Trends

Through-the-Roof Housing Costs

Most of those who have thought through the issue realize that where supply for a demanded product is restricted, prices will rise because they are the natural allocating mechanism. It should come as no surprise, then, that local land-use controls have contributed up to 28 percent of the rise in the cost of a home in northern California, while moratoriums on water hook-ups and downzoning to lower-density uses of property have added up to 25 percent to the price of a home in Santa Barbara County, California. The surprise is, one supposes, that so few people expected these results.

According to a paper by Kenneth Rosen, chairman of the Center for Real Estate and Urban Economics at the University of California in Berkeley, and Lawrence Katz, land-use regulations effectively keep housing costs "at a level high enough to prevent low, moderate and middle income families from finding houses [in the Bay Area] at prices they can afford." This is precisely the point that land-use proponents seem to ignore when they advocate larger minimum lot sizes or lower-density zoning—that controls cost, and that the benefits of clean air or open space or less traffic must be traded off. It may seem compassionate to fight for larger apartments (when a builder can only put, say, 20 instead of 35 units on a piece of land, he'll make them bigger so as to recover his cost); but the larger apartments always cost more and therefore drive out just the population most in need of housing relief.

In the city of Santa Barbara, for example, a "growth management" plan was passed in 1973 and added to in 1975 by the City Council. It halved the densities formerly permitted and lowered the population goal from 140,000 to 85,000; it also increased minimum lot sizes, so that densities dove from a maximum of 30 units per acre to a maximum of 12. Furthermore, as a paper by Lloyd Mercer and W. Douglas Morgan of the University of California at Santa Barbara demonstrates, in 1972 an artificial "water crisis" was declared in surrounding areas, paving the way for a water moratorium in three surrounding water districts in 1973. Mercer and Morgan contend that the "crisis" was simply that water prices were too low and therefore water was being used uneconomically. (A rise in water prices in 1973 and 1974 caused a significant decline in water use. Not one to let the facts confuse them, one of the water districts promptly lowered water prices to homeowners and raised them to agricultural users.)

Mercer and Morgan conclude that these and other growth restrictions are responsible for 25 percent of the tripling of housing prices in the last decade. Since they are not costless ways of attaining desirable results, they warn, "such costs should be included in future decision making regarding growth controls."

Reagan to IRS: Cut Staff

The Reagan administration has ordered the Internal Revenue Service to reduce its staff by about 6,000 persons, thus saving some $146 million a year. The IRS is appealing the order to the Office of Management and Budget on the grounds that such a staff cut could lose the government as much as $1 billion in tax revenues and affect efforts to improve auditing and enforcement efficiency.

Although the IRS cut comes to only seven percent of its total staff (86,400), so far it is the largest cut in numbers. The Consumer Product Safety Commission has been told to cut 30 percent of its staff, while the Bureau of Alcohol, Tobacco and Firearms has been told to cut 15 percent.

The Carter Administration had planned for an increased IRS staff for fiscal year 1982, with a budget of almost $9 billion. Part of the increase was attributed to the new "windfall profits" tax, which would of course require more processing and more auditing. One of the arguments put forth by the administration, however, is that since tax rates are likely to be reduced, fewer people will be motivated to cheat on their tax forms, and therefore fewer auditors will be needed.

User Charges for Airports, Waterways

Office of Management and Budget Director David A. Stockman has proposed higher user charges for airports and waterways as a way of reducing federal subsidies to those operations—subsidies now totaling about $2 billion annually. Stockman hopes to have them totally self-supporting eventually.

The airport increase would be on the tax on air fares, to nine percent from five percent. The increase would finance the air traffic control system, which now costs some $1.5 billion a year.

The waterway tax increase would be on the four-cents-a-gallon fuel tax for barges and such waterway users. It currently costs taxpayers $500 million a year for the Army Corps of Engineers to maintain American waterways.

Cultural Cable

For almost 17 years now, the Public Broadcasting System (PBS) has justified its taxpayer-supported existence by contending that cultural programming just doesn't pay; that if not for PBS, viewers would be left to the likes of Three's Company and Hee Haw. PBS's proponents may have been right about the lack of broad-based, profitable backing for its cultural fare, but at least five new cable companies plan to prove that cultural cable can be viable.

The key, it seems, is market segmentation. Cable and pay-TV companies stay afloat either by charging monthly subscriber fees or by offering advertisers a direct line to their kind of audience. The beer company Anheuser-Busch, for example, has signed a $25-million, five-year advertising contract with Getty's Entertainment and Sports Network—which presumably attracts the "beer-guzzling sports fan." Current pay-TV companies have made a success by offering popular movies and drama fare; there are over two dozen in existence today.

And now, culture. Already one independent cultural network has begun broadcasting (or "narrowcasting," as they put it). It is called "Bravo" and is offered as the Sunday-Monday portion of a seven-day schedule that is filled with "Escapade" offerings (R-movies) on the other days. Other prospects are: ABC and Warner-Amex's "Alpha"; CBS Cable; PBS's own "Public Subscriber Network"; and the recently formed RCTV's "Bluebird," which holds the first option on all BBC programming beginning in 1982. Start-up dates for these cultural systems range from April this year to 1983.

The Hearst Corporation and ABC Video have further collaborated on a new cable network, "Beta," which will focus on "upscale, aware" women's interests. As Hearst owns some 21 magazines aimed at women, including Cosmopolitan, Good Housekeeping, and Harper's Bazaar, there will be no lack of material.

The competition for cultural offerings, incidentally, comes at no better time. President Reagan announced plans in his February speech to Congress to cut $85 million from the annual federal subsidy to the arts and humanities. Furthermore, the task force on public broadcasting appointed by Reagan's transition team has recommended abolishing the Corporation for Public Broadcasting, the agency that channels federal money to PBS and to public radio stations.

Fran Griffin, head of the six-member task force, remarked: "It's more than just CPB. The whole issue is whether public broadcasting should be public. Should it use public funds?" With the influx of cultural cable, it seems PBS's arguments for existence are rapidly diminishing.

Comparable Worth: Market or Mandate?

In 1976, nurse Marilyn Shahan and eight other nurses sued their Denver city employer, claiming that nurses as a group were underpaid compared with other city jobs. US District Court Judge Fred Winner ruled that the law recognizes discrimination against people but not against jobs. Female clerical workers at the University of Northern Iowa had earlier sued the university on similar grounds, alleging that female-dominated occupations were lower-paid than male-dominated ones (e.g., library assistants as compared with boiler room operators) and, despite beginning at the same labor grade, earned far less over the period under examination (1970-77). The university argued that maintenance workers were in short supply in the local job market and hence salaries for those jobs had to be higher to attract workers. The District Court judge hearing the case ruled against the clerical workers on technical grounds.

The issue at question here is no longer whether people should be paid equally for equal jobs—that a male bank teller should be paid no more and no less than a female bank teller; that has passed from the radical to the acceptable. The issue, some groups insist, is that jobs have an "inherent worth" having nothing to do with the market and should be paid according to that worth. Certain quarters are now pushing for regulation to make this concept mandatory, at least among government employees. Among the groups that have studied and endorsed the concept of "comparable worth" thus far are the Office of Federal Contract Compliance Programs, the Equal Employment Opportunity Commission, the AFL-CIO, the Washington Federation of State Employees (affiliated with the American Federation of State, County, and Municipal Employees), and the Washington Department of Personnel. Ms. recently carried an article strongly in favor of comparable worth, while more critical articles have appeared in Business Week and Atlantic Monthly. Comparable worth is clearly going to be a major issue.

The Atlantic Monthly article details some statistics that belie the contention that sex discrimination is the sole cause of pay discrepancies. "In all three cities [New York/New Jersey, Chicago, and Los Angeles], female secretaries earn more than nurses," author Vivienne Killingsworth points out. "Secretaries also earn more than male truckers in the Los Angeles area and more than male electricians, machinists, and truckers in the greater New York area."

There is no denying the fact, however, that the infiltration of males into a female-dominated profession tends to upgrade the status—and sometimes the pay scale—of an occupation. This has less to do with management sexism, if any, than with the way society is. In an article in the Wall Street Journal on such incursions into female-dominated professions, male nurse Donald Olayer points out that men are more assertive, that they tend not to "buy the Florence Nightingale garbage they teach in nursing school," and that men organize to fight for better status and pay—perhaps simply because of the way they were brought up.

The main problems with mandatory comparable worth pay scales, say its detractors—including the Urban Institute and the Equal Employment Advisory Council (EEAC), both in Washington—are that they are likely to produce layoffs in the female job sector, so that the fewer workers remaining can be given the higher pay; and that women will be given very bad career signals to stay in female-dominated jobs. "The government should be trying to break down barriers against women in fields like engineering, not looking for ways to get pay increased in fields like library work," says Dr. June O'Neil, director of the Urban Institute's Program on Women and the Family.

Meanwhile, the pro-business advocacy group EEAC has put out a book on the matter: Comparable Worth: Issues and Alternatives, in which various authors contribute essays that mainly point out the fallacy of disregarding the market when setting pay scales.

FTC, Synfuels May Be Curbed

Two popular programs—under the Carter administration anyway—are showing signs of withering under the scrutiny of budget-minded Reagan advisors. The Federal Trade Commission, notes a Reagan transition team report, has performed inadequately, and a "further narrowing of the agency's authority and a more explicit description of the agency's mandate" is required. Second, construction of several synthetic fuel plants under Energy Department grants may be suspended while the Reagan administration reworks the government's financial liability in such projects.

The transition team's FTC report recommended the appointment of a new chairman who shares more of Reagan's "basic philosophy." It also called for a 6.5 percent reduction in the fiscal 1981 budget, followed by a 24.9 percent reduction the following year. Such cuts, the report contended, could be made by eliminating FTC regional offices and by ending the funding of outside organizations, usually consumer groups, that participate in FTC proceedings. The should also redirect its focus, the team's report suggested, on monitoring industry self-regulation, rather than on imposing regulations.

The synfuels program, on the other hand, is a messy one involving the Department of Energy and other governments. In his speech to Congress in February, Reagan noted that the government could save $3.2 billion at least "by leaving to private industry the building of plants to make liquid or gas fuels from coal." Current negotiations have non-federal government sources liable for only five percent, at most, of the cost; White House advisors would increase that to at least 40 percent. At press time, the president had not yet appointed a new chairman or the six other board members for the quasi-governmental US Synthetic Fuels Corporation, formerly headed by Carter appointee John Sawhill. The corporation was set up in 1980 to oversee a $20-billion program of loan guarantees and price supports to encourage the production of liquid and gaseous fuels out of coal and shale oil. In late February, Reagan acted to cut back on the salaries and fringe benefits that would have been offered to these officers.

Private Buses Bring Lower Fares

Ever since the British government ended its monopoly on express bus service in October 1980, the number of passengers commuting on both state and private buses has boomed while fares have plummeted. The Free Nation, a London free-market-oriented newspaper, reports that the private British Coachways has thus far achieved a seating occupancy in excess of 80 percent on all of its eight routes.

British Coachways first challenged the state-owned National Express by lowering standard fares on its routes, which the National Express was soon forced to follow. The fare from London to Birmingham, for instance, had been £5.40 under the monopoly service but is now only £2.00 because of British Coachway's competition (both companies charge the lower fare today).

The lower fares have further attracted more passengers. British Coachways carried over 10,000 passengers alone in its first month of operation. It expects to add at least three new routes from London in the near future.

Louisiana Loosens Home Study Laws

Woody Jenkins has pushed through the Louisiana House a bill, Act 828, which allows parents to educate their children at home. The bill is quite explicit about giving leeway to various types of schooling—if one reads through the clever legalese.

The bill first states that nongovernment schools that receive no local, state, or federal funds "shall meet such requirements as may be prescribed by the school or the church" (emphasis added)—and not by the Board of Education. Act 828 then asserts that a child who participates in a home study program approved by the Board of Education is fulfilling his or her compulsory attendance obligations. And "a home study program shall be approved," says the act, "if it offers a sustained curriculum of a quality at least equal to that offered by public schools at the same grade level," obviously not a difficult requirement to meet these days. The use of the phrase "shall be approved" is generally recognized as prescriptive rather than advisory.

Private Medicine for Prisoners

In a classic case of the division of labor's beneficial effects, certain state prison systems are finding better health care for inmates through contracting with private medical groups. "There are people better qualified than wardens to know how to run a medical program in prison," Illinois Department of Corrections Acting Director Mike Lane says.

Lane started contracting for doctors' time when he was the warden at Menard Correctional Facility in 1977. It worked so well that prisoners now enjoy the care of prestigious doctors and dentists under contract to private firms—professionals who would never have been caught dead as "prison docs." And while private firms cost more (Illinois's average spending per inmate increased from $335 in 1975 to $835 in 1980), by providing better health care they save the state millions of dollars in legal expenses resulting from suits over inadequate care.

In St. Louis, Correctional Medical Systems, Inc., supplies a package of administrators, doctors, nurses, drugs, and malpractice insurance to three prisons in Illinois and four in Georgia. In New York City's Rikers Island facility, a contract with Montefiore Hospital has lowered the suicide rate and brought better screening for tuberculosis and venereal disease.

Free Trade Zones Prosper

REASON readers may remember a June 1978 article we published by Prof. Alvin Rabushka called "Pockets of Free Trade in an Unfree World." Well, the notion of free trade zones (FTZ) is slowly coming to light not only in Rabushka's East, but in the rest of the world. Europe leads the pack with over 90 free trade zones, followed by Latin America and the Caribbean with about 85, the United States with 63, Africa with approximately 54, the Far East with some 38, the Mideast with 25, and Mexico with eight.

Free trade zones are basically fenced-off areas with very few, if any, taxes on imports, labor, and exports produced within the area for a set length of time. Red tape is kept to a minimum to attract investors and is generally handled by only one bureaucracy. The concept's economic potential in the underdeveloped countries can be demonstrated by the success FTZs have had in Sri Lanka. In the last year, the new pro-free-market government of Junius Jayewardene has been wooing foreign investors with the promise of relative political stability and liberal FTZ benefits. The US Motorola Semi-Conductors Company, for instance, signed an agreement with Sri Lanka in October for a $22 million project in exchange for 100 percent foreign ownership, free transfer of profits, and no taxes for the first 10 years. As Jayewardene told Ben Wattenberg in a television interview, "Let the robber barons come!"

The real surprise, though, is the existence of so many FTZs in the United States itself. The devaluation of the dollar against foreign currency has caused a boom in the last few years. The 40 operating FTZs in America—of 63 approved by the Commerce Department's Foreign Trade Zones Board—comprise some 1,100 companies which employ about 11,000 people. A majority of the multinationals who use US FTZs are foreign-owned (70 percent), such as Olivetti, Volkswagen, and Sony. Some of the American firms which operate in FTZs are Sears, Ford, and General Foods.

Columbia University economist Jagdish Bhagwati recommends that FTZs be used as a way to "smuggle in" free trade. "You design…six little Hong Kongs," he says, "and you hope that eventually they will dominate all of India." Or, better yet, all of the globe!

Marijuana Mess

In January, Trends reported on a California state program to test marijuana's post-chemotherapy, nausea-reducing qualities (and those of its synthetic equivalent, THC). At that time, start-up had been "indefinitely" delayed by the federal government's inability to supply the necessary quota, a situation made especially ridiculous by the presence of counties in California where marijuana is the largest cash crop.

Well, more than half a year later the snafus have yet to be untangled. About 5,000 cancer patients who hope to be involved in the project and 220 California physicians are still frustrated over the federal government's bungling; they have been waiting since the program was okayed in January 1980. Even state officials were surprised to learn that the federal government had destroyed a portion of its legal crop (grown courtesy of the National Cancer Institute), while failing to deliver on its promises.

Part of the problem, it seems, is warring bureaucracies. California asked the National Institute of Drug Abuse (then the only legal grower of the crop and manufacturer of THC) for $1 million worth of THC capsules. And according to NIDA official Robert Willette, "That exceeded the total federal supply." As Willette told it to the Los Angeles Times, NIDA "viewed the request with surprise and found it must have taken a certain amount of gall to ask for so much." So NIDA has proceeded to do nothing, although as Willette admitted, the California program had been approved by the US Food and Drug Administration.

Meanwhile, doctors' prescriptions for the legal marijuana have expired and must now be renewed—another bureaucratic delay. In 1980, the California government destroyed over 200 tons of illegal confiscated marijuana. And in 1981, cancer patients are still suffering.

Milestones

County Boots Rent Control. Montgomery County, Maryland, Executive Charles W. Gilchrist vetoed a bill that would have extended the last rent control law in suburban Maryland. The bill would have raised the maximum allowable rent increase on about 15,900 covered apartments from the previous rate of 10 percent annually to a figure linked to the Consumer Price Index. Gilchrist said that any rent controls would continue to discourage rental construction and encourage condominium conversions.

India's Black Bonds. India's government is now offering high-interest, nontaxable bonds to anyone who will purchase them with black market money only. The bonds, paying 20 percent interest to "the bearer," are being issued in order to draw out money from the underground economy, estimated to be fully half as large as India's legal cash flow. Some critics of the anonymous bonds argue that the government is condoning the black market; others complain that the interest rate offered is not high enough to compete with other non-taxed investments.

The Shortest Distance Between…The Common Market Council is considering a modest deregulation of European air travel. Basically, a commission is proposing that direct interregional routes, bypassing the larger, central cities, be allowed together with more control over regional tariffs and some sort of consumer reaction forum. The commission expects to save 15 to 20 percent per passenger.

Deregulated Spirits. Gov. Dick Thornburgh of Pennsylvania is proposing to turn over liquor sales in that state to private enterprise, Pennsylvania being one of the remaining 18 states that monopolize the sale of distilled spirits and wine. The governor expects the state to make $250-$300 million in revenue through the sale of liquor licenses if his proposal is accepted.

Legislative Veto. Does Congress have the right to veto executive decisions? That controversy, mentioned in a January Trends item, is still unresolved and will probably be examined by Congress in the near future. A court case is now under consideration in Denver, concerning Congress's veto of four sets of proposed regulations from Education Department Secretary Shirley Hufstedler, who was then advised by Attorney General Benjamin Civiletti to ignore the "unconstitutional" veto. She went ahead with one of the reforms and is now being sued.

DMSO Legalized. Florida's legislature has signed into law a measure legalizing the manufacture of dimethyl sulfoxide (DMSO), a drug that allegedly helps ease arthritis. Its legalization, proponents say, will bring the price down from $200 a pint on the current black market to between $5 and $10.

A Sight for Sore Eyes. A current Mobil Corporation print ad is headlined "It's all 'ho-hum' to Adam Smith." The ad points out that the flurry of natural gas exploration after Congress passed legislation raising the price ceilings on newly discovered gas made the front page of the New York Times, although it was an occurrence that Adam Smith could have predicted 200 years ago. After listing impressive free market arguments for the decontrol of gas and oil, the ad praises the concept of profit, "the most effective mechanism man has ever devised to direct the flow of capital to where it's needed most."