Gas Price Wars

The federal energy police are on the march—and they've made their first arrest. On June 7, federal marshals arrested Glenn M. Heller, owner of Boston's Beacon Hill Gulf station. His crime? Selling gasoline for $1.52 per gallon, "unlawfully, knowingly, and willfully…in excess of the maximum allowable computed pursuant to federal regulations." According to an employee who remained behind (and continued to sell gas at $1.52), Heller believes in the free-enterprise system and therefore believes he should be allowed to charge whatever customers will pay. As East Coast gasoline lines lengthened throughout June and July, many motorists must have wished more stations had been selling some gas—any gas—at $1.52 per gallon.

In California, however, one 138-station chain was selling gasoline at up to $1.39 a gallon during June, setting its price at each station according to supply and demand. Accordingly, its stations were able to remain open throughout that state's period of panic buying, providing a source of "emergency gas" to all comers willing to pay its prices. And it was all legal, at least according to federal rules.

John F. Roscoe's Shortstop gas station chain was simply taking advantage of the intricate pricing regulations and its own competitive pricing strategies of prior years. Federal regulations don't control individual pump prices—only the station's profit margin. And even that ceiling can be ignored if a station has regularly charged below ceiling prices. Shortstop's accumulated "bank" of unrecovered charges from past years of low pricing amounted to over $8 million. Consequently, in recent weeks it has been able to raise prices to market-clearing levels.

"We're going to try to have gasoline available to our customers at some price 365 days a year," says Roscoe. But that philosophy has led his station managers to wink at state-imposed even-odd rationing regulation. "I don't want my people to act as vigilantes," Roscoe says. "There's no way I'm going to endanger anybody's life by denying them gasoline. Especially in some of the tougher areas, we get some screaming customers in the middle of the night." Since Shortstop outlets are self-service, it is difficult for the operator (in a booth) to check everyone's license plate numbers. "We're more or less on the honor system," says one station manager. The rumor is widespread (though false) that the governor has granted Shortstop an exemption from the even-odd regulation, in order to have emergency gas available.

Shortstop's market-pricing policies provide a clear-cut demonstration of the benefit of economic rather than political solutions to apparent shortage situations. What a contrast to the federal gasoline gestapo!

Davis-Bacon Repeal?

A one-time political sacred cow, the Davis-Bacon Act, may bite the dust within the next year or two. So predicts Sen. Orrin Hatch, who is leading a congressional effort to repeal the 1931 law.

Passed during the Depression, Davis-Bacon requires the payment of "prevailing wages" on all federal construction contracts. In practice, the Labor Department has always interpreted this to mean the highest union wage rates in the region, thereby needlessly increasing the cost of federal construction projects. Attacked by economists for years as one of the anticompetitive regulations that contributes to high prices, Davis-Bacon has remained intact because of the unions' political clout.

But many Washington observers, noting Big Labor's losses on several key issues over the past few years and the prevalence of inflation as citizens' number-one worry (even among union members), think Hatch's three-year-old effort at repeal may be close to succeeding. Forty states have their own version of the law, applicable to state construction contracts, and repeal legislation is now pending in 31 of them. In April, Florida became the first state to repeal its mini-Davis-Bacon. The way things are going, it probably won't be the last.

Third World Discovers Capitalism

All over the world the trend is away from socialism and toward private enterprise and the free market. One of the most dramatic turnarounds has taken place during the past two years in the island nation of Sri Lanka. When Junius Jayawardene's United National Party won a landslide election victory in 1977, they took over a government that had socialized, taxed, and regulated the population nearly to death. In short order Jayawardene's administration cut taxes, dumped many licenses and permits, reduced price controls and import duties, and cut back on costly rice and flour subsidies.

Now the results are starting to come in. Economic growth has doubled, from 3 percent to 6 percent. Foreign investment, attracted by a newly created free-trade zone, has leaped to 13 times the 1977 level. Six factories have been built in the free-trade zone (where there are no taxes or duties for a five-year period), and more are under construction.

In Africa, one of the continent's few economic success stories—the Ivory Coast—owes that success to a similar policy of welcoming investment by keeping taxes low. Independent since 1960, the Ivory Coast has been led since that time by President Felix Houphouet-Boigny, an ardent free-trader. In the past 15 years the country's gross national product has tripled; over the past 30 years per capita income has risen from $70 to nearly $1,000—the highest in black Africa. Unlike many African governments, the Ivory Coast's has welcomed former colonialists; as a result, the number of French expatriates is five times greater than in 1960. Interestingly, there are no political prisoners, and Houphouet-Boigny maintains a dialogue with South Africa.

Latin America, too, shows signs of rediscovering the market. The new Panamanian government this year plans to expand the Colon Free Zone, a tax-free haven where hundreds of firms have storage and prepackaging facilities. The mayor of Rio de Janiero hopes to restore the economy of Brazil's former capital by creating a free-trade zone and establishing new freedom for banking operations there. Chile's military government, strongly influenced by Chicago school economics, has systematically cut tariffs and reduced money-supply growth. As a result, inflation has been brought down to 20-25 percent from over 500 percent six years ago.

Perhaps the most impressive turnaround in Latin America has taken place in Puerto Rico. Following the theories of University of Southern California economist Arthur Laffer, the newly elected government of Gov. Carlos Romero Barcelo in 1977 eliminated a hated five percent income surtax (called La Vampirita) and a five percent Korean War "Victory Tax." In 1978 all income tax rates were cut by five percent more—and yet another five percent cut is scheduled for next year. Excise taxes have been reduced and a $2 per barrel oil import surtax repealed.

According to Laffer's theory, cutting down on an excessive tax burden should lead to an explosive growth of economic activity—perhaps even enough to lead to increased tax revenues. The results have been just as predicted. In three years 107,000 new jobs have been created, and real economic growth is averaging six percent a year. Moreover, the government budget's former deficit has been replaced with a $50 million surplus, as a booming economy generates higher revenues. In Laffer's words, the tax cuts represent Puerto Rico's Proposition 13. And as in California, the result is increased prosperity.

Tuition Tax Credit—Down But Not Out

Many supporters of the idea of tax credits for those who pay tuition to private elementary and secondary schools were dismayed by a May 29 ruling of the US Supreme Court. In a 6-3 decision the court struck down a New Jersey law giving such tuition payers a $1,000 tax deduction. But all is not lost, according to the West Coast office of the National Taxpayers Union.

The New Jersey case involved a law that applied only to parents of private-school pupils. And since in New Jersey that meant 95 percent parochial-school pupils, the law was attacked—successfully—as being an aid to religion. But the US Court of Appeals decision that the Supreme Court upheld had specifically contrasted New Jersey's law with a Minnesota law that applies the tax benefit to all parents—both public-school parents and private-school parents. That law was upheld in Minnesota last year and not appealed, and a similar type of law has just been passed in Rhode Island.

Thus, measures that apply equally to public and private tuition and fees—like the tax-credit initiative effort now underway in California—appear to be constitutional.

Cable TV Advances

Competition with mediocre, least-common-denominator network television continues to develop, what with conventional cable TV, pay cable, over-the-air pay TV, and two-way cable. And now the burgeoning alternative TV industry is entering the next logical phase of development—free-market pricing.

The state of Massachusetts has taken the lead. Early in June the legislature passed and Gov. Edward King signed into law a bill enabling the state's Cable Television Commission to cease establishing the rates charged by cable companies. The Commission itself had urged passage of the bill because, according to Director Jeff Forbes, "If there is competition, the market is a better regulator of prices than a government agency." The new law permits the commission to deregulate rates in any community where it finds a competitive situation. Forbes defines competition broadly, to include all forms of alternative TV; thus, it will not be necessary to have two conventional cable operators in order to deregulate.

Cable-pricing deregulation is also making headway in California, where cities and counties have the authority to grant franchises and regulate rates. Already 36 cities and counties have deregulated cable, and despite fears of opponents, prices in deregulated areas have not increased. (The average price in deregulated communities is $7.43 per month versus $7.31 per month in regulated ones.) And a bill to remove rate-regulating power altogether has passed the state Assembly by a whopping 59-15 and is now being considered by the Senate. It enjoys the support of Gov. Jerry Brown, whose legal affairs secretary calls it "the most potentially exciting measure that is being deliberated in the capital."

Meanwhile, in other cable developments, Warner Communications has announced that Houston is to be the second city to receive its innovative QUBE two-way cable service. And Atlanta entrepreneur Ted Turner, originator of the super-station, has announced the formation of a 24-hour, 50 percent live all-news network solely for cable TV stations. Daniel Schorr, former CBS-TV newsman, has been hired as chief Washington correspondent for the new network, which is scheduled to be in operation by July 1, 1980.

Aerospace Privatization

The trend toward privatization of aerospace operations (see, for example, our Apr. 1979 issue) continues to develop. NASA is this summer taking the first major step toward turning over its space shuttle to private enterprise, briefing prospective bidders on a multiyear, several-hundred-million-dollar contract to handle all payload integration activities for civilian shuttle operations. By switching from in-house to contractor operations, NASA expects to save up to $1 million per shuttle launch—because of greater efficiency and cost-effectiveness. Government personnel at the Kennedy Space Center will be cut by 400-700 once the contract is in full swing. The payload integration contract is a precursor of a larger contract that would privatize all shuttle launch operations. And that, in turn, could be followed by full-scale privatization of the space shuttle, according to Aviation Week.

Another large-scale experiment in privatization is scheduled for this fall. In October the Department of Defense plans to contract out the entire support operation of Fort Gordon, Georgia. The winning bidder would be responsible for such operations as food service, security, laundry, landscaping, maintenance, and repair—including all electronic equipment maintenance. According to William S. Fishman of ARA Services (one of the prospective bidders), Defense "has indicated that if this proves sound, it may consider contracting out all of its installations." In an earlier experiment, contract operation of Vance Air Force Base saved 20 to 30 percent (see Trends, Nov. 1978).

NASA may soon lose another of its programs to the private sector—Landsat, the remote-sensing satellite system. In the last few years a considerable market has grown up for the data developed by these satellites—for crop inventories, forestry, water-quality assessment, flood control, pollution monitoring, and, of course, mineral prospecting. Support for privatizing these operations is widespread—the only debate is over exactly when and how:

• Sen. Adlai Stevenson wants NASA to set up a remote-sensing business and operate it for seven years before turning it over to the private sector or another agency.

• Sen. Harrison Schmitt prefers setting up an investor-owned but federally chartered corporation (like highly successful Comsat) to provide remote-sensing services.

• Comsat itself would like to be designated by the government as "the" operator of such a system, either taking over the existing (experimental) Landsats under contract or leaving them with NASA while developing its own, more advanced (stereoscopic) satellite capability.

The Carter administration is so far noncommital, with science advisor Frank Press saying he thinks the market for a fully commercial remote sensing system is not yet there. But all do agree that it's only a matter of time.

Trucks and Buses—Deregulation This Year?

The prospects for deregulating trucks and buses—once considered dim because of strong industry and Teamsters Union opposition—have considerably brightened.

The strike in early summer by independent truckers included strong demands for deregulation. As a result, the Carter administration joined forces with Sen. Edward Kennedy to introduce a compromise bill that retains most of the features of the latter's truck deregulation measure (see Trends, Aug.). The joint measure was sent to Congress on June 21, amidst trendy proclamations that it would reduce fuel consumption (by eliminating circuitous routing and empty backhauls) and save consumers $5 billion a year in shipping costs. The Interstate Commerce Commission let it be known in May that it now supports deregulation legislation and intends to continue its own efforts to increase trucking competition.

Significantly, the momentum for truck deregulation is now great enough that its opponents have changed their approach. Instead of outright opposition, the Teamsters and the American Trucking Associations are now trying to water down whatever bill is to be passed. They're willing to support some relaxation of price regulation but are adamantly opposed to ending restrictions on entry or giving up price fixing by rate bureaus—the key monopoly-preserving feature of the status quo.

Bus deregulation is not being lost in the shuffle. The Carter administration has promised a bill in the near future, and the two biggest firms—Greyhound and Trailways—are backing the idea (see Trends, May). Trailways is also pushing for a temporary exemption from existing regulations to enable it to expand service into Greyhound territory this summer to help ease the gas crunch—a move supported by inflation czar Alfred Kahn. And in California, Trailways is urging state-level deregulation to permit it to compete with Greyhound on several major routes. Three separate bills to end long-haul bus monopoly franchises are pending in the California Legislature.

With more and more motorists seeking alternative forms of transportation, deregulating bus lines so as to expand service may well be an idea whose time has come.

Leftists Losing Europe

All across Europe, Socialists and Communists are going down to defeat, victims of a spreading revolt against big government and taxation.

A case in point was June's election for the new European Parliament. Despite strenuous campaigning by Socialists and Social-Democrats, they won only 110 seats (after a French recount cost that Socialist Party one of its seats) and the Communists only 42 (24 from Italy and 18 from France). The coalition of Liberals, Christian Democrats, and Conservatives together garnered 208 seats, for a clear working majority of the 410-member body.

That election came hard on the heels of the Italian national elections, in which the Communists suffered their first major postwar setback, losing 26 of their 227 parliamentary seats and dropping from 34.4 percent of the vote (in 1976) to 30.4 percent. In the months preceding the election the Communists had been outspoken in opposing cuts in government spending; apparently the voters disagreed. The Communists also lost especially heavily in major cities where they run the local government, losing 6 percent in Rome, 4 percent in Turin, and 10 percent in Naples. (The big gainer, incidentally, was the small Radical Party—champion of civil rights, divorce, abortion-law reform, feminism, and gay rights. It tripled its vote total and won 14 new seats for a total of 18.)

The Tory victory in England has cheered many free-market advocates. Margaret Thatcher's new government quickly began keeping its campaign promises. In office only a few weeks, it slashed income tax rates (though increasing sales taxes) and cut the national budget by about $3 billion.

Britain now has its first Taxpayers' Union, which intends to carry the spirit of Proposition 13 across the Atlantic. Founders Iain Brodie and Tony Fox report membership at 1,000; interest is being sparked by local tax-rate increases of 17-40 percent, and there is much talk of tax strikes in London's inner boroughs. This kind of grassroots pressure will probably be needed if the wave of anti-State feeling is to be sustained.

The free-market-oriented Shadow European Economic Policy Committee held its annual meeting in Paris at the end of May. Its members concluded that the prospects for achieving stable growth and lowering inflation in Europe are brighter than in many years. "Voters are coming to realize that the growth of aggregate output has fallen as the relative size of the public sector has increased," said economist Allan H. Meltzer at the meeting. To set things right, the group recommends steadily cutting the growth rates of both government spending and money supply in all European countries. To sustain such efforts in the face of special-interest pleas will require an active taxpayer effort—of which the British Taxpayers' Union looks to be the prototype.

Laetrile Setbacks

The right to decide one's own medication—in this case, to use the alleged anticancer drug Laetrile—has been denied by two of the nation's highest courts.

In a 5-2 decision the California Supreme Court upheld lower-court rulings that it is a felony to "conspire to smuggle and administer Laetrile." That case affirmed the conviction of well-known Laetrile advocate Dr. James R. Privitera. And in a unanimous decision, the US Supreme Court overturned a federal appeals court ruling that had barred the Food and Drug Administration from interfering with interstate sale and distribution of Laetrile for use by patients with terminal cancer. That case had originally been decided in favor of free choice by federal district judge Luther Bohanon of Oklahoma.

There was a ray of hope within each decision, nevertheless. In the California case, Chief Justice Rose Bird—a liberal and herself a breast cancer patient—joined Justice Frank Newman in a 56-page dissent that proclaimed, "The issue here is human liberty. Can the informed cancer-ridden patient be limited in choice of treatment received from a State-licensed physician to 'state-licensed alternatives'?" Further on, Justice Bird added, "I believe the right to privacy, recognized under both state and federal constitutions, prevents the State from interfering with a person's choice of treatment on the sole grounds that the person has chosen a treatment which the State considers 'ineffective.'" Reportedly, Dr. Privitera and his codefendants will appeal to the US Supreme Court on these grounds.

If they do, they may well get a sympathetic hearing. For in overturning the federal appeals court decision, the Supreme Court justices acted on the very narrow grounds that the FDA's requirements should not be applied differentially to the terminally ill. The justices sent the case back to the appeals court, telling it to consider the alternative arguments that had originally been raised in Judge Bohanon's district court ruling—including the right-to-privacy issue and the argument that Laetrile is such an old substance that it is exempt from FDA new-drug regulations under a grandfather provision in the drug laws.

In short, medical freedom of choice is down but not out.


Break for Savers. Federal bank regulators have loosened the rules a bit for small savers, allowing them to pool funds to buy $10,000 six-month certificates (at 9 percent) rather than being stuck with 5 or 5.5 percent on passbook accounts. There's just one catch: it remains illegal for banks to advertise this new opportunity.

Socialized Teeth. The British get "free" dental care from their National Health Service. So their teeth should be in good shape, right? Guess again. One-third of all Britishers over 16 have no natural teeth—it's 44 percent in Scotland. Over half the adults wear dentures (compared with 15 percent in the private-enterprise USA). And 95 percent of the 10-year-olds and 75 percent of the 5-year-olds in Britain need dental care. What's the problem? The waiting lists are at least six months long at NHS dentists, discouraging all but the most desperate from bothering to obtain dental care. Another triumph for socialism!

Nonsecrets. Despite the federal government's attempt to censor the Progressive's H-bomb story, the three essential "secrets" of the H-bomb were declassified six years ago. That fact was inadvertently disclosed in June by the government counsel in the case, Thomas S. Martin. Martin refused to release document UCRL-5280 to defense lawyers, contending that it contained the three secrets sought to be protected by censoring the magazine article. Yet UCRL-5280 was declassified in December 1973 and kept in the public stacks of the Los Alamos, N.M., Scientific Library until May 1978, when it was removed and subsequently reclassified. No one knows how many copies may have been made and disseminated between 1973 and 1978.

Affirmative Action Handicapped. By a unanimous vote the Supreme Court has ruled that colleges need not spend extra money on making all programs and facilities accessible to the handicapped. Federal funding may not be cut off if schools fail to adopt affirmative action on behalf of the handicapped, fail to modify their programs, or deny admission to persons who cannot meet the physical standards for such programs as medicine and nursing.

Pot Measure. In the wake of polls showing greatly increased tolerance for marijuana, NORML has announced a campaign to put a decriminalization measure on the November 1980 California ballot. The initiative would remove all criminal penalties for possession, cultivation, and non-profit transfers of pot for personal use.

Coal Lands Reopened. The eight-year moratorium on coal leasing on federal land (see "Why Coal Won't Be America's Energy Solution," and "Environmental Activists Capture Washington," REASON, Oct. 1977 and May 1979) has been ended. The Interior Department has announced that coal leasing will resume under new regulations—but most likely in 1981 or 1982, so don't look for any quick increases in energy supplies.

CAB Phase-Out. As part of its move toward abolition, the CAB is encouraging employees to take early retirement. Its "pre-retirement" seminars in May attracted nearly 100 employees. The agency must cut its personnel from 819 to 743 by September 1980, on the way toward abolition by the end of 1984.

Untaxing Nevada. Nevada voters have voted overwhelmingly to repeal the state's 3½ percent sales tax on food. Also part of the tax rollback measure—approved by a 4-to-1 margin—was a 27 percent slash in property taxes and repeal of the personal property tax on household goods. An effort is now under way in Utah to repeal the state's sales tax on food as well.