April 29, 1999

U.S. military should adopt a structure of "tiered readiness," study says
Benign threat environment allows a much larger role for reserve forces

President Clinton authorized the call-up of as many as 33,000 reservists to augment the active duty military contingent fighting the war in Yugoslavia. What role should reserves play in the military of the future and what will it mean for U.S. security?

According to a new Policy Analysis from the Cato Institute, "The real problem in the post-Cold War world is not maintaining the readiness of the active forces but maintaining the readiness of the reserve forces. There simply is no major threat on the horizon requiring a large U.S. standing army," and thus the military should adopt a system of "tiered readiness" that relies less on active forces at high states of readiness and more heavily on reserve forces.

In "Is Readiness Overrated? Implications for a Tiered Readiness Force Structure," James L. George concedes that during the Cold War, "if World War III had broken out, it would have been a very short, intense conflict. The readiness of current forces would have been crucial." But since the end of the Cold War, George argues, "the international environment has changed and so should current readiness requirements."

George points out that over the next 15 to 20 years, if rare crises should arise in which U.S. intervention is necessary, "the situation could be handled by quickly deploying light Army units, such as the 82nd Airborne, backed up by Marines aboard Navy ships off the coast." Heavier forces, if needed, could be brought in by sealift after a reasonable period of time.

Opponents of "tiered readiness" cite two major examples in arguing against any decreases in readiness: Task Force Smith, which was a green U.S. Army unit fairly easily routed by the North Koreans at the start of the Korean War, and the Hollow Force of the 1970's when, for example, ships could not get under way for lack of experienced crew and spare parts. But, according to the author, "a closer look shows that readiness was only one of many factors behind the rout of Task Force Smith and the Hollow Force." Moreover, he concludes, "a broader examination shows those examples to be as much cases 'for' as 'against' tiered readiness."

Policy Analysis no. 342


April 27, 1999

GOP Social Security plan "not a serious attempt to reform," says Cato expert
Archer-Shaw bill would raise taxes, create new entitlements, but fail to reform system

The Social Security reform proposal being unveiled today by House Ways and Means Committee chairman Bill Archer (R-Tex.) and Social Security Subcommittee chairman Clay Shaw (R-Fla.) is "seriously flawed and deeply disappointing," according to Michael Tanner, director of the Cato Institute's Project on Social Security Privatization.

"This is not a serious attempt to reform Social Security," Tanner said. "It is simply an attempt to bail out the current system using taxpayer money." Among the many problems with the Archer-Shaw proposal:

  • It effectively imposes a tax increase. The Archer-Shaw plan uses general tax revenue to fund the current Social Security system. Although that money is routed through individual accounts, the plan is structured such that individuals will receive no higher benefits. Therefore, the infusion of general revenue is the functional equivalent of a tax increase to support the current system.

  • It creates a new entitlement. The Archer-Shaw plan establishes a new entitlement program, since individual accounts will have to be funded from general revenues, regardless of whether projected budget surpluses materialize.

  • It will not provide an increased rate of return. Individuals will receive no higher rate of return under the Shaw-Archer plan and therefore no higher benefits. Most young workers will continue to receive a negative rate of return, paying more in taxes than they will receive in benefits. Indeed, given the use of general revenues, it could be argued that the rate of return will become even worse under this proposal.

  • Its individual accounts are phony. Individuals will not have true ownership of their accounts since, at retirement, they will be required to surrender them to the government in exchange for an annuity. After retirement, there will be no inheritability. In effect, workers will merely "rent" their accounts rather than own them. Individuals will still have no legal right to their retirement benefits, leaving their retirement security in the hands of politicians.

  • It is unfair. The Archer-Shaw plan contains no remedy for inequities in the existing system. Working women will continue to be penalized. Groups with shorter life expectancies, such as African-Americans, will continue to be shortchanged. The Archer-Shaw plan will do nothing to allow low-wage workers to accumulate wealth.


April 27, 1999

Claim that smoking causes over 400,000 premature deaths each year debunked
Science adulterated and debased for political ends; "propaganda parades as fact"

"The war on smoking started with a kernel of truth -- that cigarettes are a high risk factor for lung cancer -- but now junk science has replaced honest science and propaganda parades as fact," according to an analysis by Robert A. Levy, senior fellow in constitutional studies at the Cato Institute, and Rosalind B. Marimont, a retired scientist formerly with the National Institutes of Health. In their article in the current issue of Regulation magazine, Levy and Marimont look at several of the more egregious exaggerations, misstatements and outright fabrications that have dominated the tobacco debate.

"If a smoker who is obese; has a family history of high cholesterol, diabetes, and heart problems; and never exercises dies of a heart attack, the government attributes his death to smoking alone," according to Levy and Marimont. That procedure, applied to other causal variables, produces more than twice as many attributable deaths as actual deaths. Those are "phantom deaths, not real deaths-constrained neither by accepted statistical methods, by common sense, nor by the number of people who die each year."

Reference by the public health community to "premature" death from smoking is at best disingenuous. According to the authors, "Almost 255,000 of the smoking-related deaths -- nearly 60 percent of the total -- occurred at age 70 or above. ... And roughly 72,000 deaths -- almost 17 percent of the total -- occurred at the grand old age of 85 or above." Indeed, data from the Centers for Disease Control and Prevention show that "tobacco does not kill a single person below the age of 35."

Statistics showing the harmful effects of secondhand smoke are no less misleading, the authors report. A federal judge recently lambasted the Environmental Protection Agency for withholding "significant portions of its findings and reasoning in striving to confirm its a priori hypothesis" in its landmark 1993 study claiming that environmental tobacco smoke is a dangerous carcinogen. And the World Health Organization, after examining lung cancer patients in seven European countries, found that neither workplace nor home exposure to passive smoking increased risk in a statistically significant way. Astonishingly, the WHO press release proclaimed, "Passive Smoking Does Cause Lung Cancer."

Levy and Marimont conclude, "The unifying bond of all science is that truth is its aim. When that goal yields to politics, tainting science in order to advance predetermined ends, we are all at risk. Sadly, that is exactly what has transpired as our public officials fabricate evidence to promote their crusade against big tobacco."

Lies, Damned Lies, & 400,000 Smoking-Related Deaths, Regulation, Vol. 21, No. 4 (1998)


April 22, 1999 -- Resourceful Earth Day

Fossil fuels becoming more abundant and environmentally sustainable
Depletion, global warming scares fading; economic, environmental indicators positive

Oil, natural gas and coal can meet energy needs in the 21st century inexpensively and reliably, with improved environmental performance, according to a new Policy Analysis from the Cato Institute. "Unconventional energy technologies," on the other hand, "by definition are not currently competitive with conventional energy technologies," and will have to be substantially improved to achieve sustainability in an increasingly competitive marketplace as their government subsidies and tax preferences decline.

In "The Increasing Sustainability of Conventional Energy," Robert L. Bradley Jr. notes that "fossil-fuel resources are becoming more abundant, not scarcer, and promise to continue expanding as technology improves, world markets liberalize, and investment capital expands." Bradley documents the torrid competitive pace set by reformulated gasoline in the transportation market and natural gas combined-cycle generation in the electricity market.

Both the depletion and global warming scares are more imaginary than real, Bradley writes. "Only a few years ago academics, businessmen, oilmen, and policymakers were almost uniformly of the opinion that the age of energy scarcity was upon us and that the depletion of fossil fuels was imminent." Today, however, "resource economists are almost uniformly of the opinion that fossil fuels will remain affordable in any reasonably foreseeable future." The reason? "Fossil-fuel availability has been increasing even in the face of record consumption. World oil reserves today are more than 15 times greater than they were when record keeping began in 1948."

The real threat to energy sustainability in the 21st century and beyond, Bradley writes, is the quixotic quest to "stabilize climate." The global economy now depends heavily on high-performing, affordable energies, limiting the ability of politicians to increase prices and mandate inferior substitutes. "The weakening scientific case for dangerous climate change makes the global warming issue a transient political problem for fossil fuels rather than a death warrant."

"Consumers and corporations in the energy, transportation, and energy-appliance markets should welcome the good news of fossil fuel sustainability," Bradley says. "Understanding energy reality and rejecting energy hype will ultimately benefit stockholders, employees, and consumers."

Policy Analysis no. 341


April 20, 1999

No American citizen should be treated like a suspect until he is one
Bank Secrecy Act undermines "basic" privacy principles

"The Bank Secrecy Act's reporting requirements do not belong in a free country, any more than would a law requiring the reporting of purchases of 'subversive' books and literature," Cato Institute director of information studies Solveig Singleton told the House Banking Committee today. "The reporting requirements of the Bank Secrecy Act pose a unique threat," Singleton told the panel, "because no probable cause is required to access the reports, and the government alone has the power of arrest and prosecution and to demand asset forfeitures."

"Since electronic commerce began its growth spurt, headed for ungainly adolescence, various agencies and individuals in the executive branch have offered up pronouncements on privacy that are inconsistent," Singleton explained. "In 1988, when Vice President Al Gore announced an Electronic Bill of Rights, he emphasized that privacy is a basic American value that must be protected. 'You should have the right to choose whether your personal information is disclosed ... and you should have the right to see it yourself, to know if it's accurate.' That position is clearly incompatible with the Bank Secrecy Act, as it was with the 'Know Your Customer' rule, which contained many of the practices that already exist under the Bank Secrecy Act. Once again, the right hand of government does not know what the left is doing."

In addition, the key justification for the law is flawed, according to Singleton. In terms of crime prevention, the benefit of a law like the Bank Secrecy Act is negligible compared to the loss of privacy rights. "History shows that government will not observe safeguards intended to prevent the abuse of the power to collect information," noted Singleton. She cited as examples the use of census data to identify Japanese-Americans during World War II; the fact that Social Security numbers which were to be used only to ensure that workers were paying payroll taxes, are now used for multiple purposes entirely unrelated to Social Security; and, most recent, the Clinton administration's ability to obtain FBI files on hundreds of so-called enemies.

Complete text of Singleton's testimony.


April 16, 1999

What Crisis? Protection for steel industry unwarranted, harmful to everyone else
Cato study details the other side of the story on steel imports into the United States

"The U.S. government has already gone too far in favoring U.S. steel mills with unfair protection from imports. Further favoritism for the steel industry is completely unwarranted," according to a new Cato Institute Trade Briefing Paper released today. In "The Steel 'Crisis' and the Costs of Protectionism," authors Brink Lindsey, director of Cato's Center for Trade Policy Studies, Daniel Griswold, associate director of the center, and Aaron Lukas, trade policy analyst, argue that "there is no reason why the steel industry should receive special treatment at the expense of its customers and American consumers, just because it is experiencing temporarily unfavorable conditions."

Domestic steel companies and unions have filed antidumping, countervailing duty, and Section 201 cases against imported steel products that already threaten to drastically reduce steel imports. In March, the U.S. House passed a quota bill that would flout international law by capping steel imports, and the Senate is expected to consider its own steel import bill soon after the Easter recess.

The Cato trade experts note that the "U.S. domestic steel industry had one of its best years ever in 1998." Domestic steel shipments were at their second highest annual total in the last 25 years, and the share of world steel output captured by U.S. producers actually increased to 12.6 percent, up from 12.3 percent in 1997. They also offer insights into other less publicized realities of the steel "crisis," including:

  • The 1998 import surge shows every sign of being a passing phenomenon. Total steel imports in February 1999 fell to 2.2 million net tons, far below the monthly average of 2.7 million tons imported during the last 'precrisis' quarter of April-June 1997.

  • Protectionism is incapable of saving steel jobs. Employment in the steel sector has declined by more than 60 percent since 1980 largely because of rising productivity, and employment will continue to fall even if trade barriers are imposed.

  • Workers in the major steel-using sectors-transportation equipment, industrial machinery, fabricated metal products, and construction-outnumber workers in the steel industry by 40 to 1.

The authors add that any legislation aimed at curbing steel imports is harmful, but the worst approach is quota-based legislation, because "quotas are one of the most damaging forms of trade restrictions. They redistribute wealth from consumers to domestic producers and to those foreign producers lucky enough to get quota rights." The authors conclude, "It is not the business of the U.S. government to intervene in the marketplace and favor one U.S. industry at the expense of other U.S. industries. Congress should reject calls for steel protection and reform the antidumping law to prevent future abuse."

Trade Policy Briefing Paper no. 4


April 14, 1999

Mexico taking the right steps on pension reform, privatization effort shows
But market-oriented reforms must continue in order to bring social and economic stability

Mexico's recent "revolutionary" transition from a pay-as-you-go social security system to a private system "will erect one of the basic pillars of a free society by turning Mexico into a country of property-owning workers," according to a new Policy Analysis from the Cato Institute. However, the Mexican system has several structural flaws that must be corrected if it is to provide workers with the right incentives.

In the study "In Praise and Criticism of Mexico's Pension Reform," analyst L. Jacobo Rodríguez notes that Mexico should be praised for taking steps in the right direction; however, "the privatization of Mexico's public pension system did not occur in a vacuum. Its success (or lack thereof) will depend on other reforms adopted by the Mexican government."

Mexico, which reformed its retirement system 18 months ago, is one of eight Latin American nations with privatized systems; Australia and four nations in Europe have also adopted privatization systems. In terms of enrollment, the Mexican reform has been very successful: more than 93 percent of eligible workers have signed up for the program, making it the largest government-mandated private pension system in the world.

Rodríguez notes several flaws in the new system, the most important of which is the requirement that a minimum of 65 percent of workers' savings be invested in government instruments. Other flaws include the prohibition of investment in equities or abroad; allowing the old pay-as-you-go social security administration to establish a pension fund company while also retaining some regulatory functions; prohibiting public-sector workers from joining the new private system; and having the government subsidize every worker's retirement account, which politicizes the private pension system and weakens the link between individual efforts and rewards. Those restrictive policies have caused the Mexican system to provide a moderate rate of return (4.8 percent); however, this rate of return is still approximately double what American workers currently receive from Social Security.

"President Zedillo should use his remaining time in office to strengthen the new pension system," Rodríguez writes. "If a second wave of reforms is implemented, the system will allow Mexican workers to enjoy something that, until now, has been an elusive hope for the majority of them: more freedom and economic security in their old age."

Policy Analysis no. 340


April 12, 1999

Friedman focuses on fundamentals of privatization debate
Discussion must go deeper than nuts and bolts

Nobel Prize winner Milton Friedman puts the Social Security privatization debate in perspective by focusing on underlying assumptions about the Social Security system as a whole, and about human nature. In Cato Briefing Paper no. 46 he argues from the general presumption that "individuals can best judge for themselves how to use their resources."

In "Speaking the Truth About Social Security Reform," Friedman explains that one of the myths of Social Security is that it is a form of social insurance equivalent to private insurance. The administration perpetuates that perception by claiming that "the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund." But the reality is that taxes paid by today's workers are used to pay today's retirees. "If money is left over, it finances other government spending-though, to maintain the insurance fiction, paper entries are created in a 'trust fund' that is simultaneously an asset and a liability of the government." Therefore, he concludes, there are no real transition costs to privatizing Social Security, merely the explicit recognition of current implicit debt.

Workers also tend to lose sight of the fact that they have absolutely no assurance that they will receive benefits when they retire, because proceeds from the payroll are dwindling. Friedman points out that Congress is not obligated to keep earlier Congressional promises to use the payroll tax for retirement benefits. The bottom line is that "the payroll tax is a bad tax: a regressive tax on productive activity. It should long since have been repealed. Privatizing Social Security would be a good occasion to do so."

Friedman also argues that there is no good reason to force individuals to put a specific portion of their income into a retirement account. "It makes no more sense to specify a minimum fraction for all people than to mandate a minimum fraction of income that must be spent on housing or transportation. Our general presumption is that individuals can best judge for themselves how to use their resources."

Briefing Paper no. 46


April 12, 1999

Cato Institute launches redesigned Social Security Web site
Unique online calculator, in-depth studies put socialsecurity.org in a class by itself

The Cato Institute, which AARP's Modern Maturity magazine recently described as "the leading advocate" of Social Security privatization, today launched its revamped and redesigned Internet Web site devoted exclusively to the issue. The site, www.socialsecurity.org, offers the most complete collection of information on privatization available anywhere, including studies, briefing papers, books, speeches and forums in audio/video format and Cato's trademark Social Security calculator.

Since its founding 22 years ago, the Cato Institute has published more than 40 books and studies on the Social Security system's problems and innovative policy solutions. In fact, the first book ever published by the Cato Institute in 1980 was Social Security: The Inherent Contradiction, by Peter Ferrara. The Cato Project on Social Security Privatization was launched on August 14, 1995, and the original Cato Social Security Web site was created soon afterward.

The newly redesigned site gives Web visitors access to a wide array of information in a mouse click or two. One click brings a complete, concise summary of the reasons why privatization is the best course of action, an introduction to a workable plan, frequently asked questions, and one-page summaries of the impact of Social Security on such groups as women, minorities and union workers. Two clicks bring the full text of 16 in-depth studies published to date, on topics that include administrative costs in a privatized system, transition costs, impact on women, privatized retirement plans currently enjoyed by state and local government employees that are outside the Social Security system and the morality of privatization.

Perhaps the most popular-and original-feature on the Cato Web site is the special online calculator that enables visitors to compare their projected Social Security income with benefits from a privatized system. The calculator, created for Cato by KPMG Peat Marwick, is unique, in that it offers the opportunity to change default assumptions about such factors as inflation rate, expected returns from stocks and bonds and the mix of stocks and bonds that might be included in a retirement portfolio. Typically, visitors find that income from a privatized system would be at least double the benefits from Social Security, and often much higher.

Other features of the newly redesigned site include news and commentary that are updated every day, a complete online speakers' bureau and links to other Web sites offering information about the Social Security system.

www.socialsecurity.org


April 5, 1999

Baseball's 1999 opening day: Not all the pork is in your hot dog
New study finds that taxpayer subsidies totaled more than $5.2 billion in last decade

American taxpayers have subsidized major league ballparks, stadiums and arenas to the tune of more than $5.2 billion just since 1989, and they'll be paying an additional $9 billion for projects now in the planning stages, according to a new study from the Cato Institute. But while the taxpayers are paying two-thirds or more of the expenses, "the lone beneficiaries of sports subsidies are team owners and players," the report finds. Community economic "benefits" are nil.

In "Sports Pork: The Costly Relationship between Major League Sports and Government," economist Raymond J. Keating notes that "before the Great Depression, sports subsidies were rare; today, they are the general rule." Such well-known pre-Depression parks as Wrigley Field, Tiger Stadium, Yankee Stadium and Fenway Park were built with private funds. The Cleveland Indians moved into the first taxpayer-funded stadium, known locally as "The Mistake by the Lake," in 1932. Later, Milwaukee and Baltimore joined the move to taxpayer-financed ballparks, and the trend grew. Four of the last five new ballparks in the major leagues were heavily subsidized by the taxpayers.

"Federal, state, and local officials have shown themselves more than willing to fork over taxpayer dollars to the sports world," Keating observes. "And such willingness knows no political party boundaries: >From the most liberal Democrats to the most conservative Republicans, sports pork is a rampant, bipartisan effort, and there is no end in sight."

Keating is sharply critical of politicians and team owners who "always present analyses showing significant gains for the local economy if only the taxpayers will build a new ballpark, stadium or arena." Their studies rely on nothing more than "a guess at the total amount of economic activity generated by such venues." In fact, "nothing is actually added to the area's economy; instead leisure spending and activity are merely shifted around."

"Without government subsidies, pro sports would still exist and thrive, as they did in the past. Owners and players, though, would have to adjust their financial expectations downward a bit." Raymond Keating is chief economist for the Small Business Survival Committee, a weekly columnist for Newsday in New York and a partner with Capitol Hill Research, a political and economic analysis service.

Policy Analysis no. 339


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