August - September 1997


"THIS JUST IN"

September 30, 1997

Cato chairman tells senators a global warming treaty is premature
Niskanen: Rush to judgment would be a "serious mistake"

"Our nation risks a serious mistake in the rush to judgment on the proposed global warming treaty," William A. Niskanen, chairman of the Cato Institute, said in testimony to the Senate Committee on Energy and Natural Resources today. "The major economic issues that underlie this treaty are not sufficiently understood."

Niskanen, who was a member of the Council of Economic Advisers under President Reagan, noted that a number of economists have investigated the possible consequences of such a treaty, with results that weigh heavily in favor of more careful study. For example,

Niskanen pointed out that less extreme and less costly methods, such as reforestation and spreading trace quantities of iron in the oceans, may well be sufficient to offset the effects of increased carbon emissions.

Furthermore, the proposed treaty would exempt poor countries, despite the fact that they will soon produce about half of global carbon dioxide emissions. That would increase the relative cost to developed nations and substantially dilute and delay any net reduction in emissions.

Niskanen added that, while some modest near-term measures might be valuable, "there are too many scientific, economic, and political issues yet to be resolved to support an early commitment to control the emissions of greenhouse gases."

Testimony of William Niskanen (http://www.cato.org/testimony/ct-wn093097.html)

September 25, 1997

Cato legal scholar: campaign finance proposals unconstitutional
The First Amendment is not a "loophole," Pilon tells Senate committee

"Despite a string of Supreme Court cases, now spanning more than two decades, many in Congress persist in believing that they have the power to restrict what the First Amendment was plainly written and meant to protect," Cato scholar Roger Pilon told the Senate Governmental Affairs Committee today. The Senate panel has been examining violations of current campaign finance laws and is now considering the advisability and constitutionality of new, more restrictive rules.

Pilon, director of the Cato Institute’s Center for Constitutional Studies, reminded the senators that the Court "has said repeatedly that, under the First Amendment, campaign contributions are protected speech, and any regulation of political contributions or expenditures will be upheld only if they achieve a compelling governmental interest by the least restrictive means – the highest possible constitutional hurdle."

The Supreme Court’s landmark 1976 decision in Buckley v. Valeo struck down many of the provisions Congress had attached to the Federal Election Campaign Act on grounds that they were impermissible under the First Amendment. "Since then," Pilon told the committee, "the Federal Election Commission has fought to close the perceived ‘loopholes’ created by Buckley. In response, the Court has repeatedly held that the First Amendment is not a loophole."

Among the measures now being considered in Congress is a provision that would ban political action committees (PACs), groups formed in the wake of the 1974 FEC amendments to support candidates for public office at a level not permitted individuals. But a PAC ban is "grossly overinclusive" and cannot meet Court requirements that federal laws in this area address a compelling government interest and be narrowly tailored, Pilon stated. "People and organizations have a right to join together to enhance their political voices. Prohibiting such activities strikes at the very heart of the First Amendment."

A "fallback" plan would simply lower the permissible amount of PAC contributions from $5,000 to $1,000 per election. Pilon said that this alternative approach is no more constitutional than the PAC ban, since it is neither narrowly tailored nor based on a compelling interest. "Indeed," he said, "it is difficult to identify any interest – other than incumbency protection – that is served by making it more rather than less difficult for candidates to raise money."

Other provisions that attempt to limit soft money cannot rely on the anti-corruption rationale that stiffer regulation would require to be constitutional. Since soft money goes to parties, not candidates, "there is no possibility of the kind of quid-pro-quo corruption that justifies limits," Pilon declared.

Testimony of Roger Pilon (http://www.cato.org/testimony/ct-rp092597.html)

September 22, 1997

Rupert Murdoch joins Cato Institute Board of Directors
News Corp. chief owns Fox TV, newspapers, other media worldwide

The chairman and CEO of News Corporation, Rupert Murdoch, has joined the Board of Directors of the Cato Institute, Cato president Ed Crane announced today.

"Rupert Murdoch is one of the most successful entrepreneurs in the world, a strong advocate of the free market and a committed civil libertarian," Crane said in welcoming Murdoch to the board. "We’re very proud to have him join the very distinguished men and women who guide the Cato Institute in its ongoing pursuit of the traditional American principles of limited government, individual liberty and a free market economy."

Murdoch’s worldwide media holdings began more than 30 years ago with several small TV and newspaper properties in Australia. Today, News Corp. has properties in nearly every time zone on earth. An article in the online magazine "Slate" earlier this year described Murdoch as "the global capitalist par excellence, the very model of free enterprise and entrepreneurship." Author David Plotz observed that "everywhere Murdoch has gone, competition, efficiency and consumer choice (and profit) have followed."

In a speech at the Edinburgh International Television Festival eight years ago, Murdoch told TV broadcasters fighting to retain near-monopoly control over British television, "I start from a simple principle: in every area of economic activity in which competition is attainable, it is much to be preferred to monopoly." And he admonished the audience to come to grips with the fact that "across the world there is a realization that only market economies can deliver both political freedom and economic well-being."

Other members of Cato’s board of directors are: Peter Ackerman, managing director, Rockport Financial Ltd.; K. Tucker Andersen, managing partner, Cumberland Associates; James U. Blanchard III, president, Jefferson Financial; John Blokker, Woodside, California; Frank Bond, founder, Holiday Health Spas; Gordon Cain, chairman of the board, The Sterling Group; Ed Crane, president, Cato Institute; Richard J. Dennis, president, Dennis Trading Group; Theodore J. Forstmann, principal, Forstmann Little & Company; Ethelmae C. Humphreys, chairman, Tamko Asphalt Products, Inc.; David H. Koch, executive vice president, Koch Industries, Inc.; John C. Malone, president & CEO, Tele-Communications Inc.; William A. Niskanen, chairman, Cato Institute; David H. Padden, president, Padden & Company; Howard S. Rich, president, U.S. Term Limits; and Frederick W. Smith, chairman, Federal Express Corporation.

September 16, 1997

NATO expansion could pull U.S. into East European war, analysts say
Poland NATO membership could force U.S. into a "Bosnia-style morass"

The decision to invite Poland, Hungary and the Czech Republic to join NATO creates the prospect of virtually unlimited security obligations for the United States, according to a study released today by the Cato Institute.

"Part of NATO’s expanded perimeter will lie along the border between Poland and Belarus, and Belarus is a political and economic volcano waiting to erupt. The repressive, erratic regime of Alexander Lukashenko and the country’s moribund economy provide ideal conditions for the same type of armed chaos that has engulfed such countries as Yugoslavia, Afghanistan, Somalia and Zaire," authors Ted Galen Carpenter and Andrew Stone say.

In "Nato Expansion Flashpoint No. 1: The Border between Poland and Belarus," Carpenter and Stone argue that "if Belarus explodes, Poland is going to expect help from its NATO allies to contain the effects and protect Polish security. At the least, that could mean a Bosnia-style morass for NATO. But because Belarus is Russia’s last remaining security ally in Eastern Europe, a NATO presence along the Polish-Belarusian border also risks a collision with a nuclear-armed Russia."

Carpenter and Stone conclude that the Belarus situation is one of many reasons that the U.S. Senate should reject NATO expansion.

Ted Galen Carpenter is vice president for defense and foreign policy studies at the Cato Institute and author of Beyond NATO: Staying Out of Europe’s Wars. Andrew Stone was a visiting research assistant at the Cato Institute during 1997.

Foreign Policy Briefing no. 44 (http://www.cato.org/pubs/fpbriefs/fpb-044es.html)

September 11, 1997

Fear of financial derivatives unfounded, expert says
Economist examines misconceptions in new Cato study

"Financial derivatives should be considered part of any firm’s risk-management strategy," writes Thomas F. Siems of the Federal Reserve Bank of Dallas in a new Cato Institute Policy Analysis. "The freedom to manage risk effectively must not be taken away."

In "10 Myths about Financial Derivatives," Siems examines common misconceptions about derivatives-- complex financial instruments often blamed for the bankruptcy of Orange County, California, and the collapse of Barings Bank. According to Siems, the following are myths:

· Derivatives are new, high-tech, financial products;

· Derivatives are purely speculative and highly leveraged;

· The size of the derivatives market makes trading them an unsound banking practice;

· Only large corporations and large banks have a need to use derivatives;

· Derivatives are simply the latest risk-management fad;

· Derivatives take money from productive uses and never put anything back;

· Because of the risk involved, banking regulators should ban the use of derivatives by any institution covered by federal deposit insurance.

Siems concludes that regulatory and legislative restrictions on derivatives are not a solution to dealing with their risk. "A better answer," he writes, "lies in greater reliance on market forces to control derivatives-related risk raking, together with more emphasis on government supervision, as opposed to regulation."

Policy Analysis no. 283 (http://www.cato.org/pubs/pas/pa-283es.html)

September 4, 1997

Campaign finance reform proposals ‘constitutionally indefensible’
Proposed regulations conflict with First Amendment rights, legal scholar writes

Current campaign finance reform proposals "pose a disturbing threat to the individual political freedom guaranteed by the Constitution," according to Professor Lillian R. BeVier of the University of Virginia Law School.

In a new Cato Institute Policy Analysis, "Campaign Finance ‘Reform’ Proposals: A First Amendment Analysis," BeVier examines reform proposals in light of legal precedents and concludes that no current proposals would be likely to survive a First Amendment challenge.

In the 1976 case of Buckley v. Valeo, the Supreme Court affirmed that giving money to and spending it on political campaigns is a core First Amendment activity. Accordingly, to be constitutionally valid, regulations must be justified by a "compelling state interest" and achieve their objective by the "least restrictive means." As BeVier shows, current campaign finance proposals cannot meet those requirements.

BeVier examines key features of current campaign finance reform proposals, including a ban on political action committees, "voluntary" spending limits, restrictions on soft money, regulation of issue advocacy, requiring broadcasters to provide free TV time to candidates and expanding the enforcement powers of the Federal Election Commission. She applies the standard enunciated in Buckley and its progeny to the proposed regulations and finds that none serves a compelling interest by the least restrictive means and that all "substantially infringe on core First Amendment freedoms."

Current campaign finance reform proposals are close to a "complete rejection of the individual and associational rights of expression and political participation that the First Amendment guarantees," BeVier writes. "If they were to be enacted, and were challenged in court and subjected to genuinely strict scrutiny, none of the proposed regulations could survive review. They could survive only if the Supreme Court decided to amend the First Amendment by judicial fiat."

Policy Analysis no. 282 (http://www.cato.org/pubs/pas/pa-282es.html)

September 2, 1997

GOP budget ‘revolution’: promises made, promises broken
Congressional Republicans fail to live up to their rhetoric, Cato scholar says

The Republican Congress, which promised a "revolution" to shrink the size of the federal government, has presided over record-breaking increases in social spending, according to Stephen Moore, director of fiscal policy studies at the Cato Institute. In a new Policy Analysis, Moore concludes that "Republicans have quickly retreated from the agenda of making government in Washington smaller and smarter."

Though the budget deficit has grown smaller over the past decade, Moore shows that almost all of this reduction is attributable to the "peace dividend" reductions in the military budget. He notes that congressional Republicans have spent slightly more on social programs than Democrats did in the three preceding years.

Moore examines the promises made at the beginning of the 104th Congress, and shows that they have not been kept. "So far the Newt Gingrich-led Republican Congress has failed to control the pace of social program expansions," he says. "In their first three budgets, the Republicans have increased domestic spending by $183 billion compared to a $155 billion increase in the three years prior to GOP control of Congress. Not a single cabinet agency has been eliminated. And only a small handful of the 300 federal programs that were targeted for closure has actually been terminated."

The promise of spending restraint in the 1997 budget deal is fiction, according to Moore. "The budget deal presumes, unrealistically, that the 106th and 107th Congresses will make the spending reductions that this Republican Congress has the authority, but lacks the will-power, to enact today." Moore says that Republicans in the 105th Congress could achieve a balanced budget unilaterally next year with relative ease by simply holding total outlays to the inflation rate. "The problem," he writes, "is not that Congress cannot cut spending, it is that it will not."

Policy Analysis no. 281 (http://www.cato.org/pubs/pas/pa-281es.html)

August 27, 1997

Renewable energy expensive, environmentally counterproductive, unsustainable
Its development should not be subsidized, Cato study says

"A multi-billion-dollar government crusade to promote renewable energy for electricity generation has resulted in major economic costs and unintended environmental consequences," says Robert L. Bradley, president of the Institute for Energy Research.

In a new Cato Institute Policy Analysis, "Renewable Energy: Not Cheap, Not ‘Green,’" Bradley shows that today’s renewable energy plants produce electricity that is, on average, twice as expensive as electricity from the most economical fossil-fuel alternative and triple the cost of surplus electricity.

Bradley also demonstrates that renewable energy sources, such as wind, sunshine, water and the combustion of replenishable crops, have hidden environmental costs. Wind and solar farms can require 100 times more land space-- in pristine areas-- than fossil-fuel plants producing the same quantity of power. Wind farms are noisy and kill birds. It is estimated that wind farms have killed hundreds of endangered golden eagles in California alone.

Furthermore, Bradley notes that politically favored renewable energy sources worsen global warming and other alleged air pollution problems in the short term because of the pollution created by the material-intensive manufacture of wind and solar facilities.

Bradley warns against including mandates for renewable energy in state and federal efforts to restructure the electric industry. "New government subsidies for favored renewable technologies will needlessly increase electric rates in return for phantom environmental benefits."

Policy Analysis no. 280 (http://www.cato.org/pubs/pas/pa-280es.html)

August 20, 1997

‘Campaign finance reform’ is latest incumbent-protection tactic

The re-election rate for incumbents in the House of Representatives has been above 90 percent for the last 20 years; in 1997 it exceeded 94 percent. According to a new Cato Institute Policy Analysis, incumbent politicians secure such lopsided re-election rates by giving themselves a variety of institutional advantages. Proposed campaign spending limits are merely the latest and most potent incumbent-protection measure to be considered.

In "The End of Representation: How Congress Stifles Electoral Competition," Eric O’Keefe of U.S. Term Limits and Aaron Steelman of the Cato Institute describe the institutional advantages of incumbents, including constituent service, franked mail, gerrymandering and pork-barrel spending.

While those advantages make incumbents all but unbeatable, new campaign finance regulations threaten to increase officeholders’ advantages even more by capping spending at precisely the point at which challenges become viable. According to the authors, House challengers who spent less than $600,000 on their campaigns in 1994 and 1996 won only 3 percent of their races, but House challengers who spent more than $600,000 won about 40 percent of theirs. The House campaign finance reform bill receiving the most media attention contains a $600,000 spending limit. "Current campaign laws restricting the amount of money that a candidate can raise deter many potential challengers and greatly reduce the electoral chances of those who decide to run. Proposals that would regulate campaign finance even more would only further entrench incumbents," O'Keefe and Steelman write.

They argue that these problems can be solved. "Reducing the size of government would shrink the opportunities and necessity for constituent service. Eliminating campaign contribution limits would enable more candidates to wage viable campaigns. Most of all, imposing term limits on members of Congress would ensure that party leaders and committee chairmen would not become part of a permanent ruling class."

Policy Analysis no. 279 (http://www.cato.org/pubs/pas/pa-279es.html)

August 15, 1997

Below-cost tuition threatens independent education, scholar says
Taxpayer support draws students away from private colleges, imperils pluralism

Taxpayer subsidies to public universities lure students away from private colleges and are causing many private institutions to go out of business, writes Gary Wolfram in a new Cato Institute Policy Analysis. Wolfram points out that, at the beginning of this century, more than four of every five students were enrolled in private colleges, while today almost four in five students attend a public university. In addition, of the 346 colleges that closed their doors between 1970 and 1993, 312 were private.

According to Wolfram, George Munson Professor of Political Economy at Hillsdale College, heavy subsidies to state-run colleges put the independent sector of higher education at a severe disadvantage and make it difficult for private colleges to maintain student enrollment. He notes that in-state tuition covers only about 28 percent of the costs of providing an education in a public college.

Wolfram argues that subsidizing upper-income students who attend state colleges threatens a valuable component of American education. "Private colleges are essential to diverse and independent education and to the maintenance of a civil society independent of the state," he writes. "Economic analysis suggests that below-cost tuition at public colleges draws students away from the private sector."

"Legislators should stop using below-cost tuition to lure students from private to public colleges," Wolfram says. "They should eliminate direct subsidies to universities, require the universities to charge tuition sufficient to cover costs, and give financial aid directly to students, to be spent at either public or private colleges. Otherwise we may eliminate a vital part of civil society."

Policy Analysis no. 278 (http://www.cato.org/pubs/pas/pa-278es.html)