Think Tanks Wrap-up

WASHINGTON, Feb. 15 (UPI) -- The UPI Think Tank Wrap-up is a daily digest covering brief opinion pieces, reactions to recent news events, and position statements released by various think tanks.

Ludwig von Mises Institute

(The LVMI is a research and educational center devoted to classical liberalism -- often known as libertarianism -- and the Austrian School of economics. Grounded in the work of economists Ludwig von Mises and Murray N. Rothbard, LVMI seeks to advance the Austrian School of economics and promote the market economy, private property, sound money and peaceful international relations, while opposing government intervention as economically and socially destructive.)

Regulation and Reality

By William L. Anderson

With Enron, Global Crossing and other debacles in the news, the usual hue and cry for "more regulation" is hitting full steam. In a recent New York Times column, Paul Krugman -- always an apostle for expansion of the police powers of the state -- says that the Enron collapse will have an even larger impact on the future of this country than the terrorist attacks of Sept. 11, as he believes that the regulatory powers of government will now become much greater, a development that he welcomes.

Prophecies, of course, are cheap and usually wrong, but it is instructive for us to examine not only what went wrong at Enron, but to ask whether or not expansion of government regulation of business is the "appropriate" remedy. As many of us have spoken out against the knee-jerk decision by Congress and President George W. Bush to make airport security officers federal employees, so we need to resist this attempt to expand the regulatory state.

At the same, we in the libertarian-classical liberal camps need to articulate why the "solution" of regulation is not a solution at all. Furthermore, we also need to point out that behind the rhetoric is a set of statist agendas which, if enacted into law, will make our lives more difficult in many ways.

The spectacular crash of Enron, just like the crash of numerous savings and loans more than a decade ago, makes for good theater, but it often produces more heat than light. The typical thing we hear is this: "Business needs more government regulation. We pulled back regulation because of ideological zealotry, and this is what happened."

This might sound good in newspaper editorial offices and in college classrooms, but it is far from realistic. While ideology may play a role in the establishment or undoing of regulation, it generally takes a backseat to personal, business, and political agendas that truly drive the political system. Of course, part of the entire charade that surrounds the implementation and enforcement of regulation is putting forth the notion that government regulation is a necessary entity that prevents corruption, business losses, and harm to consumers.

The myth is fashioned in the following way. First, it is said that without regulation, markets will be chaotic and disorderly. Thus, regulation works in much the same manner as a stoplight at a busy intersection. Without this regulatory apparatus, drivers would be crashing into one another, and without the hand of the state to guide business operations, markets would crash and burn as well.

Second, regulation is a last-resort solution that is applied only when businesses abuse the freedom that the government has so graciously given them. According to this supposed scenario, free markets result in chaos, corruption, and abuse of customers that ultimately becomes so bad that government must step in and clean up the mess. Afterward, businesses are forced to behave in an orderly fashion, and people once again are able to gain confidence in government and the economy, as trustworthy, disinterested people who do not stand to game the system take control of the regulatory apparatus.

The problem with these explanations, of course, is that they are not true. Let us take the "traffic signal" analogy first. This explanation operates on the assumption that everyone who operates within a market system is essentially "flying blind," in the same way that those who support this "theory" assume that all drivers approach non-lighted intersections at full speed and wearing blinders.

Common sense tells us that this "theory" is bogus. It is in the interest of market participants to gain as much information as they can when they engage in exchange and production. Furthermore, the various signals sent by markets serve as regulating mechanisms. For example, the Enron collapse did not come because regulators blew the whistle on the company's fraudulent operations, but rather because potential investors came to realize the company's shell games could no longer be hidden. The judgment of investors operating in the free market was swift and sudden: America's corporate darling was relegated to the abyss of penny stocks.

Businesses engage in numerous activities that include not only self-regulation but also various types of classifications as signals of quality. For example, many certification organizations are privately run and require those who wish to join that profession to pass rigorous exams. (The test for individuals to become certified public accountants, for example, is notorious for its difficulty.)

State-run licensing, on the other hand, while touted as a "signaling" mechanism, has been demonstrated time and again to be nothing more than a scheme to keep new entrants out of the market. The regulation literature in economics is so complete and overwhelming in pointing out the real reason for much regulation that only those who are ideologically blinded will not recognize what is going on.

Furthermore, the government regulatory process itself is often so confusing and disorganized that regulators are more out of touch than the people they supposedly regulate. Bruce Yandle, in his book "The Political Limits of Environmental Regulation: Tracking the Unicorn," points out that the process simply breaks down under its own weight:

Federal air quality regulation was beginning to look more like a Unicorn. There were elaborate descriptions of details and behavior, but no one could really admit to having seen the real process in full operation. ... Instead, those interested in environmental quality constantly pushed for more rules, as if rules alone were the goal, not improvements in the environment. (pp. 86-87)

Yandle was able to see the system at work from the inside from his position as an economist who served in a number of regulatory capacities in Washington. There was the perceived notion of how regulation was supposed to work, but in the end, reality always prevailed. This has not kept advocates of government regulation from continuing to proclaim the same tired message over and over again.

Advocates of regulation like to give the impression that business markets are a rendition of a Wild West show in which the participants are running amok until government shows them the way. For example, they say that, without regulation, fraud will be rampant.

Please understand that fraud is a crime under common law and was prosecuted as such long before the U.S. and state governments began to set up regulatory agencies in the late 1800s.

Furthermore, the business deceptions that characterized much of Enron's behavior occurred in heavily regulated securities markets. Government regulation did not keep Enron from defrauding its stockholders and employees. While its slide into bankruptcy has been spectacular, it could not have engaged in its financial shenanigans without the help of the Federal Reserve's 1990s policy of shoveling new credit willy-nilly into the economy. In fact, the very presence of heavy government regulation and intervention by the Fed into financial markets tends to create a false sense of assurance that "if the government is regulating it, everything must be okay."

There is also the quaint notion that government regulators are picked from a pool of scholarly, disinterested observers who (1) know how the regulated industry really works; (2) have no ties, financial or otherwise, to the industries being regulated; and (3) have the ability to provide the kind of leadership the regulated industries really need.

In truth, the "revolving door" between business and industry is the reality. As I noted in these pages several months ago, Joel Klein, who headed the U.S. Department of Justice's anti-Microsoft antitrust efforts, left his position to work in private industry as an antitrust lawyer. To put it another way, he was able to command hundreds of millions of dollars of tax dollars, in essence, to help prepare the way for him to go into private business and make millions of dollars per year.

Nor are the Joel Kleins the exception. As Milton and Rose Friedman pointed out in "Free to Choose," after the Interstate Commerce Commission was created in 1887 to regulate the railroads, railroad executives soon found that the ICC could be turned to their advantage. He writes:

"As the campaign against the railroads mounted, some farsighted railroad men recognized that they could turn it to their advantage, that they could use the federal government to enforce their price-fixing and market-sharing agreements to protect themselves from state and local governments."

It was not long before the august body of railroad regulators was dominated by the railroads themselves -- and this was the rule, not the exception, for industry regulation. Economists from George Stigler to Murray Rothbard have pointed out that the pattern of regulation is for existing firms to use it as a government-enforced device to create and maintain cartels. History demonstrates that regulation does not protect consumers; it protects producers.

Krugman and others who claim that the Enron scandal will be a watershed for regulation miss the point. Government regulation already dominates our economic landscape. Tossing on a few more rules might do damage, but it will not prevent fraud from occurring in the future. For that matter, all of this new regulation that Krugman and others demand will not even prevent another Enron. In truth, it might ensure that we have more Enrons down the road.

(William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University.)

Institute for Public Accuracy

(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)

Covering the Uninsured: Remedy or Placebo?

By the Institute for Public Accuracy

In recent days, a coalition of 13 groups has begun a $10 million ad campaign, "Covering the Uninsured." The coalition released data showing that 2001 witnessed the largest one-year increase in the number of uninsured Americans in nearly a decade. Participants include the U.S. Chamber of Commerce, AFL-CIO, AARP, the Business Roundtable, American Medical Association, American Nurses Association, Health Insurance Association of America, American Hospital Association, Federation of American Hospitals and the Robert Wood Johnson Foundation.

The following IPA associates commented upon the issue of the uninsured.

* Dr. Don McCanne, president of Physicians for a National Health Program.

"It's certainly true that there are more uninsured, but this nice-sounding initiative is actually another step backward. The preliminary findings of the California Health Care Options Project reveal that single-payer models can assure comprehensive health care for everyone while reducing overall health-care costs, yet the parties involved in this latest process have already rejected single payer reform before the discussions begin. These groups will continue to look at various solutions that the California study indicates will only increase healthcare costs while perpetuating flawed health policies. The glossary on the coalition's website (www.coveringtheuninsured.org/glossary) is revealing in that it includes terms such as medical savings accounts, catastrophic health insurance, purchasing pools, tax credits, refundable tax credits, group insurance, flexible spending accounts, cafeteria plan, FEHBP, HMO, PPO, managed care, and other concepts that the various factions continue to debate. However, the term 'single payer' is conspicuously absent. It should not just be in the glossary, it should be on the negotiating tables. A single-payer system would replace the inefficient and fragmented model of health plans with a single universal health insurance program while continuing to utilize our existing private and public healthcare delivery system. It would allow individuals to choose their own doctors."

* John Hess, former reporter for The New York Times, who specializes in issues of aging.

"One of the diseases of our system is that health care is linked to employment. There's a deep demand for something to be done, including among businessmen. Employers want to cut benefits to cut costs, and unions are losing out on health care when contracts come up. Hospitals have to charge more to the insured to cover the treatment they have to give to the uninsured. But none of these groups is willing to back a universal system which would solve the underlying problem. The AARP doesn't want to offend anyone, and they themselves sell insurance. They pretend to represent old people, but they too never came out for universal care. Organized labor never, as a whole, backed universal health coverage partly because they themselves have their welfare funds--pension funds and medical welfare funds which are jointly run by businesses and unions."

Competitive Enterprise Institute

(CEI is a free-market think tank that supports principles of free enterprise and limited government, and actively engages in public policy debate.)

Misguided Global Warming Plan Released: Bush Administration's Concessions to Alarmism Overshadow Funding for Research

By Competitive Enterprise Institute

The Competitive Enterprise Institute expressed concern over key elements of President Bush's strategy for confronting global climate change.

"While the president's commitment to sound science is a welcome change from the Clinton-Gore administration, the substance of the proposal is a misguided concession to environmental alarmism," said Myron Ebell, CEI's director of global warming and international environmental policy.

The introduction of limits on carbon dioxide emissions, even in the technically "voluntary" form envisioned by the administration, starts the nation down a dark path. While the effect on carbon dioxide levels in the atmosphere will be minuscule and undetectable, the White House will create the framework for energy rationing, which will lead to greater pressure to expand the program and make its emissions goals mandatory.

There is clearly no scientific imperative for limiting carbon dioxide levels at this time. Even a small concession to those who favor energy suppression will make pursuing the right policies in the future more difficult.

While the carbon dioxide limits are a change from the administration's decision last year not to regulate emissions, the proposal for greater research into climate and energy technology demonstrates the president's continued skepticism about the causes and consequences of climate change.

"The administration's scientific initiatives to study possible impacts of climate change show the greatest promise and least negative economic impact," said Ebell. "The scientific case for global warming alarmism has always been weak and is growing weaker. Further research will likely show that cutting carbon dioxide is a colossal waste."

The Reason Foundation

Looking Out for No. 1: Campaign finance reform means more power for the politicians

By Michael W. Lynch

"One of the things I have been pointing out about McCain-Feingold is all the things it will not do," Bradley Smith of the Federal Election Commission told me last year, when the ghost of Bill Clinton was still haunting the Beltway. "It won't prevent pardons of Marc Rich. It won't prevent people from giving donations to the presidential library. It won't prevent them from hiring a well-connected lawyer like Jack Quinn ... It really doesn't do much, and people are going to find other ways to be involved in politics."

Today, Smith would be talking about the Shays-Meehan bill, which passed the House early Thursday morning by a vote of 240-189, and is named after another Democrat-Republican duo, Reps. Christopher Shays, R-Conn., and Marty Meehan, D-Mass.

Smith would also have to update his list of unaffected outrages to include Enron.

He might add that the effort to ban evil, unregulated "soft money" -- donations to political parties and interest groups that don't have to be approved by bureaucrats -- won't even do that.

"The money is going to squirt out somewhere," Bruce E. Cain, director of Berkeley's Institute of Government Studies, told The Washington Post. "All the reform is doing is re-channeling where the flow is."

This raises an obvious question: If the reform accomplishes so little, why are so many working so hard to push it through? For the same reason anything gets done in politics: It serves the narrow interests of those doing the pushing. Incumbent politicians will use the bill to limit competition, while good government ("goo-goo") activist groups rely on such efforts for fundraising.

Let's crack open the bill, now on its way to the Senate after a few changes, and examine it. The first thing to note is that its main ambition is not to prohibit all soft money, but only that which can be used against incumbent politicians.

Soft money to political parties, which disproportionately benefits challengers, is outlawed, as is anonymous soft money that funds advertisements within 60 days of elections, the period during which ads pose the largest threat to incumbents.

But there are no restrictions on raising money for incumbents to use lobbying state legislators on redistricting issues. The principle is clear: Soft money that hurts incumbents is corrupting, but that which helps them is ennobling. Once the effort is properly conceived as The Incumbent Protection and Full Funding for Goo-Goo Groups Act, other provisions make sense as well.

There is nothing corrupting about people spending their own money to deliver a message and achieve elected office. (Who exactly would be corrupting them?) But self-financing hurts incumbents who are merely well-off, even as it helps the filthy rich dot-com bubble, trial lawyer, and Wall Street aspirants challenging them. An early effort in both the Senate and the House, then, was to give politicians an exemption to fundraising controls when faced with well-heeled opponents.

The content of campaign ads has precious little to do with funding. But it has everything to do with their effectiveness, as so-called "negative ads" are more informative and entertaining. For these same reasons they are despised by our noble solons, who seek to dictate the content of such ads with this bill.

But ads do cost money, and the pols are tired of raising it, which entails actually dealing with constituents. Therefore, in the name of good government, they also want to compel television and radio stations to sell them time at cut rates. A selfless act, this. (This provision was cut from the final bill that passed the House, but it remains in the Senate-approved version of campaign finance reform.)

The goo-goo groups, such as the Center for Responsive Politics, are of course funded by unregulated soft-money contributions from foundations and individuals. But the hypocrisy runs even deeper. The effort to ban political parties from using soft money to fund organizing, get-out-the-vote, and media campaigns is itself funded by soft money.

Reports Roll Call, "Campaign for America, the pro-reform group founded by former Wall Street financier Jerome Kohlberg, which is financing the television ads, is also bankrolling phone-bank operations in 30 districts across the nation, including the nine targeted by the television ads."

Bradley Smith points out in The Wall Street Journal that Sens. John McCain, R-Ariz., Hillary Rodham Clinton, D-N.Y., and Chuck Schumer, D-N.Y., headlined a dinner for the New York-based Brennan Center for Justice. Such exemplary corporate citizens as Enron and Philip Morris kicked in $800,000 in unregulated soft money for the center's effort to prevent political parties from hosting similar events.

This may not be corruption, but as McCain likes to point out, it has the appearance of such.