THE LIGHTHOUSE
"Enlightening Ideas for Public Policy..."
VOL. 3, ISSUE 22
June 4, 2001

Welcome to The Lighthouse, the e-mail newsletter of The Independent
Institute, the non-politicized, public policy research organization
<http://www.independent.org>. We provide you with updates of the
Institute's current research publications, events and media programs.

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IN THIS WEEK'S ISSUE:
1. The Regulatory Trap
2. World Freedom Index
3. Why Are the Public Schools Failing and What Can Be Done? -- Next
Independent Policy Forum (July 5, 2001)

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THE REGULATORY TRAP

California's energy crisis is often portrayed as a failure of
deregulation. In reality, however, the restructuring of the Golden
State's power industry short-circuited rather than deregulated the
market process.

Legislation that squeezes all buyers and sellers into a short-term
spot market rather than lets them agree on the terms of their
contracts, imposes protectionist price floors that then become price
ceilings, and tilts the playing field against new suppliers and
distributors can be considered "deregulation" only in the sense that
Soviet-style economic planning can be considered "economic."

Had California taken deregulation seriously, it is likely that
electricity would be more plentiful and cheaper than before, as in
Pennsylvania, where deregulation, while still not 100 percent, is at
least worthy of the title.  But why didn't California legislators
attempt genuine deregulation? More broadly, why is deregulation so
seldom attempted anywhere, despite the fact the economists routinely
take pains to show how regulation is wasteful?

Economists often argue that resistance to deregulation stems mostly
from the fact that the benefits of deregulation are spread out among
potentially millions of people, while the benefits of regulation are
concentrated; the few who benefit find it easier to politick for
their cause.

While this is often a factor, there are several other reasons why
regulations become entrenched, according to economist Fred S.
McChesney. First, politicians assume that the public can live with
the status quo. Second, deregulation is likely to be entrusted to the
very politicians and bureaucrats who oversaw, and politically
benefited from, the existing regulatory regime. Third, regulation's
beneficiaries would expect to be paid off by the deregulation's
beneficiaries. Fourth, some of the costs of regulation are sunk,
e.g., spent on lobbying, and therefore can't be recovered by
deregulation. Fifth, the government may well confiscate the gains of
deregulation through taxes.

What McChensey explains is the existence for a stubborn regulatory
"lock-in," which unlike the urban myths of market lock-in (refuted in
Stan Liebowitz and Stephen Margolis's persuasive book, WINNERS,
LOSERS AND MICRSOFT), does not go wanting for empirical examples.

"As many have noted, regulation is much easier to get than to get rid
of. The predictable path, once regulation has been adopted, is a
series of ratchets upward."

Here McChesney relies on the notion of a ratchet effect (described in
detail in Independent Institute senior fellow Robert Higgs's book,
CRISIS AND LEVIATHAN): Each new government regulation or program
creates a new baseline from which it rarely if ever retreats.

This description of the regulatory state is apt, but let us suggest a
more vivid one. As in the old Roach Motel TV commercials, regulations
check in, but rarely check out. This metaphor at least has the
advantage of helping us keep in mind the sort of critters we are
dealing with.

See "Of Stranded Costs and Stranded Hopes" by Fred S. McChesney (THE
INDEPENDENT REVIEW, Spring 1999), at
http://www.independent.org/tii/lighthouse/LHLink3-22-1.html.

For an examination of regulatory lock-in during the Reagan
administration, see the Independent Institute book, REGULATION AND
THE REAGAN ERA, edited by Roger Meiners and Bruce Yandle, at
http://www.independent.org/tii/lighthouse/LHLink3-22-2.html.

For the Independent Institute's archive on energy policy, see
http://www.independent.org/tii/lighthouse/LHLink3-22-3.html.

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WORLD FREEDOM INDEX

According to the 2001 Index of Economic Freedom, only 12 countries,
representing 7 percent of the world's countries, can be considered
free. The report is overly optimistic, however; it overstates the
freedom and understates the repression in the freer countries,
according to Paul Craig Roberts, research fellow at The Independent
Institute, in a recent syndicated column.

"Hardly any of the index's 12 free countries are really free," writes
Roberts. "For example, both the United States and Great Britain fall
in the 'repressed category' of the index with regard to tax burden,
as do Luxembourg, the Netherlands and Australia."

The share of personal earnings collected as government taxes in the
index's freest countries often rivals the one-third taken from feudal
serfs by their lords or the fifty percent taken from 19th century
slaves by their masters.

"How can property rights be secure when taxation can claim a feudal
lord's or slave master's share of a citizen's working time?" asks
Roberts.

Further, property rights are seldom fully secure even in the index's
highest-ranking countries. For example, "U.S. property owners are at
grave risk of many federal, state and local laws that permit their
property to be seized on the slightest pretext. In 80 percent of
asset forfeitures, no charges are brought against the former owners.
To overlook this great insecurity of property in the United States is
to concoct a fanciful measure of property rights."

What the index really shows, Roberts concludes, is that there are
virtually no free countries in the world.

See "Freedom's Unheard Call" by Paul Craig Roberts, at
http://www.townhall.com/columnists/paulcraigroberts/printpcr20010516.shtml.

For a detailed critique of earlier indexes of freedom, see "Are We
All Capitalists Now?" by John R. Hanson II (THE INDEPENDENT REVIEW,
Spring 1999), at
http://www.independent.org/tii/lighthouse/LHLink3-22-5.html.

On the relationship of property rights to liberty, see:

Peter Mentzel's review of PROPERTY AND FREEDOM by Richard Pipes (THE
INDEPENDENT REVIEW, Fall 2000), at
http://www.independent.org/tii/lighthouse/LHLink3-22-6.html.

T. Norman Van Cott's review of THE NOBLEST TRIUMPH: Property and
Prosperity through the Ages, by Tom Bethell
http://www.independent.org/tii/lighthouse/LHLink3-22-7.html.

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WHY ARE THE PUBLIC SCHOOLS FAILING AND WHAT CAN BE DONE? -- Next
Independent Policy Forum (July 5, 2001)

American children learn less than they did 30 years ago, and even
where there are signs of improvement, they are small. Many high
school graduates -- 90 percent of whom attended government-operated
public schools -- lack the skills needed in today's
knowledge-intensive workplace. Further, many students fail to
graduate. (The dropout rate in California is 32 percent overall, and
45 percent for immigrants.) Parents and educators have long
recognized the shortcomings of the public school system, but their
efforts to reform it have failed. Are school vouchers and charter
schools the answer? What about teacher-owned schools? What other
reforms might make schools more innovative and accountable to
parents? Please join us as education experts RICHARD VEDDER and JOHN
MERRIFIELD examine new strategies for achieving educational
excellence.

SPEAKERS:

   -- RICHARD VEDDER, Senior Fellow, The Independent Institute;
Professor of Economics, Ohio University; author, CAN TEACHERS OWN
THEIR OWN SCHOOLS?

   -- JOHN MERRIFIELD, Senior Research Associate; The Education Policy
Institute; Professor of Economics, University of Texas, San Antonio;
author, THE SCHOOL CHOICE WARS

WHEN:
        Thursday, July 5, 2001
        Reception and book signing: 6:30 p.m.
        Program: 7:00 - 8:30 p.m.

WHERE:
        The Independent Institute Conference Center
        100 Swan Way
        Oakland, CA 94621-1428
        For a map and directions, see
        http://www.independent.org/tii/tii_info/about.html#map

TICKETS: $30.00 per person: includes one copy of Richard Vedder's
book, CAN TEACHERS OWN THEIR OWN SCHOOLS?, OR John Merrifield's book,
THE SCHOOL CHOICE WARS, OR admission without a book is $10 per person
($7 for Independent Institute Associate Members)

Praise for Richard Vedder's book, CAN TEACHERS OWN THEIR OWN SCHOOLS?

"Vedder suggests for-profit schools owned and operated by teachers
and school administrators would offer a promising alternative to the
present public school system."
   -- SCHOOL REFORM NEWS

"Nobody yet has found a foolproof formula for revitalizing American
K-12 education. So let's be humble enough -- and empirical enough --
to try as many tantalizing approaches as we can. In that spirit, I
commend Richard Vedder's pioneering ideas."
   -- CHESTER E. FINN, JR., former Assistant Secretary, U.S.
Department of Education

For more information about CAN TEACHERS OWN THEIR OWN SCHOOLS?
see http://www.independent.org/tii/lighthouse/LHLink3-22-8.html.

Praise for John Merrifield's book, THE SCHOOL CHOICE WARS

"Professor Merrifield asks this question: what is meant by and what
is the intended consequence of reforms bearing such labels as
vouchers, school choice, charter schools, privatization, and
competition? This book brilliantly and clearly exposes the
superficiality and extraordinary fuzziness of those labels."
   -- SEYMOUR B. SARASON, author, CHARTER SCHOOLS: Another Flawed
Educational Reform?

For more about this event, see
http://www.independent.org/tii/lighthouse/LHLink3-22-9.html.

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Institute, see
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For information on The Independent Institute's upcoming Independent
Policy Forums, see
http://www.independent.org/tii/lighthouse/LHLink3-22-13.html.

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