After 18 years, Chile's privatized pension system is "an astounding success"
Critics' complaints about administrative costs miss the mark, new study says

Since replacing its government-run pay-as-you-go retirement system with an investment-based private system of individual retirement accounts 18 years ago, Chile has successfully avoided the "fiscal time bomb" that still ticks in countries like the United States, according to a new study from the Cato Institute. The Chilean system "has allowed workers to retire with better and more secure pensions" and enjoy an average real rate of return of approximately 11.3 percent per year, the study notes. Chile's economy has grown at a rate of nearly 7 percent per year in the last 14 years.

In "Chile's Private Pension System at 18: Its Current State and Future Challenges," L. Jacobo Rodríguez notes that "today, more than 95 percent of Chilean workers have their own pension savings accounts," and that the system is "by any measure, an astounding success."

In recent years, seven other Latin American countries have followed Chile's lead with privatized systems along the lines of the Chilean model, including Peru (1993), Colombia (1994), Argentina (1994), Uruguay (1996), Bolivia (1997), Mexico (1997) and El Salvador (1998). In March of this year, Rodríguez observed, "Poland became the first country in Eastern Europe to implement a partial privatization reform based on the Chilean system."

Rodríguez provides a history of retirement systems in Chile, which, in 1924, was the first country in the Western Hemisphere to introduce a state-run retirement system. He also traces the development and implementation of the current private system and examines complaints from some U.S. critics who argue, among other things, that the system's administrative costs are high. Actual administrative costs amount to 1 percent of assets, a figure comparable to management costs of the U.S. mutual fund industry. The costs would be lower, Rodríguez says, except for government rules that strictly regulate the way the investment funds can operate.

The study recommends changes that would improve the performance of Chile's system, including steps to liberalize the commission structure, allow banks and other financial institutions to enter the industry and let pension fund management companies manage more than one fund.

Social Security Privatization no. 17

Who is the radical? FEC candidate challenges campaign finance orthodoxy
Law professor vilified for questioning contribution and spending limits

Self-styled advocates of "good government" have launched a series of attacks on the Republican nominee for a GOP seat on the Federal Election Commission, calling his nomination an "insult." But a new briefing paper from the Cato Institute notes that "in case after case, the courts have been on [his] side, not on the side of his critics." The paper says that the real question to be answered in the battle over the FEC nomination of Bradley A. Smith is, "Just who is the radical?"

In "Mr. Smith, Welcome to Washington," Cato vice president for legal affairs Roger Pilon notes that "efforts to vilify prospective appointees are not uncommon in Washington, of course, but they are especially absurd in this case." Bradley Smith, a law professor at Capital University in Columbus, Ohio, "has established himself, since graduating from Harvard Law School, as one of the nation's foremost experts on campaign finance," Pilon points out. Smith is a Cato Institute adjunct scholar.

When Senate Majority Leader Trent Lott selected Smith for the GOP seat on the FEC, groups including Common Cause, Democracy 21, and the Brennan Center for Justice launched a heated battle against the nomination, denouncing Smith as "not fit to serve" because of his "radical" views. President Clinton has so far refused to nominate Smith for the GOP seat, prompting Lott, in turn, to place a hold on the nomination of Richard Holbrooke to be ambassador to the United Nations.

Why the virulent opposition? "Smith's 'crime,' it seems, is to have challenged the conventional wisdom that drives today's campaign finance debate. The thrust of his writing is that much of what has passed for 'reform' has in fact made the system worse," Pilon writes. "He has shown that limits on contributions have forced candidates to spend more time fundraising than ever before. He has demonstrated how contribution and spending limits help entrench incumbents, make campaigns longer and more negative, and reduce political accountability. He has argued convincingly that the burden of regulation has fallen most sharply on political amateurs and grassroots activists who lack the time, technical know-how, and resources to comply with heavy regulation. But above all, his writings have demonstrated time and again how efforts to ratchet up regulation by closing 'loopholes' have eroded First Amendment liberties."

Pilon writes that "since its creation nearly a quarter of a century ago, the FEC has been the captive of groups such as Common Cause and the Brennan Center, from which they have made war on the First Amendment rights of American citizens, restrained only by the determination of federal judges to uphold the Constitution. Professor Smith's nomination threatens that dominance-and threatens also to expose the true radicalism of those 'good government' groups." A serious debate over campaign finance reform "is long overdue," and "if this nomination should trigger one, it will have served a valuable purpose," Pilon concludes.

Cato Briefing Paper no. 49

Privacy is a dead letter in new U.S. Postal Service regulations, report says
Rules for private mailboxes jeopardize personal information and small business

Privacy is a dead letter in new U.S. Postal Service regulations, report says Rules for private mailboxes jeopardize personal information and small business

New U.S. Postal Service rules for private mailboxes threaten privacy and small business, and violate even the USPS's own privacy standards, according to a new study released today by the Cato Institute. The new rules, the study says, "constitute an unwarranted invasion of privacy and an expansion of the Postal Service's powers."

In "The U.S. Postal Service War on Private Mailboxes and Privacy Rights," Rick Merritt, executive director of PostalWatch, notes that the new rules require users of commercial mail-receiving agencies (CMRAs) to provide personal information such as home address and photo ID that will be available to the public. Box holders could thus fall victim to "identity thieves," who use such data to obtain credit card numbers, Merritt warns. The National Coalition Against Domestic Violence asserts that the requirement may increase the danger of stalking and stated that "the impact for domestic violence victims is potentially fatal."

Market needs led to the rise of CMRAs, chosen by small-business owners "because they have more convenient business hours, will accept deliveries from private carriers . . . and offer a stable address for enterprises that might change location." CMRAs' success has been an embarrassment to the Postal Service, which now threatens to stop delivering to any private mailbox that doesn't have a new designation in the address. Under the new rules, CMRA renters would have to "contact every person or entity that has sent them mail in the past and that might send them mail in the future and advise them that the acronym "PMB" (Private Mail Box) must precede the renter's box number on a separate line in the address on all future mail." Mail without the new code would be returned to the sender, even when the address is correct.

The USPS held two comment periods on the rule, and received an avalanche of 8,097 comments opposed to those regulations, with just 10 in favor. "At a ratio of more than 800 to 1, one wonders exactly what kind of groundswell of public opinion it would take to deter the USPS from enacting whatever regulations it chooses," Merritt concludes.

Cato Briefing Paper no. 48

False bad news: Why are perception and reality so far apart?
Americans urged to rethink assumptions about environment, resources, population

"Why is there so much false bad news about the environment, resources, and population?" And why do so many people believe it? Those are among the questions the late Julian L. Simon set out to answer in his last book, Hoodwinking the Nation, a Cato Institute book just published by Transaction Publishers.

Simon, a distinguished senior fellow at the Cato Institute and a professor at the University of Maryland at the time of his death last year, was among the nation's foremost critics of "gloom-and-doom" predictions. He noted in the preface to Hoodwinking the Nation that he had been "collecting material for this book, and writing these essays, for most of two decades."

Simon examines the nature of the false bad news; the production of false bad news by researchers, politicians and organizations; the dissemination of it by the press and television; and "our propensities as human beings that lead us to consume (and be consumed by) that body of false statements."

"The current gloom and doom about an environmental crisis is all wrong on the scientific facts," Simon argues. Typical of many examples of the gap between perception and reality were the results of a poll of attendees at an Audubon Society meeting, in which respondents were asked about fast-food packaging. Their average estimate was that it accounts for 20 to 30 percent of the volume in landfills, but "the actual volume is no more than one-third of 1 percent."

Where does the false bad news come from? Journalists, Simon notes, often know little about statistics and science and thus gather data in ways that lead to inaccurate conclusions; politicians misuse statistics in the service of their own policy goals; and psychological and cultural mechanisms make people more receptive to bad than to good news.

In the foreword, Ben Wattenberg of the American Enterprise Institute writes, "Julian loved to make bets. Fifty years from now readers who peruse Earth in the Balance by Albert Gore and Hoodwinking the Nation by Julian Simon will giggle at one of them. Let's bet which."

Hoodwinking the Nation

Plumbing standards ineffective means of water conservation
The only way to avoid shortages is to rely on free-market pricing and allocation

"America should learn from the mistakes of the 1970s and free water provision and consumption from regulatory control," Cato Institute director of regulatory studies Jerry Taylor told the House Subcommittee on Energy and Power today. "Water supply, allocation and pricing decisions should be left to market actors with limited interference from government."

In 1992 plumbing appliance standards, such as those for low-flow toilets and showers, were enacted as part of the Energy Policy and Conservation Act. According to Taylor, those standards "are incapable of remedying the underlying causes of water scarcity and, moreover, introduce further distortions and inefficiencies in water markets."

"The parallels between water and energy markets are striking," according to Taylor. He outlined several key lessons learned from the mandatory energy conservation measures of the 1970s:

• When government regulations keep prices below market-clearing levels, shortages inevitably follow.
   
• Government agents cannot direct resource production, price or allocation decisions as efficiently as can market actors.
   
• Mandatory conservation measures are a poor substitute for accurate price signals.
   
• Government-directed conservation investments are unlikely to improve upon those that would be made if consumers were faced with correct market signals.

"It was rising prices-not mandatory conservation-that ultimately led to increases in energy efficiency in the 1970s and 1980s. The only way to avoid shortages is to rely on free-market pricing and allocation," Taylor explained. "Water markets-like the energy markets before them-need a dose of market discipline. Consumers have proven quite responsive to changes in water prices and water markets have been shown to work quite well when released from regulatory constraints."

"More important, accurate price signals will reach the greatest sources of water waste and overconsumption-the agricultural industry-and even modest reductions in use would overwhelm the potential gains from residential conservation."

The Plumbing Standards Improvement Act: A Step in the Right Direction

Rule of law and rights of people ignored in campaign finance proposals
Far from needing further restrictions on political speech, we need fewer

"In a free society, individuals and organizations are and ought to be free to associate in any way they wish, to speak as they wish, and to spend their money as they wish, provided only that in the process they respect the rights of others to do the same," Cato Institute vice president for legal affairs Roger Pilon testified before the Committee on House Administration today. "Yet, despite a string of cases, beginning with Buckley v. Valeo and now spanning more than two decades, many in Congress persist in believing that they have the power to restrict what the First Amendment plainly protects."

"There is something fundamentally wrong with the way political campaigns in American today are financed," Pilon explained. "But many of the problems that reformers see in our present arrangements are the products of earlier reforms. Far from needing further restrictions on political speech, we need fewer."

Pilon systematically critiqued proposals being considered in Congress, including the PAC ban, PAC ban fallback, voluntary spending limits, limits on 'soft money,' and issue advocacy, finding all to be clear violations of free speech. He singled out the proposal introduced by Chris Shays (R-Conn.) and Marty Meehan (D-Mass.) as particularly egregious. "Given the Buckley framework, and the many cases since that have only strengthened that holding, it is simply shocking that so many in Congress believe that they can ignore the Court and the Constitution and sign on to a bill like Shays-Meehan that so flagrantly flies in the face of both. It is as if, in the matter of campaign finance, the rule of law, and the rights of the people, counted for nothing."

A common misconception, Pilon explained, is that money "corrupts" politics. "The congressional response has been to severely restrict the amount of money that any one individual or group could give to a candidate-limits that have not been changed since they were imposed in 1974-which means that candidates since then have had either to be independently wealthy, to be constantly raising money in small sums, or to be looking for ways around the system. Is it any wonder that no one likes this system?"

"Money buys access, not votes," Pilon corrected. "It is through access that information is imparted and interests made known, which is precisely what political speech is about. This is not a time to limit that speech. It is a time to encourage it-and, in the process, to terminate the arcane procedures under which recent elections have been conducted, which themselves corrupt."

Constitutional Issues Related to Campaign Finance Reform

U.S. forfeiture law and practice fundamentally wrong, Cato scholar declares
Pilon tells Senate panel that need for reform of civil asset forfeiture laws is urgent

"Something is terribly wrong when a body of 'law' enables officials to stop motorists and other travelers and seize their cash on the spot, returning it, if they do, often years later, only after the person proves his innocence--where such a defense is possible," Cato Institute legal scholar Roger Pilon declared at a Congressional hearing today.

Appearing before the Senate Subcommittee on Criminal Justice Oversight, Pilon expressed outrage at the fact that "the 'law' enables officials to seize and sometimes destroy boats, cars, homes, airplanes, and whole businesses because they suspect the property has somehow been 'involved' in a crime." Even worse, "it encourages officials to maim and even kill in their efforts to seize property for forfeiture to the government. Lawyers who come upon this body of law for the first time are often taken aback by the injustice and irrationality of it all. Imagine what the ordinary citizen must think."

"Modern American asset forfeiture law, especially civil forfeiture, rests on animistic and authoritarian principles, leading to practices that are utterly foreign to our first principles as a nation," Pilon explained. "Its origins are in the Old Testament and in medieval doctrine, rooted in the idea that animals and even inanimate objects involved in wrongdoing could be sacrificed in atonement or forfeited to the Crown. Modern forfeiture law, filtered through early American admiralty and customs law, has simply carried forward, uncritically, the practice of charging things."

Pilon, Cato vice president for legal affairs and director of the Center for Constitutional Studies, noted that legitimate forfeiture plays an important role in law enforcement. But he added that "illegitimate forfeitures, while a small fraction of all forfeitures, have given the law enforcement community--to say nothing of their victims--the greatest problems; for they have given all of forfeiture a bad name, which is why the House bill should be welcomed by law enforcement." A bill recently passed by the House, the Civil Asset Forfeiture Reform Act, H.R. 1658, would address these problems, Pilon said.

"This bill should not only be welcomed by law enforcement, but by every American who wants to see our law and legal institutions grounded on our first principles as a nation. Forfeiture has a place in law enforcement, but like every tool in that effort, it must spring from principles of justice if it is to service justice," Pilon concluded.

Oversight of Federal Asset Forfeiture: Its Role in Fighting Crime