Cato Policy Report, July/August 1999
Vol. 21, No. 4
In answering critics who have warned that making the transition to a privatized Social Security system would be too burdensome on today’s young workers, Nobel Prize winner Milton Friedman says, “Given a proper understanding of Social Security’s current unfunded liabilities—variously estimated at from $4 trillion to $11 trillion—there are no real transition costs to privatizing Social Security, merely the explicit recognition of current implicit debt.” In “Speaking the Truth about Social Security Reform” (Cato Briefing Paper no. 46), Friedman explains that one of the myths underlying 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.” Friedman points out that 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.” Friedman argues that a privatized Social Security system should not be mandatory. “It makes no more sense to specify a minimum fraction [of income that all people must save for retirement] 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.”
Bungled Balkans Policy
The Clinton administration has made “one miscalculation after another” in dealing with the Kosovo crisis, says Christopher Layne in a new Cato paper. In “Blunder in the Balkans: The Clinton Administration’s Bungled War against Serbia” (Policy Analysis no. 345), Layne calls the administration’s policy a “fiasco” that has made a tense situation worse. A visiting scholar at the University of Southern California, Layne details the various failures of the administration’s policy and says it is “eerily reminiscent” of U.S. policy during the Vietnam War.
Speed Doesn’t Kill
Safety groups and auto insurance companies issued dire warnings that highway fatalities would increase after Congress repealed the 55-mile-per-hour federal speed limit law in 1995. Ralph Nader declared that “history will never forgive Congress for this assault on the sanctity of human life.” In a study released on Memorial Day, “Speed Doesn’t Kill: The Repeal of the 55-MPH Speed Limit” (Policy Analysis no. 346), Stephen Moore writes that highway safety has actually improved since the repeal. “We now have two years of data on higher speed limits to assess the validity of these claims,” writes Moore, Cato’s director of fiscal policy studies. “So far, the evidence suggests that Americans have not responded to higher speed limits by converting the highways into stretches of the Indianapolis 500. The evidence for 1996 and 1997 indicates that almost all of the predictions of increased deaths and injuries have been discredited.”
The Pentagon’s Tired East Asia Strategy
In “Old Wine in New Bottles: The Pentagon’s East Asia Security Strategy Report” (Policy Analysis no. 344), Cato senior fellow Doug Bandow says that the Pentagon’s recently issued United States Security for the East Asia–Pacific Region ignores the changed threat environment of today. “The end of the Cold War has eliminated any justification for a dominant U.S. military role in East Asia.” Washington should phase out its military presence there instead of seeking to expand it, Bandow says.
A Rising Tide Lifts State Spending
As record tax revenues have poured into state coffers, state government expenditures have soared, the Cato Institute observes in a new study, “The State Spending Spree of the 1990s” (Policy Analysis no. 343). Authors Dean Stansel and Stephen Moore note that “state governments consume a larger share of GDP today than ever before in history” and that “between 1992 and 1998 state revenues grew by almost twice the rate of inflation plus population growth.” Instead of giving that money back to taxpayers, states have found ways to spend it. Since 1980, state highway spending has risen faster than population and inflation, and state health and welfare spending has risen three times faster.
Stand Up for American Consumers
In full-page newspaper ads, 30-second TV spots, and Washington rallies, U.S. steel mills have called on the U.S. government to “stand up for steel.” A new Cato study argues that “the U.S. government has already gone too far in favoring U.S. steel mills with unfair protection from imports.” In “The Steel ‘Crisis’ and the Costs of Protectionism” (Trade Briefing Paper no. 4), authors Brink Lindsey, Daniel T. Griswold, and Aaron Lukas of Cato’s Center for Trade Policy Studies write 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.” The authors contend that any legislation aimed at curbing steel imports is harmful, but the worst 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.”
Restructuring Military Readiness
With the Cold War over, the U.S. military should adopt a structure of “tiered readiness”—with some units less ready than others and increased use of reserve forces. In “Is Readiness Overrated? Implications for a Tiered Readiness Force Structure” (Policy Analysis no. 342), James L. George says that “there simply is no major threat on the horizon requiring a large standing army” in the United States. The real problem in the post–Cold War world, George writes, “is not maintaining the readiness of the active forces but maintaining the readiness of the reserve forces.”
Fossil Fuels Remain a Valuable Resource
The Cato Institute celebrated Earth Day by releasing a study observing that fossil fuels are becoming more abundant and are the most environmentally sustainable energy resource. In “The Increasing Sustainability of Conventional Energy” (Policy Analysis no. 341), Robert L. Bradley Jr., president of the Institute for Energy Research and an adjunct scholar of the Cato Institute, writes that oil, natural gas, and coal can meet energy needs in the 21st century inexpensively and reliably with improved environmental performance. “Unconventional energy technologies, 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.
Mexico’s Bumpy Road to Privatization
The good news is that Mexico’s recent 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,” writes L. Jacobo Rodríguez in a new Cato study, “In Praise and Criticism of Mexico’s Pension Reform” (Policy Analysis no. 340). Rodríguez says that 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. The bad news, Rodríguez notes, is that the Mexican system has several structural flaws that must be corrected if it is to provide workers with the right incentives. “One important flaw is the requirement that a minimum of 65 percent of workers’ savings be invested in government instruments. … 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.”
Corporate Welfare for Professional Sports
On opening day of the 1999 baseball season, the Cato Institute released a study reporting that taxpayers in America have paid almost $15 billion this century to build major league ballparks, stadiums, and arenas. Taxpayers have paid more than $5.2 million of that total since just 1989, and they’ll be paying an addition $9 billion for projects now in the planning stages, writes economist Raymond J. Keating in “Sports Pork: The Costly Relationship between Major League Sports and Government” (Policy Analysis no. 339). While taxpayers are paying two-thirds or more of the expenses, “the lone beneficiaries of sports subsidies are team owners and players.” Keating argues that studies showing that communities will benefit if taxpayer money is used to build new ballparks are nothing more than “a guess at the total amount of economic activity generated by such venues.”
This article originally appeared in the July/August 1999 edition of Cato Policy Report.