pardoned in 1961. Since 1976 he has been attempting to obtain work as a security guard, but the state law forbids him from carrying a gun. The ACLU has filed suit on his behalf in Los Angeles, seeking to have the law overturned.

IRS vs. Private Schools

In the face of widespread public and congressional outcry, the Internal Revenue Service has modified its proposed rules for reviewing the tax-exempt status of private schools. Under the revised procedures, only those schools established or expanded about the time of public school desegregation in their community would be reviewed. Writing in the March issue of the Center for Independent Education's newsletter Inform, attorney Davis Keeler makes the following criticisms of these procedures:

• Because education, like religion, is necessarily value-laden, we cannot permit the government to decide what constitutes a "proper" school.

• Racial discrimination cannot be reasonably presumed from the date of a school's founding, due to widespread disaffection with public schools for other reasons.

• Use of the date of founding discriminates against non-Catholic schools, since it is mostly such schools that have been set up in recent years.

• Tax exemption does not constitute government involvement in a Fifth or Fourteenth Amendment sense, unlike government subsidization.

• A previous IRS/Justice Department brief argued against such prima facie tests for discrimination as the IRS now proposes to use.

• The IRS provides no definition of the "special circumstances" it will apply in judging schools that fail to meet its 20 percent minority enrollment criterion.

• Assuming racial discrimination based on lack of minority enrollment ignores the fact that many religious denominations tend naturally toward racial homogeneity; it is therefore an interference with religious freedom.

"Attempts to use legal coercion to forbid private racial discrimination, while preserving a free liberal society, are every day in practice proving impossible," concludes Keeler. Such private conduct "is a necessary inconvenience of a government of free men."

Helping the Big Get Bigger

The federal government is giving auto industry giants General Motors and Ford a substantial competitive edge in their battles with Chrysler, American Motors, Toyota, Honda, Nissan, and Volkswagen. So concluded a seven-volume study by Harbridge House, released in December.

That may not be what the feds intended, but it will be the clear result of the new generation of federal safety and fuel economy standards, the consultants found. Because of the added capital expenditures required to comply with the requirements, they "weigh most heavily on the smaller companies and give the larger companies an additional competitive advantage beyond that which they already have." Chrysler, for example, is attempting to raise $7.5 billion to pay for complete product redesign over the next seven years to comply with stringent fuel economy standards—and is having to sell off overseas operations to raise the money.

Although the study was funded by the National Highway Traffic Safety Administration, and reviewed by NHTSA in draft form before being released, NHTSA officials immediately denounced it as relying too heavily on industry-supplied data. Nevertheless, conceded NHTSA's Barry Felrice, "Our agency is aware of the potential for regulatory standards, coupled with a dire economic situation, to have that effect on the industry."

Milestones

Tardy Correction. The Rhodesian legislature has at long last abolished all legally mandated racial segregation in that strife-torn country. Six bills enacted in January end segregation in landholding, schools, hospitals, and housing. One of them dismantled the Land Tenure Act, under which the country had been divided into areas that only those of a particular race could own. But the repeal measures retain the 42 million acres of tribal trust lands, which constitute nearly half the country, as communally owned land for the black tribes.

Monopoly Ended. The legal monopoly on domestic telegraphic services held by Western Union since 1943, when the bankrupt Postal Telegraph Co. was acquired by WU, has been ended by the Federal Communications Commission. From now on other firms will be free to offer such services as telegrams, mailgrams, and money orders, in competition with WU. Among those seeking to compete is Graphnet-Systems, Inc., a subsidiary of Graphic Scanning Corp. That firm plans to link up with ITT and RCA to deliver their international messages within the United States.

Freedom Gains. Gains in political rights and civil liberties in 1978 outnumbered losses, according to Freedom House. Some 563 million people in 24 countries had improved conditions, while things changed for the worse in eight countries with 144 million people. Nevertheless, at year's end only 35 percent of the world's people resided in "free" countries. The annual Freedom House survey, while generally objective regarding political and civil liberties, omits economic freedom from its assessments.

Dump BATF. Idaho's liberal Senator Frank Church has written to President Carter urging that the Treasury Department's Bureau of Alcohol, Tobacco, and Firearms be abolished, along with the Gun Control Act of 1968. Both have long been targets of firearms/Second Amendment groups. Church wrote that he thinks the FBI and the Justice Department are sufficient for dealing with firearms-related crimes and that "both the blunders of BATF and the bureaucracy which executes them" should be eliminated.

Abandoning the Postal Service. Yet another government agency is switching from the government's postal service to private United Parcel Service. This time it's the Internal Revenue Service. The IRS is using UPS this year to deliver its bulk packages of tax forms to accountants and other large users—saving $2 million.

Sanctity of Contract. A woman who persuaded her lover to father her child by promising to pay for its upbringing must abide by that agreement. So ruled the California Court of Appeals. The agreement was based on the woman's promise "to hold him harmless from his legal obligation to provide financial support," and the woman's later change of heart cannot invalidate that promise, said the court.

Freedom of Choice on Trial. The Food and Drug Administration has appealed the laetrile issue to the Supreme Court, which has agreed to hear the case. Last July the US Court of Appeals upheld District Judge Luther Bohanon's earlier ruling that the FDA could not prevent a doctor from treating terminally ill patients with the controversial substance. But the FDA argues that it must protect the terminally ill from "being exploited."