Tax Breaks Are Subsidies?

I am appalled at the logic Michael Berryhill displays in his article "How the Rich Get Richer in Texas" (Dec. 1984). He says that industrial development bonds (IDBs) are a subsidy to the rich because the interest off of these bonds is tax-exempt. By not having to pay taxes on this income, the owner of this bond is getting a tax cut.

Tax cuts are subsidies? If the government allows me to keep a little more of my own money, I am being subsidized? Next you will be telling me that if a thief decides not to rob me, he is giving me something!

Berryhill also makes the point that IDBs are bad because they distort the marketplace. But the present tax system we have also distorts the marketplace. I hope that one day we will be blessed with a much lower tax rate. But to get to this lower tax rate there first have to be tax cuts. It is pretty hard to visualize a tax cut that does not make some people unhappy. So when I see someone taking advantage of a tax "loophole" that I can't, I don't yell for his taxes to be increased; I yell for mine to be lowered.

Maybe the solution to the market distortion that IDBs cause is to make the interest from all bonds tax exempt. That would be the attitude I would have expected REASON to take.

Ronald Swerlein
Longmont, CO

The More the Merrier

Your article on Texan industrial development bonds is weak and fundamentally flawed. The IDB is an arrangement whereby the interest on a bond sold by a private borrower to a private lender is exempt from federal taxes. Every IDB is a partial restoration of somebody's right to be free of federal taxes.…IDBs are a step toward freedom. Their proliferation is highly desirable.

Bryan Coupal
Riverdale, MD

The editors reply: In a screwed-up world, things are never simple. The tax reduction in the case of IDBs goes to the bond buyers. But those aren't "the rich who are getting richer" in REASON's article. It's the developers, jeans makers, discount-store operators, and so on down the list, financing their enterprises via bonds that are low-interest because of the buyers' tax exemption—these are the big winners. But not every aspiring profit maker gets to take advantage of this cut-rate financing. IDB use is rationed—by politicians. It's an unsavory arrangement with predictable consequences documented in Michael Berryhill's article.

The local politicians love it, because they have goodies to dispense at no apparent cost. But there are costs, in opportunities foreclosed for less well placed enterprises, to take one poignant example. A could have built a hotel and made a go of it except for B's getting a competitive advantage via a lower-interest loan for construction of a competing hotel. B didn't take anything from A that was rightfully his. But it's nevertheless a lousy result of a politicized market—and worth reporting as such, whatever should be done about it. Ultimately, yes, a truly free society. In the meantime, let's understand the often hidden consequences of a convoluted system.

Dissent on Cuba

As Bob Poole's sister, I can at least be thankful that he acknowledged the fact, in referring to "Miami's Cuban Miracle" (Nov. 1984), that "many Miami residents resented the 'invasion' of Cubans" (Notes). However, he did not live in Miami during the main influx of Cubans, as my parents and I did. The article by George Gilder is totally one-sided.

When the first few arrived they were pleasant enough, because there weren't many of them. But their numbers soon grew alarmingly, and they became rude and arrogant as they took over the city. They made no attempt to get along with or to get to know the American community. They set up their own little Cuba instead. Is it any wonder they were resented?

Yes, they set up businesses but employed only their own people (at least in the beginning) and spoke only Spanish in front of American customers in our stores when they knew English. The Cuban people could have done much to ease the resentment had their attitude been a bit different.

Laurie Poole
Fort Pierce, FL

Witness to a Miracle

As a native Miamian who spent his teen years witnessing the epochal changes brought about by the Cuban immigration in the decade of the '60s, the feature article by George Gilder, "Miami's Cuban Miracle" (Nov. 1984), brought tears of joy to my eyes. It has taken more than two decades for this story to be written, exploding the myth of the dependent immigrant further draining the social-service resources of a city.

As a high-schooler, I remember the terror-stricken faces of the immigrant teens as they entered school for the first day to face a xenophobic Anglo student body. I remember my parents agonizing over losing their jobs to immigrant labor.

In 1972, after an eight-year hiatus, I returned to Miami to work and live. Did the prophecies of doom uttered earlier by the fear-mongers materialize? No. I found a prosperous, vibrant city welcoming me back. I bought a home in "Little Havana" and lived among the industrious Cubans, watching the process of transformation take place around me. Those terror-stricken teens were prosperous bilingual citizens now with children of their own.

Another eight years has passed since my career has taken me to another southern city, Houston, with its own share of Latin immigration issues to face. I visit Miami occasionally and see the children of the children of the original refugees from the early '60s. Their language and customs are indistinguishable from the Anglos. Many cannot speak Spanish or choose not to.

This is the pattern of all immigration waves: the Italians, Irish, Poles, Germans, Jews, and more recently Mexicans. Each has enriched America with a rich cultural heritage, but not before encountering fierce social obstacles thrown in their way by fearful Americans. Perhaps now we can admit, for each mouth that needs to be fed, there are two hands willing to work. Miami is the richer thanks to the "Cuban Miracle."

Robert L. Deutsch
Houston, TX

Corrected Words

In the December issue there appeared a transcribed interview with me with my off-the-cuff answers. I must assume that in the third paragraph on page 40 I was correctly reported as saying that I had not written about a number of issues like abortion "because they are breaking ground." If so, I would like to correct this. I would never object to discussing issues for such a reason. All I meant to say was that most such issues are complicated and cannot be adequately dealt with by answers simply "for" or "against."

Henry Hazlitt
Stamford, CT

Time Warp

Okay, let's see if I've got this straight. Possibility one is that Henry Hazlitt is ambidextrous and wears identical watches on each wrist, and you didn't believe this was worth mentioning but did want to reveal it somehow.

Possibility two is that you took the occasion of the Hazlitt interview to impress, subliminally, on all new readers that the left-right political distinction is becoming obsolete.

Possibility three is simply that somebody goofed: either the photograph on page 36 is reversed, or the photograph on page 39 is reversed.

Of course, there is possibility four: you wanted to see how many of your readers are really paying attention. Which raises the question, Just how many readers did comment on the reversal of the Hazlitt picture? And what prize is offered for the discovery?

Dan Karlan
Waldwick, NJ

The editors reply: Possibility five: the right hand doesn't know what the left hand is doing?

What Monetarism?

Alan Reynolds's "Another Chance for Reaganomics?" (Nov. 1984) contains many points with which I agree. It also contains a serious factual error that Reynolds persists in repeating.

Reynolds blames the 1981–82 recession on the Reagan administration for forcing a monetarist policy on the Federal Reserve Board. Nothing could be further from the truth. Neither the supply-siders nor the monetarists in the Reagan administration believe that Fed Chairman Paul Volcker ever followed a monetarist policy.…

People who are not direct participants in policymaking have a hard time knowing what is going on. When they refuse to accept the accounts of the policymakers themselves, they have nothing to rely upon but their own imaginations.

Reynolds is also wrong in assuming that the Fed took its cue from the Treasury. The Fed ignored the Treasury as well as the administration's request that it avoid abrupt changes in policy that would provoke a liquidity crisis. The Fed took its cue from conventional economists who warned of inflationary consequences from the Reagan tax reductions. The supply-side effort to improve incentives was widely misinterpreted as a policy to pump up consumer demand at a time when the inflation rate was double-digit and the "core inflation rate" was alleged to be 10 percent.

Volcker was convinced that the Reagan tax reductions would cause inflation to rise and that he would be blamed. To protect himself and his institution from blame, he simply turned off the money. I have documented and published these facts more than once. Yet, Reynolds persists in repeating the myth.

As Reynolds knows, I warned the administration in March 1981 of the recessionary consequences of the Fed's policy. By the summer of that year I, with Beryl Sprinkel's support, prevailed upon Treasury Secretary Regan to issue a public warning about the consequences of the Fed's policy. The Treasury's warnings were lost in the inflation hysteria of the time, just as today the deficit hysteria hides the true problems.

Paul Craig Roberts
Washington, DC

Paul Craig Roberts was assistant secretary of the Treasury for economic policy, 1981–82. —Eds.

Mr. Reynolds replies: My complaint about public statements of the Treasury's top monetary official, Beryl Sprinkel, on May 4, 1981, and January 22, 1982, is not a complaint about what Craig Roberts wrote in a secret two-page memo on March 9, 1981. Dr. Sprinkel's speeches are a matter of public record.

Whenever Roberts complains about Fed policy, it is always by monetarist criteria, like "M1," which have repeatedly trapped the Reagan administration. Indeed, the New York Times recently (Dec. 3, 1984) referred to Roberts as "an ardent monetarist."

A monetarist could complain about too little money in March 1981 or 1982, yet be compelled by the same data to worry about too much money in May 1981 or January 1982. Monetarists finally stopped predicting double-digit inflation by late 1984, but a mere two-week rise in M1 made it impossible for them to explain why cash is still dangerously scarce and costly.

Inflation is indeed a matter of too much money, but economists don't know what "money" or "too much" really means. There is no information in M1 that is not known to the markets and therefore immediately reflected in exchange rates and commodity prices. An observed spurt in M1 may reflect either added demand or supply. That is why Switzerland was correct to let M1 rise at a 22 percent rate for a year and a half around 1978 and why a 3–4 percent annual increase in the US monetary base was not nearly enough from 1929 to 1933.

Yes, the Treasury did finally complain about the Fed's excess zeal by September 1981, April 1982, and November 1984, but in each case it was too little too late. Any sensitive price target would have provided much earlier and less ambiguous warning of the global excess demand for US money. That is the alternative perspective the administration has been missing, as well as a grasp of the fiscal consequences of monetary errors.

Address Correction Requested

I have a gripe I believe shared by other readers, in regard to a crime of omission I know I have committed in my own publications.

Specifically, I refer to the November 1984 issue's Spotlight on Martin Stone. I too am a former Gene McCarthy staff member, veteran of the civil rights movement, opponent of the Vietnam war, and currently a publisher primarily interested in diminishing government interference in our lives. I am younger than Stone, but my political evolution has been almost identical, going back to a 1961 editorial in the University of New Mexico student newspaper saying the Vietnam war was a very bad idea.

The gripe, however, is that your article, typically, doesn't say where to find a copy of California Business or where to write to find out about World Paper. Such things are very important to many of your readers, and especially to publishers who might want to deal directly with someone like Stone. I'll try to remember to put such addresses in my publications if you'll swear to do so too.

Mark Douglas Acuff
New Mexico Independent and
Sandoval County Times-Independent
Albuquerque, NM

The editors reply: Forgive us. The offices of California Business are located at 1981 E. Locust, Pasadena, CA 91107. And information about World Paper can be obtained from World Times, Inc., 44 Kilby St., Boston, MA 02109.

Sprinkling Doubts

As a senior medical student with considerable hospital and clinic experience, I must dispute your October Trends item "Saline Solution."

Referring to a study, you state that "those with hypertension [tend] to consume less sodium than their counterparts with normal blood pressure." But that's often because their doctors told them to consume less sodium because of their high blood pressure. Similarly, those with peptic-ulcer disease or heartburn tend to consume fewer spicy foods than their counterparts with a normal digestive tract. But that does not mean that spicy foods protect against peptic ulcers, or are innocent of triggering stomach pain.

The positive association of high blood pressure with excessive sodium intake has been demonstrated many times, by better studies than the one above, and also by clinical experience—blood pressure in hypertensive patients is easier to control in a patient who watches his salt intake. Moreover, studies of healthy persons, comparing salt intake to urinary salt clearance, clearly show that most people consume far more salt than they need.

So if you think you're about to embarrass the Center for Science in the Public Interest with that study, you're mistaken. Don't misunderstand me—I'm no more in favor of mandatory salt regulations than you are, because I believe that a person's diet is a matter for himself, in appropriate consultation with his physician, to decide—not for some governmental official to get involved in.

Excess salt intake cannot ever be considered a crime, since the high salt eater hurts no one but himself. But in hastily reporting a study which, at first glance, appears to contradict the wealth of clinical and epidemiological evidence used by the would-be regulators to justify their policies, when in fact that study does no such thing, you have played into the hands of the public-health establishment.

Terry A. Hurlbut
Houston. TX