www.ebook3000.com $25.95 W hat are the appropriate pub4c policies for America as it approaches the com ing century? The signs are all around A market-liberal revolution is sweeping the planet, from Eastern Europe to Latin America to Asia, where governments are selling off state enterprises, cutting taxes, deregulating business, and showing new respect for prop erty rights and freedom of choice The two dozen essays in this book discuss how to bring the market-liberal revolution to the United States and explain • how for-profit companies will revolu tionize education, • how deregulation of me�cal care can lower prices, • how America can save $150 billion a year in military spending, • how property rights can fix the environment, • how deregulation and free trade produce prosperity, • how competition produces health and safety, • how America must deal with nuclear proliferation, • how we can balance the budget without raising taxes, • how the poverty and welfare trap can be ended, and • how the inner cities can become livable again This blueprint for reform is the alternative to both the status quo and the calls for even more government interference in our personal (continued on back flap) www.ebook3000.com \m www.ebook3000.com İHIİ A Paradigm for tłie st 21 Century edited by David Boaz and Edward H Crane INSTITUTE Washington, D.C www.ebook3000.com Copyright © 1993 by the Cato Institute All rights reserved Library of Congress Cataloging-in-Publication Data Market liberalism : a paradigm for the 21st century / edited by David Boaz and Edward H Crane cm p Includes bibliographical references ISBN 0-932790-98-4 (cloth) : $25.95.-ISBN 0-932790-97-6 (pbk ) : $15.95 United States-Politics and government-1993- Liberalism United States Free enterprise-United States I Boaz, David, 1953- II Crane, Edward H , 1944E885 M37 1993 92-42550 320.5'I-dc20 CIP Cover Design by Colin Moore Printed in the United States of America CATO INSTITUTE 224 Second Street, S E Washington, D.C 20003 Contents PART I PART II PART III Introduction: The Collapse of the Statist Vision David Boaz and Edward H Crane AN AMERICAN VISION Freedom, Responsibility, and the Constitution: On Recovering Our Founding Principles Roger Pilon 21 Reclaiming the Political Process Edward H Crane 53 ECONOMIC POLICY Balance the Budget by Reducing Spending William A Niskanen and Stephen Moore 67 Reduce Federal Regulation William A Niskanen 103 Government Regulation: The Real Crisis in Financial Services Bert Ely 115 Telecommunications: Starting the Next Century Early Thomas W Hazlett 129 DOMESTIC POLICY Social Security's Uncertain Future A Haeworth Robertson 149 The Learning Revolution Lewis J Perelman 159 www.ebook3000.com 10 11 12 PART IV Returning Medicine to the Marketplace Michael Tanner 175 Reviving the Inner City David Boaz 189 Privatizing Essential Services Robert W Poole, Jr 205 INTERNATIONAL AFFAIRS Taking the Offensive in Trade Policy Brink Lindsey 227 Rethinking NATO and Other Alliances in a Multipolar World Christopher Layne 243 15 Learning to Live with Nuclear Proliferation Ted Galen Carpenter 259 16 A Post-Cold War Military Budget Jeffrey R Gerlach 277 17 Dangerous Panacea: A Stronger United Nations 293 Doug Bandow 18 Time to Retire the World Bank and the International Monetary Fund Melanie S Tammen 13 14 19 PART V 20 2l 22 311 Ending Washington's In tern a tional War on Drugs 325 Ian Vasquez ECOLOGY Global Warming: Facts vs the Popular Vision Patrick] Michaels 341 The Growing Abundance of Natural Resoures Jerry Taylor 363 Why Health and Safety Are Products of Competitive Institutions Aaron Wildavsky 379 Environmental Vision and thus better able to preserve and protect the diversity of the natural world For public agencies to deal with the full range of ecological niches and changing circumstances found in nature, constant fine-tuning of the bureaucratic mechanism is needed, yet bureaucracies are notoriously difficult to fine tune In contrast, free markets are natu rally self-correcting and every transaction is an act of fine-tuning Unfortunately, because of the prevalent myths, the actual results of capitalism are compared with the stated intentions of government policies The risks to future generations arise not from exposure to capitalism but from exclusion from it Property Rights Free-market environmentalism, like capitalism itself, is depen dent on private property rights Those rights must be well defined, well defended, and voluntarily transferable When those prerequi sites exist, competitive capitalism becomes a remarkable efficiency generator The desire for profit leads directly to the elimination of waste Pollution is generally some form of waste, but even if pollu tion were unavoidable in certain manufacturing processes, strongly enforced property rights would force polluters to either clean up or close shop By definition, pollution is a trespass against someone's property or person If the trespass is so minor that it creates no impact or inconvenience for the property owner, it will normally be tolerated, even under common law rules Today's pollution dilemma is the result of what is essentially a universal "easement" granted by the state to polluters, even producers of significant and damaging pollution The debate now revolves around how best to gradually restore their original right (to be free of the trespass of pollution) to citizens The first question that should be asked is not, Why does capitalism destroy the environment? It is, Why isn't everything already polluted or destroyed? The answer is that the same private property rights that form the basis for capitalism also stand as a bulwark against environmental degradation It should be remembered that property rights are basically a voluntary ordering system for resources in a human society When ever private property rights have been respected within a society, the ecological outcome has been superior to that under state owner ship of resources Even vaunted state "successes," such as Yellow stone National Park, are rarely as successful as claimed Consider 397 www.ebook3000.com MARKET LIBERALISM that state policies led directly to the disastrous forest fires of 1988 and the quiet devastation of continuing management practices In contrast, the successes of capitalism are so ubiquitous and taken for granted that they are rarely acknowledged Efficiencies and improvements in resource use, dramatic increases in life spans and living standards, and the vast private wealth that undergirds the massive governmental structure are key examples Unfortu nately, many of the accomplishments of capitalism are touted as the results of state manipulation of the economy Failure to recog nize the primary importance of capitalism is not of interest only to historians Unless it is understood that capitalism must come first, other nations may adopt American-style environmental policies with disastrous consequences Some, especially the nations of East ern Europe, are already being encouraged to so Yet the U.S approach to environmental policy cannot possibly be exported to most countries It relies on legions of experienced management personnel and tremendous amounts of capital to meet the high costs of the mandated technologies In addition, a highly trained and fairly honest bureaucracy must be in place.· Watchdogging the entire apparatus are nongovernmental organizations, especially environmental lobbying groups and the print and broadcast media If that is to be the initial paradigm for the developing countries, they may have to wait decades to deal successfully with ecological questions However, they are unlikely to wait that long before they implement environmental programs Thus, it is vitally important that accurate information and workable solutions, tailored to local conditions, be made available to policymakers The current sense of urgency created by the constant barrage of environmental scare stories is likely to produce the same types of inappropriate policies across the globe that it has here at home Risks The fact is that most of the urgency imparted to environmental policy is unnecessary Where there is a serious problem, a chemical 5For a discussion of the general failure of federal poliCies in Yellowstone, see The Yellowstone Primer: Land and Resource Management in the Greater Yellowstone Ecosystem, ed John A Baden and Donald Leal (San Francisco: Pacific Research Institute, 1990) See also Alston Chase, Playing God in Yellowstone: The Destruction of America's First National Park (Boston: Atlantic Monthly Press, 1986) 398 Environmental Vision spill, for example, there really is no debate over whether a problem exists However, environmental policy today has shifted its focus from risks with immediate and measurable impacts to those with small (if any) impacts that are, at the very least, far off in the future Bureaucrats and their political bosses have powerful incentives to regulate highly visible or publicized risks, even when few indi viduals are actually exposed to the risk and the costs of regulation are high Such regulation often results in shifting greater risks to unseen, or unpublicized, segments of society Society as a whole is no better off; generally, it is worse off Many people are enticed (or even required) to dedicate excessive resources to risk avoidance because of the fashion in which the options are presented If the choice is between saving a life and spending money, almost everyone would vote to save the life Yet the truth, in many cases, is that focusing too many resources on a small risk factor necessarily reduces other, equally important risk avoidance efforts Thus, the real choice is between reducing this risk or reducing that risk Lives may be at stake on each side of the equation, as Aaron Wildavsky points out in chapter 22 Furthermore, in some situations, the only lives at stake are those put at risk by the environmental policy itself The anti-asbestos hysteria whipped up by assertions that a single asbestos fiber could cause lung cancer led to many unnecessary and even dangerous asbestos removal efforts Recently, a federal court declared that the fuel efficiency requirement for automobiles was directly related to increased highway injuries and fatalities because it resulted in the production of smaller, lighter vehicles that are inherently less safe than larger, heavier models.6 In such situations, individuals have a paramount right to make critical personal choices for themselves and their families Conclusion We have seen that pollution is not a failure of markets but a failure of government to permit private individuals to protect their property and persons against trespass Free-market environmental ism offers a solution to the problem Also, when government 6Competitive Enterprise Institute v National Highway Traffic Safety Administration, 956 F.2d 321 (D.C Cir 1992) 399 www.ebook3000.com MARKET LIBERALISM imposes a single risk standard on society in general, many individu als in particular may be harmed Again, free-market environmental ism would enable individuals to assume (or reject) certain risks without imposing additional risks on other individuals Some argue that free-market environmentalism entails excessive transaction costs, that is, the costs of time and resources dedicated to negotiating specific arrangements between parties Therefore, it is claimed, government should step in and impose uniform stan dards Efficiency is an important consideration, especially when costs are being imposed against the will of the people who will bear them However, efficiency is not the only consideration The best example may be the court system, which is anything but effi cient Society recognizes that human liberty is an overriding con cern and, therefore, accepts lowered efficiency in order to preserve a greater good Some environmentalists have tried to raise a similar argument with the claim that the intrinsic value of an ecological asset can override the liberty of the individual That argument is a dangerous weapon to place in the hands of any state, for it is as likely to be abused as it is to be applied carefully Fortunately, that line of thinking is inappropriate in light of the fact that modern technologies are constantly reducing the transaction costs involved in negotiating, monitoring, and enforcing environmental arrange ments If free-market environmentalism is to be widely accepted, it must occupy the moral high ground To a certain degree it has already done so, although often by default on the part of its detractors However, merely paying lip service to the efficiency of markets is not enough Free-market environmentalists must strive to demon strate the superiority of voluntary markets in a host of ecological niches Because most of the threatened resources, from wildlife to wetlands, from airsheds to oceans, are held and managed by politi cal bureaucracies, they remain at risk It will be necessary to move more of those resources, along with the direct responsibilities of stewardship, into private hands before clear-cut examples become commonplace Some environmentalists see limits to free markets at every turn Yet those same individuals see no limits to government Past envi ronmental policies have been designed as if politically directed 400 Environmental Vision resources automatically become unlimited Those environmental ists' excessive faith in government is as unwarranted as their vis ceral opposition to private ownership of resources The free-market environmental vision does not purport to eliminate the state (or state involvement); it merely limits it to an appropriate role America needs to take several steps to develop an effective and sustainable environmental policy First and foremost, Congress and the new administration should begin to restore private property rights in and to environmental resources Critical ecological ameni ties should be removed from public hands and conserved through private stewardship arrangements The details will vary among, and even within, resources For example, one end of a coral reef might be managed by recreational fishermen while another portion was managed by a diving club Particular stretches of rivers might be leased to fishing clubs while tracts of forest could be owned by hiking, hunting, or camping organizations Any harm to the rivers or forests from external forces could be dealt with through contrac tual obligations and, if necessary, tort law Although strong incentives to conserve resources will be gener ated through private ownership, it is also important to eliminate perverse incentives The federal government provides subsidies to many activities through direct transfers as well as through the provision of free or below-cost access For example, recreational activities in the national forests and parks are heavily subsidized; most users pay low (or no) fees Such subsidies encourage people to "consume" more of those public resources than they would be likely to in a market system In addition, subsidies for favored providers of environmental amenities tend to squeeze out private alternatives Other well-known subsidies that can unintentionally degrade the environment include agricultural subsidies, grazing subsidies, and water and hydropower project subsidies, among others Unfortunately, the political process finds it almost impossi ble to deal honestly with the issue of subsidies Only free markets are able to assess the full costs of resource use Until property rights-based policies are instituted, environmental issues-from waste disposal to wetlands protection-will be poorly managed For most Americans, environmentalism is an important value, but it is not the only one Jobs, housing, health care, education, national defense, and other values make demands on the resources 401 www.ebook3000.com MARKET LIBERALISM of the individuals who constitute society Like it or not, ecological purity must compete with other objectives Therefore, a responsible policy must allow individuals to make choices for themselves, con sistent with the rights of others In the final analysis, to be compati ble with the full array of individual values, environmental policy must adopt a free-market approach 402 Contributors Doug Bandow is a senior fellow at the Cato Institute David Boaz is executive vice president of the Cato Institute Ted Galen Carpenter is director of foreign policy studies at the Cato Institute Edward H Crane is president of the Cato Institute Bert Ely is the principal of Ely & Company, a financial institutions consulting company Jeffrey R Gerlach is a foreign policy analyst at the Cato Institute Thomas W Hazlett teaches economics and public policy at the University of California, Davis, and in 1991-92 was visiting chief economist at the Federal Communications Commission Kent Jeffreys is director of environmental studies at the Competi tive Enterprise Institute Christopher Layne teaches international relations at UCLA and is a senior fellow of the Cato Institute Brink Lindsey is director of regulatory studies at the Cato Institute Stephen Moore is director of fiscal policy studies at the Cato Insti tute Patrick J Michaels is associate professor of environmental sciences at the University of Virginia, senior fellow in environmental studies at the Cato Institute, and author of Sound and Fury: The Science and Politics of Global Warming William A Niskanen is chairman of the Cato Institute and editor of Regulation magazine Lewis J Perelman is a senior fellow at the Discovery Institute and author of School's Out: Hyperlearning, the New Technology, and the End of Education 403 www.ebook3000.com MARKET LIBERALISM Roger Pilon is director of the Cato Institute's Center for Constitu tional Studies Robert W Poole, Jr., is president of the Reason Foundation A Haeworth Robertson is president of the Retirement Policy Insti tute, former chief actuary of the Social Security Administration, and author of Social Security: What Every Taxpayer Should Know Fred L Smith, Jr., is president of the Competitive Enterprise Insti tute Melanie S Tammen is an adjunct scholar of the Cato Institute Michael Tanner is director of research at the Georgia Public Policy Foundation Jerry Taylor is director of natural resource studies at the Cato Institute Ian Vasquez is assistant director of the Cato Institute's Project on Global Economic Liberty Aaron Wildavsky is Class of 1940 Professor of Political Science and Public Policy at the University of California, Berkeley 404 www.ebook3000.com www.ebook3000.com Cato Institute Founded in 1977, the Cato Institute is a public policy research foundation dedicated to broadening the parameters of policy debate to allow consideration of more options that are consistent with the traditional American principles of limited government, individual liberty, and peace To that end, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in ques tions of policy and the proper role of government The Institute is named for Cato's Letters, libertarian pamphlets that were widely read in the American Colonies in the early 18th century and played a major role in laying the philosophical founda tion for the American Revolution Despite the achievement of the nation's Founders, today virtually no aspect of life is free from government encroachment A pervasive intolerance for individual rights is shown by government's arbitrary intrusions into private economic transactions and its disregard for civil liberties To counter that trend, the Cato Institute undertakes an extensive publications program that addresses the complete spectrum of pol icy issues Books, monographs, and shorter studies are commis sioned to examine the federal budget, Social Security, regulation, military spending, international trade, and myriad other issues Major policy conferences are held throughout the year, from which papers are published thrice yearly in the Cato Journal The Institute also publishes the quarterly magazine Regulation and produces a monthly audiotape series, "Perspectives on Policy " I n order t o maintain its independence, the Cato Institute accepts no government funding Contributions are received from founda tions, corporations, and individuals, and other revenue is gener ated from the sale of publications The Institute is a nonprofit, tax-exempt, educational foundation under Section 501(c)3 of the Internal Revenue Code CATO INSTITUTE 224 Second St., S.E Washington, D C 20003 www.ebook3000.com (continued from front /Zap) and economic activities Any viable agenda for the 1st century must recognize the truth that all central planning, whether for educa tion, medical care, or the environment, will only end in failure Market Liberalism pre sents a new vision for Ameritan government, a positive, optimistic vision rooted in the prin ciples of the Founders and suited to the chal lenges of the st century It offers the promise of a free, prosperous, and pluralistic society for America and the world David Boaz is executive vice president of the Cato Institute Edward H Crane is president of the Cato Institute Cato Institute 224 Second Street, S.E Washington, D C 20003 "If Bill Clinton is serious about change, here is a blueprint for it Ifhe is not, the person who will replace him in 1997 can begin preparing for power by reading this book It contains practical applications of two lessons taught by modern hlstory-tbe sterility of statism and the fecundity offreedom." GEORGE F WILL - \ "'drndigm 100' Ull" lSI (£nlur� "President Clinton was elected to bring about overdue change in America, tending to our neglected problems while restoring responsibility and fiscal discipline Market Liberalism selVes as a road map for our new president, guiding him through the morass of partisanship, failed ideologie8t and interest-group politics This provocative volume offers a valuable glimpse at some new ideas that could form the basis of America's new progressive majority " Gov L DoUGLAS WIWIlli "Here are facts Here is reason Look upon the clear-eyed and disinterested analysis within VoilA logic! But will the Clinton administration harken to this book? Or is Bill Clinton too busy getting great big ideas to spend any time giving a little thought?" -� J O'RoURKE "A splendid collection of informed analyses of a wide range of public policy issues Should be must reading for everyone who accepts conventional wisdom on these issues." -Mrr.TON F'RIEoMAN "Market Liberalism bristles with uncomfortable ideas: personal as opposed to government, choice of schools, retirement security, and health care It argues for smaller government, a smaller United Nations, and a minimal World Bank The trouble is, Boaz and Crane are uncomfortably close to being right." -PETE U PoNT D "Market Liberalism should be the principal compass for policy makers and public selVants More to the point, Americans should demand that it be the lodestar in areas such as education, privatization, and environmentalism." -MALcoLM S FORBES, JR "Here's a futuristic vision grounded in old principles Market Liberalism takes off from today's political maIaise and charts new territory for the decades ahead, casting aside the tired old labels that have constrained imaginations and stultified thinking on both the left and the right for the past 20 years." -GoV WJUJAM F WElD I SBN 0-93279 0-98-4 www.ebook3000.com Distributed to the trade by Nationw Book Network ... Russia and Eastern Europe, autocracy in Latin America, totalitarian despotism in Asia, kleptocracy in Africa, and tax-and spend welfare states in the West Then, by the last quarter of the century, ... the Magna Carta, the Renaissance, Martin Luther, the Enlightenment, the American Revolution, the repeal of the Corn Laws, the abolition of slavery, all mark continued progress toward the liberation... hat are the appropriate pub4c policies for America as it approaches the com ing century? The signs are all around A market- liberal revolution is sweeping the planet, from Eastern Europe to Latin