-Caveat Lector- ------- Forwarded Message Follows ------- Date sent: Mon, 11 Oct 1999 09:15:02 -0500 To: [EMAIL PROTECTED] From: "John C. Goodman" <[EMAIL PROTECTED]> Subject: NCPA Policy Digest 10-11-99 National Center For Policy Analysis POLICY DIGEST Monday, October 11, 1999 PointCast can automatically load NCPA's Policy Digest summaries on your desktop for easy reading. For information go to http://www.ncpa.org/pointcast.html IN TODAY'S DIGEST o HOW THE FEDERAL RESERVE CREATES MONEY is a mystery to many, says Bruce Bartlett, but it is not taking a $25 billion a year rake-off as some mistakenly believe....NCPA o DEREGULATION IS LOWERING PRICES IN EUROPE despite the opposition of some companies and their unions....WALL STREET JOURNAL o DAM REMOVAL TO AID SALMON would cost Northwest electric customers $250 million a year and destroy Idaho's inland port, warn critics....WALL STREET JOURNAL o FOREIGN INVESTMENT IN CHINA MAY DROP 20 PERCENT this year, say analysts....INVESTOR'S BUSINESS DAILY o PRIVATE SCHOOL STUDENTS OUTPERFORM PUBLIC SCHOOL STUDENTS with similar backgrounds, according to a study of District of Columbia students....HERITAGE FOUNDATION o HIGH TECH COMPANIES ARE LOCATING NEAR UNIVERSITIES to attract local talent.....NEW YORK TIMES o THE I.R.S. RECEIVED 226 MILLION TAX RETURNS, but has 6,800 few collectors than in 1990....NEW YORK TIMES IN TODAY'S NEWS HOW THE FEDERAL RESERVE CREATES MONEY The Federal Reserve, America's central bank, is a mysterious institution to most people. One would expect a member of the House Committee on Banking and Financial Services, which oversees the Fed, to be reasonably knowledgeable on the subject. But at least one committee member, Congressman Jack Metcalf (R-Wa.), seems to have no clue at all. Metcalf says every American is paying $100 per year just to get the cash they spend. If the Treasury issued this money, Metcalf believes, the Federal Government would save $25 billion per year. What the confused congressman is talking about is the fact that the Fed conducts monetary policy by buying and selling U.S. Treasury securities. When it buys the money supply expands; when it sells the money supply contracts. The vast bulk of the money created in the process consists of bank balances. Only a tiny percentage involves the printing of currency, which is done by the Treasury's Bureau of Engraving and Printing. o As of June 30, the Fed held $494 billion in Treasury securities, and last year it received $26.8 billion in interest from the Treasury -- the tax Congressman Metcalf is upset about. o But the Federal Reserve sends virtually all of this money back to the Treasury and it is counted as government revenue -- in 1998, the Treasury got a check from the Federal Reserve for $24.5 billion (see figure http://www.ncpa.org/pd/gif/pd101199a.gif ). o The difference goes to pay for Federal Reserve operations and salaries. So there really is no tax. It is just a bookkeeping transaction. Taxpayers would save nothing by converting Federal Reserve notes to Treasury notes. However, the Federal Reserve's expenses ultimately do come out of the taxpayer's pocket. An article in the August 2 issue of Barron's details the sharply rising cost of operating the 12 regional Federal Reserve banks. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 11, 1999. For text http://www.ncpa.org/oped/bartlett.html For more on Federal Reserve Monetary Policy http://www.ncpa.org/pd/economy/econ6.html EUROPE LOOKS TO DEREGULATION TO DEFEAT INFLATION European economists have come to realize that deregulation is a powerful tool for fighting inflation. So given the high degree of business regulation among European countries, the opportunities for reining in inflation are huge. Germany's highly regulated economy and recent moves to deregulate electricity and telecommunications provide striking illustrations of the dynamics of the process. o Since competitors sprung up four years ago to challenge the monopoly Deutsche Telekom AG, the price of a daytime, three-minute phone call from Hamburg to Munich has fallen from about $1.12 to 39 cents. o Overall, phone rates declined nearly 20 percent between the end of 1997 and mid-1999. o Following recent moves to open Germany's electricity markets to competition, the electricity bill for a typical family in Hanover has declined 14 percent in six months. o Experts estimate that a 20 percent drop in electricity prices would shave half a percentage point off Germany's overall inflation rate. Economists at Morgan Guaranty Trust Company figure that energy deregulation would take between 0.2 and 0.3 percentage points off the euro zone's inflation rate. Already-accepted agricultural reforms could shave a further 0.2 points off the annual inflation rate in 2000 and 2001. But big regulated companies and their unions that see deregulation as a threat are rallying workers to protest moves in those directions. Observers report that -- unlike Americans -- Europeans rarely think of their interests as consumers. So they are easy prey to arguments aimed at continued regulation and protection of the status quo. Source: David Wessel, "The Outlook: Curbing EU Inflation with Deregulation," Wall Street Journal, October 11, 1999. For text http://interactive.wsj.com/articles/SB939595699419958787.htm For more on Western Europe http://www.ncpa.org/pi/internat/intdex9.html ECONOMIC EFFECTS OF REMOVING PACIFIC NORTHWEST DAMS It has only been two to three decades since the Army Corps of Engineers constructed four dams on the lower Snake River in Washington State to provide hydroelectric power to area communities. Those dams and another four on the Snake-Columbia system have even allowed Lewiston, Idaho, to become an inland port -- shipping 50 million bushels of grain a year to Asia and other destinations. But now environmentalists, the Clinton administration and the Corps want to demolish them so as to help salmon spawn. "You take that dam away and it would be like taking Boeing out of Seattle," warns the manager of the port of Lewiston, referring to plans to destroy the Lower Granite Dam. "We'd lose our economy," he predicts. o The dams help farmers irrigate, barges to operate and provide 11 percent of the power which lights homes and offices from Washington to Montana. o While environmentalists are behind the move to do away with the four Snake River dams, they are being joined by trucking companies and highway construction firms. o The Bonneville Power Administration -- which distributes power from 30 dams on the Columbia and Snake rivers -- says breaching the dams which cost it 11 percent of its total power supply, forcing it to pay about $250 million annually to buy or produce the lost power. o The BPA would also be forced to continue to pay $864 million it owes for the dams' construction. Those costs would push up electric bills in the Northwest by $3.20 to $6.50 a month. Moreover, breaching the dams would remove about 35,000 acres of farmland from production, since alternative water-delivery systems are not cost effective. Cost: about $10 million, according to some estimates. Then, shifting grain hauls from barges to trucks and trains would cost farmers another $35 million annually. Finally, it would cost Washington state as much as $406 million to upgrade local roads and rail systems to handle the increased load. Some opponents predict that only 2,000 fish will make it back upstream to spawn -- at a final cost of $500,000 each to the area's economy. Source: Bill Richards, "Feud Flares Up Over Plan to Shut Down Washington Dam System to Save Fish," Wall Street Journal, October 11, 1999. For more on the Environment go to http://www.ncpa.org/pi/enviro/envdex1.html WHERE IS CHINA'S ECONOMY HEADED? While China's private-sector entrepreneurs have been racking up impressive achievements of late, state-run companies still produce goods destined to rot or rust in warehouses, and some 45 percent of state-run industries are losing money, according to Gerald Segal of the International Institute of Strategic Studies. When that lost production is factored in, China's economic growth may be closer to 6 percent than the 9 percent official figure, some analysts conclude. Futhermore, outside investors are becoming more cautious. o The U.S.-China Business Council expects total foreign direct investment in China to drop as much as 20 percent by year's end -- after stalling out last year at $45.5 billion. o U.S. investment contracts with China peaked at 6,750 in 1993 -- then fell to 2,181 by last year. o Only 28 percent of senior executives at America's fastest growing companies view China's market as "very important," according to a recent poll conducted for Investor's Business Daily -- underlining the fact that China takes in only 1.8 percent of total U.S. exports. Among the negatives in dealing with China are its high tariffs -- which average 35 percent and range up to 150 percent on some goods. Other factors which discourage commerce are burdensome trade rules, corruption, weak property laws and unreliable courts. Source: Paul Sperry, "China Economy: Miracle or Mirage?" Investor's Business Daily, October 11, 1999. For more on China http://www.ncpa.org/pi/internat/intdex9.html IN OTHER NEWS CATHOLIC SCHOOL STUDENTS OUTPERFORM PUBLIC ONES Do children attending private and parochial schools score higher than public school students of similar background on tests that measure cognitive skills? If not, the case for school choice is weakened. In the first study of its kind on students in a major U.S. city, Heritage Foundation researchers analyzed the math scores from the 1996 National Assessment of Educational Progress (NAEP) test taken by African-American fourth- and eighth-grade students in the District of Columbia's public and Catholic schools. Holding family background characteristics constant -- such as the number of parents, neighborhood income effects, reading materials in the home and whether or not the mother has at least some college -- the study found: o The average (median) African-American eighth-grader in a D.C. Catholic school performs better in math than 72 percent of his or her public school peers. o On average, Catholic school students in fourth grade scored 6.5 percent higher than their public school counterparts (see figure http://www.heritage.org/library/cda/graphics/cda99-08cht1.gif ). o However, the difference widened to an 8.2 percent higher score for Catholic school eighth graders compared to public school students (see figure http://www.heritage.org/library/cda/graphics/cda99-08cht2.gif ). The District of Columbia was used because it is the only entity that provides city-level data that include socioeconomic characteristics along with the test scores. Black students were used for comparison because they are the only D.C. ethnic group large enough for statistical analysis. Catholic schools were chosen because they make up the largest single group of private school students in D.C. Source: Kirk A. Johnson, "Comparing Math Scores of Black Students in D.C.'s Public And Catholic Schools," Report No. 99-08, October 7, 1999, Center for Data Analysis, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546- 4400. For text http://www.heritage.org/library/cda/cda99-08.html For more on Private & Public School Comparisons http://www.ncpa.org/pi/edu/edu7.html#e UNIVERSITIES ATTRACT HIGH-TECH NEIGHBORS Across the U.S., universities are becoming an increasingly powerful force in today's high-tech economy -- producing graduates who set up companies near campuses and attracting far- away firms intent on tapping into local talent. o The Massachusetts Institute of Technology boasts that by 1997 companies founded by its faculty and graduates had created 14,000 jobs at its Cambridge, Mass., location alone. o As of 1995, some 80 companies had been spun out of the University of California's San Diego campus -- providing more than 7,000 jobs to the region. o In fact, every one of the University of California's nine campuses has a high-tech cluster near it, say university officials. o Officials at Harvard University are contemplating "research parks and business incubators that would be very closely tied to parts of the university." Experts say that the incentives for universities to think commercially are manifold -- from their share of licensing payments, to the jobs created for graduates, to industry grants for research and even the ability to recruit professors who want a chance to get rich outside the classroom. Source: Carey Goldberg, "Across the U.S., Universities of Fueling High-Tech Booms," New York Times, October 8, 1999. For more on Other Higher Education Issues http://www.ncpa.org/pi/edu/edu13b.html A NICER I.R.S. FACES CHALLENGE OF COLLECTING TAXES Ordered by Congress to drop the heavy-handed actions that were infuriating taxpayers, the Internal Revenue Service has been falling down in its responsibilities to collect delinquent taxes, say observers. Agency insiders say it is following an all-or- nothing policy on collections -- rather than negotiating settlements, as it did in the past. o Two years ago, the agency collected $30 billion from delinquent taxpayers. o While there is no updated tally on recent collections, anonymous IRS agents report that billions of dollars are going uncollected today. o While the government used to seize as many as 1,000 houses a year for nonpayment of taxes, it has not seized one in 14 months. o Since 1990, the number of tax returns filed has increased 13 percent, to 226 million this year -- but the number of tax collectors has been cut 19 percent, to about 6,800. The IRS is interpreting new rules handed down by Congress as requiring an all-or-nothing stance on back taxes. It was customary in the past to reach negotiated settlements and work out payment schedules with taxpayers. Now the IRS is demanding full payment. If the taxpayer is unable or unwilling to comply, the agency is setting the cases aside as temporarily uncollectable. Then, calculating that the agency is unlikely to act before the 10-year statute of limitations runs out, many big tax delinquents are opting to take their chances and pay nothing. Source: David Cay Johnston, "IRS Is Allowing More Delinquents to Avoid Tax Bills," New York Times, October 10, 1999. For more on Internal Revenue Service http://www.ncpa.org/pd/budget/budget-7.html * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * NATIONAL CENTER FOR POLICY ANALYSIS DALLAS, TEXAS "Making Ideas Change the World" Internet Address: http://www.ncpa.org * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * A<>E<>R ~~~~~~~~~~~~~~~ Integrity has no need of rules. -Albert Camus (1913-1960) + + + + + + + + + + + + + + + + + + + + + + + + + + + + The only real voyage of discovery consists not in seeking new landscapes but in having new eyes. -Marcel Proust + + + + + + + + + + + + + + + + + + + + + + + + + + + + "Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your common sense." --Buddha + + + + + + + + + + + + + + + + + + + + + + + + + + + + It is preoccupation with possessions, more than anything else, that prevents us from living freely and nobly. -Bertrand Russell + + + + + + + + + + + + + + + + + + + + + + + + + + + + "Everyone has the right...to seek, receive and impart information and ideas through any media and regardless of frontiers." 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