Is the Public Served by the Public Interest Standard; A. Thierer

has come to mean whatever is in the interest Mr. Thierer is the Alex C. Walker Fellow in Economic Policy at The Heritage Foundation. of regulators to do at a given time.2 Hence, the "public interest" or "public trustee" model of regulation that sprang up 70 years ago gave regulators the ability to exert unusual influence and require special de mands be fulfilled, especially as a condition of broadcast spectrum license renewal.3 In effect, therefore, the standard is a non standard: it has no fixed meaning. Over time, FCC actions taken "in the public interest" have had less than desirable results. Consider: • To supposedly serve the "the public interest," the FCC instituted in 1949 the inappropriately named' 'fairness doctrine. " The doctrine required radio and television broadcasters to "afford reasonable oppor tunity for the discussion of conflictingviews of public importance.,,4 Instead of pro moting the discussion of conflicting views and free speech in general, the fairness doctrine stifled it. In fact, over the span of its 40-year existence the doctrine was used as a tool of blatant political intimidation and influence by threatening license revo cation for failure to comply with the politi cal whims of the day.5 The Reagan admin istration FCC wisely repealed the doctrine in 1987, citing First Amendment concerns and the fact that program diversity (infor mational, educational, religious, and enter tainment fare) had increased steadily over time.

• To promote "the public interest" in the 618 early 1960s, the FCC restricted the devel opment of cable television at the request of broadcasters who felt their turf was be ing threatened. As telecommunications scholars Michael K. Kellogg, John Thorne, and Peter W. Huber note, "For many years the FCC's principal objective was to suppress the cable industry by preventing direct competition between cable, and overthe-air broadcasting. It did so quite successfully. . . .,,6 Essentially, the com mission did not allow the entrepreneurial cable industry to offer innovative service options to consumers since it posed a threat to the survival of some local broadcasters. This regulatory setback delayed the onset of video competition for over a decade.7 Despite no clear justification of how this served "the public interest," the FCC car ried these anti-competitive policies, even though no explicit grant of Congressional authority had been given to do SO. 8 • More recently, the FCC has attempted to serve "the public interest" by using the Children's Television Act of 1990 as a tool of blatant regulatory extortion. The FCC went beyond the statutory language of the act and used the law to demand a specific, quantitative minimum number of hours of children's programming9 in exchange for other business freedoms. For example, after CBS and Westinghouse announced their intention to merge, FCC regulators (who have the power to block such alliances) forced the companies to promise that certain quantitative programming requirements would be honored as a condition of merger approval. Several other firms have faced similar threats from the FCC as a condition of normal business operation.

Fewer Choices, Less Freedom of Speech Two things should be obvious from these examples of the public interest standard in action. First, the public interest or public trustee model of regulation often does not serve the public in any constructive way. Industry competition and innovation is of ten discouraged because of the standard, 619 Nobel Laureate Ronald Coase of the University of Chicago. In his 1959 article, "The Federal Communications Commission," Professor Coase commented that the phrase "in the public interest" "lacks any definite meaning." meaning the public has fewer and poorer quality choices available to them. Secondly, the public interest standard makes a mockery out of the First Amend ment, especially in the realm of electronic wireless communication. Ever since the adoption of the Radio Act of 1927,Congress and the FCC have bought into the mistaken notion that the supposed scarcity of spec trum, or potential interference within the spectrum, justifies asymmetrical First Amendment treatment of electronic com munications providers.

As Thomas G. Krattenmaker and Lucas A. Powe, authors of Regulating Broadcast Programming argue, "[B]y adopting public ownership of the spectrum and adminis trative control over its uses, Congress chose a legal regime for broadcasting that differs 620 THE FREEMAN • SEPTEMBER 1996 radically from the law that governs every other mass communications medium in the United States. Congress thus put its imprimatur on the twin myths that scarcity and interference are phenomenon unique to broadcasting and that scarcity and inter ference necessitate administrative control of the quality of broadcasts. ,,10 Ironically, regulation itself created artifi cial scarcity and interference within the spectrum. Because the government en forced an extremely inefficientlicensing pol icy in the early days of spectrum manage ment and then rejected the imposition of a more orderly property-rights regime to gov ern the spectrum, scarcity and interference resulted. Instead of solving the problem by instituting property rights and private own ership, which solved the problems of land scarcity and trespass centuries ago, Con gress and the FCC instead opted for an inefficient system of public management with "the public interest standard" as its guiding star.

The rest, as they say, is history. But it is a history we should not and cannot forget since we are still living with its adverse consequences. The FCC still uses the public interest standard to restrict beneficial in dustry advances that, in turn, deny new services to the public. It also inhibits the free flow of information and free speech in general. How, then, can "the public interest" be truly served? By encouraging vigorous mar ket competitionand by rejecting mis guided social compacts and vague regula tory standards flowing from Washington. o 1. Ronald H. Coase, "The Federal Communications Com mission," The Journal ofLaw and Economics, Vol. 2 (October 1959), pp. 8-9. 2. See, WilliamT. Mayton, "The Illegitimacyofthe Public Interest Standard at the FCC," 38 Emory Law Journal 715 (l989),pp. 715-769;Mark S. FowlerandDanielL. Brenner, "A Marketplace Approach to Broadcast Deregulation," Texas Law Review, Vol. 60 (l 1982-1983),pp. 207-257; Thomas G.

Krattenmaker and Lucas A. Powe, Regulating Broadcast Programming (London: The MIT Press.. 1994), pp. 173-174; Adam D. Thierer, "A Report Card on the Pressler Telecom munications Plan (S.652)," Heritage Foundation Issue Bulletin No. 209, May 5, 1995, pp. 14-15. 3. This does not mean, however, that broadcasters put up a serious fight to end the public trustee paradigm. On one hand they speak of its importance to ensure that viable competitors are kept out of their market, while on the other, they cite its intrusiveness as an excuse to produce mediocre programming. As Henry Geller, fellow at the Markle Foundation notes, "A broadcaster loves to be considered a public interest figure. Broadcasters generally want the economic benefits of being a public fiduciary without having to meet the burden of adhering to public interest content regulation." See Henry Geller, "Broadcasting and the Public Trustee Notion: A Failed Prom ise," Harvard Journal ofLaw and Public Policy, Vol. 10, No.

1 (Winter 1987), p. 90. 4. FCC Report, Editorializing by Broadcast Licensees, 13 F.C.C. 1246, (1949). 5. For more information see Adam D. Thierer, "Why the Fairness Doctrine is Anything But Fair," Heritage Foundation Executive Memorandum No. 368, October 29, 1993;E. Brandt Gustavson, "The Fairness Doctrine: Once and Future Threat to Speech, Religion," in Speaking Freely: The Public Interest in Unfettered Speech (Washington, D.C.: The Media Institute, 1995), pp. 87-106; "The Hush Rush Law," the Wall Street Journal, September 1, 1993, p. A14; John Corry, "Fairness Most Foul," The American Spectator, November 1993, pp. 50-51; Thomas W. Hazlett, "The Fairness Doctrine and the First Amendment," The Public Interest, Summer 1989, pp. 103-116; Jonathan W. Emord, "Toward a Free Broadcast Press," Freedom Technology, and the First Amendment (San Francisco: Pacific Research Institute, 1991), pp.. 233-248; Krattenmaker and Powe, "The Fairness Doctrine," in op.cit., pp. 237-275; Ford Rowan, Broadcast Fairness: Doctrine, Practice, Prospects (New York: Longman, 1984).

6. Michael K. Kellogg,John Thome, and Peter W. Huber, Federal Telecommunications Law (Boston: Little, Brown, 1992), p. 689. 7. See Jonathan W. Emord, Freedom, Technology, and the First Amendment (San Francisco: Pacific Research Insti tute for Public Policy, 1991), pp. 252-254. 8. See Thomas W. Hazlett, "Station/Brakes: The Gov ernment's Campaign Against Cable Television," Reason, Feb ruary 1995,pp. 41-47. Hazlett notes that when cable television (or "CATV" as it was known then) was developing between 1950 and 1972, "Cable television was then officiallyjudged a menace to society, and the [FCC] had launched a regulatory jihad against it. Like all holy wars, this offensive was under taken in the 'public interest.' " Hazlett dramatically illustrates the FCC's protectionist policies in action by quoting from a 1966 Commission report on cable. The Commission stated: "We must thoroughly examine the question of CATV entry into the major markets, and authorize such entry only upon a hearing record giving reasonable assurance that the conse quences of such entry will not thwart the achievement of Congressional goals. We cannot sit back and let CATV move signals about as it wishes."

9. For more information see Adam D. Thierer, "Who Will Mind the Children? The Regulation of Children's Programming in the Information Age," in Speaking Freely: The Public Interest in Unfettered Speech (Washington, D.C.: The Media Institute, 1995), pp. 47-66. 10. Krattenmaker and Powe, op.cit., p. 18 [emphasisadded].

The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail: freeman@westnet.com September 1996 Growing Income Disparity N o matter how you may gather the data, the gap between the most affluent Americans and everyone else is widening. According to a Census Bureau report, the share of national income going to the top 20 percent of households increased from 40.5 percent to 46.9 percent between 1968 and 1994. Since 1994 the trend has even accelerated. At the present rate of growth, the top 20 percent of households may soon earn more than one-half of national income. Most legislators and regulators are puz zled and alarmed by this widening income disparity. It's the very opposite of what they hoped to achieve. They spent trillions of dollars since President Franklin Delano Roosevelt found "one-third of a nation ill housed, ill-clad, and ill-nourished" and President Lyndon B. Johnson declared "war on poverty." President Bill Clinton discovered that "the rich are not paying their fair share," which in 1993 led to stiff tax increases for upper-income Americans.

Yet, the gap continues to widen. It is ironic that the spenders create the very pressures that cause interest rates to rise and capital income to soar. They incur huge budgetary deficits which crowd out business investments, consume capital, and raise interest rates. Simultaneously, they cause wage rates to stagnate or even fall. After all, it is the amount of capital invested that determines productivity and wage rates; to consume capital is to destroy jobs and depress wage rates. The U.S. government is consuming capital en masse, which makes it a driving force for the growing inequality. The United States enjoys a great stock of productive capital created in the past. But it is one of the worst cases of current sav ing in the industrial world. U.S. net sav ings, which are the sum of personal sav ings and retained business earnings minus total public-sector deficits, amount to less than two percent of gross domestic prod uct. This compares with some seven per cent until the late 1970s when the federal deficits were relatively small.

Consequently, interest rates have risen steadily as has capital income. Thirty-year treasury bonds now yield more than seven percent, mortgages and mortgage-backed securities more than eight percent. The Federal Reserve System is adding its weight to the disparity. For several years it conducted easy money policies that pushed stock and bond prices to dizzying heights and created a financial bubble, perhaps the biggest ever. While real hourly wages have fallen since the mid-1970s and many high-paying jobs in manufacturing have disappeared, stock market investors have reaped extraordi nary profits. The lion's share of these prof its obviously went to the top 20 percent of households. As long as the bubble lasts they are likely to enjoy the disparity. The rising burden of corporate taxation and regulation has the same effect. It makes it rather difficult to build plants and factories, stores and warehouses, office buildings and other structures. It forces corporations to embark upon a course of downsizing which consists primarily of labor shedding, asset shuffling, and merg ers. It depresses wage rates while it pro vides profit bonanzas. Moreover, when government makes expansion well-nigh impossible business may struggle to remain profitable by computerizing opera tions and releasing unneeded labor. The phenomenal advances of computer-assist ed technology using much high-skilled and highly educated labor have con tributed to the income disparity.

A demographic change, finally, may have contributed its share to the growing inequality in household incomes. As labor incomes decline many wives and mothers feel compelled to enter the labor market and supplement the family income. Many are well-educated and highly-skilled. Being married to well-educated profes sional men, they form households with very high incomes. They have increased the income gap between affluent Americans and all others. No matter how we may look at the growing disparity of incomes, it confirms a well-known economic principle: political intervention in economic life is bound to make matters worse. It usually brings about the very opposite of what the legislators and regulators had in mind. In order to attain greater economic and social equality they burden the more affluent members of society. But the extractions consume productive capital, which reduces labor productivity and wage rates while it raises interest rates and the returns on capital owned by the rich. Both effects increase the inequality.

Any policy that seeks to deny or defy human nature is bound to disappoint. Designed to reduce or even eradicate eco nomic equality, it must come to grief at the vast differences in human nature. Some individuals are highly productive, render ing extraordinary services to their fellow men as scientists, inventors, poets, com posers, entertainers, athletes, and entrepre neurs; others may be unable or unwilling to render valuable services. In economic terms, some have milliondollar productiv ity, others have little or none at all. In a competitive economic system, they all tend to earn incomes directly proportionate to the value of their services. Government may forcibly interfere with this process through tax-and-spend "redistribution," but human nature tends to adjust to the force. Making its appearance in the laws and principles of the market, it enlarges the income disparity in order to restore the natural inequality. In recent years, the growing disparity has become another example of the supremacy of economic principle over political force.

L4 Hans F. Sennholz NEW FROM FEE! The Social Security Fraud BY ABRAHAM ELLIS with a new introduction by Hans F. Sennholz liTheentirestory. .. told truthfully and in detail. ... " -Human Events P olls show that more young Americans believe in UFOs than believe that they will receive Social Security benefits. Even the generous estimates of the government's own statisticians indi cate that by the year 2030 the Trust Fund will be bankrupt. Attorney Abraham Ellis brilliantly dissects the inherent problems surrounding America's present Social Security system and offers a promising alter native of privatization. However, Ellis does more than just tackle the Social Security dilemma. He discusses the ramifications of the "something-for-nothing philoso phy" that afflicts modern America. According to the ManchesterUnion Leader, The Social Security Fraud "should give every American pause as it strips the Welfare State bare."

This new edition contains a new introduction by FEE president Hans F. Sennholz. It has a new index, as well as a new afterword bOy the author, in which he examines the advantages of privatization of the system. Published by The Foundation for Economic Education, Inc. 30 South Broadway, Irvington-on-Hudson, NY 10533 ISBN 1-57246-053-9 • 208 pages • paperback $14.95 Available in bookstores nationally, or call (800) 452-3518 Lighting Freedom's Path A documentary of the Foundation, its great mission, and the giants who gave it substance and direction: Leonard E. Read, Henry Hazlitt, and Ludwig von Mises. Their successors explain the mis sion and their efforts to pursue the ideals of individual freedom, free markets, and limited government. Videotape, 7 min. $9.95 Golden Jubilee Keynote Address M argaret Thatcher, the greatest statesman of our time who, "with stubborn female determination and obstinacy," turned back the fron tiers of socialism. The world has fol lowed in her footsteps ever since. Her keynote address is one of her best on the attractions of socialism and the ways of freedom through deregula tion, privatization, and labor union reform. If you missed her memorable speech at our Jubilee on April 11, 1996, or if you would like to see and hear her again, here is your opportunity.

Videotape, 40 min. $12.95 Postageand handling: Please add $3 per order of $25 or less; $4 per order of $26-$50;$5 per order of more than $50. Send your order, with accompanying check or money order, to FEE, 30 South Broadway, Irvington-on-Hudson, New York 10533. Visa and MasterCard telephone and fax orders are welcomed: (800) 452-3518;fax (914) 591-8910.