WASHINGTON, Dec. 6 (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.
The Acton Institute
(The Acton Institute works to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. Its goal is to help build prosperity and progress on a foundation of religious liberty, economic freedom, and personal moral responsibility.)
GRAND RAPIDS, Mich.--Transparency and Honesty: Foundations of the Free Market
By Phillip W. DeVous
The collapse of Enron, the global energy trading giant, has provoked a great deal of analysis on the part of the world of finance and business. Every facet of Enron is being examined, and pundits are examining Enron's failure for signs of greater significance.
Commentators and analysts are looking for the hinge issue upon which this whole debacle turned and some have settled upon the culprit: deregulation of the nation's electric power market. But the blame for Enron's demise lies not in electric power deregulation, but in the questionable accounting practices of the company.
An article in the December 4 edition of the New York Times offers the following headline: "Collapse of Enron May Reshape the Battlefield of Deregulation." The battle lines on the regulation issue, no doubt, are going to shift as lawmakers in Washington continue to debate the issue of energy industry oversight. Some politicians are using Enron's example to offer an indictment of the free-market ideas underlying electric power deregulation in the United States.
Representative of the camp arguing for more aggressive regulation of the nation's electric power market is Congressman Edward Markey, D-Mass. In a comment in the aforementioned New York Times piece, the Congressman offers that "we can't leave energy products in the regulatory shadows. It hurts both investors and consumers." His is an interesting logical leap: The failure of one company should dictate increased regulation on an entire industry.
As a result of Enron's failure, has the nation experienced an electricity shortfall? Are cities turning out the lights? Are major industries halting production? Hardly. These entities, which rely on a steady supply of electric power, have simply turned to other suppliers to fill their needs. The bankruptcy of one energy trader does not indicate that local monopolies on electric power should be restored.
It is unreasonable to assert that the restoration of local monopolies would better protect consumer interests. Electric power deregulation has led to increased competition and lower prices for consumers. Where there is no competition, prices go up and the level of service goes down.
It is easy to see why such a feeding frenzy has been created around Enron's destruction. Such an event serves as a useful cover for those corporations who monopolize local and regional markets with the assistance of government regulatory policy. Attempting to roll back the deregulation project would allow them to keep their local dominance and quash competition. Reverting to monopolies offers no benefit or protection to consumer interests. Rather, it is an attempt to encourage government meddling in a matter best left to free and open markets.
While the full scope of what led to Enron's disintegration may never be fully known, it seems that responsibility for this colossal business failure lies with Enron, not the deregulation of energy markets. Various analysts of Enron's fall have consistently offered that the company's lack of transparency in the accounting of its income and liabilities are the source of its failure. When investors discovered this lack of transparency, translating into billions more in debt liability, they lost confidence in this company that was once hailed as a model twenty-first century corporation.
This failure of Enron to be forthright in its reporting does not serve to denigrate market principles, but serves as a fine illustration of how the free-market places moral demands on market players.
In the market, transparency in financial arrangements is a necessary piece of information to would-be investors and entrepreneurs. This information allows investors to assess the risk and the viability of their investment. Without some guarantee of truthfulness in the reporting of a corporation's true financial picture, the appropriate calculation of investors is distorted and the risk of investing cannot be accurately measured. When the truth finally comes out, confidence is lost, investors withdraw, and the company collapses.
The market, while morally neutral in and of itself, is powered by individuals with moral inclinations. The market will not sustain systemic misinformation that seeks to distort the calculations and confidence of investors. When the truth is revealed, there will be a price to pay. In this case, it meant the collapse of Enron.
Again, the failure of Enron rests squarely upon its questionable accounting practices. The fact that Enron was a leader in the electric power industry is, in one sense, irrelevant to its collapse. Such questionable accounting practices and lack of transparency in financial arrangements would lead to the demise of any major corporation. Investors will not tolerate the distortion of information necessary to the investment process.
The moral demands of honesty and transparency are foundational principles for investing in a free economy. A cavalier approach to these demands serves the cause of those who would restrict the economic liberty. This liberty has led to a flourishing of the entrepreneurial spirit in our land. The decision of one corporation to ignore the moral demands of honesty and transparency in its financial arrangements should not be used as an excuse to smother the entrepreneurial spirit through further, more aggressive regulation.
(Phillip W. De Vous is the public policy manager of the Acton Institute.)
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.)
WASHINGTON--Daschle's Anti-Energy Bill: Back To The Dark Ages
Senate Majority Leader Tom Daschle's Energy Policy Act, scheduled to be introduced today, is bad news for consumers, for taxpayers, and for the nation, according to energy experts at the Competitive Enterprise Institute who have reviewed a draft of the bill.
"Senator Daschle's bill does nothing to address America's real energy problems, but would do a great deal to make them worse," said Myron Ebell, director of global warming policy at CEI. "As a collection of failed policies, idiotic and expensive new programs, and government payoffs to special interests, Daschle's bill has few equals in the history of Congress. It looks like a bigger version of the Dark Ages policies of the 1970s that produced high energy prices and long lines at the gas pumps."
"Daschle's bill is anti-consumer. It would raise prices and reduce choices for Americans, and it would waste tens of billions of taxpayer dollars on subsidies for things that have already been proven not to work," said Ben Lieberman, senior policy analyst at CEI.
"This bill does nothing to solve the problems plaguing our energy infrastructure. It follows the California policies of market interference, obstacles to increasing supply, and efficiency and renewable energy mandates, all of which contributed to the rolling blackouts," said CEI environmental policy analyst Paul Georgia.
"Major sections of the bill are nothing more than backdoor implementation of the Kyoto Protocol, complete with climate cops. If Senator Daschle wants to ratify Kyoto and raise people's energy prices, then he should bring it to the Senate floor for an honest debate and vote," said Christopher C. Horner, CEI senior fellow.
CEI C:\Spin--"I'm From the Federal Government, And I'm Here to Design Your Computer"
by Ben Lieberman
During the tragedies of September 11th, our new technologies delivered extraordinary value. E-mails sent to hand-held devices carried by people in the World Trade Center helped some to escape. Cell phone calls alerted passengers on the fourth hijacked plane that the other three had been crashed into major buildings, and led to the heroic takeover of an aircraft likely headed towards the U.S. Capitol or the White House. Fiber-optic cable and satellites conveyed a stream of information that saved lives and prevented panic in ways that would have been impossible even a decade ago.
Given this bravura performance by technology, it would be folly to allow the political aftermath of the attacks to impede continued improvement. But this just may happen if a host of proposed federal energy conservation measures are enacted.
Even before September 11th, an effort was underway to regulate the energy used by high tech electronic devices. On that very day, a Department of Energy hearing on the future of energy conservation standards--abruptly ended after an hour when news of the disasters arrived--lasted long enough for the agency to pass around a list of potential new regulatory targets. It included desktop personal computers, monitors, servers, laser and inkjet printers, and other consumer and office electronics.
In addition, the House version of the energy bill, passed last August, restricts "standby power," the energy used by electronic devices when not in actual use. If enacted, these measures would adversely affect products that use standby power for such functions as storing programmed information for later use, providing instant-on capability, or maintaining access to the Internet.
Now, in the aftermath of the attacks, the mantra of "energy security" has triggered even stronger calls for conservation standards. It is possible that a host of consumer electronics will soon join more than a dozen lower tech items--refrigerators, clothes washers and dryers, air conditioners, water heaters, fluorescent lighting, and others--that are subject to DOE energy regulations.
The track record of these existing measures is mediocre. Appliance standards have slightly raised energy efficiency levels beyond what would have likely prevailed in their absence. But these regulations have increased the cost of affected appliances, and in some cases have adversely impacted product choice, features, performance, and reliability.
Extending this scheme to high tech electronics would pose similar risks to affordability and quality, and because these products use little energy in the first place the potential energy savings would be picayune.
Energy conservation standards are particularly problematic for the fast-changing tech sector. In contrast to refrigerators and clothes washers and the like--appliances that had decades to develop and mature before being constrained by federal energy use restrictions --computers, peripherals, and other electronic products are relatively new and are still undergoing rapid innovation. Thus, the resultant changes in energy use requirements cannot be easily determined in advance. Energy standards imposed at this time and based on the limits of current knowledge are sure to invoke the iron law of unintended consequences, jeopardizing future innovation.
The terrorist attacks will have a profound effect on policy for a long time. Nonetheless, a bad idea before September 11th is still a bad idea, and wrapping the tech sector in the red tape of federal energy conservation standards remains so.
(Ben Charles Lieberman is a senior policy analyst at the Competitive Enterprise Institute. His work on the Clean Air Act and the issue of environmental federalism has been published in numerous newspapers. He also covers the consumer impact of environmental regulations and his work on this issue has appeared in the Chicago Tribune and the Washington Monthly.)
Foundation for the Defense of Democracies: Arafat's out of chances
WASHINGTON, D.C. -- Today Jack Kemp, Chairman of the Foundation for the Defense of Democracies, released the following statement on the current situation in the Middle East.
"Yasser Arafat has run out of last chances. If his goal is to establish and lead an independent Palestinian entity, he has to make peace with Israel, which means he first must prove that he has the courage and wisdom to be a statesman, not only through brave words but also through courageous actions.
"Arafat needs to make a definitive statement--both in Arabic and in English and to both the Western and Islamic media--saying that he stands with the allies and the international community in the war on terrorism. He must say he agrees with President Bush that those who practice terrorism and those who protect terrorists are equally guilty.
"Arafat must announce that he no longer will tolerate terrorists within the organizations he heads, and he must take immediate action to expel terrorists from them. He must renounce violence as a legitimate means of negotiation with Israel over a final settlement.
He must announce that he no longer will tolerate violence in the territories he controls.
He must explicitly recognize the following groups as terrorist organizations: al-Qaeda, Hamas, Islamic Jihad and Hezbollah.
"And he must take action to root out and dismantle these organizations so they no longer can perpetuate terrorist actions in Israel.
"Arafat gained credibility in the West when he stated that those sections of the PLO Charter calling for armed struggle against Israel were no longer in effect. But the Charter, which can only be altered by a special, super-majority vote of the entire National Congress of the PLO, has never formally been amended to expunge its call for violence and armed struggle against Israel.
"Arafat must immediately convene a special session of the National Congress to amend the Charter to renounce violence and to recognize Israel's right to exist and have defensible borders.
"Arafat should immediately arrest, prosecute, convict and punish the individuals associated with the terrorist attacks this past weekend that slaughtered innocent civilians in Israel.
"In the absence of these steps, the United States should freeze all PLO assets in the US, cut off all financial aid to the PLA and cease recognition of Yasser Arafat as a negotiating partner with Israel in our efforts to assist Israel and the Palestinian people achieve peace and security in the Middle East.
"Ultimately, peace in the Middle East depends upon a free and democratic Palestine in which it is possible to achieve the legitimate goals of the Palestinian people to improve their lives, educate their children, farm their lands and increase their wealth and prosperity. A thriving and prosperous democratic Gaza connected by trade and commerce to both Israel and the West Bank is the only hope for peace with justice for all.
"If Arafat will not or cannot take the steps required of him to make peace a reality, it is time for him to step down and step aside and let someone else do what is necessary to bring about a permanent resolution of the Middle East conflict."
The Hoover Institution
STANFORD, Calif.--Getting Standards Right
by Paul T. Hill
CEOs and governors are celebrating because most states have adopted standards-based reform and built testing programs to assess school performance. But their apparent victory is hollow. K--12 standards, which business leaders hoped would establish what every child needs to know to become a self-supporting and informed citizen, have come to mean something quite different.
Most state standards have no empirical basis. Standards have been developed as airy visions that satisfy all factions of the professional education community. Enthusiasts for different subjects--American versus world literature, various arts, and so forth--have all found secure places for themselves.
This shift in the meaning of standards is evident in states such as Washington that endorse standards but cannot agree on how schools will be held accountable. Business leaders are discovering that the groups that developed state standards were never asked whether they could prepare most or all students to meet the standards. People who developed standards in this way are understandably skeptical about taking firm action toward failing schools or districts.
Maybe the aspirations were too ambitious and should be amended or their application delayed for a generation or so. Maybe teachers need a lot more training and experience. Maybe public spending on schools should double or triple.
Business people, who think standards should be explicit about what every child must know at a certain age if he or she is to become a participant in economic life, take a harder line. By their logic, temporizing is irresponsible. If children in a school are not meeting standards, something must be done immediately. There is no time to wait until teachers and administrators "come around." Under this logic, standards are promises made by the state and the state has an obligation to provide schools that can teach students successfully.
Business leaders need to stop congratulating themselves and start insisting that standards be built correctly. In many states, they will have to start over. Evidence-based literacy and mathematics standards, particularly at ages nine and thirteen, could be created, but they would be more modest in scope than the airy visions endorsed by most states.
It is hard to see how any state could prove that children's futures would be blighted if they did not know specific facts about history, arts, or even science at a particular age. But compared to the aspirational standards that most states have now set, those that are evidence-based would be compelling warrants for sustained and dramatic state action toward school improvement.
In the history of American public education, the standards movement might be seen as yet another loosely defined effort to stir up commitment and exhort teachers to higher performance. Or it might be seen as a turning point after which states--rather than political processes and customs--set goals for student learning. Much depends on whether business leaders and governors stop congratulating themselves and begin to look more closely at the treaties among educators that now pass as standards in most states.
(Paul T. Hill, a distinguished visiting fellow at the Hoover Institution, is a research professor at the Center on Reinventing Public Education at the University of Washington, and a member of Hoover's Koret Task Force on K--12 Education.)
The Cato Instuttue
WASHINGTON--Social Security A Bad Deal For Low-Income, Minority Workers
The president's Social Security reform commission will release its final report by Dec. 11 and is expected to include recommendations to create personal retirement savings accounts. Critics of such a plan argue in favor of the status quo and say that individual account reforms would hurt low-income Americans.
But in the new Cato Institute study, "The Impact of Social Security Reform on Low-Income Workers," Federal Reserve Bank economist Jagadeesh Gokhale shows that the lack of property and inheritance rights in the current program actually harms poor and minority workers and helps maintain wealth disparities.
"As a result, the distribution of bequeathable wealth among retirees in the United States is highly unequal," he writes. "In contrast, a system of individual accounts would allow workers to accumulate real and bequeathable wealth and would lead ultimately to greater equality of wealth. Social Security privatization therefore becomes the truly progressive option for reform--one that is most likely to benefit the poor."
Many modest households--particularly minority households and those with low education and earnings--currently save very little and therefore own almost no financial wealth at retirement, Gokhale explains.
"The poor are disproportionately dependent on Social Security," writes Gokhale. "The poorest 20 percent of the elderly, for example, depend on Social Security for 81 percent of their retirement income, while Social Security provides only 20 percent of retirement income for the wealthiest fifth of retirees."
Nevertheless, according to Gokhale, Social Security's financial troubles are intractable and traditional reforms, such as raising taxes or cutting benefits, will leave low-income workers worse off.
"Allowing workers to save and invest a portion of their Social Security taxes in individual accounts may avoid or offset potential benefit cuts, without increasing taxes," he says.
Social Security may also transmit this inequality across generations, Gokhale says.
"Because it generates an asymmetric impact on retirement saving by low and high lifetime earners, Social Security may be reducing or eliminating the inheritances of children in poor households but not of those in rich households," he writes. "In turn, this may reinforce the chance that the children of the poor, in contrast to the rich, themselves arrive at retirement with low levels of bequeathable wealth."
The report is available as Social Security Paper no. 23 on the Cato Institute web site at http://www.socialsecurity.org/pubs/ssps/ssp-23es.html.