June 30, 1999
America's most costly welfare recipients are Fortune 500 companies
Uncle Sam doled out nearly $75 billion in taxpayer subsidies in 1997
"Corporate welfare is a large and growing component of the federal budget," Cato's director of fiscal policy studies Stephen Moore told the House Budget Committee today. "These programs have grown almost 10 percent over the past four years, despite the fact that congressional Republicans pledged an attack against unwarranted business subsidies back in 1995."
Corporate welfare corrupts the political process and destroys American competitiveness. But the real issue with corporate welfare, according to Moore, "is the opportunity costs associated with the $75 billion a year in subsidies. If all corporate welfare were eliminated, the savings would be large enough to entirely abolish the capital gains tax or the death tax; cut the personal income tax, the corporate income tax, or the payroll tax; or help finance a flat tax at a rate of 20 percent for all Americans."
"The most egregious subsidies are in the forms of federal expenditures, not tax loopholes," he explained to the panel. "If Congress is serious about weaning businesses from federal subsidies, it should concentrate on eliminating the Departments of Commerce and Energy, the Export Import Bank, the International Monetary Fund and the World Bank, farm subsidies, and OPIC."
New tactics are clearly necessary to eliminate federal subsidies to corporations. Moore recommended the following to the panel: pay for tax cuts with corporate welfare cuts; establish a Corporate Welfare Elimination Commission, similar to the Military Base-Closing Commission; eliminate double dipping, allow only one grant per corporation; enact time limits on corporate welfare, similar to the two-year limit for social welfare; require firms to report to Congress all of the federal money they receive each year and from what programs and agencies; prohibit from lobbying private firms that receive federal grants, loans, or loan guarantees; prohibit any company or individual with an income of more than $1 million from receiving any federal subsidy.
The complete text of Moore's testimony
The Joint Combined Exchange Training (JCET) program, under which Special
Operations Forces (SOF) can be deployed anywhere without congressional
oversight and debate, has become "a tool to advance sometimes dubious
foreign policy goals," according to a new study released today by the Cato
Institute. In Cato Foreign Policy Briefing Paper no. 53, "Special
Operations Military Training Abroad and Its Dangers," authors John Rudy and
Ivan Eland argue that JCET deployments must be reined in-and soon-to avoid
entangling the United States in "petty military conflicts and militarizing
U.S. relations with other nations."
In the wake of the Cold War, the U.S. military has been in search of a new
justification for the existence of a worldwide military committed to the
defense of far-flung interests and allies, according to Rudy and Eland;
Special Forces training of foreign militaries has become a way to ensure
that type of presence.
Through JCET, the Pentagon provides the manpower "to train and influence
foreign militaries and governments, thus effectively carrying out its own
mini foreign policy," the authors write. JCET has given the U.S. military
the ability to embark on a program of building military-to-military
relationships "with nations of every description and in every corner of the
world," including those with egregious human rights records that have been
excluded from almost all other U.S. international aid programs.
In 1991 there were 38,000 SOF personnel deployed in 92 countries at a cost
of $2.4 billion; in 1997 there were 47,000 personnel in 143 countries at a
cost of $3.4 billion. "In many regions, the Pentagon is supplanting the
State Department as the primary instrument of U.S. policy. JCET turns SOF
personnel into key representatives of the U.S. government-as self-appointed
'diplomat-warriors.' "
This pattern of U.S. involvement through military-driven relationships is
eerily reminiscent of "the manner in which the United States slowly but
inexorably entered into the Vietnam War," the authors argue. "JCET
missions
are in effect teaching techniques that could be used for oppression in the
name of spreading democracy-all the while risking U.S. entanglement in
innumerable petty conflicts."
"The JCET law should be repealed and replaced by an explicitly limited
program with the exclusive purpose of training SOF personnel," Rudy and
Eland conclude.
Foreign Policy Briefing Paper no. 53
"The federal government should resist pressure to involve itself further in
gambling," according to a Policy Analysis released today by the Cato
Institute. "There may be inherent risks to gambling, but we should remember
that government intervention entails risk too," writes Wall Street analyst
Guy Calvert in "Gambling America: Balancing the Risks of Gambling and Its
Regulation."
The National Gambling Impact Study Commission, created by Congress to study
the "social costs" of gambling as well as to examine regulatory options,
released its findings today. However, the report fails to review the true
costs of government regulation, which presumably calls for thorough
consideration of the non-governmental alternatives, according to Calvert. "A
coercive effort to eliminate or reduce gambling must compete with that
formidable opponent, human nature. Lawmakers need to balance the risks," he
says.
These risks must include the fact that harsh government measures intended to
suppress gambling will likely usher in a new era of public corruption by
compromising the integrity of government officials, judges, and the police,
Calvert writes. And, he notes, these measures would do little or nothing to
actually deter compulsive gamblers from gambling.
The commission proceedings "obscure the important point that gambling, for
the vast majority of people, is simply a matter of fun, a voluntary and
harmless pursuit that many find rewarding. In moderation, it is neither less
wholesome nor less rational than other sources of entertainment, such as
television, the opera, or competitive sports."
Calvert takes issue with those who argue that gambling is immoral and
therefore should be regulated and/or banned. "The morality issue is beside
the point -- if gambling is a vice, then it is a matter for philosophers
and the clergy, and ultimately, individual conscience," he writes. "A more
paternalistic government policy would, quite apart from intruding on the
liberties of gamblers and others, make a mockery of any doctrine of
individual responsibility -- hardly the best way to sustain the moral
health of the nation." Instead, he argues that the best remedy for
compulsive gamblers should be counseling and abstinence, not government
intervention to prohibit or limit gambling.
Calvert also notes that, contrary to popular belief, those who gamble in
casinos are "not crazed, welfare-dependent casino desperados." In fact, they
are more educated and have a higher household income than average Americans
and are much better off than lottery players -- and lotteries are
regulated by state governments and run by them as a monopoly.
Policy Analysis no. 349
"Perhaps no area more clearly demonstrates the bad consequences of not
following our tradition of individual liberty, vigorous civil society, and
limited government than drug prohibition," Cato Institute executive vice
president David Boaz told the Subcommittee on Criminal Justice, Drug
Policy,
and Human Resources of the House Committee on Government Reform today.
"The
long federal experiment with prohibition of marijuana, cocaine, heroin, and
other drugs has given us unprecedented crime and corruption combined with a
manifest failure to stop the use of drugs or reduce their availability to
children."
"In 1933, Congress recognized that Prohibition had failed to stop drinking
and had increased prison populations and violent crime. Congress then
acknowledged the failure of alcohol Prohibition and sent the Twenty-First
Amendment to the states. Why do we continuously ignore the lessons of the
past?" asked Boaz.
Today Congress confronts a similarly failed prohibition policy, Boaz
explained. "Futile efforts to enforce drug prohibition have been pursued
even more vigorously in the 1980s and 1990s than they were in the 1920s.
Total federal expenditures for the first 10 years of Prohibition amounted
to
about $733 million in 1993 dollars. Drug enforcement cost about $22
billion
in the Reagan years and another $45 billion in the four years of the Bush
administration. The federal government spent $16 billion on drug control
programs in FY 1998. That does not include state and local expenditures,
which were $15.9 billion in FY 1991 and have likely increased considerably
over the 1990s."
"As for discouraging young people from using drugs, the massive federal
effort has largely been a dud. Despite the soaring expenditures in
antidrug
efforts, about half the students in the United States in 1995 tried an
illegal drug before they graduated from high school. Every year from 1975
to 1995 at least 82 percent of high school seniors said they found
marijuana
'fairly easy' or 'very easy' to obtain. Over 54 percent of high school
seniors reported some use of an illegal drug at least once during their
lifetime," Boaz informed the panel.
Boaz recommended that Congress withdraw from the war on drugs and let the
states set their own policies with regard to currently illegal drugs.
"Drug
abuse is a problem, for those involved in it and for their families and
friends, but it is better dealt with as a moral and medical than a criminal
problem."
Full text of David Boaz's testimony
Plans to "save" Social Security proposed by both President Clinton and the
Republican leadership in Congress would not work, according to a Briefing
Paper released today by the Cato Institute. The study, "Social Security
Reform Proposals: USAs, Clawbacks, and Other Add-Ons," by entitlements
policy analyst Darcy Ann Olsen, is the first to compare participation rates
in 401(k) plans with the president's proposed USA accounts, finding that the
USA accounts are unlikely to benefit low- and middle-income workers. Olsen
also found that legislation proposed by Reps. Bill Archer (R-Tex.) and Clay
Shaw
(R-Fla.) would not increase benefits for workers and that the rate of return
on Social Security payroll taxes, already low at less than 2 percent for a
vast majority of American workers, would worsen.
Clinton's USA accounts are similar in structure to 401(k) plans in that they
are controlled and owned by the worker and would have matching funds
provided by a third party (for USAs - the government; for some 401(k)s - the
employer). USAs are known as "add-ons" because they would force workers to
pay a supplement to the current 12.4 percent payroll tax. That payment would
merely create "another centralized retirement plan requiring a new funding
stream" and do nothing to address Social Security's looming financial
crisis. According to Olsen, add-ons would become "tax shelters for
higher-wage earners, become new entitlements, or increase the payroll tax
burden. . . . Such plans rely on a vast infusion of government money, and
offer no greater income for workers at retirement."
The study found that half of workers earning less than $35,000 would not
participate in USA accounts. "Workers who are either unable or unwilling to
save more will not begin to do so simply because the government opens an
account in their name," she writes. Likewise, the Archer-Shaw bill -- an
"add-on" with a "clawback" -- would do nothing to help low- to
middle-income workers; the legislation would allow 2 percent of each
person's income taxes to be taken and "rebated" in the form of a personal
account, while Social Security benefits would be cut by a corresponding
amount.
"The idea of establishing individual retirement accounts alongside Social
Security is a favorite among politicians because they can talk about
positive aspects of individual accounts -- worker empowerment, personal
ownership, and wealth creation -- while avoiding the more unpleasant but
central issue of Social Security reform," according to Olsen.
"A better way to fund personal accounts is to allow workers to use existing
payroll taxes that are currently slated for Social Security" -- known as
a "carve-out" -- which would be funded by redirecting a portion of the
current payroll tax to new, individually owned retirement accounts.
"Proponents of add-on accounts fail to recognize that workers are
contributing enough to provide for a comfortable retirement. Dozens of
studies have shown that if workers were able to invest their Social Security
payroll taxes, they would retire with substantial sums in their accounts."
Cato Briefing Paper no. 47
The newest edition of the Cato Journal (Vol. 18, No. 3) headlines an essay
by Lawrence H. Summers, who is poised to become treasury secretary after
the
departure of Robert Rubin. In "Building an International Financial
Architecture for the 21st Century," Summers writes that "the core
proposition of monetary economics is a trilemma: that capital mobility, an
independent monetary policy, and the maintenance of a fixed exchange-rate
objective are mutually incompatible."
Summers argues that creating a safe and sustainable system for the flow of
capital from developed to developing countries is of the utmost importance.
Strengthening weak domestic financial systems through market liberalization
and the reduction of imprudent borrowing and lending practices is the key
to
global prosperity. The economies of Mexico, Russia, and Thailand faltered
due to crony capitalism, while nations such as Hungary and Argentina have
taken off since implementing market liberalism.
"Market discipline is the best means the world has found to ensure that
capital is well used," Summers writes, going on to say that "as capital
market integration increases, countries will be forced increasingly to more
pure floating or more purely fixed regimes." He concludes that "the most
important determinant of every country's fortunes is the policy choices of
its people and its government. We can seek to create the best structure and
best environment possible, and the international community can make a
contribution when problems come. But none of this is a substitute for
strong, determined action of countries to maintain stability and to address
instability when it comes."
This issue of the Cato Journal also examines the future of the euro. In
"The
Impending Collapse of the European Monetary Union," Charles Calomiris of
Columbia University predicts that politics will impair the new currency.
He
foresees "soft-currency" member states threatening to quit the European
Monetary Union unless their massive government expenditures can be
accommodated. Robert Mundell, one of the architects of the euro,
disagrees.
In "The Euro: How Important?" Mundell writes, "The dollar-euro exchange
rate
is going to become the most important price in the world. . . . By 2010 we
will be back to a world where we get more fixed exchange rates, and the
International Monetary Fund will be dragged back to its original function."
Cato Journal, Vol. 18, No. 3, Winter 1999
"Despite the appearance of reform, in important ways Russia's financial
sector is little changed from the Soviet era," according to a Policy
Analysis released today by the Cato Institute. "Russia has not had for
decades and does not now have anything close to free trade in money," write
co-authors Kurt Schuler, a monetary economist, and George A. Selgin,
associate professor at the University of Georgia, in "Replacing Potemkin
Capitalism: Russia's Need for a Free-Market Financial System."
"It is grotesque to blame laissez faire for the current financial crisis
and
Russia's wider economic problems since the Soviet Union dissolved,"
according to Schuler and Selgin. "Russia's problem is that it has retained
many socialist practices in its financial system yet eliminated others that
gave the system some orderliness."
"The most effective thing that foreign governments and international
financial institutions can do is to stop supporting both the Central Bank
of
Russia and attempts to reform Russian banks from within," Schuler and
Selgin
write. Instead, they advocate several structural changes to resolve
Russia's
current financial crisis. Their recommendations include letting sound
banks
and sound money compete in the Russian economy, establishing an orthodox
currency board to create monetary stability, allowing foreign banks to
compete with Russian banks on equal terms, and allowing the dollar
("Russia's de facto free-enterprise money") to become legal tender.
"Attempts to preserve the value of the ruble and to prop up Russia's ailing
banking system are misguided. The ruble is a currency of socialism; the
government uses it as a tool for making forced transfers of wealth from the
Russian people to inefficient enterprises that are holdovers from the
socialist era," they write.
"Russia's current financial institutions have not worked and will not work
well. The sooner people understand that, the better off the Russian public
and taxpayers in Western countries will all be," Schuler and Selgin
conclude.
Policy Analysis no. 348
"Courts regularly resolve disputes by applying tort principles when they
should apply the law of contracts," according to a Policy Analysis released
today by the Cato Institute. "Traditional rules of liability have all too
often been replaced by rules, if they can be called such, that are little
connected to common-sense notions of individual responsibility," writes
Michael I. Krauss, professor of law at George Mason University, in
"Restoring the Boundary: Tort Law and the Right to Contract."
The tort "crisis," which is most evident in product liability cases and
malpractice suits, exists not because corporations are "oppressing"
individuals but because "our rights have been given increasingly less
respect by government," Krauss argues. "We have not allowed tort to be
tort, and contract to be contract."
Historically, according to Krauss, one of the principal ways tort law
policed the freedom to act, and the right to be free from harms wrongfully
caused by others, was through its close connection with contract law. "The
law presumed that people were free to choose how to act, but it also held
them liable for the harmful consequences of their wrongful choices," he
writes.
However, recent precedent has changed that. Courts have chosen not to
enforce contracts to which plaintiffs have agreed, thereby declining to
protect the rights of the parties. Krauss says that this 40-year tilt
toward tort in lieu of contract has transformed the law of torts "into a
general social insurance scheme," and adds that "once government has
advanced a plausible rationale for prohibiting consensual behavior in one
area, its tentacles inevitably extend to other areas as well."
The consequences of the "deep-pocket principle" that now dominates tort
law,
says Krauss, are myriad. "Opportunities are forgone, financial disaster is
always just around the corner, and the aggregate costs for everyone grow
larger." To remedy the situation, the author argues that states need to
reestablish the boundary between contract and tort, allowing private
parties
rather than courts to decide the terms of their relationships. In
addition,
Krauss says we need to identify the very few morally offensive transactions
to which private contracts should not apply. "Legal scholars, judges, and
legislators must comprehend and act on basic truths about private ordering
in a free society," he concludes.
Policy Analysis no. 347
"Policy problems relating to health risk from chemicals embody value
choices
and will not be resolved through more scientific investigation," according
to Peter VanDoren, editor of Cato's Regulation magazine and author of a new
book published by the Cato Institute, Chemicals, Cancer, and Choices: Risk
Reduction through Markets. VanDoren, a political economist who taught at
Princeton, Yale and the University of North Carolina at Chapel Hill before
joining the Cato Institute, has written extensively on risk and human
health.
"Frequent media reports allege that our health is in constant peril from
exposure to chemicals including pesticide-treated food, artificially
sweetened beverages, chlorinated swimming pools, and automotive gasoline.
What should we do about such health risks?" asks VanDoren. Conventional
risk policy suggests that we ask scientists to tell us how exposure to
chemicals affects human health and then let the government regulate
exposure
using the information provided by scientists. But, he warns, "The belief
that more scientific research will answer our policy questions is
misguided."
Scientific research will not answer our policy questions for a variety of
reasons, according to VanDoren. "The public (and, hence, policymakers)
worries about small levels of increased cancer risk
resulting from chemical exposures," but studies of minuscule levels of risk
are prohibitively
expensive; and some issues cannot be resolved scientifically. Such issues
include which compounds should be analyzed in light of limited budgetary
resources; how regulators should use research data, given the well-known
design flaws of most studies; and should we be more concerned with the need
to protect the public from carcinogens or the need to allow products to be
developed and sold in the marketplace?
"In the case of chemical exposures that are private goods, government (to
the extent that it does anything at all) should limit its activities to the
provision of information so individuals can decide for themselves which
risks to bear. Command-and-control regulations inhibit the development of
robust private information markets because people think that if a product
is
for sale, the government must have checked it out to ensure that its
benefits were greater than its harms."
Chemicals, Cancer, and Choices: Risk Reduction through Markets
The Microsoft antitrust trial resumed on June 1. The Justice Department
argues that Microsoft is a monopoly whose behavior must be tamed by
government regulation. Richard Posner, author of "Natural Monopoly and its
Regulation," a landmark article initially published 30 years ago and
recently re-released as a book by the Cato Institute, disputes the premise
that natural monopolies must be regulated. Posner did not deny that
"unregulated natural monopoly would yield various inefficiencies. . . . But
[he] thought them exaggerated, . . . [and] the effort to constrain a
[monopolist's] pricing . . . is more likely to produce distortions than to
bring about a reasonable simulation of competitive pricing and output."
Posner, currently chief judge of the U.S. Court of Appeals for the Seventh
Circuit, has written extensively on the economics of criminal law, labor
law, and intellectual property. Posner remains a senior lecturer at the
University of Chicago Law School. He graduated summa cum laude from Yale
College and first in his class at Harvard Law School.
When the article was originally released in 1969, it was considered
"distinctly heterodox." Posner explains that "at that time the emphasis on
reforming rather than abolishing regulation reflected the fact that most
economists and lawyers had considerable faith in government-and
considerable distrust of free markets." A variety of factors has encouraged that attitude to
change. "What mainly happened is that regulation broke down; it was a
microcosm of the breakdown of the Soviet Union's command-and-control
economy. A combination of inflation in the 1970s and accelerating
technological change favorable to competition brought about a situation in
which regulation no longer satisfied the needs of key interest groups,
whether of regulated firms or of customers. . . . Natural monopolies have
crumbled; even the local natural monopolies, which are based on the
inefficiency of duplicating a local grid of wires or pipes, may soon go the
way of the former natural monopoly of long-distance telephone service."
What does this mean for Microsoft? Although Posner does not comment
directly on the case, he does say that "the resources and energies of
government should be directed to problems we know are substantial, that we
think are traceable to government action, and that cannot be left to the
private sector to work out. There are plenty of those problems and it is
doubtful that natural monopoly is among them."
Natural Monopoly and Its Regulation.
June 22, 1999
Special Operations Forces used to advance questionable foreign policy
Study finds Joint Combined Exchange Training Program creates "self-appointed diplomat-warriors"
June 18, 1999
True cost of government intervention in gambling industry is high
National Gambling Impact Study failed to consider cost of regulations
June 16, 1999
Cato VP David Boaz testifies on failure of our current policy of drug
prohibition
Massive federal effort does not reduce drug use, encourages crime and
corruption
June 11, 1999
Both Clinton and GOP Social Security reform plans deeply flawed
Study shows neither plan would benefit low-wage workers nor 'save' Social Security
June 10, 1999
Weak domestic financial systems threaten the global marketplace
Summers argues that open markets and capital flows may be the answer
June 7, 1999
Russia's post-Soviet financial system: still fundamentally socialist
U.S. and international lenders should stop supporting current Russian institutions
June 3, 1999
Contemporary tort law is hostile to individual liberty
Crisis in tort law caused by failure to enforce the terms of private contracts
June 2, 1999
Health risks from exposure to chemicals: crucial questions not answered by science
Free markets and strong information flow necessary for effective risk management
June 2, 1999
Natural monopolies need not be regulated
Resources of government should be directed to problems that are substantial
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