The "Greedy '80s" and Other Myths

By Craig Yirush, Johns Hopkins University, Graduate Studies, History

They say that old myths die hard. One of the oldest and most resilient must be the perennial belief that, in a free market, "the rich get richer and the poor get poorer." A recent manifestation of this myth is the nearly universal belief that, in the "greedy '80s," a rapacious few profited at the expense of the many; that Wall Street tycoons ran riot, wrecking entire companies and destroying the economy's manufacturing base in the process; that irresponsible tax cuts caused unsustainable government deficits to be racked up; and, finally, that the wealth that was created failed to "trickle down" to those on the bottom rung of the economic ladder. In short, those that got rich did so at the expense of the majority of the population.

This view of the '80s is so pervasive as to even reach the number 257: my daily bus to work in downtown Vancouver. One morning, I was intrigued by a heated debate taking place between two fellow commuters about the legacy of the 1980s. The discussants were employing a particularly pungent barnyard metaphor to describe the decade in question. I'll spare you the details, gentle readers, but the gist of it was that whatever "trickled down" to the poor in the free market '80s, it certainly was not money! This rather evocative description of recent economic policy not only woke me up, but led me to ask, conventional wisdom aside, just what did happen in the 1980s?

For those seeking a counterpoint to the standard doom and gloom view of the '80s, there is one very good guide: Robert Bartley's provocative 1992 book Seven Fat Years: And How to Do It Again published by The Free Press of New York.

Bartley, editor of the Wall Street Journal, and ardent supply-sider, tries to set the factual record straight about the Reagan years. In the process, he offers us a powerful insight into the concrete benefits of free market policies.

Bartley begins by outlining the intellectual context necessary for understanding the 1980s. He argues that the economic reforms of the 1980s must be seen against the background of the 1970s: an era of big government, high taxes, record inflation rates, and soaring unemployment.

The response to this "stagflationary" malaise was a growing realization, among a small group of economic and political thinkers, that what matters for economic growth is not government demand management; but a focus on the "supply side" of the economy. The central fact is that wealth is created by the productive efforts of millions of workers and entrepreneurs, and not by an interventionist government, spending, taxing, and regulating all activity to death. Bartley points out that this "supply side" approach was simply a revival of the common-sensical, pre-Keynesian idea that if a nation frees its citizens to produce, the result will be, not surprisingly, greater wealth.

As Bartley makes abundantly clear, the free market policies enacted in the U.S. between mid-1982 and 1990 worked. With lower taxes and stable money, companies like Microsoft and MCI flourished, creating jobs, wealth, and a host of new and innovative products and services. Innovative financiers like Michael Milken revolutionized capital markets, providing funds for many fledgling enterprises that more conventional financiers would not touch.

Under the influence of this renewed appreciation for markets, America experienced a seven-year period of sustained prosperity. Bartley offers some impressive statistics to illustrate the decade's success. During these "seven fat years," America's GNP grew by 31 percent in real, inflation-adjusted terms. This meant that the resurgent American economy grew the equivalent of another Germany during the 1980s. Living standards showed an equally impressive rise. Over the seven years,

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. . . the resurgent American economy grew the equivalent of another Germany during the 1980s.
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real disposable income per capita grew by one-fifth. Labour productivity also grew, by 10.6 percent. The statistics on industrial productivity offer an equally rosy scenario. Manufacturing production grew by 48 percent between mid-1982 and 1990. Gross private investment also grew by 32 percent. In addition, despite a demographic surge, 18.4 million new jobs were created, an increase of 19.5 percent. Despite the "greedy" label, charitable giving during the 1980s increased at a rate of 5.1 percent per year. The record on tax revenues also confounds those who argue that the "supply side" tax policies were fiscally irresponsible. Despite Reagan tax cuts, federal government receipts grew by 99 percent between 1980 and 1990. The problem, of course, was that a Democratic Congress managed to outspend even this large increase in revenue.

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U.S. federal govern- ment receipts grew by 99 percent between 1980 and 1990.
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This more accurate reading of the recent historical record contains an important public policy insight for all those interested in a free and prosperous society: that the recipe for sustained economic growth is minimal government and maximum individual freedom. To the extent that Canada, Britain, and other countries followed suit, they too experienced an economic renaissance. As a result of the economic policies that the U.S. enacted in the 1980s, we are all wealthier than we were two decades ago.

Ultimately, the lesson of the '80s is a hopeful one: that prosperity is the result of free people, cooperating in their own self-interest. The "greedy '80s" experience explodes the myth that the market is a zero sum game. It is not. The 1980s made many millionaires, and also made many millions of people better off. If we have economic freedom, a rising tide will indeed raise all boats. A society that fails to grasp this point, and instead falls victim to the myth of the "greedy '80s," is in danger of emulating the slow growth and stagnation of the 1970s.

Are you listening fellow commuters?

If so, could you please pass the message along to Messrs. Chrétien and Clinton?

A Visit to San Francisco

by Boris DeWiel, University of Calgary, Political Science

This summer, I spent two months as a Fraser Institute Intern, working at the Pacific Research Institute in San Francisco. The PRI is a wonderful group of talented, energetic people conducting important free-market research, but they are a tiny crew sailing in a hostile sea. When it comes to economic issues, the residents of the Bay area have many strange ideas.

The Bay area was the birthplace of the hippie generation, with its utopian vision of idyllic communal life: free love and free lunches. They were hostile to old-fashioned notions like hard work and honest trade, believing these to be the nasty myths of the Establishment. As Steve Hayward at PRI likes to joke, the hippies were the kind of people who thought gravity was a plot to "keep the people down." Now they would be called postmodern deconstructionists, but in those days they were just anti-capitalists.

Today there are still many hippies in San Francisco, but a funny thing has happened to them: they have turned into capitalists themselves, selling jewellery and tie-died clothes from carts on the street. Most are members of the petite bourgeoisie, the marginal group of merchants whom Marx despised, but some hippie capitalists have become quite successful. The famous Haight Ashbury district is now a bustling shopping area where anarchist bookstores alternate with cappuccino bars. A large chain of Krishna Copy photocopy outlets extends throughout the Bay area. Apparently, many Flower Children are doing just fine.

San Francisco's street merchants continue to sell the classic bumper sticker with the bold, officious lettering ordering us to "QUESTION AUTHORITY." You typically see it on old Volkswagen vans. Want to see if these vans' owners really believe what they say? Try scratching "Who sez?" in the paint.

I stayed in Berkeley, home of a beautiful campus and thousands of peculiar people. You can be as odd as you want to be in Berkeley, and fit right in. They are all non-conformists, every last one of them. Their very orthodoxy made me a non-conformist as I walked to my bus stop in my suit every morning. I couldn't help noticing that the good liberal citizens of Berkeley seem to dislike white males in suits. I guess there are limits to non-conformity!

San Francisco liberals like to talk about diversity, but they don't believe in real diversity at all. The only diversity they are willing to tolerate is in superficial things like skin colour. In important areas like ideas, beliefs, and values, they tolerate only those that match their own. That's because they think tolerance is about everyone getting along. In fact, truly tolerant people leave alone anyone who seriously disagrees with them. But leaving people alone means choosing not to associate with them, and nowadays that's called "discrimination."

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You can be as odd as you want in Berkeley, and fit right in.
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Amid all these contradictions, the folks at the Pacific Research Institute struggle to bring sanity to policy debates in Northern California. They were wonderful to me, and I'll miss them all very much. For Canadian students, The Fraser Institute Internship Program is a priceless opportunity to associate with and learn from like-minded people-and realize that we're not alone in the hostile sea of hippie-style liberalism.

The Environment: More Markets, Less Government

by M. Danielle Smith, University of Calgary, English and Economics

The environmental movement was born from the writings of Thomas Malthus, in An Essay on the Principle of Population (1798), which predicted perpetual starvation as a result of human reproduction continually outpacing the food supply. Paul Erlich's The Population Bomb (1968), and The Club of Rome's dire predictions of resource depletion in The Limits to Growth (1972) built the foundations for the popular "truths" of the movement. Add in Rachel Carson's treatise on the evils of pesticides and predictions of a cancer epidemic in Silent Spring (1962), and it is easy to see why many Canadians have become fearful of technology and progress, and the so-called adverse effects of these on the environment.

These doomsayer theories are all guilty of the same thing: they are wrong. They are wrong because they fail to consider the power of human ingenuity to change behaviour and avert disaster.

First, we do not have an over-population problem. The starvation in developing nations is not a population problem, it is a poverty problem. For example, the U.S. is more "overpopulated" than the continent of Africa and yet does not suffer the same plight. Rather, direct actions of despotic governments and civil war in less developed countries (LDCs) systematically impoverishes citizens. While the conditions are tragic, they are not due to overpopulation.

Second, we do not have a resource depletion problem. Simple economic principles show that as an item becomes relatively scarce, its price will increase. However, in the decades following the publication of The Limits to Growth most inflation-adjusted resource prices have decreased in real terms. Why? Higher prices encourage exploration and new retrieval technology, increasing available reserves. They also encourage consumers to buy lower priced alternatives and push prices down. Demand may fall further as more efficient and expansive uses are found for decreasing amounts of resources. For example, a mere few grains of common sand are the primary resource input for a powerful microchip, around which a multi-trillion dollar computer industry has developed.

Third, we do not have a cancer epidemic. With the exception of lung cancer, which is primarily caused by voluntary smoking and not synthetic pesticides, cancer death rates are decreasing for all age groups under 85. Bruce N. Ames and Lois Swirsky Gold, "The Causes and Prevention of Cancer: The Role of Environment," in The True State of the Planet, Ronald Bailey, ed. (New York: The Competitive Enterprise Institute, 1995), p. 146.Note The infinitesimal dosage of synthetic pesticides consumed in the average North American diet have no measurable effects on human health; the risk is so small as to be nonexistent.

Unfortunately the gaffes of the environmental movement are not confined to these original errors in theory. A growing body of scientific evidence suggests that other headline issues like ozone depletion, global warming, and acid rain have relied more on hysteria and conjecture than fact. They all stem from the incorrect beliefs that business, wealth, and technology encourage environmental degradation and that government is the answer. However, the opposite is true: economic growth is the answer and government is often the problem.

Government subsidies contribute to environmental degradation by encouraging overuse of resources like forests, fresh water, and fish. The users of cheap, subsidized resources benefit while the costs are born by the taxpayer. A "tragedy of the commons" results when common property provides the perverse incentive for overuse as moderation in harvesting or grazing by one user is nullified by another's overharvesting or overgrazing. Overuse is confusing, and it's not "on behalf of"] Private ownership and private management are necessary for good stewardship.

Environmental damage caused by excessive pollution can be traced to poorly defined property rights and the absence of legal remedy. While it is clear that a polluting neighbour cannot dump his trash on your front lawn, the law is less clear about the emissions of pollutants into the air or water. Many government statutes actually shield polluters from a common-law compensation remedy on the part of victims.

Ultimately however, pollution is waste. It is the product of an incomplete, and thus inefficient, use of resource inputs. In a free market economy, profits are fuelled by efficiency, which means that firms will strive to produce less waste from input resources, and consequently produce less pollution; firms have an incentive to diminish pollution in their desire to become more competitive. The most market-oriented, wealthy, and technologically advanced nations have the best environmental performance records. Living in an industrialized nation today means we can afford to invest in clean air and water, safe food and shelter, and sustainable farming and forestry practices.

The solution to our environmental problems is, therefore, more markets and less government.

Canada Needs To Redefine Individual Rights

by Kevin Garvey, British Columbia Institute of Technology, Media Communications

The Canadian Charter of Rights and Freedoms has become both a sword and a shield for the state, forcing the courts to deliver mighty blows against our traditional individual rights. It is time we embarked upon a truly honest, public process of self-examination in order to protect our political and economic freedoms.

Section 1 of our Charter allows government to limit our rights and freedoms if it can be "demonstratively justified in a free and democratic society." Instead of simply assessing the real intent and the reasonable interpretation of a law, our courts must decide whether that law is rationally connected to the government's objectives and, at the same time, determine if there is an alternative and less intrusive method.

This forces the courts to second-guess our elected representatives; in effect, creating the potential for ex post facto laws or retroactive legislation. Our Charter puts an impossible burden on our judiciary; one that they should not and do not willingly accept.

The legitimate role of the courts in a free society should be to protect the citizens and their property from encroachment and to uphold contracts. The judges' duty should be to consider what the laws actually are, rather than using personal judgement to determine what government thinks they ought to be. When granted the latter power, the courts perform a law-making function which is more arbitrary, and therefore more dangerous, than that of our elected representatives.

In redrawing the powers of the judiciary, our omnipotent Charter actually erodes the very rights it is supposed to protect, leaving the burden of proof on the citizen to justify his rights. The drafters of the Charter attempted to persuade Canadians that we didn't have any rights or freedoms until they were granted by our benevolent government. In effect, the state appropriated the rights and freedoms we already possessed and then, by declaration, bestowed some of those rights back to us. This is a radical departure from common law principles which are based on custom and usage, adapting with flexibility to new conditions. Unlike our Charter, common law is not dependent on theoretical abstractions or rigid statutes.

Freedoms granted by the state are freedoms that may be revoked. This creates a self-fulfilling prophecy, whereupon the failure of each new intrusion by the state justifies a more coercive intrusion. In his 1942 publication, The Road to Serfdom, Friedrich A. Hayek predicted that the principles of distributive justice eventually produce "the exact opposite of a free society-a society in which authority decides what the individual is to do and how we are going to do it." Our Charter of Rights and Freedoms is destined to create a never-ending struggle between the citizens and the state for control of our rights.

References

Kenneth McDonald, "His Pride, Our Fall," Recovering From The Trudeau Revolution (Key Porter Books, 1995).

Clare Beckton and A. Wayne Mackay, "Recurring Issues in Canadian Federalism," Royal Commission on the Economic Union and Development Prospects for Canada (University of Toronto Press, 1986).

Jeffrey Simpson, "Faultlines," Struggling for a Canadian Vision (Harper Collins Publishers, 1993).

 
Courts and the "Public Interest"

by Avril Allen, University of Toronto, Law

Many of us pay attention to elections and party politics because we know that the actions of politicians can determine everything from how much tax we'll be paying next year to the content of our breakfast cereal. What we often forget is that a growing number of political issues are being settled in our courts of law-and, from a free market perspective, the results often haven't been favourable.

The phenomenon I'm referring to is the use of litigation by interest groups to further policy agendas. What these "public interest" lawyers do is identify novel legal claims that, if successful, will result in the reinterpretation or invalidation of a government policy. Depending upon their perspective, they will then either attack or defend the policy in question by acting on behalf of one of the parties to a case or by submitting arguments as an independent "intervenor."

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In the first ten years of the Charter's operation, the Supreme Court decided one-third of the 195 Charter cases in favour of the party challenging government policy or action.
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Litigation as political strategy isn't new. Interest groups in the United States have been successfully fighting political battles in the courts for decades, contributing to major changes such as the racial desegregation of schools in Brown v. Board of Education and the liberalization of abortion laws in Roe v. Wade. In Canada, interest groups have only recently begun to follow the U.S. example because judges were reluctant to overturn legislation before the enactment of the Charter of Rights and Freedoms in 1982. Since that time, the courts have been much less hesitant to chop, change, and add to legislation. In the first ten years of the Charter's operation, the Supreme Court decided one-third of the 195 Charter cases in favour of the party challenging government policy or action. F.L. Morton, Peter H. Russell and Troy Riddell, "The Canadian Charter of Rights and Freedoms: A Descriptive Analysis of the First Decade, 1982-1992," National Journal of Constitutional Law 5 (1995), p. 5.Note Observation shows, however, that some political interests have benefitted more than others.

One of the more successful interest groups has been the Women's Legal Education and Action Fund (LEAF). Their numerous achievements include the adoption of a rule that allows judges to order the payment of alimony "indefinitely"; the extension of workplace unemployment benefits to women leaving work because of pregnancy; and a rule that allows juries to consider the presence of "battered wife syndrome" in deciding whether a woman charged with the murder of her spouse has acted in self-defense. LEAF has also been influential in limiting the application of Charter equality rights to claims brought by "disadvantaged groups", i.e., not white males.

The experience of women's groups also reveals another benefit of litigation: that the sheer publicity generated by a controversial case may even make it worthwhile to take losing cases to court. Earlier this year, for example, Ottawa reversed the Supreme Court's decision, in Thibaudeau, to uphold the scheme that made child support payments taxable in the hands of the parent receiving those payments. Similarly, anti-smoking groups who intervened unsuccessfully in RJR MacDonald (the case which saw the ban on tobacco advertising struck down) have since found politicians to be much more receptive to their ideas.

In many ways, it would make sense for those with an interest in enhancing, or at least preserving economic freedom, to become better acquainted with strategic litigation. Court parties favouring this perspective, such as the National Citizens' Coalition, are vastly outnumbered by those nudging the courts towards interpretations emphasizing "group rights" over individual rights. Although there are certainly drawbacks to litigation (cost being one of them), the alternative may be to risk governments imposing undesirable notions of the "public interest," which is being championed by those who are currently making effective use of the nation's courtrooms.

What Everyone Should Know About Economics and Prosperity

In the course of public policy debates and discussions, there are few things that are more commonly misrepresented than basic economic truths. We present here a brief overview of some of those myths and misconceptions and the corresponding truths. For further elaboration we direct you to the book from which this material was adapted: What Everyone Should Know About Economics and Prosperity by James D. Gwartney and Richard L. Stroup.

Myth: The economic choices and decisions that people make are independent from the "carrots" and "sticks" that accompany the available options.

Truth: Incentives matter. High prices encourage production. Low prices encourage consumption. Scarcity of resources encourages conservation. Abundance encourages extravagance. In any decision-making process, personal benefits and costs will influence choices.

Myth: The necessities of life should be made available to us without cost.

Truth: There is no such thing as a free lunch. Goods and services that are provided to an individual without payment are not free; the cost has simply been transferred to others, not reduced.

Myth: Trade is a form of exploitation, or an unproductive activity.

Truth: Voluntary exchange promotes economic progress. Trade moves goods and services from those who produce them to those who most value them. Trade permits us to realize gains through specialization in the production of goods and services which increases output and reduces costs. Trade also allows us to benefit from economies of scale and wider markets for our output.

Myth: Middlemen increase the price of goods without providing benefits to either the buyer or the seller.

Truth: Transaction costs are an obstacle to exchange; reducing this obstacle will help promote economic progress. Transaction costs are the time, energy, and other resources involved in searching out, negotiating, and concluding an exchange. People who provide information and services that facilitate exchange are providing something valuable.

Myth: Minimum wage laws and union collective bargaining are key to increasing workers' income.

Truth: Increases in real income are dependent upon increases in real output. What is needed is not more laws, but higher productivity. Without high productivity per worker, there can be no high wages per worker.

Myth: Income growth can be achieved through legislation or economic stimulus packages.

Truth: The four sources of income growth are: improvements in worker skills, capital formation, technological advancement, and better economic organization. Improvement in worker skills through education, training and experience promotes economic growth by increasing productivity. Capital formation increases productivity by providing more and better machines for workers. Improvements in technology that allow us to better transform resources into goods and services also allow us to achieve a larger future output. Improvements in economic organization (such as patent protection and recognition of corporations as legal entities) channel resources toward the production of goods that people value.

Myth: People with high incomes are exploiting other people.

Truth: Income is compensation derived from the provision of services to others. People earn income by helping others. Gwartney and Stroup state: "Millions of consumers who never heard of either (Sam) Walton or (Bill) Gates nonetheless benefitted from their entrepreneurial talents and low-priced products. Walton and Gates made a lot of money because they helped a lot of people."

Myth: Corporate profits are a drain on a nation's wealth.

Truth: Profits direct businesses toward activities that increase wealth. Profits are rewards for producing goods that are more valuable than the resources and labour used to produce them. Profits and losses encourage businesses into producing items that are more valuable than their components and away from producing items that are an inefficient use of resources. If economic progress (and wealth) is to be achieved, value-increasing projects must be encouraged and value-reducing projects avoided. We must acknowledge that profit is not a four letter word.

Myth: If resources are going to be allocated sensibly, some central authority must be in charge.

Truth: Market prices bring personal self-interest and the general welfare into harmony. The price of a good or service reflects the choices of all of the consumers, producers, and suppliers that participate in the market, who have an interest in the good. It is price that reflects the value placed on the product, determines allocation of the required resources, and brings the market into harmony, or equilibrium. It is this "invisible hand" principle, noted by Adam Smith, that provides the most order in the market and the most desirable end: economic prosperity.

Myth: The effects of government controls and spending projects are easily calculated.

Truth: Ignoring secondary effects and long-term consequences is the most common source of error in economics. Think of the negative correlation between rent controls and vacancy rates. Gwartney and Stroup quote Assar Lindbeck, a Swedish economist, who says, "In many cases rent control appears to be the most efficient technique presently known to destroy a city-except for bombing." Or consider the impact of mega-projects on government debt, interest rates and tax burdens. Isn't that a familiar problem in our country?

In addition to analysis of the ten elements of economics discussed here, What Everyone Should Know About Economics and Prosperity also examines the seven major sources of economic progress and looks at the ways in which government can promote or retard economic progress.

Hiding Behind the Union Label

by Eric Duhaime, National School of Public Administration, Public Administration

CAUTION TO UNION MEMBERS: Any diffusion or reproduction of the information below could justify your immediate and final expulsion from union membership, while compelling you to continue paying your union dues.

Over the last few months, as usual, union leaders have vigorously denounced banks and big business profits. According to them, the rich are richer than ever, while unionized workers' conditions continue to get worse. But are union leaders exempt from blame for lowering the quality of life for their members? An examination of the increase in compulsory union dues in recent years is revealing.

Even though there is little public data on this matter, and unions usually refuse to volunteer information, the revenues and major expenses of unions with more than 100 members are available under the Corporations and Labour Unions Returns Act. Unfortunately, only headquarters of labour unions are obliged to file returns under the Act, hence information on the financial operations of the 18,000 local sections are not available.

Over the last 50 years, under the Rand Formula, a Canadian worker has to pay union dues (sometimes against his or her will) if a majority of his colleagues decide to do so. Dues are deductible, and strike benefits are exempt from income tax. The income of unions, no matter if from dues or other sources, are not taxable.

Unions don't finance themselves by satisfying the expectations of their customers, but by coercive measures against their members. This compulsory financing has seen considerable growth over the last few decades, which is surprising considering that strike payments should have declined with fewer and shorter labour disruptions in recent years. For example, in 1965, unionized public servants paid, on average, $14 each. This compares to $378 in 1992-a growth of 2600 percent. Between 1962 and 1992, the revenues of the headquarters of Canadian unions attributable to members' dues increased from $31 million to $943 million-an increase of 2943 percent. (These increases occurred in the same period in which the cost of living increased by only 400 percent.) More recently, union revenues originating from dues grew by 54 percent between 1986 and 1992 (while the cost of living escalated by only 28.1 percent). In 1992, union revenues coming from dues increased by 10.7 percent although total union membership went down 1 percent. (The Consumer Price Index during this period increased by only 1.5 percent.)

How are the hundreds of millions of dollars collected from Canadian workers spent every year? In 1992, close to $700 million, two-thirds (67 percent) of the total dues collected, went to pay the salaries of full-time union officials and for union administration fees. Only 4 percent went back to workers as strike benefits. The remaining 29 percent was spent on affiliation fees, organizing, and promotional material.

The Rand Formula and other political privileges guarantee unions revenue irrespective of their level of efficiency. While unions have been declining in popularity in Japan and the United States in the last few years, Canada still maintains a high unionization rate. From the late 1970s to the late 1980s, the percentage of unionized workers in Japan dropped from 33.2 percent to 28 percent. In the United States, the fall was even more dramatic, from 21.8 to 15.1 percent. In Canada, from 1982 to 1992 the percentage of workers who were union members was stable at 35 percent. In Quebec, the rate was 40.4 percent.

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In 1992, close to $700 million, two-thirds (67 percent) of the total dues collected, went to pay the salaries of full-time union officials and for union administration fees. Only 4 percent went back to workers as strike benefits. The remaining 29 percent was spent on affiliation fees, organizing, and promotional material.
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This "union tax," or compulsory dues, seems to contravene article 2d of the Canadian Charter of Rights and Freedoms and the second paragraph of article 20 of the Universal Declaration of Human Rights which affirms that "None can be obliged to be part of an association."

Workers forced to pay substantial sums annually to union bureaucracies consider their dues another tax. Union members are prisoners of special interest legislation from which escape often seems difficult, if not impossible. Rather than blaming banks and big business for economic shortcomings, union members might ask their union leaders to do some explaining.

Shadows of the Twilight Zone

By Didier Pomerleau, York University, Administration

May 13, 1996 is a special day for me; it's the day I stepped into the political twilight zone. I started the day living in a capitalist, liberal democracy but, by the eleven o'clock news, some inexplicable, spatio-temporal phenomenon pushed me into this parallel universe where Canada is a socialist, authoritarian technocracy.

On the news that evening, CTV National News featured a segment on the Canadian AIDS establishment's opposition to an HIV home-test. The test is sold in the United States for $90 and, through a saliva sample test, allows a person, in the privacy of his or her own home, to determine within seconds whether or not he or she is HIV positive. This is a simple and convenient alternative to visiting a hospital or clinic for free government testing that involves needles, blood extraction, and a two to three week wait for results.

It is illegal to distribute this HIV home-test in Canada; according to the CTV report, the ban even has the enthusiastic blessing of the AIDS establishment, represented by an alliance of Health Canada officials and AIDS activists. Health Canada claims that the reason for the ban is that since the government offers testing free, a private test is redundant. The AIDS activist interviewed opposed the private test because the U.S. manufacturer is motivated by profit (spoken reproachfully) and it is immoral to profit from a tragic disease.

Let's look into each claim more closely.

Health Canada has no problems with the test's reliability or safety. Its reason for the ban is that the home-test has the audacity to compete against a free government service. We seem to have gone from the liberal principle of having government services only where free markets "fail" to the principle of "allowing" free competition only in those realms in which the state is not interested in operating. It's a wonder that private schools and home pregnancy tests are still permitted, given that they are "redundant" in the face of free public schools and free government pregnancy tests...

Is a citizen's freedom to choose still cherished or have our civil "servants" become wardens of a population that has been progressively infantilized? Are we to be responsible decision makers or does the father-state know best? Haunting my mind are visions of a grey state-planning commission where bureaucrats toil away, wielding authority in the name of expertise. They, not the market, are the anointed guarantors of efficiency and rationality. Why have 50 frivolous brands of toothpaste when only one state-licensed and approved brand would do? Why have redundant radio channels when you have the CBC? Why allow what Canadians want when the state's sages can decide what Canadians need?

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Why have 50 frivolous brands of toothpaste when only one state- licensed and approved brand would do?
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Why are our political representatives, who have a superintending role towards our civil service, silent in the face of such cavalier attitudes? Whose interests do they ultimately serve?

As for the "p-word," why does the AIDS activist imply that profit-making is a sin? The private test's manufacturer does not profit from AIDS but from combatting it. How many scientists and entrepreneurs would create new drugs and new inventions that benefit us all if they did not have the promise of financial rewards in return for their ingenuity and hard work? Should a physician make less money than a clerk or other proletarian and "profit" solely through humanitarian/intrinsic rewards? Perhaps the activist was yearning for the medical nirvana found in profit-free socialist regimes, notorious for the accessibility and state-of-the-art quality of their health care systems...

It is time for Canadians to leave the twilight zone. Our fundamental liberties should not be outlawed simply because government mandarins or political activists think they have all the answers.

In the Name of Justice...

By Howard Markowitz, Osgoode Hall Law School, York University

"The contingency fee is as alive and well in Ontario as it ever would be with a formalized agreement," said Ken Howie, plaintiff's litigator and Law Society Bencher, at a timely seminar on current issues in personal injury law. Michael Royce, a McCarthy Tétrault partner representing the Canadian Medical Protective Association wrote that most plaintiffs' lawyers "undoubtedly make it clear to their clients from the outset that, if the action is successful, they will charge a fee which exceeds the amount their normal hourly rate would generate for the work they have done." Finally, Serge M. Lapalme, who chaired the Canadian Insurance Bureau's advisory committee, has speculated that 60 to 70 percent of personal injury cases in Toronto already use this type of contingency fee arrangement where the lawyer essentially finances the action until disposition.

With this much support for the legalization of contingency fees in Ontario, the provincial government must catch up to the realities of legal practice, as done by every other Canadian province, and amend the Solicitor's Act to permit contingency fee arrangements. Everyday survival as a rational being hinges on the freedom to choose right from wrong, good deals from bad-and the provincial government's baseless fears of a cheapened legal profession, frivolous claims, and increased unethical practices cannot justify the forced obliteration of a citizen's right to retain a lawyer through the payment method of his or her choice. If anything, a contingency fee option can only improve Ontario's inadequate legal system by promoting access to justice, enriching lawyer services, and adjusting to the technological realities of legal practice in the late 20th century.

First of all, access to justice is in a sorry state in 1996 Ontario; the costs of bringing an action to trial begin at 5 figures, and the number of available Legal Aid certificates was cut by 57 percent from 231,000 in 1993 to a mere 100,000 in 1996. A contingency fee option lets willing clients pay their legal bill by essentially borrowing from their lawyer until they receive compensation from the defendant. And by shifting the over $10 million financing burden of publicly-funded civil damage lawsuits onto consenting lawyers, Ontario could allocate more Legal Aid certificates to such crucial areas as criminal defence, immigration hearings, and family law.

While optional contingency fees guarantee maximum access to justice for Ontario's poor, the middle-class can also gain a heaping portion of fair-play with their newfound opportunity to launch costly litigation without "selling the farm" to pay their legal fees in advance. Under current payment restrictions, risk-averse individuals who cannot afford to initiate litigation under an hourly-fee contract are forced by government to either drop their claims or make do with insufficient settlements. In fact, many of Ontario's past cases have been so complex and doubtful that they never would have been launched without some fancy legal footwork to skirt around the longstanding ban on contingency fee rights. A case in point was the famous thalidomide baby litigation of the early 1960s, in which Ontario lawyers had to get jurisdiction to hold proceedings in the U.S. where contingency fees were allowed. True access to justice in Ontario for both the poor and middle-class will only be achieved by permitting the contingency fee option.

Secondly, contingency fees can enrich legal services in Ontario. Osgoode Hall's "Legal Profession" course confronts the public's lack of trust, which is responsible for so much of the low public image lawyers have in this province. (Lawyers rate second lowest, above only politicians themselves.) The contingency fee option counters this mistrust by reassuring sceptical clients that since lawyers own a piece of the action, they really work their hardest. Fixed fees for estates, trusts, and divorces put a premium on a lawyer's ability to serve clients efficiently and produce quality work, as opposed to just throwing "legal teams" of inexperienced students/associates at a project and then mass billing for the hours of each.

Furthermore, lawyers frequently earn their low public image by consistently miscalculating or lowballing the projected costs of legal actions, infuriating clients with a higher-than-expected number of zeros on the final bill. Contingency fees both empower clients and raise lawyers' public images as firms are forced to absorb their own faulty cost estimates. Once again however, this risk-shifting catalyst for enriched legal service will only be achieved when Ontario legalizes contingency fees.

Finally, the technology of modern legal practice demands a lawful option for lawyers to charge contingency fees. Six months ago, a young entrepreneurial lawyer from the University of Toronto told a group of York

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The contingency fee option counters the public's mistrust of lawyers by reassuring sceptical clients that since lawyers own a piece of the action, they really work their hardest.
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University students how he had invested nearly $10,000 in state-of-the-art computer equipment before opening his law office in February. With contingency fees, this energetic legal expert is rewarded for his efficiency because he can charge a client several hundred dollars for a successful standardized divorce claim or stock transfer agreement. Yet strict hourly billing won't officially earn him any more than $5, since it only takes him a minute to type his client's name onto his software template and print it out. Ontario's most efficient young lawyers are essentially punished for their high productivity, lightning-quick cranial functions, and mass technological investment, while a computer-illiterate dinosaur who takes four hours to recopy his legal drafting by hand hits the jackpot and earns up to $1200 for his sluggishness! Let's catch up to the realities of modern legal practice by granting the most competent young lawyers the freedom to charge contingency fees.

Ontario's government spends billions of taxpayer dollars in order to maintain access to justice in this age of fiscal restraint, so why not let willing lawyers diversify the province's risk of financing losing actions by taking on a portfolio of cases under a contingency fee basis? Instead of letting powerless clients worry over unpredictable hourly billings and discretionary expense-padding, shift the risk of lowball cost-estimates onto the lawyers through contingency fee payments. And finally, Ontario must catch up to other provinces, to 20th century legal technology, and to the long-time de facto existence of contingency fees among Ontario's top plaintiff lawyers. Free choice for Ontarians.... legalize contingency fees today!

The Government's Distorted Version of Robin Hood

by Jason Clemens, University of Windsor, M.B.A. Finance/Policy

In the classic fable Robin Hood, the hero "robs" wealth from the nobility in order to return it to the peasants from whom it was first stolen. The fable is commonly viewed as a moral story; Robin Hood stole property in order to provide the peasants with the means for their subsistence.

The Canada Pension Plan (CPP), the modern version of the Robin Hood fable, was established to provide a moderate level of income for retiring seniors who were facing a substantial decline in income levels when they were no longer working and collecting a paycheque. The plan was based on the notion of transferring a small amount of money from a large group of workers to a small group of retirees. However, deductions from working Canadians were not placed in personal funds in order to finance individual retirements, but rather transferred immediately to those persons already retired (called the "pay-as-you-go" system).

As it turns out, the plan was built on false assumptions. Canada, like most industrialized countries, has an aging population and a declining rate of disposable income growth. In 1966, when the plan was implemented, there were 5.5 persons under the age of 20 for each person over the age of 65. By 1995, this ratio had declined to 2.3, and is expected to further decrease to 1.1 by 2030 according to a report by the Canadian Institute of Actuaries. The change in demographics and the poor funding structure has resulted in a system where an ever-increasing level of current income is being transferred from a shrinking group with stagnant incomes to an expanding group of seniors.

The principal injustice associated with CPP is the inequitable transfer of wealth. David Walker, Chair of the House Committee on CPP reform, has stated his impression that there is a "preponderance of opinion . . . willing to accept an increase [in contribution rates]-if it truly fixes the CPP." This acceptance is in response to the rumoured policy of accelerating CPP contribution rates to 10 percent of earnings from the current 5.60 percent with no change in the benefit level. (In 1966, the contribution rate was up to 3.6 percent of the average industrial wage (AIW) with a commensurate benefit of up to 25 percent of the AIW.)

In order to illustrate the injustice and the size of the wealth transfer, consider the results of assuming the proposed contribution rate of 10 percent and a 4.5 percent growth in the AIW (based on standard actuarial assumptions). If an individual aged 25 works for 40 years and receives the average industrial wage, the difference between what the individual will receive in CPP benefits and what they could receive from a privately funded plan is staggering. By opting out of the CPP at age 25 and investing the funds privately, one would have a large surplus at age 80 that could be left to one's children. For instance, if the fund generated an average return of 6.5 percent, the resulting surplus would be approximately $1.3 million; at 10 percent it would generate a surplus of over $8 million. (These rates are not unrealistic since equity market returns have averaged anywhere between 10 and 18 percent depending on the particular market and time.) This surplus is after paying out the same benefit stream as the CPP from age 65 to age 80. This foregone surplus amounts to an intergenerational transfer because today's youth do not have the option of investing privately instead of contributing to the CPP.

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In 1966, when the CPP was implemented, there were 5.5 persons under the age of 20 for each person over the age of 65. By 1995, this ratio had declined to 2.3, and is expected to further decrease to 1.1 by 2030
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The youth of this country, regardless of political affiliation or ideology, must unite against the current system of retirement income support. The state must encourage individuals to save for their own retirements rather than continue on the path of inter-generational wealth transfers. A small deduction or allocation from general tax revenues could be established to finance a moderate income support for truly needy seniors. This type of means-tested system of retirement income would limit the inequitable transfer of wealth.

Beware of Historical Myths

by Eli Schuster, University of Toronto, Political Science and History

It would not be much of an exaggeration to suggest that the teaching of history can be a powerful and, at times, dangerous tool in the moulding of future opinions. I remember a high school history exam which printed three blank spaces after the question: "Who shot J.F.K.?" The "correct" way to fill in the blanks was: "mafia," "military-industrial complex," and "C.I.A."; "Lee Harvey Oswald" was incorrect.

Contemporary historians have often been successful in poisoning our impressions of certain time periods. Millions of Americans happily voted for the more-or-less free market ideas of Reagan and Bush, yet the 1980s are often denounced as a "Decade of Greed" in which everyone but the rich suffered.

Still, the myths surrounding that decade pale in comparison to the ones told about an earlier period: the Great Depression of the 1930s. The conventional wisdom about the Depression states that 1920s laissez-faire economics culminated in a catastrophic recession. When Herbert Hoover refused to inflate the U.S. economy, Franklin Roosevelt's Keynesian New Deal was "needed" to bring back prosperity. The Great Depression is always trotted out by the anti-free marketeers as proof of the instability of capitalism unguided by government intervention.

Like most historical myths, this one is mostly untrue. In his exceptional work Modern Times, historian Paul Johnson does much to finally dispel this fantasy. He argues that few differences existed between the policies of Hoover and Roosevelt. Both were interventionists and both enacted Keynesian policies; the only real difference was Hoover's greater reluctance to provide direct relief to people.

The American prosperity of the 1920s was based in large part on the unsound policies of protective tariffs and soft money; the economy declined when credit inflation diminished in 1928 and Hoover had the option of raising interest rates and allowing wages to fall to a natural level. Had he done this, the Depression would be about as memorable today as any of the brief business downturns of the nineteenth century. Instead, Hoover chose to maintain cheap credit and high wages (a move praised by Keynes himself) by adopting all sorts of anti-free market policies: government spending went up (its share of GNP rose from 16.4 percent in 1930 to 21.5 percent in 1931), bankruptcy laws were weakened, banks were forced to lend new federal credits, taxes were increased sharply (the 1932 Revenue Act was the biggest peacetime tax grab in U.S. history), and the 1930 Smoot-Hawley tariff did much to spread the Depression to the rest of the world.

How anyone could describe Herbert Hoover as a defender of free markets and capitalism is a mystery; equally mysterious is the claim by many historians that Roosevelt's New Deal was effective in fighting the Depression. Writes Johnson: "If interventionism worked, it took nine years and a world war to demonstrate the fact."

The historiography around the Great Depression can provide students of history with a valuable lesson: don't believe in myths, and always base your opinions upon the truth.

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Editor's Corner

Although the articles in this issue of the Canadian Student Review explore a variety of topics, they share a common theme: awareness of the degree to which anti-free market dogma circulates unchallenged in today's world.

How many people know that capitalism didn't cause the Great Depression?

How many people know that property rights don't cause pollution?

How many people know that unionization doesn't cause higher wages for everyone?

Misinformation of this sort is not the result of a conspiracy; nothing is being withheld from us. All of the information we need, all of the truths we want, are available to us. All that is required of us is a scrupulous commitment to education and observation with respect to our society and what has made it possible.

Knowledge of historical and economic truths and understanding why and how our society functions will enable us to continue building on what we have. In order to build, however, we must first clear away the barriers that exist. These barriers are all of the myths that are accepted uncritically and repeated unthinkingly.

When you hear people speak of the limitations of free markets or the capitalist system, ask questions. Verify the information they give you. Think about it. Study your history. Look at the world around you. If, after all that, you come up with a better answer than the information given to you, argue the point.

This issue's authors were offered, for inspiration, a quotation by Henry Hazlitt on the importance of fighting myth and misinformation. The quotation reads:

It is capitalism that has made possible the enormous advances not only in providing the necessities and amenities of life, but in science, technology, and knowledge of all kinds upon which civilization rests. All those who understand this have the duty to explain and defend the system. And to do so, if necessary, over and over again. . . . The opportunity is as great as the challenge.

The response I received, as this issue amply demonstrates, was magnificent. I hope the articles also encourage you to seize every opportunity to promote free minds and free markets.

-Tracey Nicholls, Editor Douglas College Philosophy

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Last Modified: Wednesday, October 20, 1999.