Offshore Oil: Watt's the News?
At a House subcommittee hearing on offshore oil drilling in April, Interior Secretary James Watt once again outraged environmentalists: "Our Interior Department scientists report that there have been no known significant long-term damages to the marine environment" as a result of either the 1969 Santa Barbara oil spill or the 1980 blowout at Ixtoc, Mexico. Watt's views on the subject are reinforced by a 1974 study by the Gulf Universities Research Consortium, which found that 30 years of oil drilling had done no damage to the environment of the Gulf of Mexico.
That was not the last word on the subject, however. In June the National Academy of Sciences' National Research Council issued a cautious report concluding that the subject is still in dispute among scientists and urging further research. But the most intriguing report was yet to come.
In July the wire services reported the findings of marine biologist Robert Spies of Lawrence Livermore National Laboratory. For five years Spies has been studying the effects on marine organisms of prolonged low-level (four to five parts per billion) exposure to oil. His study area is the Isla Vista seep, a 1,000-square-meter area near Santa Barbara in which 50-75 barrels of crude oil per day seep out naturally from the seabed.
What Spies has found is that marine life is actually more abundant in the seep area than in oil-free areas a mile away. Despite the presence of an oil slick and floating tar balls on the surface, fish, shellfish, starfish, worms, and other bottom-dwellers are thriving. What seems to be occurring, Spies concludes, is that bacterial colonies above the oil vents are ingesting and directly metabolizing the oil. The bacteria are eaten by bottom-dwelling marine worms, which in turn are eaten by starfish, crabs, and bottom-feeding fish.
In addition, Spies believes that many of the organisms have adapted biochemically. Those in the seep area have much higher-than-normal levels of an enzyme known as "mixed function oxidase," which breaks the oil down into harmless compounds. Most marine animals possess the enzyme, but it apparently must be "turned on" by the presence of petroleum or similar hydrocarbons.
Thus, there may be grounds for Secretary Watt to return to Congress with the message that oil is actually good for the marine environment. We'd hate to be around for the howls that would follow that one!
Phone Deregulation on the Line
A decade of decisions by the Federal Communications Commission (FCC) has opened up both the long-distance and the telephone equipment markets to competition. Most recently, the FCC in June extended its previous ruling allowing the resale and sharing of leased telephone circuits to all such services, including Wide Area Telecommunications Service (the familiar WATS lines). Already there are more than 30 companies in the discount long-distance market, and they have captured four percent of the business from AT&T. And about 30 more firms have applied to the FCC to enter the resale business.
How far telephone deregulation will go, however, is yet to be decided. As noted in these pages in April (see "Dial 'D' for Deregulation") three powerful institutions are attempting to have the deciding say-so: the FCC, the Justice Department, and Congress. The FCC's Computer Inquiry II deregulation plan is scheduled to take effect on March 1, 1982. It would allow AT&T to set up an unregulated subsidiary to offer advanced forms of computer-aided communications and information services—subject to competition in the marketplace. But there's the rub: given AT&T's huge assets and decades of protection from competition, many would-be competitors fear that Ma Bell could use profits from its monopoly to subsidize losses on competitive services. Thus, the FCC's plan is under legal challenge in the courts.
For that reason, most advocates of deregulation favor congressional action, which would be much less vulnerable to legal attack than would FCC administrative action. In July the Senate Commerce Committee overwhelmingly approved a deregulation bill similar to the FCC plan. After lobbying from various competitors, the committee included amendments aimed at (1) ensuring real independence of the unregulated AT&T subsidiary, (2) phasing in competition on long-distance routes (that is, AT&T service on a route would be deregulated only when competitors emerged), and (3) sharply restricting AT&T's ability to compete with newspapers in teletext and videotext services. The bill sailed through the committee after a strong endorsement by the Reagan administration and may have passed the full Senate by the time you read this. House action is expected this fall.
Whether the Justice Department will have any say at all is now in doubt. The administration has told Congress that it will drop the Justice Department's massive antitrust suit against AT&T if the deregulation bill includes provisions (1) requiring the company "to meet a competitive market test" in selling equipment from its Western Electric subsidiary to competitors and to the 23 Bell System operating companies and (2) strengthening the rights of competitors to "equal treatment" in connecting with local telephone networks. The antitrust case had sought to divest AT&T of Western Electric altogether and to split AT&T into several independent companies.
Excising the Teeth from the Big = Bad Wolf
As reported here in April, even liberal-left economists like Lester Thurow now concede that antitrust is a flop. Over the past 20 years, market-oriented economists have built up an impressive case against the idea that government can or should attempt to shape competition. Today, that case finds two of its leading advocates in the men responsible for shaping federal antitrust policy: Atty. Gen. William French Smith and Justice Department antitrust chief William Baxter.
In a speech to the District of Columbia Bar Association, Smith alluded to several of the economists' main findings. For one thing, "We must recognize that bigness in business does not necessarily mean badness and that success should not be automatically suspect." Frequently, firms have large market shares because they do a better job. Yet much recent antitrust activity—for example, the Justice Department's merger guidelines and the Federal Trade Commission's "shared monopoly" prosecution of cereal makers—has presumed that large market shares are the result of unfair "market power" that should be curbed by government.
"Some have argued that competition is synonymous with a large number of competitors," Smith continued. "Economic reality, however, is more complex. In some industries [car polish, for example] competition yields a large number of competitors—in others [cars, for example], only a few—depending upon the economies of scale, distribution costs, and other factors."
The results of this new antitrust philosophy will soon be quite evident. The Justice Department has withdrawn its restrictive 1968 merger guidelines and plans to replace them with much less stringent ones. Baxter plans to have the department intervene extensively in private antitrust suits (which make up 97 percent of all antitrust cases) on the side of the defendant, in hopes of making new case law reflecting the most up-to-date economic understanding. And there's a good chance that the FTC's antitrust bureau, which many, including David Stockman, consider duplicative of the Justice Department's antitrust division, will be abolished.
The benefits from these changes could be great. Freed of ill-founded restraints on vigorous competitiveness, US firms will be better equipped to take on their Japanese and German competition. As UCLA Professor J. Fred Weston points out, "The markets for our major industries are international," and it makes little sense for US firms to be forced to play the game with one hand tied behind their back.
Other benefits are less easy to predict but nonetheless real. "A wide pattern of business activity gets directed into less efficient modes," says Baxter, due to doubts about running afoul of antitrust laws. Removal of that threat should lead to renewed vigor and productivity for the US economy.
Scuttle the Corporate Tax?
Getting rid of the corporate income tax may be an idea whose time has come. That's not what we thought just six months ago when Joe Cobb, research director of the Washington-based Council for a Competitive Economy, first published a proposal on the idea ("Repeal the Corporation Income Tax"). But since then the political winds appear to have shifted dramatically.
Part of the credit must go to mainstream economists who have become more forthright in pointing out the defects of the corporate income tax. Harvard's Dale Jorgenson points out that just since 1977 the effective rate—that is, the average rate actually paid by corporations after all deductions—has jumped from 13.5 percent to 25 percent. That kind of change seriously restricts new investment in plant and equipment.
Milton Friedman has noted for years that corporations don't actually pay income taxes; instead, they build the tax into product prices. Even liberal-left economist Lester Thurow agrees on this point. "The corporate income tax is basically a sales tax," he wrote in June. "To eliminate the corporate income tax is ultimately to give a tax break to the average American consumer."
Thurow is not alone in favoring abolition of this tax. Norman Ture, Treasury under-secretary for tax and economic affairs, recently told Business Week, "There's a huge philosophical sentiment to get the corporate tax out of the system." The Reagan administration, says Ture, plans to propose a direct cut in corporate tax rates as a follow-on to its present accelerated-depreciation program. Meanwhile, Democrats in Congress took the lead on that front, proposing to cut the top corporate rate from the present 46 percent down to 34 percent over a five-year period.
Eliminating the corporate income tax would not drastically affect the federal government's revenues. Back in 1960 the corporate tax brought in more than 23 percent of the government's take. Today that figure has dropped to only 12.4 percent, and once the just-passed changes in depreciation go into effect, corporate income tax receipts will be bringing in only 7.7 percent by 1986. Modest spending cutbacks would enable Uncle Sam to get along just fine without this added pound of flesh.
The idea of gold-based currency keeps picking up support. The latest endorsement came in the form of a full-page editorial in Barron's (June 15). Editors Robert Bleiberg and James Grant announced that it was time to take a stand. "Rarely in the past 15 years has the case for convertible money looked better or fiat money looked worse.…An oddity of the debate is that a gold standard is [considered] impractical or quixotic, while unsecured paper is somehow seen as down to earth. In the light of the evidence, the presumption, we submit, should be the other way around."
A week later Time weighed in with a two-page spread on the back-to-gold ferment, headlined "A New Cry: Bring Back Gold." While maintaining a skeptical tone about the idea's feasibility, the article nonetheless acknowledged the growing appeal of the idea and the increasing political support for some sort of gold standard.
Everybody knows that the reason nuclear power has gotten as far as it has is massive federal subsidies. Right? Well, not quite. Much has been made of a Carter administration study prepared by economist Joseph Bowring of the Department of Energy. According to Bowring's draft, over a 30-year period the government has spent some $40 billion subsidizing nuclear power. Bowring calculated that this had reduced the cost of nuclear-generated electricity by 1.6¢-2.5¢ per kilowatt-hour (kwh), cutting its cost to consumers in half.
Since last fall, the reviewers' comments on Bowring's draft have come in, and recently DOE released the final version. According to the revised report, the actual subsidy was $12.8 billion, not $40 billion, resulting in an electricity cost reduction of only 0.47¢/kwh.
Why the difference? Bowring had included substantially more in research and development subsidies than the final draft did—such things as $8 billion for researching fusion and breeder reactors (which, as future technologies, have nothing to do with today's light-water reactors or their cost of producing electricity), $1.9 billion in military R&D, $2.5 billion in pre-1966 biological and medical research that is (arguably) primarily military, and another $1.3 billion in safety research (which should have been left in). Also included by Bowring and excluded by DOE was $5.5 billion in subsidies for uranium sales promotion and enrichment plants, some of which is military and much of which subsidizes customers abroad.
The Atomic Industrial Forum, a trade group, has claimed that over the past 30 years the feds have heavily subsidized nuclear's competitors. Based on a study by Battelle Memorial Institute, AIF claims that $80 billion has gone to the oil industry, $17 billion to hydropower, $7 billion to coal, and $15 billion to natural gas. In fact, however, most of the oil and gas dollars do not represent subsidies at all. Instead, they reflect allowances for deducting from taxable income such costs as depletion of reserves (analogous to a depreciation write-off) and exemption of certain types of oil from price controls.
Corrected for these errors, the true subsidy figures become: oil, $10.6 billion; hydro, $17 billion; coal, $7 billion; and natural gas, zero. Altogether, nonnuclear energy subsidies have totaled $34.6 billion—still more than nuclear, but a far cry from what AIF claimed.
In addition, the government has committed $88 billion in loan guarantees for synfuels (oil companies, again) and is shelling out close to $2 billion a year in payments to coal miners for disabilities due to black lung disease. So while subsidies are wrong, per se, it simply isn't the case that nuclear power has been singled out for unique subsidization by the government.
One other nuclear myth deserves a decent burial. Remember a few years ago when one of the main arguments against nuclear plants was that uranium was being used up and that we'd soon be stuck with a bunch of costly white elephants? A detailed analysis of supply and demand trends by Thomas L. Neff and Henry D. Jacoby of the Massachusetts Institute of Technology Energy Laboratory finds that uranium is in ample supply, thanks to both rapid increases in production and a reduced rate of new plant construction (Technology Review, Jan.). In fact, annual world uranium production capacity is expected to be double annual consumption by 1990. This supply-demand imbalance is expected to result in a downward trend in uranium prices over the next decade and make unworkable any sort of OPEC-style cartelization by producers.
The abundance of uranium knocks another prop out from under the argument that the government must subsidize breeder reactors if they are to make it. Perhaps someday breeders will be needed, and if so private industry will have plenty of incentive to develop them. The House Science and Technology Committee voted in May to kill the $3-billion Clinch River breeder program—a boondoggle denounced by (among others) the National Taxpayers Union, the General Accounting Office, the Wall Street Journal, Dr. Edward Teller, and David Stockman. (Unfortunately, on July 24 the full House voted 206-to-186 to include funding for Clinch River in this year's public works appropriation.)
Advocates of economies in defense—for example, those who argue against a "triad" of ICBMs, submarine-launched missiles, and bombers—inevitably rely on the assumption that US strategic submarine forces are invulnerable. Unfortunately, that assumption is open to serious question.
There are several possible ways in which today's nuclear submarines could be detected, given sufficient advances in sensing technology. One, of course, is acoustic: listening for the low-frequency signal produced by the sub's long propeller shaft. Sufficiently advanced technology could identify the acoustic "signature" of each individual vessel. (The US government already possesses the capacity to thus identify individual Soviet surface ships and diesel-powered submarines.)
But more exotic detection techniques are possible. According to Aviation Week (July 13), the US Navy has studies under way seeking to determine whether the Soviets have the ability to detect (a) chemicals in the ocean from the anti-corrosion material used on submarine hulls, (b) radioactive materials produced by the interaction of reactor-produced neutrons and sodium in ocean water, or (c) free hydrogen in ocean water produced by the exchange discharge of hydrogen ions. Any of these techniques, if perfected, could permit the detection and tracking of missile-firing submarines. And that, in turn, would make them vulnerable to a preemptive strike by Soviet attack subs (which outnumber US ballistic missile subs by four to one).
Realism in defense includes recognition of the reality that there is no such thing as an "invulnerable" weapons system. The French learned this lesson with the Maginot Line at the outset of World War II. It's a lesson we forget at our own peril.
Trucking Freedom: Too Much for Reagan?
Ironically, just as the beneficial effects of trucking deregulation are being felt, the new Reagan appointee to head the Interstate Commerce Commission (ICC) says he wants to slow down the ICC's deregulation of that industry. Even more ominous is the fact that the antideregulation Teamsters Union applauds Reagan's choice—public utility and transportation regulatory lawyer Reese Taylor. Not surprisingly, Reagan himself, during the presidential campaign, called Carter's effective trucking deregulation program "ill-conceived."
And yet, the results of last year's deregulation moves contradict Reagan. Rates have become lower, trucking operators have increased in number, service has improved, and the Teamsters Union has even made concessions on work rules. A Boston management consulting firm, Harbridge House, discovered in a recent poll of 2,000 of the largest manufacturers (with 10 percent responding) that 65 percent of the firms had obtained lower truck rates. Savings in the last 12 months as a result of deregulation are estimated at $1.8 million on the average for each manufacturer.
And because many of the new truckers are nonunionized, they are able to offer competitive bids. As a result, Teamster locals working for Yellow Freight managed to get the union to accept flexible work weeks, such that five-day work weeks could include Saturdays and Sundays without those days being considered overtime. According to the Wall Street Journal, some Teamster locals are seeking union OK to accept pay cuts to stay competitive. The number of for-hire truckers went up from some 17,000 a year ago, to 18,000 currently.
As for bus deregulation, the ICC's Taylor doesn't believe that the bus companies' financial difficulties can be blamed on "undue regulatory burdens." He also intends to protect special operations by maintaining the strength of "appropriate" controls on entry.
Acting Deputy Assistant Attorney General Ronald Carr, however, in testimony before the House subcommittee on surface transportation, argued that neither House bill on intercity bus deregulation (H.R. 3662 and 3663) goes far enough. Carr noted that it is the present regulatory system that keeps the industry "highly concentrated," such that Greyhound and Trailways account for some 62 percent of total industry revenues. He further pointed out the anomaly of allowing competing bus companies to fix rates and fares collectively, with antitrust immunity, in such a regulated industry.
Despite all this evidence—empirical and theoretical—in favor of deregulation, however, it seems that political considerations have won out in Reagan's choice of the ICC chief.
Enterprise Zones on the Map
A revised 1981 Urban Jobs and Enterprise Zone Act (Trends, Oct. 1980) was introduced in both houses of Congress earlier this session. The new version, while still a watered-down adaptation of the original concept as introduced by policy analyst Stuart Butler of the Heritage Foundation in 1979, establishes more federal tax incentives for small businesses but continues to restrict eligibility to areas characterized by "pervasive poverty, unemployment and general distress." Thus, to obtain tax incentives, businesses must show that at least 40 percent of their new employees are CETA-eligible workers. Moreover, the federal government is encouraged to take positive steps in the zones instead of leaving businesses free to fail or prosper, such as expediting federal housing, financial assistance, and employee training programs within the zone.
As urban economist Butler explained in "Salvaging Our Cities" (Apr. 1980), to be truly revitalizing, a true enterprise zone should include as basic features:
• the elimination of virtually all building and planning controls
• the sale of all city-owned land within the zone
• a reduction in or total exemption from business property taxes
• the suspension of all price, wage, and rent controls in the zone
• the absence of any government subsidy or assistance to businesses operating within the zone
• a set time table for the conditions mentioned as well as a guarantee that tax laws would not be altered unfavorably within that time limit.
Despite its flaws, the 1981 bill had attracted the support of 61 House cosponsors and 16 Senate cosponsors at press time, as well as the approval of the National Urban League, the NAACP, and the National League of Cities. It is sponsored in the House by Rep. Jack Kemp (R-N.Y.) and Robert Garcia (D-N.Y.) and in the Senate by Sen. John Chafee (R-R.I.) and Sen. Rudy Boschwitz (R-Minn.).
Meanwhile, states are beginning to adopt enterprise zone legislation of their own. The American Legislative Exchange Council reports that bills of this sort have been enacted in Connecticut, Delaware, Florida, Illinois, Indiana, Maryland, Oregon, and Pennsylvania, and 71 other bills are pending in state legislatures. Few, however, come close to the original laissez-faire concept. Connecticut's, for example, while cutting its corporate income tax in half for 10 years and slashing property taxes by 80 percent for five years, also includes taxpayer-funded subsidies for job creation and training programs.
Truer to form is the Illinois version. Virtually unique among enacted programs, it suspends zoning and building code requirements, rent controls, and licensing laws within the enterprise zones, as well as cutting taxes. In addition, it requires the sale of public land at auction and specifies that all federal programs (such as Medicaid) in which the state has spending discretion be operated at minimum levels. The bill had initially included a repeal of state minimum wage requirements, but that provision was omitted after heavy union lobbying.
Farm Price Supports: No Peanuts
President Reagan will have had the chance, by the time this issue gets into your hands, to prove whether his commitment to the free market is real or rhetorical. By then, Congress will have considered the Reagan farm bill proposals urging cuts in government subsidies to agricultural commodities and will have proposed its own version. And if Congress buckles under to the lobbyists, Reagan has said he will veto a less than satisfactory bill.
The first crop scheduled for consideration is goober peas. As it is now, the Agriculture Department sets a limit on the number of acres each of the country's 53,000 peanut farmers can plant each season. Why do peanut farmers take this? Because the allotment plan keeps the price of peanuts up. Furthermore, if the market price for peanuts falls below a set level—currently, $450 a ton—the government buys up the crop at that price. This subsidy has cost taxpayers an average of $50 million a year for the last decade.
Already the administration's call for an end to the peanut allotment system has drawn the ire of powerful—and supposedly pro-free-market—Jesse Helms (R-N.C.). Helms was a major defender of the tobacco interests when that farm group's subsidy (averaging $1.3 million annually in the last 10 years) was up for consideration recently.
There's also the sugar lobby, out to protect its share of taxpayer subsidies. The price of sugar is kept artificially high not only by government price supports but also by the punishing duties imposed on sugar imported from abroad. Grain and cotton farmers, too, enjoy a slice of the tax pie, and the administration proposal would completely end payments to these two groups. However, members of Congress have already started making noises about increasing target price levels for grain and cotton in the next fiscal year.
And the biggest boondoggle of them all—dairy price supports (Trends, Jan.)—will probably be the most difficult to alter. For over 32 years now the Agriculture Department has bought butter, cheese, and nonfat dry milk from farmers unable to find market buyers at the government's high price. This year, the amount of milk products put into storage each week totals some 45 million pounds.
The dairy price-support system will cost taxpayers $2.1 billion this fiscal year, thanks to the lobbying efforts of the National Milk Producers Federation. Price-support levels are set at 80 percent of a 1914 index (called parity); Reagan would push this level down to 70 percent or less. Because the price-support payments are so generous, farmers last year added milk cows to their herds after 27 year of diminishing herd sizes.
Land O' Lakes, Inc., reports Time magazine, has found an even more clever way to use the price-support program. It sells its new cheddar cheese to the government as a surplus product; the government pays for the costs of transporting and storing the surplus cheese. Several months later, Land O' Lakes buys the cheese back at a mere 10 percent mark-up and, viola, aged cheddar cheese goes to the market.
If Reagan sticks to his guns on the issue of farm price supports, we may indeed be seeing the beginnings of a dismantling of Leviathan. If not, then it's business as usual—and we don't mean free-market business.
Mini-Government for Mini-Car Makers
The Japanese, it seems, are as efficient in their government as they are in business. According to William Chapman in the Los Angeles Times, a firm limit has been in effect since 1967 on the exact number of employees the government is allowed to hire. The Administrative Management Agency, Japan's version of the Office of Management and Budget, determines each year which government agencies get what share of the 506,571 government employees allowable.
This limit makes the ratio of Japanese national and local government employees to the general population the lowest among the more developed nations. The Japanese government, to be specific, employs 45 people for every 1,000 citizens; Britain employs 109, France 83, the United States 82, and West Germany 76. One major reason for this low ratio is, of course, the fact that Japan's national defense is subsidized by the United States. Thus, the Japanese government employs 2.5 defense employees for each 1,000 citizens, while the United States tops the list with 13.4, followed by West Germany with 10.7, and France with 8.4.
But in addition, many unofficial neighborhood groups carry out the minor tasks that are often the province of local government in other countries—such as notifying residents of garbage pick-up changes, Chapman says. Government costs are further held down by the practice—common also in other Asian countries—of having between 40 and 50 pupils per classroom in elementary schools, as well as the absence of extensive, Western-style welfare programs. The comparatively low cost of government keeps Japan's tax rate substantially lower than in the United States and Western Europe.
With all these advantages, it is no wonder that there is absolutely no loophole in the 506,571-employee ceiling. That number has not changed for 14 years, and trends indicate that it won't—at least not in the near future.
A San Francisco superior court judge has agreed to the offer of the mother of a juvenile murderer to pay restitution to the victim's family. Although the amount involved ($851 for funeral expenses) is small, the principle is important. This is the first California case in which restitution has been used for a serious crime against a person (though it is not uncommon in cases involving crimes against property).
Other such cases are few and far between. In 1972 Maryland Judge George B. Rasin sentenced a murderer to a life term, eligible for parole in 15 years, with the proviso that when paroled he must pay 40 percent of his income for the rest of his life to the sons of the woman he killed. In 1973 Miami Judge Dan Satin put a 19-year-old murderer on partial probation so that he could support his victim's widow and five children. And in 1977 Sebring, Florida Judge Clifton Kelley sentenced a construction worker to pay $5,000 or provide a new eye to a man whose eye he had put out.
The San Francisco case is complicated by the fact that the murderer was a juvenile, which is why it is the mother who is paying the restitution. The 15-year-old girl has been committed to the California Youth Authority for up to eight years and was ordered by Judge J. Anthony Kline to write to the victim's mother explaining why the restitution is being paid. Whether parents of a 15-year-old should be held responsible for her crimes is open to debate. But extending restitution to crimes against persons looks to us like a step in the right direction.
Minimum Wage Means Minimum Work for Some
Several bills now facing Congress would allow employers to hire teenagers at pay scales lower than the minimum wage, thus opening up new job opportunities for unemployed teenagers. And surprisingly, according to a Data Black Public Polls survey, blacks are now split evenly on a two-tiered minimum wage: 37 percent of those polled favor a lower minimum wage for young people, while 36 percent oppose it. Could these facts possibly spell the gradual demise of a minimum wage?
Not if the Minimum Wage Study Commission has its way. The commission was set up by Congress in 1977 to look into the issue of minimum wage, and it released its majority report earlier this year, nixing the two-tiered minimum wage—let alone the abolition of minimum wage itself! According to Commissioner S. Warne Robinson, who penned a minority report, the "majority's near-total disregard for facts became apparent as the results of our economic research began taking shape. With the overwhelming bulk of our evidence from these studies showing that the minimum wage hurts far more poor families than it helps, the majority proclaimed the view that Congress did not really expect the Commission to base its recommendations on the facts anyway."
When the minimum wage was first set in 1938, it covered 43.4 percent of employees and was set at 25¢. Today, it covers 83.8 percent of all nonsupervisory, nonagricultural employees and is set at $3.35. Obviously, some employees benefit by the existence of minimum-wage laws, because their salaries are increased. What is less obvious, however, is the fact that other workers' services are then priced out of the market—witness the disappearance of ushers in movie theatres.
Lower-paid jobs also serve as stepping stones to higher positions, as the foot in the door of the job market. Some workers accept lower wages because they view the position as a kind of on-the-job training. With the imposition of a minimum wage, these job opportunities have become scarcer—particularly for black teenagers. Unemployment among blacks between the ages of 16 and 17 has risen to 37.7 percent (it is at 18.5 percent for whites of the same age).
Some proponents of minimum-wage laws say that the high unemployment rate is due to the post-World War II baby boom, as those babies are now teenagers. But the basic law of supply and demand tells us that, with an increase in the supply of labor, wages would naturally be forced downward. Since the minimum wage does not allow this downward shift to occur, an increase in the quantity of labor demanded cannot also occur.
Some people argue that with a two-tiered minimum-wage scale youths would take jobs away from older people. But according to Heritage Foundation policy analyst Peter Germanis, a University of Michigan study has shown that 9 out of 10 jobs created for teenagers would not come at the expense of adults. In another study, prepared for the Minimum Wage Study Commission, Michigan State University economist Daniel Hamermesh showed that a 75 percent differential between teenage and adult minimum wages would increase teenage employment by as many as 250,000 jobs.
That is certainly a figure one should take very seriously. It is unfortunate that the Minimum Wage Study Commission did not.
Uganda and Italy: Less Intervention
As the world continues to seesaw between government control and the free market, two unlikely nations seem to be reluctantly moving toward the latter.
In Uganda, President Milton Obote, an avowed socialist, recently told his 156-member parliament that price controls on most food and essential commodities would be lifted in order to ease shortages and that the shilling would be floated so that the exchange rate would be decided "by supply and demand." Obote has only stuck a very tentative toe in the water, however; he also raised the prices government would pay producers of export crops and is promoting the sale of government bonds and treasury bills. While Obote predicted that Uganda's balance-of-payments deficit would be reduced by about $53 million in fiscal year 1981-82 (from $200 million to $147 million), he also announced grants and loans from the International Monetary Fund and the World Bank totaling $267 million—most of which will, of course, become another liability to Uganda's taxpayers.
In Italy, meanwhile, Gianni De Michelis, Socialist minister for state participations, is advocating the sale of certain government companies to the private sector, as well as the sale of shares in state-controlled banks and companies on the stock market. De Michelis's denationalization proposals are especially interesting in the light of France's new socialist government under Francois Mitterrand, who has been pushing for more industrial nationalization in his country.
De Michelis has just completed a plan to return the government's remaining 21 percent holding in Montedison, a large chemical manufacturer with a $5 billion debt, to four private investors. While the Communists have attacked the program of denationalization for ideological reasons, the Christian Democrats have perhaps best expressed what the turnover will mean to the government: loss of patronage and votes.
Vanuatu to Join UN. Foreign Minister Barak Sopé is representing the socialist government of Walter Lini (see "Wun Niu Fela Kuntri," Sept. 1980) in Vanuatu's bid for membership in the United Nations. Sopé says that UN membership will help unify the New Hebrideans but admits also that it will expedite such things as "economic aid" from the UN. Vanuatu has already received some $735,000 from the UN Development Program.
Canada Air Deregulation. The Economic Council of Canada, a 25-member government advisory body, has issued a paper recommending a "loosening of price and entry controls on the Canadian airline industry which would result in a wider choice of fares and quality of service and in greater efficiency." US airline deregulation has apparently whetted the Canadian appetite for similar consumer benefits, although both the Air Transport Association of Canada and the president of government-owned Air Canada are fighting deregulation moves.
Connecticut Pot Luck. The state of Connecticut has passed a bill allowing doctors to prescribe marijuana cigarettes to glaucoma and cancer victims.
Shoe Curbs Shelved. President Reagan has lifted the restrictions placed by Carter in 1977 on the import of nonrubber shoes from Taiwan and South Korea, to much gnashing of teeth from members of Congress from shoe-producing states and from the American Footwear Industries Association.
State Censors Let Go. Maryland's 65-year-old state censor board, the last in the country, has been officially disbanded under a new state sunset law. The board had cost nearly $100,000 a year to operate. A 21-year member of the board, 71-year-old Mary Avara, staunchly defended its existence, despite such sacrifices as the fact that she "had to stop eating a lot of food because of what they do with it in these movies."
Cable Censorship. A New York Times editorial recently urged New York legislators not to pass legislation authorizing cable TV operators to censor offensive shows on public access channels. A better solution, the editorial suggested, would be to air the clearly offensive and the innocuous on two separate channels, inform the viewers of such, and provide lock-out boxes.
Handgun Ban Challenged. The Second Amendment Foundation has filed a federal civil rights action against Morton Grove, Illinois, and its board of trustees for their June ban on the possession and sale of handguns.
Indexing In. The US Congress voted to include an automatic annual indexing of personal income tax rates to reflect inflation in Reagan's tax plan. This means that if the price level goes up 10 percent, for example, the next year's income tax brackets would be widened by the same 10 percent, to keep people from being shifted to higher brackets.
An Arizona Update. In Trends last month, we mentioned that common carriers had been deregulated along with fire trucks in Arizona. Rural-Metro President Lou Witzeman advises us, however, that the Arizona Corporations Commission has managed to bring the case back to the state supreme court, claiming that any deregulation applies only to fire trucks and not to common carriers.
Florida Health Freedom. The Florida legislature recently passed the Cancer Therapeutic Research Act of 1981, allowing cancer patients to use "any method for the control and cure of cancer which has not been approved by the federal Food and Drug Administration." Such patients must seek permission from a Patient Qualification Board and sign a release saying they have been notified of the treatment's lack of FDA approval.
Zoning Use Limited. The US Supreme Court ruled in June that zoning laws could not be used to prohibit sexually explicit entertainment in commercial areas unless all other forms of entertainment were banned as well.
Seabed Property Rights. A recent essay by Robert A. Goldwin published in Commentary (June) gives intellectual support to the idea of private property rights on the deep seabed, by harking back to John Locke's theory of ownership (based on mixing one's labor with the resource in question). Goldwin identifies the fundamental mistake made by those who have argued at Law of the Sea Conferences that the sea is "the common heritage of mankind." "Common" means nonowned, but the delegates to the conference have come to use it to mean jointly owned, as if each nation had an exact and equal share in the oceans. Goldwin recommends that the US delegates start from the premise that no one needs permission to remove resources from the sea.
New Tax = Higher Prices. The Mobil Oil Corp. announced a three-cent per gallon increase in the price of gasoline, diesel fuel, and jet fuel in New York after that state levied additional taxes on oil companies to raise more revenue for the ailing Metropolitan Transportation Authority. It is expected that the Mobil dealers will pass on the extra cost to the consumers. Other oil companies in the state have not announced their course of action.
French TV. France's three-channel, government-controlled television system is undergoing a shake-up under the new Socialist government. French television has traditionally been an apologist for the current administration, but the Socialists claim that they want that to change. They are thus submitting a bill to the National Assembly to take control out of the hands of government and of private corporations . . . and into whose? we wonder.
Paraquat Antidote. Recent research on rats has shown that the vitamin niacin may be effective in combating the effects of the herbicide paraquat (Science, June 26). Paraquat has been in the news recently, with the Drug Enforcement Administration talking about resuming its use on marijuana fields, this time inside US borders.
This article originally appeared in print under the headline "Trends".