Trends

Dumping Delaney

The rigid law that requires the Food and Drug Administration to ban any food additive shown to cause cancer in any test animal in any quantity—the Delaney clause—may be on the way out. It has recently come under attack from three different quarters.

The first blow came from the FDA itself. While not calling for outright repeal, FDA commissioner Donald Kennedy said in February that the agency thinks Delaney should be relaxed, as should other restrictive pure-food laws. One proposal being explored by the agency would provide for balancing health benefits against risks—something the FDA is not presently allowed to do. That would permit more sophisticated judgments about the "acceptable risk" level of such possible carcinogens as saccharin and nitrites. But the FDA, of course, has no intention of relinquishing the power to ban any substance that it judges to have risks exceeding benefits. As far as Kennedy is concerned, that would be the case for saccharin. Although diabetics and the overweight claim health benefits from the substance, that claim has never been proven scientifically, he says. Hence, it should be banned.

A very different view of where the burden of proof should lie was put forth in March by the American Council on Science and Health. Reviewing all available human and animal studies, the group's scientists concluded about saccharin that no risk to humans has been proven. Hence, it should not be banned. At a press conference in Washington, ACSH director Elizabeth Whelan summed it up: "People are tired of having things taken away from them for no good reason. Saccharin poses no known hazard to human health and should not be banned." ACSH is therefore placing itself firmly in the anti-Delaney camp.

A third voice was heard from several weeks later—this one potentially carrying the most weight. A special panel of the Institute of Medicine and the National Academy of Sciences delivered its long-awaited assessment of food safety laws. (The review had been asked for by Congress in 1977 when it delayed the FDA's proposed saccharin ban.) Pulling no punches, the group's report called present food safety laws "complicated, inflexible, and inconsistent" and urged their complete overhaul. Besides repealing the Delaney clause, the revisions would permit the FDA to balance against health risks, not merely health benefits, but also economic benefits.

Under these conditions, the FDA would place more emphasis on warning labels, logos, and educational campaigns, relying more extensively on consumer awareness and intelligence. According to Science, this would "constitute a significant return to the philosophy of caveat emptor."

Actually, the report does not go that far, since it still leaves ultimate decision authority (and coercive power) in the hands of the FDA. Nevertheless, it is a significant step away from paternalism and toward individual sovereignty. "What the IOM-NAS panel has apparently decided," wrote an incredulous Science reporter, "is that if the consumers of America—who so vocally expressed their demand to consume a nonnutritive carcinogenic sweetener—want to consume a host of hazardous foods, well then the federal government ought to let them." In the old days they called that liberty.

Rail Deregulation on Track

The federal government is finally biting the bullet on railroad deregulation. Nearly a decade after the Council of Economic Advisors first proposed deregulating surface transportation, the Carter administration has sent to Congress a bill calling for substantial deregulation of the nation's railroads. What has finally made the idea politically palatable is, first, the specter of continually increasing government subsidy (and possible nationalization) if the railroads continue as they are and, second, the overwhelming success of airline deregulation.

The railroad deregulation bill would do the following:

• During a five-year transition period, give railroads considerably more freedom to raise and lower rates

• Abolish rate regulation entirely after that time

• Permit railroads to abandon branch lines that don't pay for themselves

• Remove antitrust exemption for joint railroad rate setting

• Remove rail mergers from ICC scrutiny.

Just two weeks before the administration proposal was introduced, the Association of American Railroads came out with its own plan. Not an attempt to stave off deregulation, the AAR proposal parallels that of the administration, except on antitrust immunity. A "substantial majority" of member railroads approved the plan, apparently willing to give up ICC protection from competition in order to get out from under ICC control.

With strong industry support, the only opposition is likely to come from representatives of small towns and some shippers, who fear, respectively, loss of service and higher rates. But according to an administration spokesman, many shippers are coming to realize that under regulation the railroads are "progressively cannibalizing" themselves. If they want any decent level of rail service, they must be willing to support an environment in which railroading is profitable—and that means a free market.

Air Deregulation Keeps on Winning

America's first large-scale experience with deregulation continues to demonstrate the benefits of competition. In March four airlines announced pathbreaking new low-fare coast-to-coast service. Texas International will offer service between Los Angeles and Baltimore-Washington for $198 roundtrip—with no requirements of advance booking or minimum or maximum stay. Normal coach fare is $428. A limited number of low-fare seats will be offered on regular flights, but TI will also offer a "red-eye" nightcoach with all seats at the low fare. World Airways announced a low-fare service linking Los Angeles and Oakland with Newark and Baltimore—for $108 one-way. The fare will be available on every seat, every day, with no advance-purchase requirement. Two other carriers, Capitol International and Trans International, announced similar low-fare coast-to-coast scheduled service.

One of the unresolved questions of airline deregulation has been whether state public utility commissions could continue to regulate the in-state operations of interstate carriers. The Airline Deregulation Act of 1978 said they could not, but California's PUC (alone among state commissions) disagreed and began vetoing fare increases. Eleven airlines sued it, and on March 12 US District Judge Spencer Williams agreed with them. At press time, however, the PUC was reportedly planning to appeal.

What about the fear that small communities would be abandoned as airlines rushed to "skim the cream" off profitable big-city routes? So far, it isn't happening. Although service at some points has decreased, most small cities now have the same or even more flights. A survey by the CAB's Bureau of Pricing and Domestic Aviation found that, among the nation's smallest commercial airports, air service increased overall by 5.2 percent during the past year. Aircraft operations increased or remained the same at 459 of these cities; decreases occurred at only 218 (with an average reduction of 21 percent in daily departures). Flights between small cities and medium-sized hub airports like Portland increased 13 percent, and flights between small cities and major hubs like Chicago increased 9.2 percent.

And deregulation is now extending overseas. The Australian government—long a hold-out against increased competition—has given up and agreed to an increase in carriers between Australia and the United States. The CAB is refusing to approve air-service proposals from governments—such as Canada and France—that adopt anticompetitive postures like vetoing US airlines' low-fare proposals. Where governments are more enlightened, the CAB is approving major increases in service—such as the 15 US airlines newly authorized to serve the Benelux countries. And now comes a report that the British Civil Aviation Authority is studying deregulation of that country's airlines.

Clearly, airline deregulation is taking off.

Criticizing the Bank Regs

Hard-money advocate Howard Ruff (see p. 34) made what he thought was an innocent remark about the safety of banks—and found himself threatened with legal action. On his TV show "Ruff House" he pointed out that the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation have enough funds to cover only about 1.3 percent of all bank deposits. That didn't sound like enough to him, and he told his viewers, "I think I'd rather be out of the banking system."

What should appear in Ruff's mail a few days later but a letter demanding an explanation, from an officer of the Federal Home Loan Bank Board. It cited a 1938 law that makes it a federal crime to question the solvency or financial standing of the Federal Savings and Loan Insurance Corporation. Ruff, of course, refused to reply, on First Amendment grounds, but at press time the Bank Board was still looking into the matter.

But criticism of federal bank regulation can't be stilled that easily. A few weeks later attorney Robert Gnaizda was heard telling Congress that banks should have signs on their doors reading, "Warning! Savings may be hazardous to your wealth; if left long enough, more than half of your money may be eroded." Gnaizda's target was federal interest rate ceilings on passbook accounts, limiting them to 5 or 5¼ percent "despite an inflation rate of approximately 10 percent." The lawyer's firm, Public Advocates, Inc., has filed a class-action suit against the government on behalf of the Gray Panthers and other small savers. And if the government does not act, he warned, "We believe Americans should and will take personal action to issue their own money market certificates."

In response to this pressure, officials of the Interagency Coordinating Committee—a group of banking and thrift regulators—were prepared to approve issuance of a new two-year $5,000 T-bill certificate (present certificates are $10,000 denominations). But at the last minute who should intervene but—you guessed it—the Federal Home Loan Bank Board. So small savers are still left out in the cold by government policy.

Feds Attack Postal Monopoly

Two powerful federal agencies have accused the US Postal Service of trying to extend its monopoly on letter delivery. Both were referring to the efforts of the postal service to get a foothold in the electronic mail business. Last December it proposed revising the private-express statutes to broaden its monopoly—among other things by requiring stamps to be placed on the hand-delivered hard copy resulting from new forms of electronic message services. And it has put forth a plan to begin offering its own Electronic Computer Originated Mail, aimed at large corporations.

That was too much for the Federal Communications Commission, which has increasingly become an advocate of competition. FCC general counsel Robert Bruce has informed the USPS that the FCC, not the mailman, has jurisdiction over electronic messages. The USPS proposal would "significantly thwart the FCC's recent efforts to stimulate new electronic message services by opening competition in the public message telegraph field, and is likely to increase the cost and reduce the quality and diversity of such service."

Taking a similar position was the Justice Department. In its response, the department's Antitrust Division said the USPS proposals were designed "to prevent the erosion of a monopoly which today is clearly threatened with commercial obsolescence." It urged the postal service to withdraw the proposed expansion of the private-express statutes, to consider competitive factors and public input (including that of potential competitors) in making future policy, and to drop its regulation classifying certain magnetic data storage devices as letters. "The efforts of the postal service to expand a monopoly conferred in 1872 to encompass computer data processing and components of new telecommunicating systems are a matter of serious concern," its brief said.

Fraud upon Fraud

So you think the federal government will spend $532 billion this year? Employ 3 million people? Run a deficit of $29 billion? Maybe you believe in the Easter Bunny, too? Although all the preceding are official figures, all are grossly incorrect as measures of actual federal government activities.

To begin with, economist Art Laffer pointed out recently, real federal spending—including off-budget agencies ($12 billion), interest rate subsidies in federal loans ($16.8 billion), unfunded interest on Social Security liabilities ($262 billion), and other examples of "creative accounting"—totals something like $900 billion. And the annual deficit works out to a cool $300 billion, not the reported $29 billion.

That's not the only fraud. Although there are "only" 3 million civilians on the direct federal payroll, there may be as many as 3 million other people—in universities, consulting firms, and state and local governments—whose salaries are paid by the federal government. HEW, for example, pays the salaries of 980,217 such persons, dwarfing its own payroll of a mere 144,256. The Defense Department pays 2,050,000 consultants and others, besides its own 2,049,000 employees. These figures were uncovered by UPI reporter Donald Lambro and presented in the winter issue of Policy Review.

Lambro is also the author of a UPI analysis of waste and fraud throughout the federal government. Combing the files of federal agencies and utilizing audit reports from the General Accounting Office, Lambro's team concluded that between $38 billion and $50 billion of the federal budget is lost, stolen, or wasted each year. That's nearly 10 percent of the official federal budget. Among the biggest losses are about $6 billion a year in HEW (the agency's own figures) and another $15-$25 billion in federal economic assistance programs.

The UPI figures were recently confirmed by the Justice Department. Deputy Attorney General Benjamin Civiletti told the Senate Budget Committee that as much as 10 percent of the federal budget is wasted or stolen each year. Fraud and abuse are so pervasive that they are found "wherever we look deeply," he said. Added GAO head Elmer Staats, because there are so many federal agencies and programs, "indications are that waste, fraud, and abuse are of mammoth proportions."

Thus, it looks as if the widespread feeling among taxpayers that they're being ripped off is right on the mark.

Scientists Boycott Soviets

One of the ways the Soviet Union's authorities attempt to compensate for the failures of its economic system is to utilize Western science and technology. And American scientists have generally been willing participants, because of their respect for individual Soviet scientists and the ideals of international cooperation across political boundaries.

But there are limits, and one of them appears to have been reached. On March 1, representatives of 2,400 American scientists held a press conference in Washington to announce the formation of Scientists for Orlov and Shcharansky (SOS). More than 70 percent of SOS members have signed a pledge "to withhold all personal cooperation with the Soviet Union until Orlov and Shcharansky are released." The other members have committed themselves to boycotting international conferences in the USSR, to opposing the enlargement of US-Soviet exchanges, and to campaigning against the transfer of sophisticated technology to the Soviets.

Soviet scientists Orlov and Shcharansky were sentenced to long prison terms last summer for monitoring the USSR's (non)adherence to the Helsinki accords. Since that time several international scientific meetings in the USSR have had to be canceled because of nonparticipation by Western scientists, and others have had greatly reduced attendance. The Council of the 40,000-member Association of Computing Machinery has decided "not to cooperate with or cosponsor any meetings held in the USSR."

But SOS is the largest and most distinguished group of individuals to take strong action; its members include 13 Nobel laureates and 113 members of the National Academy of Sciences. SOS organizer Kurt Gottfried of Cornell noted that the scientists were curtailing their contacts "with the greatest reluctance, but the actions of the Soviet government appear to leave us no other alternative." Added Nobel laureate biochemist Christian Anfinsen, "The Orlov and Shcharansky cases were the last straw."

Unsubsidized MDs—for the Wrong Reason

HEW secretary Joseph Califano has proposed that the federal government stop subsidizing medical education by means of "capitation grants"—payments to medical schools based on the number of students enrolled. Although the amount involved is relatively small ($83 million), it's yet another example of the proliferation of government subsidies.

Since it began in 1966, the subsidy of medical schools has had its intended effect: the number of medical graduates rose from 8,148 in that year to 14,969 in 1978. And 28 entirely new medical schools have been built, to take advantage of the federal gravy train. Although the funds account for only three to eight percent of medical school budgets, they have come to be considered a necessity by school officials.

So now cries of outrage are being raised by the schools and their defenders. Many are focusing on the speciousness of Califano's arguments. The HEW secretary contends that America now has an "oversupply" of doctors, that each extra physician adds $300,000 per year to the nation's medical bills, and that reducing the number of physicians will lead to reduced health care costs. Although this is obvious nonsense, that in no way justifies subsidizing the education of doctors, who, after all, end up among the highest-paid of all Americans. One hopes that the secretary's proposal will be adopted, while his rationale is laughed into oblivion.

New Air Bag Hazard

Besides the many safety problems inherent in the use of air bags in cars, there's a possible health hazard as well. So reports Phoenix Quarterly, journal of the Institute of Scrap Iron and Steel. It turns out that the scrap industry has been looking ahead to the problem of disposing of junked cars containing unfired air bags. The planned propellant in the bags is sodium azide—a suspected mutagen (and therefore 85 to 90 percent likely to be carcinogenic as well). "One part sodium azide per million parts of air has produced a toxic response in test animals," admits the National Highway Transportation Safety Administration—"a rapid change in blood pressure followed by convulsions, followed by death."

What's going to happen to the sodium azide when the cars are converted to scrap? wonders the industry magazine. Not only might it accumulate in the adjacent soil and water, it might also explode. In contact with copper, it "is more explosive than nitroglycerin," says the National Institute of Occupational Safety and Health.

How serious are these threats? Nobody really knows, least of all the Congress, which passed a law requiring installation of air bags or automatic seat belts on all cars by 1983. We may have on our hands another fiasco like Tris.

Social Security Blues

A nationwide survey reported here last month identified Social Security "contributions" as the most despised tax in America—the one people view as giving them the least for their money. Now comes another survey that helps explain why that may be.

The actuarial and consulting firm of Johnson & Higgens sponsored the new survey, conducted by Louis Harris, which focused specifically on Social Security and pensions. The principal finding was that Americans today—in contrast with 10 years ago—place much more faith in private pension plans than they do in Social Security. Fully 80 percent doubt that when they retire the latter will be able to pay them all the benefits it has promised, and over half have "hardly any confidence at all." If given the chance, about one-third of today's active employees would opt out of Social Security entirely. And that's without any sort of campaign for, or proposal of, a replacement plan. People have simply figured out for themselves that it's a bad deal. (See "The Great 1979 Social Security Heist," REASON, Feb. 1979.)

On the other hand, 76 percent of those covered by private pension plans are basically satisfied with them, and over two-thirds are highly confident that when they retire they will receive what they were promised. It's a startling contrast.

Worldwide Retreat from Socialism

Throughout the industrialized Western world, the trend is on toward reductions in State ownership, controls, and spending, with a concomitant increase in incentives for private investment. Unlike the United States, where expenditure cuts have come in response to grassroots anti-tax movements, overseas the cuts are coming from the top down.

In part the changes result from studies on the effects of massive government spending. Oxford economists Walter Eltis and Robert Bacon have found evidence that public-sector spending cripples economic growth rates by cutting private investment and therefore the creation of new jobs. Similar conclusions have been reached by the Hudson Institute Europe and Britain's National Westminster Bank. Adds Jean-Pierre Poullier of the Organization for Economic Cooperation and Development, "Governments are recognizing they can't have economic recovery without incentives to investment, and one of the best ways to do this is to shift away from the government sector."

And these shifts are taking place all across Europe. Sweden, Austria, Norway, and Finland had substantially lower government outlays in 1977 and 1978. The Netherlands government is cutting spending by $5 billion over the next three years and limiting borrowings to 4.5 percent of the national income. The French government has abolished World War II price controls, sharply reduced industrial subsidies, and encouraged individuals to buy shares of stock in industry. Despite some fierce worker opposition, the program seems to be working: the franc has stabilized, foreign investment is up sharply, and 7,000 workers have become first-time stockholders. Ireland has cut corporate taxes drastically (from 45 percent down to 10 percent) and has increased tax holidays for new plants.

And the desocialization extends beyond Europe. The government of British Columbia is proceeding to transfer ownership of State-owned resources to the people. Every adult citizen is to be given five shares of stock in the government-owned B.C. Resources Investment Corporation, effectively transferring it from the public to the private sector. Says Premier Bennet, "This is the commitment of our government to individual ownership rather than socialism or government ownership."

The Australian government of Malcolm Fraser continues its efforts to undo the socialist policies of its predecessor. Explicitly rejecting Keynesianism, Fraser's government is holding down spending despite strong political pressures to do otherwise. Inflation has thus far been cut from 17 percent in 1975 to 7.5 percent last year; Fraser's goal is 2.5 to 3 percent. Private investment, scared off by the socialists, is coming back, and free-market pricing is spurring new energy exploration.

Even Brazil, a tightly controlled "state capitalist" system, is beginning to loosen up. The new government of Gen. Joao Batista Figueiredo is cutting back subsidies and import duties and reducing other controls. The federal budget is being cut by $2 billion (six percent), and parts of the huge State-owned mining, energy, trading, and transportation companies are to be sold off.

If political pressures don't nip these welcome trends in the bud, the world will witness a valuable lesson in the merits of substituting freedom for controls and private for public.

Milestones

Spending Limit. Californians may do it again. Paul Gann, cosponsor of last year's Proposition 13, has just succeeded in obtaining over 900,000 signatures (far more than the 554,000 required) for an initiative to limit government spending. The measure would hold city, county, special district, and state government spending to their 1978-79 levels, adjusted for cost-of-living and population changes. "The real meaning of Proposition 13 is being prostituted right and left by local government," said Gann, in explaining the need for the measure.

Guidelines Rejected. A major corporation has announced it will ignore the government's wage and price guidelines. Jan Van Andel, chairman of Amway Corporation, said, "We have elected not to [comply] because we feel government is the root of inflation.…Unchecked inflation eats at the very vitals of a free society. The solution is simple: stop deficit spending." Amway had sales of over $350 million last year.

Brewing Rights. No longer is it legally required to register your home brew with the government. Congress changed the law last fall, freeing individuals to make beer and wine at home without permission and without having to be head of a household. You can even take it elsewhere without government permission—as long as it is for "personal or family use."

Organize! If the Teamsters Union has its way, prostitution will be "organized," but not "crime." Barry Feinstein, head of Teamsters Local 237 in New York, has urged the repeal of victimless crime laws, making both casino gambling and prostitution legal in the city. And in reply to a question about prostitutes, Feinstein said, "I'm looking to sign them up. Any person who works for a living deserves to be represented by an organization that can make their [sic] livelihood better."

Opening the Doors. A new California law has freed over 6,000 mentally retarded persons to leave state hospitals if they so choose. The new law sets much stricter standards for involuntary commitment. Over 700 left immediately; the other 5,300 are still free to leave.

Gold Rush. The nation's second-largest commercial bank—Citibank—has joined the move to gold. It is now offering gold certificates, with a $1,000 minimum and additional increments of as little as $100. Gold certificates offered by most investment firms require a $2,500 minimum purchase. Citibank's move thus broadens the market and further increases gold's credibility as an investment.

Budget Balancers. Two economic heavyweights have endorsed the need for a constitutional amendment to bar deficit spending. Former Federal Reserve Board chairman Arthur Burns has urged Congress to pass a law mandating a balanced budget and to endorse a balanced-budget amendment in order to avoid the "risks and dangers" of a constitutional convention. He has been seconded by Alan Greenspan, former chairman of the Council of Economic Advisors. Greenspan's preferred amendment would require a two-thirds vote, rather than today's simple majority, to approve spending measures. This, he believes, would curb deficit spending.