More Broadcasting Deregulation

Bit by bit, government control of radio and TV is being chipped away. In recent weeks three more bricks in the regulatory structure were loosened or knocked out, one by the courts and two by the regulators themselves.

First off, the US Supreme Court ruled 6-to-3 that the Federal Communications Commission exceeded its authority in 1976 when it ordered cable-TV systems to provide "public access" to several channels at no charge. Forcing cable operators to do this deprives them of "editorial discretion" over their programming, and such deprivation cannot be justified under the Communications Act of 1934. In so ruling, the Court upheld the decision of a federal appeals court (see Trends, May 1978). Unfortunately, the ruling is expected to affect only new cable systems; most existing systems have the access rules firmly embedded in their locally granted franchise agreements.

The second development concerned the FCC's limitations on cable-system operations—one rule limiting most cable to the importation of only two "distant" signals and another restricting which programs cable systems can offer in urban areas (see Trends, May 1979). On April 25 the FCC issued a "notice of proposed rulemaking" stating its intention to abolish these restrictions, as recommended by its cable bureau. The move would clear the way for a major expansion of cable-TV, leading to many more satellite-using superstations.

Within the next six months the FCC may largely deregulate radio. At a Commission meeting in May its staff presented findings that most radio stations are well below its ceilings for commercials and well above its minimums for news and public affairs. The agency had been expected to implement a deregulation experiment freeing about 20 percent of stations from controls, but commissioner James Quello says the new findings give a strong argument for "deregulation without experiment," a view echoed by chairman Charles Ferris. Before taking action, there will be a six-month public comment period. The National Association of Broadcasters has stated that the new data "demonstrate that the radio industry can be deregulated immediately in all markets without any loss of service to the public."

And that's just the beginning. Rep. Lionel van Deerlin has introduced a new version of his communications deregulation bill, and it's considerably better than last year's. It would virtually eliminate regulation of radio and cable-TV at once and of broadcast TV in 10 years. It would abolish the odious "Fairness Doctrine." In telecommunications, it would deregulate the non-AT&T long-distance carriers at once (and AT&T, too, after 10 years). And unlike the 1978 bill, this one would no longer interfere with AT&T's business by forcing it to spin off Western Electric. Moreover, it would overturn a previous antitrust decision and allow Ma Bell to get into the data-processing business. Its only serious drawback is the imposition of "user fees" on broadcasters for use of the spectrum. But unlike the 1978 bill, this year's model pegs them much lower and does not funnel them into public broadcasting; at least the broadcasters won't be forced to subsidize competitors.

Economic Fallout

The accident at the Three Mile Island nuclear power plant has rekindled debate over this form of power generation. One issue in particular has been given increased attention: the question of liability for nuclear accidents.

REASON has frequently pointed out the injustice of the Price-Anderson Act, the federal law that limits liability for such accidents to $560 million. This law serves to subsidize the nuclear industry by reducing what it would otherwise have to pay in liability insurance premiums. Rep. Ted Weiss has introduced legislation to repeal Price-Anderson and make the industry liable for all valid damage claims.

Here's how it would work. At present the maximum liability coverage available to each plant from the two insurance company pools is $140 million. Beyond that, all nuclear plant operators have formed a cooperative in which each agrees to contribute up to $5 million for each reactor owned to cover further liability claims at any one plant. With 72 plants currently operational, that's another $360 million. The balance of $560 million is now the responsibility of the federal government (that is, the taxpayers)—but this balance would shrink to zero as more of the 90 nuclear plants now under construction come into operation. Weiss's bill would remove the $560 million ceiling, expanding the liability of the industry cooperative and including the assets of the plant, as well. It would also waive the 20-year statutory limit on nuclear-accident claims, to allow for long-term radiation effects.

As columnist J.F. ter Horst put it recently, such a move would tell the nuclear industry, "Put your money where your mouth is." Since nuclear power's safety record is, on the whole, excellent, it's high time the industry took full responsibility for its actions and stopped expecting its insurance costs to be subsidized by the taxpayers.

The nuclear industry has already received some $9 billion in federal subsidies—for reactor development, uranium enrichment, and waste storage. Although that's a lot of money and should never have been spent, it has not fundamentally altered the long-run economics of nuclear power. Spread over the 162 nuclear plants in operation and under construction, that extra $9 billion would increase their fixed costs by about 10 percent. (It costs about $1 billion to build an 1100-megawatt nuclear plant these days.) The government is planning to spend $6 billion more on uranium enrichment and waste storage over the next 15 years, but user charges will fully recover these costs from power plant operators.

The bottom line of all this is that, while federal support has played a big role in getting the nuclear industry established, it does not spell the difference between economic success and failure. The insurance subsidy can be ended, the $9 billion paid back, and the future $6 billion covered by user charges—and nuclear power would still be a viable component of the nation's energy production. A Gallup poll 12 days after the Three Mile Island accident found that, though concerned about safety, 63 percent of the public still thought it was either "extremely" or "somewhat" important to build more nuclear power plants.

Fiscal Revolution?

Each year the Joint Economic Committee of Congress puts out an Annual Report critiquing the president's Economic Report. For 20 years this Annual Report has reflected the view of liberal Democrats enamored with Keynesianism—government policies to stimulate demand, in hopes of ensuring prosperity.

This year's report is startlingly different. For the first time in 20 years it is unanimous; for the first time in 20 years it rejects Keynesianism; for the first time in 20 years it focuses on the government as the problem, not the solution. Government's "tax wedge" has choked off investment and reduced productivity, says the report. This is "supply-side economics" as developed by economist Art Laffer and popularized by journalist Jude Wanniski and Rep. Jack Kemp. Its conclusions are that government must restrain its spending, gradually reduce the growth of the money supply, and reduce the present barriers to investment. How? By liberalizing depreciation allowances, increasing investment tax credits, and reducing corporate tax rates, among other means.

The 1979 Annual Report "is in every sense a breakthrough," says the Wall Street Journal's Paul Craig Roberts, "because it shifts the focus of economic policy from demand management to reducing the tax wedge." This "revolution in economic policy thinking" offers hope for long-overdue changes in government policies.

Mailers Fight Postal Expansion

In a move "designed to force publishers back into the postal system" (Folio, April 1979), the US Postal Service is attempting to redefine "letters." It has proposed that unaddressed circulars delivered to specific households be included in the definition of letters, therefore falling within the postal monopoly governed by the private-express statutes.

In the last several years, scores of companies have begun "alternate delivery systems" to deliver magazines to subscribers. To make these operations economically feasible (and therefore able to compete with subsidized second-class postal rates), the companies include advertising circulars along with the magazines, charging the advertisers for the service. What USPS wants to do is require such circulars—as "letters"—to be delivered only by mail, that is, the postal monopoly. That would put most alternate delivery firms out of business.

Enraged by this move, publishers and distributors are fighting back. The Magazine Publishers Association, the National Association of Selective Distributors, and the Direct Mail/Marketing Association have joined forces to lobby against the redefinition of letters. MPA senior vice-president Chapin Carpenter has announced that his organization is considering joining with other groups that are calling for repeal of the private-express statutes. Rep. Charles Wilson is planning hearings on this subject in the near future. NASD president John Sweeney has announced that "we at NASD do not intend to let the Postal Service illegally regulate us out of existence."

It's too soon to tell, but it may be that this newest assault on competition, combined with USPS's attempt to invade the electronic mail business (see Trends, June 1979), will generate enough lobbying power to dump the private-express statutes once and for all.

Winds of Change Hit Banking

The past five years have witnessed a competitive revolution in the banking business. Not only has competition proliferated among banks, savings and loans, and credit unions, but there has also emerged a whole crop of "near-banks" that are giving the thrift institutions a real run for their money. The result (besides an explosion of credit) is likely to be the virtual deregulation of consumer banking.

Much of the competition has come about from the efforts of institutions to get around existing regulations, especially the Federal Reserve's Regulation Q. To get around Q's prohibition on paying interest on demand deposits (checking accounts), a whole raft of new devices has been created: NOW accounts, telephone transfer accounts, credit union share drafts, and automatic transfer accounts. To evade Q's savings account interest-rate ceilings, we have seen the creation of mininotes, floating rate notes, rising rate notes, pooled savings accounts, and money market funds.

In addition, the McFadden Act's prohibition on interstate bank branching is being circumvented (for loans) by the ability of banks to issue credit cards nationwide. Likewise, networks of automated teller machines—while forbidden to move deposits across state lines—can dispense cash without regard to state boundaries.

Finally, the newest competition is coming from such nonbanks as Sears, Roebuck and Merrill Lynch. Sears, via its Allstate Savings & Loan affiliate, is now offering to its 23 million credit card holders a check-processing service in conjunction with credit unions. It is also planning to sell $500 million in small-denomination notes directly to the public. Business Week quotes a banker as responding, "If that's not deposit-taking and they're not a bank, then I don't know what banking is." Neither does anyone else, these days. Merrill Lynch is now offering account-holders of $20,000 or more a way to write checks and make Visa card purchases using their margin accounts.

All of this competition is causing the thrift institutions to chafe at their regulatory burdens. More and more state-chartered banks, for example, are leaving the Federal Reserve system, so that they can earn higher interest elsewhere on their reserves. In the past six years 337 have quit, 152 of them in just the past two years. The drop-out rate is greatest in New England, where NOW accounts have led to intense competition and lower bank profits. The Fed's response was the proposed Monetary Control Act of 1979, to force all banks, not just federally chartered ones, to be members. Rep. Ron Paul cast the deciding vote to kill this bill when it was before the House Banking Committee in March, but a weaker version is expected to be introduced later this year.

In April a federal appeals court ruled that three of the end-runs around present regulations are illegal: banks' automatic fund transfers, S&Ls' automated teller machines in supermarkets and department stores, and credit unions' share drafts. That dumped the whole problem in the lap of a reluctant Congress. It's not at all clear what Congress will do, but House Banking subcommittee chairman Fernand St. Germain says he favors letting all financial institutions compete "on a straight price basis."

Regulation Q, meanwhile, seems headed for the dustbin of history. It is due to expire in December 1980 anyway, unless renewed. But the Treasury Department's Regulation Q Task Force has just recommended that it be scrapped, along with much of the remaining banking regulation. "Within the next three years we could have a dramatically restructured financial system," says Controller of the Currency John G. Heimann. In response to the growth of near-banks, he adds, "I would be inclined to free up regulations on banks, rather than penalize others." That view represents a welcome change in philosophy among government bureaucrats.

Australian Tax Revolt

The tax revolt is spreading to Australia, reports REASON correspondent V.R. Forbes. The rising tide of protest reached a climax in April with a nationwide blockade of all major highways by hundreds of interstate truck drivers protesting road taxes.

There is plenty of reason for revolt. Australia may well be the most overgoverned country in the world. With only 14 million people it supports 13 houses of parliament, 857 full-time politicians, thousands of shire councils, 1.6 million public servants, and over 4 million people receiving welfare benefits. There are about 5.6 million people who are net tax consumers but only 3.2 million net tax payers. The result is an annual tax bill that is more than twice as big as the market capitalization of Australia's top 34 listed public companies.

The government felt compelled to act by a brilliant tax-avoidance scheme that threatened to reduce tax revenue by several hundred million dollars. In quick succession it passed retroactive legislation to outlaw the scheme, slapped a 50 percent penalty on participants in "artificial" tax schemes, set up a field audit bureau of tax bloodhounds, introduced a computer blitz to catch moonlighters, and established a new division to plan and coordinate action against legal tax-avoidance schemes.

The battle lines are now drawn. The first action was a premature tax-revolt campaign by the Australian newspaper. Then the tough coal miners in Queensland struck in protest against a proposal to tax the subsidy element in their cheap company-provided houses. Next the opal miners of Lightning Ridge staged their own Eureka Revolt against a 500 percent increase in government lease payments. Tax agents then went to the press with accusations of tax terrorism and charges of inconsistent treatment, arbitrary adjustments, and frivolous disallowances by tax assessors. Finally, the truckers received national publicity with their effective show of strength about road taxes. Each new confrontation produces a heavy-handed reaction from the authorities and a few more recruits for the tax revolt. Such an atmosphere provides fertile ground for Australia's small but growing band of libertarians and its active limited-government Progress Party.

Radar Shot Down

Police use of radar to entrap drivers has gone down to defeat on both coasts. As a result, drivers in California and Miami, Florida, are breathing more easily.

In California an Assembly committee torpedoed the perennial request of the California Highway Patrol for permission to buy radar units. This year the CHP thought it had found a way around the legislature's traditional hostility to spending money on radar—applying for federal funds to buy it. Absolutely not, said the Assembly Transportation Committee in a 7-to-3 vote. "It looks like radar is dead for this year and maybe for years to come," sighed CHP commissioner Glen Craig. California thus remains the only state whose highways are free of radar (though many of its cities do use it).

But one Florida city—Miami—may not be using it any more. Not after Dade County judge Alfred Nesbitt ruled out its use in the case of 80 accused speeders represented by the public defender's office. That situation developed after TV station WTVJ broadcast an evening news series showing police radar units clocking—among other things—a tree at 86 mph and a house at 28 mph. The idea for these tests originated with Dale T. Smith, head of the company which makes Fuzzbusters (see Spotlight, REASON, November 1978). Smith's contentions were backed up by no less an authority than Henry Kolm, professor of electrical engineering at MIT. Altogether, the evidence was enough to convince Judge Nesbitt. But resolution of some 5,000 other Miami area radar cases will depend on whether it convinces other judges as well.

Backdoor Truck Deregulation

Thanks to the Teamsters trucking strike, the nation has been experiencing a taste of free-market shipping. For the duration of the strike, the Interstate Commerce Commission has suspended nearly all controls on who can carry what. And once the strike ends, there will be only token enforcement efforts against illegal operators. That's because ICC enforcement priorities are being shifted from hunting down gypsy truckers to ending "weight bumping" by household movers and other fraudulent practices that directly harm consumers.

The regulated truckers are, of course, furious over this shift. They have profited handsomely from ICC restrictions on competition and don't intend to give them up without a fight. But it looks like a losing battle. Even before the ICC's recent loosening up, gypsy truckers were managing to rack up from one to several billion dollars a year in business the regulated truckers consider theirs. There's a ready market for their services, since the illegals typically offer either lower prices or faster service.

Not enforcing regulations, but leaving them on the books, is clearly a less-than-ideal situation. Since the increased competition is a boon to consumers, the obvious answer is to repeal the regulations, as economists have been urging for years. As Business Week pointed out (April 23), "If the ICC wants more truckers on the road offering a wider variety of services and rates, it should speed up the deregulation process or even ask Congress for more authority to relax regulations." We agree.

Rhodesian Elections

Better late than never. That seems to be the rational way to view April's elections in Rhodesia. Having realized that the country's blacks were going to participate in governing the country—with or without the whites—Ian Smith's party very sensibly decided to make the best of it. In partnership with three black leaders, Smith set up an interim government, drafted a new constitution, and held the country's first multiracial elections.

And how did the opposition forces counteract the elections, which they termed a sham? Not by organizing a boycott. No such democratic niceties for the forces of Robert Mugabe, whose goal is "a one-party Marxist state." Practicing what they preach, his forces "burned tribal hamlets to stop villagers from voting," according to UPI. "The military command said insurgents set fire to villages dotting a 15-square-mile swath of the Mtilikwe Tribal Reserve and ordered hundreds of villagers to flee to the hills to prevent them from voting." Despite such tactics, an amazing 60 to 65 percent of the eligible voters went to the polls (compared with 38 percent in our own congressional elections last fall).

And how did independent observers view the elections? John Hutchinson of UCLA's Foundation for Research in Economics and Education told reporters he found the elections to be "free and fair." Widely respected Freedom House, whose observers included Bayard Rustin and Roscoe Drummond, called the elections "a significant advance toward majority rule in Zimbabwe Rhodesia." While pointing out the difficulties of holding elections with the majority of the country under martial law, Freedom House still concluded, "The effort of the Zimbabwe Rhodesian government to involve the people in the election seems creditable." Further, the group's statement pointed out, "elections in most underdeveloped countries are less free" than this one was. "In a world in which a peaceful change does not, and cannot, occur all at once, this election is a useful and creditable step toward the establishment of a free society in Zimbabwe Rhodesia."


Vegetables Deregulated. Fresh fruits and vegetables can now ride the rails free of ICC price controls. The decision to lift controls was the ICC's first use of a 1976 law giving it the power to exempt specific commodities from regulation. The move should help railroads compete with trucks, since shipments of produce by truck have never been regulated.

California Tax Initiatives. Howard Jarvis is at it again. This time it's the California income tax he's after. He has announced plans for an initiative, aimed at the June 1980 ballot, to cut state personal income tax rates in half, fully index the rate schedule to account for inflation, and repeal the hated business inventory tax. Petitions are already circulating for another initiative, this one aimed at phasing out the six percent sales tax over a three-year period.

Parkinson in Prison. An inmate has shown that Parkinson's Law applies in the federal prison system. In an article in Contemporary Crises, A.C. Villaume points out that from 1930 to 1977 the US Bureau of Prisons' inmate population increased by 93.7 percent; over the same time period, the number of employees grew by 874 percent. And the tendency still continues. In the past five years the prison population increased by 21.2 percent while employment grew by 82.75 percent. And as far as the author can determine, prison conditions are no better today than in the past.

Freedom from Unions. Religious schools are not required by law to bargain with teachers' unions. So ruled the Supreme Court in a 5-to-4 vote. The court concluded that the First Amendment's guarantee of religious freedom exempts religious schools from the jurisdiction of the National Labor Relations Board. In so doing it ended a joint NLRB/Justice Department campaign to force the Catholic Church to deal with teachers' unions.

Saying No to Tax. In one of the first post-Proposition 13 tax-increase elections by a California city, voters of Palos Verdes Estates said a decisive no to raising their property taxes to restore prior cutbacks. Under Proposition 13, no local government may increase any tax without a two-thirds vote in favor. In the March special elections, proponents could muster only 40 percent of the vote—a rousing endorsement of the spirit of Prop. 13.

Tuition Tax Credit Backed. Conservative Jewish rabbis have endorsed the idea of tax credits for private school tuition. Delegates to the 79th Rabbinical Assembly, meeting in Los Angeles, voted by a clear majority to support the Packwood-Moynihan tax credit bill for private and secondary school tuition.

Equality. If women are entitled to alimony, then so are men. That's how the Supreme Court saw it, in a 6-3 vote overturning the Alabama divorce law, which did not so provide. Eleven other states also had divorce laws requiring only men to pay alimony, now overturned as unconstitutional.

Costly Crimes. Those victimless crimes consume a lot of resources. A federally funded study reveals that 21 percent of all those appearing in the Washington, D.C., Superior Court in 1976 were accused of victimless crimes. About half were acquitted, and of those convicted, 83.8 percent never went to jail. The report documents the millions of dollars devoted to prosecution of these nonthreatening offenders—as well as the "opportunity costs" of not being able to use the same resources to pursue real criminals. While making no recommendations, the study by the Institute for Law and Social Research provides a valuable arsenal of facts.

Saying No to Parties. The number of Americans contributing $1 to one of the two major parties via their income tax return has declined, for the first time. The IRS reports that as of April 6 only $14.6 million had been so earmarked, compared with $17.8 million at the same point last year.

Hard Money on TV. Viewers of a recent Merv Griffin show (aired on April 17 in Los Angeles) were treated to a 90-minute exposition on the government as the source of inflation and the virtues of gold, silver, and hard currencies as defensive instruments. The show featured speakers from an American Economic Council conference, including Nicholas Deak, Howard Ruff, James Dines, James Sinclair, and AEC chairman Ken Gerbino.