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June-July 1998
July 31, 1998 Fans of "Japan, Inc."
turn out to have been dead wrong "Revisionist" supporters of the "Japan, Inc." economic model, who "argued in the late 1980s and early 1990s that the United States could not compete with Japan's unique form of state-directed insider capitalism . . . were dead wrong, both in their assessment of the Japanese 'threat' and in their recommendations for U.S. policy." Their prophesies of doom, and the realities that proved them wrong, are described in detail in a new Cato Institute study released today. In "Revisiting the 'Revisionists': The Rise and Fall of the Japanese Model," Brink Lindsey and Aaron Lukas of the Cato Institute's Center for Trade Policy Studies examine the fawning praise, dire predictions and policy prescriptions of such well known fans of Japan, Inc. as Chalmers Johnson, Clyde Prestowitz, James Fallows and Karel van Wolferen. They cite numerous examples, such as Prestowitz's praise for the "Japanese juggernaut" in his book Trading Places: "Japan has created a kind of automatic wealth machine, perhaps the first since King Midas." But the "wealth machine" met an unhappy end. "Prestowitz was referring to the gravity-defying rise of the Japanese stock and real estate values during the late 1980s. That phenomenon is now known as the 'bubble economy,' and its collapse has left Japan economically crippled." Lindsey and Lukas note that today, "the 'Japan, Inc.' model has not eclipsed Western-style capitalism; instead, there is an emerging consensus on both sides of the Pacific that the Japanese model has failed. Countries up and down the Pacific Rim are embracing market-oriented reforms in the wake of an economic crisis blamed widely on Japanese-style 'crony capitalism.'" The Cato study concludes that the failure of the revisionists to see the flaws in the Japanese model is easily understood. "All their errors trace back to a common source: an inability to understand and appreciate the power of free markets. Suffering from what Nobel Prize-winning economist F. A. Hayek termed the 'fatal conceit,' they believed that a handful of government planners could outthink millions of private decision-makers-could pick 'strategic' industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naïve." Trade Policy Analysis no. 3 ( http://www.freetrade.org/pubs/pas/tpa-003.html) July 29, 1998 Global warming forecast has been
"an astounding failure," Cato scholar says The forecast of global warming provided to Congress a decade ago by NASA scientist James Hanson "was an astounding failure," and the statement two years later by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) about "the realistic nature of these projections was simply wrong," climatologist Patrick J. Michaels told a congressional committee today. Michaels, senior fellow in environmental studies at the Cato Institute and professor of environmental sciences at the University of Virginia, testified today before the House Committee on Small Business. He recalled his own testimony on the subject in 1988, in which he told Congress that "forecasts of dramatic and deleterious global warming were likely to be in error because of the very modest climate changes that had been observed to that date." Since his most recent testimony before the House in November 1997, Michaels noted that "new scientific advances . . . published in the refereed literature . . . have now proven the validity of this position." Key findings, he said, include
If every nation met its obligations under the Kyoto Protocol, the earth’s temperature in 2050 would be 0.07 degrees Celsius lower, "an amount so small that it cannot be reliably measured by ground-based thermometers," Michaels said. Thus, it will provide "no benefit at enormous cost." The Kyoto Protocol is "a useless appendage to an irrelevant treaty," and the entire Framework Convention on Climate Change should be reconsidered. Michaels is past president of the American Association of State Climatologists. He is the author of The Science and Politics of Global Warming and more than 200 scientific, technical and popular articles on climate. Testimony (http://www.cato.org/testimony/ct-pm072998.html) July 20, 1998 Virtually all women better off under
privatized Social Security, study finds "Virtually all women would be better off (many significantly) under a system of individually owned, privately invested accounts than under the current Social Security system," according to a new Cato Institute study of the impact of several approaches to Social Security privatization on women. The authors of "Benefits of Social Security Privatization for Women," Ekaterina Shirley and Peter Spiegler, performed their research at the John F. Kennedy School of Government at Harvard University. They compared benefits for women under Social Security, under a partially privatized "double-decker" or two-tiered system and under a fully privatized system with provisions for earnings sharing by married couples. They performed two statistical analyses. The first was a retrospective analysis using actual earnings histories of men and women who retired in 1981. The other was a prospective simulation that used hypothetical earnings streams of eight "types" of women in order to capture the impact on today’s working women, who have significantly different labor and marital characteristics than the first group. The authors found that for each of the eight types of women in today’s workforce, whether they had full or interrupted earnings histories, "the FPES [full privatization with earnings sharing] plan with contribution rates of 10 percent or 7 percent delivers the highest amount of retirement benefits on a present value basis." The group of women who retired in 1981 all "would have been either unaffected or made better off by switching to the FPES system," Shirley and Spiegler found. In fact, out of a sample of 1,992 women, only 3 would have received benefits from a privatized system that were as low as those provided by Social Security. All of the others would have received more, with single women receiving a median of 57.9 percent more, divorcées 67.2 percent more, widows 96.5 percent more, and wives 207.5 percent more than they do from Social Security. The partially privatized retirement system used in the study’s comparisons is the one laid out in the Social Security Advisory Council’s Personal Security Account (PSA) plan, which would allow workers to put 5 percent of their 12.4 percent payroll tax into private accounts. The remaining 7.4 percent would go to cover a Social Security flat benefit and Survivors and Disability Insurance. Shirley and Spiegler found that shortcomings of this plan’s approach "make the PSA plan an even worse deal for women than the current system." Social Security Paper no. 12 (http://www.cato.org/pubs/ssps/ssp12es.html) July 16, 1998 Proposed International Criminal
Court threatens to diminish U.S. sovereignty An international conference that concludes its work in Rome tomorrow, July 17, 1998, appears likely to produce a proposal for an International Criminal Court that "threatens to diminish America’s sovereignty, produce arbitrary and highly politicized ‘justice,’ and grow into a jurisdictional leviathan," according to a new study issued by the Cato Institute. In "Reasonable Doubt: The Case against the Proposed International Criminal Court," Cato foreign policy analyst Gary T. Dempsey notes that "it appears that many of the legal safeguards Americans enjoy under the Bill of Rights, particularly Fifth and Sixth Amendment protections, would be unavailable if Americans were brought before the International Criminal Court." Dempsey says that the ICC draft statute does not recognize such fundamental protections as the Fifth Amendment’s promise of due process or protection against self-incrimination, or Sixth Amendment protections involving the right to trial by jury. He also points out that the existing United Nations war crimes tribunal on Yugoslavia does not recognize any right against self-incrimination or the right to confront one’s accusers, as the Fifth and Sixth Amendments provide. Dempsey notes that proponents of the ICC also "want to give it the authority to prosecute drug trafficking as well as such vague offenses as ‘serious threats to the environment’ and ‘committing outrages on personal dignity.’ Even if such expansive authority is not given to the ICC initially," he says, "the potential for jurisdictional creep is considerable and worrisome." "A number of countries want to have the crime of ‘aggression’ included in the final ICC statute," Dempsey observes, and proposed wording would include such things as bombardment and blockade of ports in the definition of aggression. Such a provision would "reduce the military options available to the United States by outlawing preemptive strikes and the kind of naval blockade President Kennedy employed during the Cuban Missile Crisis. That could effectively tie the hands of U.S. policymakers." The ICC should be rejected by the United States, Dempsey says, lest it "open a Pandora’s box of legal mischief and political folly." Policy Analysis no. 311 (http://www.cato.org/pubs/pas/pa-311es.html) June 26, 1998 New web page refutes Buchanan’s
‘new nationalism’ The ongoing globalization of economic life leaves many Americans nervous and suspicious. Pat Buchanan has played to this anxiety in two presidential campaigns and is now preparing to do so a third time. To that end he has written The Great Betrayal, a root-and-branch rejection of free trade in favor of a "new nationalism." The Great Betrayal describes a protectionist political agenda that Buchanan says will lead to millions of new high-paying manufacturing jobs and the "reindustrialization" of America. In reality, however, Buchanan’s "new nationalism" isn’t new and his policy prescriptions -- such as a 15 percent tariff on all imports -- would severely damage the U.S. economy. The case for free trade has withstood many such assaults in the past, and the arguments Buchanan offers have all been heard -- and rejected -- before. To highlight that fact, the Cato Center for Trade Policy Studies has constructed a web page that provides links to excerpts from Cato publications that offer an alternative perspective to Buchanan’s protectionist analysis. Topics covered include the role of protectionism in U.S. history, threats to national sovereignty, the trade deficit and jobs, the North American Free Trade Agreement and the benefits of imports. A review of Buchanan’s book by Center director Brink Lindsey is also available on the page. According to Lindsey, Buchanan’s "heart bleeds for the victims of change, but only when foreigners can be made to take the rap for it. Buchanan’s book proclaims sympathy with two conflicting public sentiments -- the desire for economic dynamism and the aversion to disruptive change -- and reconciles the two by blaming their conflict on an unpopular scapegoat." Response to Pat Buchanan’s The Great Betrayal (http://www.freetrade.org/new/buchanan.html) June 25, 1998 Telecom universal service
requirements unjustified, study finds "Universal service regulation poses a threat to the stated goals of the supporters of universal service, namely the development of an advanced communications infrastructure for the United States," according to a new study issued by the Cato Institute. Author Lawrence Gasman notes that legislators debating universal service provisions of the Telecommunications Act of 1996 "barely addressed whether there is a real need for any universal service subsidies. There is not." In "Universal Service: The New Telecommunications Entitlements and Taxes," Gasman examines the social, economic and political justifications for the program and concludes that "universal service subsidies are not justified by economics, by any reasonable principle of justice, or by common sense." The 1996 act gave extraordinary power to the FCC to raise billions of dollars for universal service through surcharges imposed on everyone's phone bill. Beneficiaries include schools, people living in rural areas and low-income users. But Gasman points out that "the leap from the importance of telecommunications to the need for subsidies to prevent the emergence of information have-nots is not based on any evidence or logic." Today, 93.9 percent of all U.S. residences have telephone service and for the poorest households the figure is 87.1 percent. The 1996 act also targets aid to high-cost (usually rural) areas. But Gasman asks, "Why is anyone living in a rural area entitled to phone service at others' expense?" Rural telephone subsidies "are not even remotely targeted to low-income rural residents, let alone the truly needy. . . . Housing usually costs less in rural areas; why should the renters or purchasers of expensive urban housing subsidize phone service for those who enjoy the low costs of rural living?" In practice, Gasman argues, the subsidies will discourage the development of innovative technologies that provide telecom services in rural areas at lower cost. The policy question is much the same with regard to subsidies for schools. "Why should technology purchases get special subsidies when school books and other educational tools generally do not? Yet textbooks are of unquestioned usefulness in schools, whereas the educational impact of the Internet is questionable." Lawrence Gasman is a senior fellow at the Cato Institute and the author of Telecompetition. He is president of Communications Industry Researchers, Inc., a consulting company specializing in the telecommunications, computer and cable television industries. Policy Analysis no. 310 (http://www.cato.org/pubs/pas/pa-310es.html) June 22, 1998 U.S. theater missile defense program
cost can be cut by two-thirds, study finds "Acquiring all the systems in the current theater missile defense (TMD) program is unnecessary," according to a new study from the Cato Institute. "The United States should purchase only those systems that support a national security policy of sending U.S. expeditionary forces to foreign theaters only when vital U.S. national security interests are at stake." That would reduce the cost of the program from an estimated $47.3 billion to $17.4 billion, the study finds. In "Theater Missile Defense: A Limited Capability Is Needed," Charles V. Peña argues, "It is no longer reasonable or rational for the United States to maintain forward-deployed forces throughout the world and provide protection for friends and allies. Thus, there is no need to acquire all the systems in the current TMD program." The Pentagon’s Ballistic Missile Defense Organization currently has six different systems in its TMD program. Peña says that three of them -- Navy Area Defense; Navy Theaterwide Defense; and PAC-3, an improved version of the Patriot system that was used during the Persian Gulf War -- are well suited to support "an ability to project military power at places and times of our own choosing" and should be kept. But Peña says that the other three systems should be terminated. The Theater High Altitude Area Defense system, which costs $12.8 billion, "is not readily deployable" and "is more ideally suited to protecting a theater before the deployment of forces begins." The Medium Extended Air Defense System provides a capability similar to PAC-3 but at much greater cost ($11 billion) and provides a much smaller radius of defense. And the Air Force’s airborne laser not only faces important technical challenges but "will require secure airfields, which may not be available early in a conflict. To make a substantial investment ($6.1 billion) in a system that depends on availability of and access to secure airfields would not be a wise choice." Peña, an independent defense policy consultant, concludes, "Our military forces should be designed to support a more selective and rigorous national security policy. And our theater ballistic missile defense choices must provide real military capability and be consistent with our policies and forces." Policy Analysis no. 309 (http://www.cato.org/pubs/pas/pa-309es.html) June 15, 1998 That 2.2% tax hike is no
"solution" to Social Security’s
demographic blues Partisans of the current Social Security system sometimes argue that raising the payroll tax by a "mere" 2.2 percent would be all it would take to solve its financial problems. But a new study from the Cato Institute concludes that this "2.2 percent solution" would not only exact a huge cost -- $75 billion in higher taxes in the first year alone -- but would still require an additional tax hike every year to keep the trust funds in balance. In "The Myth of the 2.2 Percent Solution," economists Neil Howe and Richard Jackson point out that the proposal is designed to deal with one particular measure used to determine Social Security’s fiscal health: actuarial balance. Computations of actuarial balance count surpluses in the program’s trust funds as genuine savings, "but the trust funds contain nothing but a stack of Treasury IOUs that will require additional taxes or borrowing from the public to redeem. The more accurate measure of Social Security’s health is the program’s operating balance -- that is, its earmarked annual tax revenues minus its annual outlays," according to Howe and Jackson. That balance will go in the red in 2013, just 15 years from now; in 2031, the annual deficit will be roughly $734 billion. Howe and Jackson also point out other serious problems with the idea:
Howe and Jackson are economists and senior advisers to the Concord Coalition. Social Security Paper no. 11 (http://www.cato.org/pubs/ssps/ssp11es.html) June 5, 1998 Cato Institute establishes endowed
chair in constitutional studies The Cato Institute Board of Directors, meeting today in Washington, D.C., approved the establishment of the B. Kenneth Simon Chair in Constitutional Studies, the Institute’s first endowed chair. The first scholar to hold the position will be Roger Pilon, senior fellow and director of Cato’s Center for Constitutional Studies. Cato president Ed Crane said, "It is especially fitting that the first endowed chair at Cato should be in constitutional studies since the Constitution, understood as embodying the natural-rights philosophy of the Founders, is the basis and starting point for all of Cato’s policy work. And it is fitting, too, that Roger Pilon should be named to the chair since his work has done so much to revive the idea that the Constitution establishes a government of limited powers designed to secure individual liberty, free markets, and the rule of law." The chair was established with a $2 million grant from B. Kenneth Simon of Pittsburgh, a retired engineer and entrepreneur who has supported Cato’s work for a number of years. "I am very pleased to see this chair established," Simon said. "I have followed the work of Cato, and of Roger Pilon in particular, for some time. It is important work that needs to reach the broadest possible audience. What could be more important in this country than reviving the idea of limited, constitutional government?" Since joining Cato nearly a decade ago, Pilon and his staff at the center have argued that judges should be neither "active" nor "restrained" but instead should be responsible to the Constitution they swear to uphold. "But to do that," Pilon said, "they must have a better understanding of the philosophy of the Constitution, including its natural-rights foundations, than many of them seem to have. The Constitution does not empower judges to be social engineers. At the same time, it does not allow them to be handmaidens to the political branches." "The B. Kenneth Simon Chair in Constitutional Studies will enable Cato to better advance that vision of the Constitution and the proper role of the judiciary under it," Crane told Cato’s board. "We will also initiate the B. Kenneth Simon Distinguished Lecture Series in Constitutional Studies," he added, "which will bring noted constitutional scholars to Washington to address legal issues of the day. We are very proud to establish this chair and very pleased that Ken Simon has enabled us to do it." Previous What's New at Cato files:
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