Cato Institute: Annual Report 2005

8/14/2019 Cato Institute: Annual Report 2005

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owes its name to Catos Letters, a series of essays published in 18th

century Great Britain that presented a vision of a society free from the

tyranny of excessive government power. Those same ideals inspired the

architects of the American Revolution and continue to inspire the

work of the Cato Institute today. The Cato Institutes core mission is

to advocate policies that preserve and expand individual sovereigntywhile decreasing the power of government to interfere with the lives

and activities of peaceful individuals.

Today many American political leaders, elected to be good stewards

of public monies and protectors of freedom, instead have endangered

the very essence of America with policies that destroy liberty, stifle the

economy, and waste billions of dollars.

Catos work to restore the vision of our nations founders is more

important than ever.

Americas founding generation created a new kind of nation, based

on individual sovereignty, limited government, free commerce, and

peace. In 2005 Cato continued to be a critical voice in the struggle to

protect and advance these values, putting forward timely and practical

policy proposals centered on our nations first principles.

The Cato Institute


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The Cato Institute enjoyed un-precedented financial success in 2005.With revenues in excess of $22 million,the Institute was able to erase the diffi-culties we and so many nonprofits hadexperienced in the wake of September11, 2001. A special $1 million gift toour Project on Global EconomicLiberty under the direction of Ian

Vasquez will allow us to expand thateffort, which now includes websites inSpanish, Russian, and Arabic. Each ofthose sites has its own webmaster, isupdated daily, and affords readers awide array of classical liberal, free-market thinkers. Arab speakers, in par-ticular, are able to read for the firsttime classic writings from such giantsof freedom as John Locke, Thomas

Jefferson, F. A. Hayek, Ludwig von

Mises, Milton Friedman, and manyothers. The conflict in the Middle Eastwill ultimately be resolved with en-lightened discourse, not bullets.

Were proud of our colleague TomPalmer, who has been a driving forcebehind the Arabic and Russian web-sites, along with Vasquez, who overseesthe popular Spanish site, elcato.org.Palmer visited Baghdad twice and hasbeen to several countries in the MiddleEast, South Asia, and Eastern Europeto promote liberty and work with like-minded scholars and activists. Vasquezand Palmer work closely with our long-time Russian friend Andrei Illarionov,former top economic adviser to Presi-dent Vladimir Putin. Illarionov quit his

job at the Kremlin in protest of its poli-cies of curtailing both economic andpolitical liberties.

The Cato Institutes internationalreputation has never been greater. We

hope to create a Center for Global

Liberty sometime in 2006. Of course,bullets and weapons are still part of thefight against Islamic extremism, butso, too, is a thoughtful foreign policythat recognizes the limits, not to saycounterproductivity, of an overly ag-gressive military posture around theworld. Hopefully, the influence of neo-conservatives in the foreign policyworld has waned in the wake of itsfailed predictions concerning militaryintervention in Iraq. The growingreputation of Catos foreign policyscholarsTed Galen Carpenter, ChrisPreble, and most recently, JustinLoganwill help light the way to amore peaceful international regime, onein which America is held in the highesteem it deserves.

One concern we share is the grow-

ing assault on free trade. The Demo-cratic Party, once a bastion of free trade,appears ready to capitulate to organ-ized labors demand that Americanconsumers be denied inexpensive prod-ucts from abroad. At a time of growinginternational tensions, protectionism isprecisely the wrong approach. Underthe guise of national security, some inCongress appear prepared to use the12-agency Committee on Foreign In-

vestments in the United States to blockforeign investment. This is a dangerousdevelopment. Dan Griswold, directorof Catos Center for Trade PolicyStudies, and his colleague Dan Ikensonare leading the battle to protect freetrade. Vice President Brink Lindsey hasa book coming out in 2006 that willhelp move the debate in the right direc-tion, as well.

On more positive notes, DanGriswolds study of immigration poli-

cy has been the basis for the adminis-

trations enlightened approach in thatarea. The idea of marginalizing 11 mil-lion immigrants (in the manner ofMuslims in France), much less crimi-nalizing them, is exceedingly shortsighted. We need to provide them withtemporary worker status and an even-tual road to citizenship. Only then willwe be in a position to secure our bor-ders and assimilate our immigrants. Inthe health policy field, we are pleasedwith the increasing recognition thatthird-party payers are a major sourceof escalating medical care costs anddeteriorating service. The concept ofHealth Savings Accounts, first pro-moted in a Cato book, is the solution,and were pleased that the administra-tion is moving forward with efforts toexpand the current system of HSAs.

Healthy Competition, by Catos healthpolicy experts Michael Cannon andMichael Tanner, was well receivedin 2005.

We have always believed in Lord Actons dictum that Power tends tocorrupt, and absolute power corruptsabsolutely. That is particularly true inthe kind of philosophical vacuum thatCato senior fellow and Nobel laureate

James Buchanan has warned of.Absent the principles of individual lib-erty to guide policymakers, powerbecomes an end unto itself, and cor-ruption inevitably will follow. Fromthe pathetic case of Rep. DukeCunningham, to the scandalized GOPin Ohio, to the bipartisan scandals inCongress related to the Jack Abramoffaffair, corruption in politics appearsendemic. America deserves much bet-ter, particularly with the enormousproblems facing our great nation.

The failure of Congress to reform

from the President and the Chairman

C A T O I N S T I T U T E 2 0 0 5 A N N U A L R E P O R T


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the bankrupt and demeaning SocialSecurity system and the utterly irre-sponsible addition of prescriptiondrug benefits to a hopelessly unfund-ed Medicare program are remarkableexamples of politicians being moreconcerned about reelection than doingwhat is right for this country.Something must be done about the

vast incumbent protection systemfrom campaign finance laws to cooper-ative gerrymanderingto shake up

Americas political system.We were pleased to receive a major

grant from Gordon and Helen Smithto support an expanded senior fellowand visiting fellow program at Cato.We also made two significant addi-tions to our staff: Andrew Coulson,director of our Center for Educational

Freedom, and Bob Garber, director ofmarketing. Coulson is widely regardedas one of the leading advocatesof freeing the educational system frompolitics and unions, and Garber wasfor the past six years in charge ofmarketing and public information forWashingtons Holocaust MemorialMuseum. We welcome them both.

Finally, we are pleased to havelaunched Cato Unbound under theeditorship of Brink Lindsey and man-aging editor Will Wilkinson. CatoUnbound is a state-of-the-art virtualtrading floor in the intellectual mar-ketplace. It reflects our increasingcommitment to using the Internet inthe public policy arena.

As always, we express our gratitudeto our dedicated colleagues and ourloyal Sponsors who share Catos com-mitment to liberty.

William A. NiskanenChairman

Edward H. CranePresident and CEO


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Contents


CATO

INSTITUTE

2005 ANNUALRE PO RT

PAGE 6ADVANCING

FIRST

PRINCIPLES

PAGE 10PROTECTING

CONSTITUTIONAL

LIBERTIES

PAGE 14REFORMING

THE POLITICAL

PROCESS

PAGE 18ROLLING

BACK THE

ENTITLEMENT

STATE


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5C A T O I N S T I T U T E W W W . C A T O . O R G

PAGE 22DEFENDING

AMERICA,

PROMOTING

WORLD PEACE

PAGE 26FREEING

THE WORLD

ECONOMY

PAGE 32TAKING ON BIG

GOVERNMENT

CONSERVATIVES

PAGE 36

EXPANDING

LIBERTYS

MESSAGE

PAGE 38

EVENTS

PAGE 40

PUBLICATIONS

PAGE 42

CATO STAFF

PAGE 44FELLOWS

AND ADJUNCT

SCHOLARS

PAGE 46

FINANCES

PAGE 47

INSTITUTIONAL

SUPPORT

PAGE 48

CATO CLUB 200

INSIDE BACK

COVER

BOARD OF

DIRECTORS


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We hold theseTruths to beself-evident, thatall Men are created

equal, that theyare endowedby their Creatorwith certainunalienable Rights,that among theseare Life, Liberty,

and the Pursuit ofHappinessThat tosecure these Rights,Governments areinstituted amongMen, deriving their

just Powers from

the Consent ofthe Governed.

DECLARATION OFINDEPENDENCE

ADVANCING

FIRST

PRINCIPLES


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Founders were inspired by the principles ofindividual liberty, free enterprise, and ahealthy skepticism of government power.They created a Constitution of enumeratedpowers designed to leave most decisions inthe hands of individuals and their local rep-resentatives. The federal government waslimited to those few powers necessary toprotect the basic rights of the people andunite the new nation.

Today, Americans have forgotten manyof those core principles. The federal govern-ment is involved in every area of Americanlife, and every social problem provokes apublic cry for more government involve-ment. At the Cato Institute, scholars workto show that government intervention is

not only ineffective and inefficient but thatunwarranted government power poses athreat to the cherished rights of life, liberty,and property.

Throughout the year, Cato hosts semi-nars and forums to increase awareness of

Americas rich history and to bring the ideasof liberty to the public. Catos central educa-tional program is Cato University, directedby senior fellow Tom G. Palmer. Cato

University consists of a home-study coursea series of audio recordings and readingsdesigned to provide an introduction to liber-tarian ideasand annual seminars aroundthe country.

Cato hosted three Cato University semi-nars in 2005. In April Rep. Edward Royce (R-CA), Duke University economist MichaelMunger, and other faculty taught AppliedEconomics: User Friendly Tools to

Understand Politics, Business Enterprise,

and Life. In June Anne Applebaum of theWashington Post,Jeffrey Hummel of San JosState University, Steve Davies of ManchesterMetropolitan University, and others taughtThe History and Philosophy of Liberty andPower. And in October, at The Art ofPersuasion: Skills for Everyone, Reasonmagazines Nick Gillespie, the National

Reviews Deroy Murdock, and several Catoscholars gave participants tools for convinc-ing friends, strangers, and politicians of the

value of liberty.Senior fellow and director of Cato

University, Tom Palmer is one of Catosmost active ambassadors of liberty. In 2005,he lectured and debated at Yale University,Duke University, Georgetown University,

and other colleges, educating students onglobalization, free trade, and the history ofliberty. He gave a public lecture in Moscowon the origins of European liberalism, spon-sored by Catos Russian language website,Cato.ru, and traveled to Iraq twice to addressgroups of Iraqi citizens and governmentofficials about how to foster a culture offreedom in their new democracy. Palmer dis-cussed the role of property rights in free

markets and the disastrous consequences ofprice controls with reporters from Voice of

Kurdistan and other Iraqi media.Cato legal scholars Roger Pilon, Mark

Moller, Timothy Lynch, and Robert A. Levyare respected lecturers at the nations toplaw schools. Pilon spoke about constitution-al law, the judicial nomination process, reli-gious liberty, and property rights atHarvards Kennedy School of Government,

the Aspen Institute, and law schools at

7

Americas

At Cato University, participants

heard speeches on liberty

from Deroy Murdockof

the National Review, Pulitzer

Prize-winning authorAnne

Applebaum, and Cato schol-

ars including David Boaz,

Ed Crane, Dan Griswold,

andTom Palmer.

C A T O I N S T I T U T E W W W . C A T O . O R G

,


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Columbia, NYU, and elsewhere. Levydebated terrorism and civil libertiesat Harvard Law School and discussedgun rights litigation and federalismin other appearances. Cato scholarscontinue to help ensure that law stu-dents receive a Madisonian perspec-tive to provide balance to their lawschool educations.

After more than a decade withouta Supreme Court vacancy, the nationsaw three nominations to fill theseats opened by Justice OConnorsretirement in July and the death of

Chief Justice Rehnquist in Septem-ber. Catos legal experts weighed inon the nominees in appearances onPBS, MSNBC, Court TV, and CNN.In the Wall Street Journal, Cato seniorfellow Randy E. Barnett characterizedthe nomination of Harriet Miers tothe Court as cronyism, and Catosdirector of constitutional studiesRoger Pilon told the Washington Post,

I know of nothing in Harriet Mierssbackground that would qualify herfor an appointment to the SupremeCourt. At a December Hill Briefing,What to Look for in the AlitoHearings, Pilon cautioned that thenominee might be too deferential toexecutive power.

Roger Pilon testified before a sub-committee of the Senate Committee

on Homeland Security and Govern-ment Affairs in October about theabuse of federal power: Search theConstitution as you will, you willfind no authority for Congress toappropriate and spend federal fundson agriculture, disaster relief, retire-ment programs, housing, healthcare, day care, the arts, public broad-castingthe list is endless. Pilons

opinions on the Constitution andthe judicial nomination process wereread by millions this year in the WallStreet Journal, Legal Times, and theNewYork Post.

Since its inception, the CatoInstitute has made a concerted effortto train and educate promisingyoung scholars and professionals inthe ideas of liberty. Cato sponsorsmore than 60 interns each year whoreceive hands-on training in research,advocacy, fundraising, and outreach.Cato interns have gone on to full-

time jobs at prominent nonprofitorganizations and on Capitol Hill,and others continue to lead libertari-an organizations at colleges and uni-

versities across the country. InNovember, Catos intern debate teambeat interns from the HeritageFoundation and other public policyorganizations in the Young Profes-sionals Speak debate competition.

Catos government relations staffleads a series of seminars each sum-mer for Capitol Hill interns, combin-ing documentary films with lecturesby Cato scholars to introduce futureHill staffers to the ideas of liberty.Cato also provides complimentarycopies of Cato Audio, Cato Handbookon Policy, and other publications tocongressional offices in an effort to

bring the principles of liberty to thehalls of Congress.Catos international team has

made great strides in disseminatingthe key documents of classical liberalthought to the non-English-speakingworld.Libertarianism: A Primer,execu-tive vice president David Boazs 1997book, has been translated into sevenforeign languages, including Rus-

ACLU President Nadine Strossen

addresses the importance of freedom

of religion during the B. Kenneth Simon

lecture at Catos Constitution Day

conference. Deroy Murdocktells a

Cato University audience how to use

The Art of Persuasion. Nick Gillespie

ofReasonextols the virtues of choice

at a Cato University seminar.

A D V A N C I N G F I R S T P R I N C I P L E S



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sian, Japanese, and Czech. Arabic,Spanish, and Chinese translationsare under way.

ElCato.org, Catos Spanish lan-guage website, continues to garnermore than 65,000 hits each monthfrom journalists, academics, and layreaders in Latin America and Europe.Its Spanish translations of Cato stud-ies and special features by Latin

American contributors were citedmore than 500 times in the Spanishlanguage media in 2005.

Cato launched two other foreign

language websites in 2005. In August,Cato.ru began offering Russian lan-guage translations of the works ofFriedrich Hayek and other timelessdocuments of freedom. Catos Arabicwebsite (www.lampofliberty.org) waslaunched in October as an initiativeof Catos Jack Byrne Project onMiddle East Liberty. The website hasmade the works of Adam Smith,

Frederic Bastiat, John StuartMill, Hayek, and many others avail-able in Arabic for the first time.

Advertisements on Middle Eastern newssites are actively promoting Catos

Arabic website. The Byrne Projectwill also provide Arabic and Kurdishtranslations of books by FredericBastiat and Hayek to Iraqi libraries.

Catos web presence was expanded

in 2005 with the December launchofCato Unbound (www.cato-unbound.org), a new web magazine featuringmonthly debates on important in-tellectual issues. In the first issue,The Living Constitution: Amend-ments for the 21st Century, NobelLaureate James M. Buchanan proposedamending the U.S. Constitution tolimit government spending, prevent

discriminatory lawmaking, and pro-tect the right of voluntary exchange.

Akhil Reed Amar, a law professorat Yale and author of AmericasConstitution: A Biography; Judge AlexKozinski of the U.S. Court of Appealsfor the Ninth Circuit; and Cato Insti-tute chairman William A. Niskanenoffered their commentary. Futureissues of Cato Unbound will tacklesuch questions as Is Old EuropeDoomed? and Can There Be aLiberal/Libertarian Alliance?

For limited government to suc-

ceed, the public must understand theprinciples on which it is based. TheCato Institute continues to educatestudents, government officials, thelegal community, and the generalpublic about the dangers of en-croachments on freedom and theadvantages that liberty can bring toall people.

We have allowed[the powers of the

federal government]to expand beyondall moral and legalboundsat the priceof our liberty andour well-being. Thetime has come toreturn those powers

to their properbounds, to reclaimour liberty, andto enjoy the fruitsthat follow.

ROGERPILONSTESTIMONY BEFORE THE

SENATE COMMITTEE ON

HOMELAND SECURITY ANDGOVERNMENT AFFAIRS,OCTOBER25, 2005

Senior fellowTom G. Palmerdiscusses

effective public speaking in a Cato

University talk titled From Pericles to

the Digital Age: Why Liberty Rests on

Persuasion. Roger Pilon, vice president

for legal affairs, testifies before Congress

on the constitutional limits of government.

A D V A N C I N G F I R S T P R I N C I P L E S



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We the People ofthe United States,in order to form amore perfect Union,

establish Justice,insure domesticTranquility, providefor the commondefence, promotethe general Welfare,and secure the

Blessings of Libertyto ourselves andour Posterity, doordain and establishthis Constitutionfor the United Statesof America.

CONSTITITION OFTHE UNITED STATESOF AMERICA

PROTECTING

CONSTITUTIONAL

LIBERTIES


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The 2004-2005 Cato Supreme

Court Reviewfeatures articles

by leading constitutional scholars

on the Madisonian legal tradition

and analysis of recent Supreme

Court cases. Distinguished

contributors, including Richard

A. Epstein, James W. Ely Jr.,

and Marci Hamilton discuss

private property rights, the First

Amendment, international judi-

cial precedents, and the rights

of criminal defendants.

gives the government certain powers to helpachieve important national priorities, suchas protecting citizens from harm and stimu-lating economic growth. However, the U.S.government sometimes oversteps its boundsin pursuit of those goals, violating the con-stitutional protections of some of our mostbasic rights. Cato scholars have pointed outrepeatedly over the years that individualrights are paramount in the Constitutionand must be respected in the nations laws.

In 2005 the Supreme Court handeddown several decisions in key civil libertiescases. In February, Cato filed an amicus briefin the case of Kelo v. City of New London inwhich private homeowners were attemptingto stop the city of New London from using

eminent domain to condemn their homesand transfer titles to a private developmentcorporation. In a Policy Analysis titledRobin Hood in Reverse: The Case againstTaking Private Property for EconomicDevelopment, George Mason Universitylaw professor Ilya Somin wrote, Such tak-ings are usually the product of collusionbetween large and powerful interests andgovernment officials against comparatively

powerless local residents. Somin demon-strated how the harms of such takings toindividuals and the institution of propertyrights far outweigh any economic benefitsthey promise.

When the Supreme Court ruled in Junethat the government could seize privateproperty and transfer it to other privatepartiesnot for public use, as theConstitution requires, but simply for a pub-

lic benefitthe backlash was immediate.

Americans were incensed that their propertycould be taken from them, and liberals andconservatives alike lined up to denounce thedecision. Cato constitutional scholars RogerPilon and Mark Moller appeared on radioand television, explaining the implicationsof the decision and urging lawmakers tolimit the eminent domain power to its con-stitutional bounds. Pilon testified beforea House committee, demonstrating that

Kelo was a misreading of the Constitutionbut adding that Congress could end manyof the abuses of eminent domain simply byending the government-funded projectsthat lead to the abuses. Federal and state leg-islation is now in play to better protect pri-

vate property, as recommended in a

December Policy Analysis, The Birth of theProperty Rights Movement.

In a victory for domestic economic lib-erty, the Supreme Court in May ruled thatstates could not erect trade barriers againstdirect-to-consumer shipments of winefrom out-of-state wineries. The majoritydecision in Granholm v. Heald cited evi-dence from Regulating Wine by Mail, anarticle from the Fall 2004 issue of

Regulation magazine, on the economics ofwholesale wine sales and the nature of thestate law being challenged.

The exercise of many constitutionalrights entails a fundamental right to privacy.But the federal War on Drugs seems recent-ly to be a war on the rights of ordinary citi-zens to be left alone and the authority ofstates to regulate areas of public life not del-egated to the federal government. President

Bush, who during the 2000 campaign said

The Constitution



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P R O T E C T I N G C O N S T I T U T I O N A L L I B E R T I E S

12 C A T O I N S T I T U T E 2 0 0 5 A N N U A L R E P O R T

We should notwait until ourconstitutionallevees collapse

to appreciatethe danger thatthe laws of warpose to freedomin America.

TIM LYNCH,NATIONALLAWJOURNAL,OCTOBER3, 2005

Cato senior fellow Randy Barnett

recounts how federal constitutional

authority has shifted from a small

list of enumerated powers to an

assumption of nearly unlimited

federal power. Other Constitution

Day speakers echoed Barnett's call

for stricter federalism. Cato seniorfellow Mark Mollermoderates a

Constitution Day panel discussion.

of medicinal marijuana, I believeeach state can choose that decision asthey so choose, directed the JusticeDepartment to assert the federal gov-ernments power to prosecute mari-

juana patients who produce or usemarijuana in accordance with theirstates laws. Despite the efforts ofCato senior fellow Randy E. Barnett,who argued the case before theSupreme Court on behalf of cancerpatient Angel Raich, the Court ruled

in June that the federal governmentcan go after such patients. The NewYork Times quoted Roger Pilon, direc-tor of Catos Center for Constitu-tional Studies, as calling the decisiona disaster and Justice AntoninScalia, who supported it, a fair-weather federalist.

Sick people must increasingly fearthe government even if the medicine

they require is legal. At a Septemberconference, Drug Cops and Doc-tors: Is the DEA Hampering theTreatment of Chronic Pain? Dr.Linda Paey told the story of her hus-band Richard, who is currently serv-ing a 25-year prison sentence becauseFloridas drug laws left him no legalway to get the prescription medica-tion he needs to control intractable

pain. Paey later appeared on 60Minutes to discuss the persecution ofpain patients. Ronald T. Libbys JunePolicy Analysis, Treating Doctors asDrug Dealers: The DEAs War onPrescription Painkillers, detailed thecoercive methods that the DEA usesto intimidate and harass doctors whospecialize in pain management, pre-

venting millions of Americans fromgetting the medical care they needto alleviate their pain. John Tierney

of the New York Times cited Libbysstudy in a July column, charging thatthe DEA goes after doctors becausethey are easier to catch than illegaldrug dealers.

Fighting terrorism has been usedas a rationale for curtailing the civilliberties of American citizens and for-eign nationals within our borders.Catos Project on Criminal Justice

has documented numerous viola-tions of the law and the Constitution.

The case of suspected terrorist Jose Padilla illustrates how the Billof Rights has been circumvented inthe War on Terror. If the presidentprevails in his argument that he canhold Padilla and other suspected ter-rorists without charging them with acrime, the right of all Americans to be


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presumed innocent until proven guiltyis at risk. Cato scholars have spokenout against the enemy combatantdesignation in USA Today, the NewYork Times, and other media outlets.

Catos director of informationpolicy studies, Jim Harper, is a mem-ber of the Department of HomelandSecuritys Data Privacy and Integrity

Advisory Committee and is influenc-ing the administration to use newtechnologies in a responsible man-ner. Harper is also writing a bookabout identification and how efforts

to create a National ID system willthreaten privacy and liberty. Harperhas been advocating against unwar-ranted surveillance and governmentdata-mining programs, thoughPresident Bush has stood by his asser-tion that he has the authority to uni-laterally authorize warrantless wire-taps of Americans communications.

In September, Catos Center for

Constitutional Studies hosted itsannual Constitution Day Confer-ence, which featured analysis of the

just-completed Supreme Court termby leading constitutional scholars.Nadine Strossen, president of the

American Civil Liberties Union andprofessor of law at New York Law

School, discussed the Constitutionsreligion clauses in the fourth annualB. Kenneth Simon Lecture. Strossenlikened the countrys growing accept-ance of government entanglementwith religion to the increasing will-ingness to submit to intrusive search-es of persons and properties: the factthat such invasions into private lifeare equally applied against all, shesaid, doesnt make them acceptable.

The fourth annual Cato SupremeCourt Review, released at the confer-ence, highlighted the erosion of

important federalist precedents.Pepperdine Universitys DouglasKmiec, writing about Gonzales v.

Raich, lamented the brake the Courtput on its recent revival of federalism,while Vanderbilts James Ely Jr. exco-riated the Court for its three propertyrights decisions.

Cato scholars continue to fightefforts to expand the power of govern-

ment to interfere with constitutionalliberties. On property rights, privacy,and other constitutional issues, Catoexperts will continue their work tosecure the blessings of liberty to our-selves and our posterity.

P R O T E C T I N G C O N S T I T U T I O N A L L I B E R T I E S


Well-placed,well-connected

special interestsget togetherwith localgovernmentsat the expenseof propertyowners, andsmall businesses

to carry outtheir plans.

ROGERPILON,FOXNEWS, YOUR WORLDWITHNEIL CAVUTO,

JUNE 23, 2005

Oklahoma attorney general Drew

Edmondson laments the Drug Enforce-

ment Administrations persecution of pain

doctors. He and 47 other state attorneys

general have signed a resolution calling

on the DEA to balance combatting diver-

sion of prescription drugs with measures

to protect effective pain treatment.

Dr. Linda Paey advocates for patients

rights to medical treatment.


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I am not anadvocate forfrequent changesin laws and constitu-

tions, but laws andinstitutions mustgo hand in handwith the progressof the human mind.As that becomesmore developed,

more enlightened,as new discoveriesare made, newtruths discoveredand manners andopinions change,with the change

of circumstances,institutions mustadvance also tokeep pace withthe times.

THOMASJEFFERSON

REFORMING

THE POLITICAL

PROCESS


17/51

government is based on the rules and limitsset forth in the Constitution. For govern-ment to serve the needs of the people, how-ever, citizens must be encouraged to takean active role in the political process.Government must be transparent enoughto allow scrutiny by the general public andsmall enough to allow thorough monitor-ing of its activities.

Cato Institute scholars have long encour-aged policies that would increase citizen par-ticipation in the democratic process. In1984, Cato published The Federal ElectionCommission: A Case for Abolition, whichwarned that restrictions on campaignfinancing would limit free speech. Through-out the 1990s Cato papers advocated term

limits to increase competition in elections,reduced spending in both federal and statebudgets, and the abolition of governmentprograms that limit individual freedom.In 2005 scholars from Catos Center forRepresentative Government continued toreceive media and scholarly attention fortheir consistent defense of smaller, moreaccessible government.

Politicians across the country are prepar-

ing for congressional and local elections in2006, and the two major parties are workinghard to raise money for the most competi-tive races. In many races, however, candi-dates benefit from public campaign fund-ing. In a Cato book called Welfare for

Politicians, editor John Samples, director ofCatos Center for Representative Govern-ment, shows that public financing of elec-tions does not reduce corruption, nor does

it increase political participation among

taxpayers, most of whom do not support giv-ing their tax dollars to political candidates.

The same people who believe that taxpay-ers should be forced to pay for political cam-paigns to reduce the corrupting influence ofmoney in politics have taken steps to blockprivate groups from expressing their opin-ions on political campaigns. At a HillBriefing in May, Should We Ban 527s?

John Samples and campaign finance lawyersRobert Bauer and Cleta Mitchell agreed thatall citizens have the right to spend money topropagate political ideas.

Partisan groups on both sides of thepolitical spectrum fight restrictions on theirown candidates freedom of speech while fil-ing lawsuits to prevent their opponents sup-

porters from expressing their views. TheCato Institute has been one of the few con-sistent voices arguing for the principleexpressed best by Voltaire, who said, I maydisagree with what you say, but I will defendto the death your right to say it. At a forumfor his book Speaking Freely: Trials of the First

Amendment, renowned constitutional lawyerFloyd Abrams commended Cato for itsunswerving advocacy of free speech in all its

forms. Abrams speech was republished inthe Fall issue ofCatos Letter.

Former federal election commissionerBradley Smith became well accustomed todealing with contradictions during histime in Washington. At a September PolicyForum, Smith compared electoral politics tothe world ofAlice in Wonderland, where wordsmean the opposite of what they seem tomean and people believe impossible things.

Citizen participation in the political process,

In the Fall 2005 issue

ofCatos Letter, Catos

quarterly speech digest,

First Amendment lawyer

Floyd Abrams discussed

campaign finance regulation

and other restrictions on

political speech. Abrams

lamented that few partisans

on either the left or right are

steadfast in supporting

freedom of speech. Although

liberals supported the right

of the New York Timesto

run an ad critical of President

Nixon in 1972, many today

support restrictions on

campaign spending by

conservative interest

groups. Similarly, he said,

conservatives have recently

fought campaign finance

restrictions but often sup-

port bans on speech they

consider indecent.

TheUnitedStates



18/51

he said, is hindered by a system ofcampaign finance law so complexthat grassroots campaigns and civicgroups cannot know whether or notthey are violating the law.

Confusing restrictions on cam-paign finances also make the task ofrooting out true corruption more dif-ficult because the law casts a wide net.In an April debate in USA Today,Samples argued that most membersof Congress are not corrupt and thatthe media does a thorough job ofsniffing out even a hint of unethical

behavior. As Catos government re-form scholars have consistentlyargued, transparency and opennessabout the sources of a legislatorsfunding are a better way to preventundue influence than unenforceablerestrictions on campaigns.

Unfortunately, political campaignshave become less competitive overtime. Over the last 50 years, the con-

gressional reelection rate has averagedmore than 90 percent. UncompetitiveElections and the American PoliticalSystem, a study by Cato senior fellowPatrick Basham and IndependenceInstitute senior fellow Dennis Polhill,found that the perks awarded toincumbent politicianspostal frank-ing, free travel, media access, and pub-licly funded stafftranslate to an 11-

point advantage at the polls. Attemptsto increase competition by limitingcampaign financing actually exacer-bate the problem by limiting theability of challengers and advocacygroups to compete with such well-sit-uated incumbents.

Incumbents also benefit fromthe ability to gerrymander districts toensure their own reelection. In the

2006 midterm elections, only a smallpercentage of races will actually becompetitive; the rest are a virtual lockfor the incumbent party. Bashamand Polhills study predicted thatnonpartisan redistricting would benecessary to prevent collusion thatlimits voter choice. Imposing termlimits on long-serving representativeswould also foster turnover in the peo-ples branch of government.

Government only works as longas an engaged populace has the abili-ty to elect representatives who truly

speak for their interests and to oustthose who do not. Cato has long beenone of the few consistent voices forthe freedom of expression and gov-ernment accountability that keeppoliticians honest and safeguard therights of citizens to elect the govern-ment they deserve.

Sen. Robert Byrd (D-WV) brandishes

his Cato pocket Constitution on NBC's

Meet the Press. Cato has distributed more

than 3 million copies of its pocket edition

of the Declaration of Independence and

the Constitution, which is also available

in Spanish and Arabic.

R E F O R M I N G T H E P O L I T I C A L P R O C E S S


I think theAmerican people

are hungry formore facts, morereal informationabout the situationwe are in. I wouldlike to encouragethem to look onthe website of an

institution calledthe Cato Institute.

CONGRESSMANJIM COOPER(D-TN),MAY 25, 2005, SPEECHTO THE U.S. HOUSE OFREPRESENTATIVES


19/51

R E F O R M I N G T H E P O L I T I C A L P R O C E S S


I want to thankall of you from

Cato for not onlyhelping us addressthis fiscal crisisthat we are facingas a nation, butfor your many-yeareffort at trying topreserve the fiscal

sanity and stabilityof this nation forgenerations thatfollow us.

SEN. JOHN MCCAIN(R-AZ), OCTOBER17, 2005,CATO HILL BRIEFING

Catos vice president for government

affairs Susan Chamberlin and director

of health and welfare studies Michael

Tannerdiscuss Social Security reform

with Sen. Jon Kyl (R-AZ) at an April Hill

Briefing. At a Policy Forum reflecting on

his tenure as chairman of the Federal

Election Commission, Bradley A. Smith

chats with Cato president Ed Crane.

Cato director of tax policy studies Chris

Edwardsjoins Rep. Jeb Hensarling and

Sens. John McCain and Jim DeMint at a

press conference on curbing out-of-control

federal spending.


20/51

If we can preventthe governmentfrom wasting thelabors of the people

under the pretenseof taking care ofthem, they mustbecome happy.

THOMASJEFFERSON

ROLLING BACK

THE ENTITLEMENT

STATE


21/51

The rightof the people to be free from governmentmeddling has been ignored for too long.Writing about the New Deal social programshe proposed in 1935, Franklin D. Rooseveltexpressed hope that Congress would notpermit doubts as to constitutionality, howev-er reasonable, to block the suggested legisla-tion. The programs Roosevelt championedare just as unconstitutional today as theywere then, and they have expanded into manymore areas of American life that were meantto remain outside the grasp of the federalgovernment. Today, entitlement programsbenefit not only the poor but a wide rangeof special interest groups, including corpora-tions, human service organizations, inde-pendent charities, and broad groups of citi-

zens, regardless of financial need.Decades of research show that entitle-

ment programs hurt all taxpayers in a num-ber of ways. By heavily taxing those who cre-ate new wealth and jobs, the government dis-torts the function of the free market andreduces employment opportunities for thepoor. Government redistribution of wealthcreates perverse incentives for investors try-ing to protect their assets and creates a

culture of dependency and entitlement-seek-ing that marginalizes the values of hardwork, individual responsibility, and ethical

values. Public schools, which were intendedto give all children the skills they need to suc-ceed as adults, are instead wasting taxpayermoney and preventing families from seekingout a better education for their children.Fortunately, Cato continues to proposeattainable and innovative reforms to Ameri-

cas bloated social programs.

Cato led the way to help restore freedomof choice to consumers and health careproviders with the publication of Patient

Power in 1992, which called for widespreadavailability of health savings accounts(HSAs) to allow patients to pay for medicalcare with untaxed dollars. This year directorof health policy studies Michael Cannonand director of health and welfare studiesMichael Tanner publishedHealthy Competition:Whats Holding Back Health Care and How to

Free It, a comprehensive guide to increasingconsumer choice and reducing harmful gov-ernment intervention in the provisionof medical care. Nobel Laureate MiltonFriedman called the book surprisinglyreadable, extraordinarily comprehensive,

highly persuasive.Cannon and Tanner recommend expand-

ing consumers ability to choose privatehealth insurance to fit their needs. In March,Rep. John Shadegg (R-AZ) spoke at a CatoPolicy Forum about his proposal to create anationwide market for health insuranceinstead of limiting consumers to plans basedin their home state. Michael OGrady of theDepartment of Health and Human Services

predicted that the proposal would lowerinsurance premiums and allow patients tochoose coverage appropriate to their needs.

At a Cato Policy Forum in May, CanHealth Savings Accounts Cover the Unin-sured? panelists suggested that combininghigh-deductible health plans with tax-freeHSAs for out-of-pocket expenses could helpmake coverage more affordable for thosewho are now uninsured. Tanner and Cannon

proposed universal availability of HSAs and

In Healthy Competition,

policy scholars Michael

Tannerand Michael

Cannon offer practical

advice on using free

market principles to

improve health care for

Americans. The book

provides concrete policy

suggestions for giving

more Americans access

to the best health care

America has to offer

and allowing competitive

markets to make medical

care even better.



22/51

profound deregulation of the healthcare market in Healthy Competition asthe best ethical and practical solution:such policies would lower coststhrough full market competition andrestore individual choice, a right eachindividual should have in a free coun-try. A November article in theNational

Journal detailed the benefits of HSAsand cited Cannons efforts to expandconsumer-driven health care.

In 2003, President Bush signedinto law the Medicare prescriptiondrug benefitthe single largest ex-

pansion of the entitlement state sincethe Johnson administration. Nearly16 percent of federal tax revenues in2005 went to support the currentMedicare system, and the new benefitcould add more than $700 billion tothe cost over the next 10 years. InMedicare Prescription Drugs: MedicalNecessity Meets Fiscal Insanity, aFebruary Cato Briefing Paper, Cato

senior fellow Jagadeesh Gokhale rec-ommends significant market-basedreforms to bring Medicare costsunder control.

Catos work to curb entitlementspending is centered on a belief thatthe federal government should be oneof enumerated and limited powers,as mandated in the Constitution.Thanks to the tireless efforts of Cato

scholars, even politicians are begin-ning to realize that the economy willsomeday fall apart under the pressureof ever-more-confiscatory taxationand senseless regulation.

At a bipartisan Hill Briefing inOctober, Sen. John McCain (R-AZ)agreed that the Medicare drug benefitwill raise taxes to unprecedentedlevels. He joined Catos experts in

recommending the repeal of the drugbenefit, along with curbing otherwasteful spending, as a means to bal-ance the budget. Rep. Jim Cooper (D-TN) predicted that 2535 percent ofseniors would be worse off under thedrug benefit than under their previ-ous private coverage. The drug benefithas already cost many seniors theirexisting drug coverage.

In a November article in theDetroitFree Press, Michael Cannon asked whyCongress insisted on putting all sen-iors under a single system, when 75

percent of them already had drug cov-erage. Cannon appeared on NPR, FoxNews, and MSNBC to discuss the drugbenefits disadvantages for seniors.

Cato experts also devoted signifi-cant attention in 2005 to endingthe governments monopoly on edu-cation. Catos Center for EducationalFreedom presented powerful evi-dence of the superiority of free educa-

tional markets over governmentschool monopolies and explained theshortcomings of a number of govern-ment education programs.

Unfortunately, but not unexpect-edly, many government efforts tomake education better and moreaffordable end up backfiring. As col-lege students across the country paidtheir tuition bills in January, Hillsdale

College professor Gary Wolframpublished Making College MoreExpensive: The Unintended Con-sequences of Federal Tuition Aid, astudy examining how federal tuitionassistance raises the cost of collegetuition by increasing demand, put-ting higher education further out ofreach for the poorest students it wasintended to help.

At a May Hill Briefing, Cato scholars

Michael Tannerand Jagadeesh

Gokhale examined the impact of

the Social Security deficit on the

nations finances.

R O L L I N G B A C K T H E E N T I T L E M E N T S T A T E


Catos nationwide campaign for

Social Security reform told millions of

Americans that they deserve ownership,

inheritability, and choice regarding their

own retirement savings.


23/51

R O L L I N G B A C K T H E E N T I T L E M E N T S T A T E

In April, policy analyst MarieGryphon shattered The Affirmative

Action Myth, finding that affirma-tive action produces no concrete ben-efits for minority students because somany come from underperformingpublic high schools that do not pre-pare them for college.

The best way to ensure that under-privileged students succeed in collegeis to improve the quality of their ele-mentary and secondary education. Ata September forum for his new book

Education Myths: What Special-Interest

Groups Want You to Believe aboutOur SchoolsAnd Why It Isn't So,

Manhattan Institute senior fellow JayP. Greene found that nearly all of thestudents whose high school educa-tion prepares them for college go onto enroll in higher education. He alsotackled the fallacy that school choiceharms public schools by drainingresources and talented students. His

book shows that in school districtswhere vouchers are available, the stu-dents who remain in public schoolsdo better than students in districtswhere no choice exists.

In October, then-director of CatosCenter for Educational FreedomDavid Salisbury showed how school

vouchers can increase resourcesavailable to public school students

in Saving Money and ImprovingEducation: How School Choice CanHelp States Reduce Education Costs.The paper found that the availabilityof vouchers in Arizona, Wisconsin,Ohio, Florida, Pennsylvania, Maine,and Vermont has saved taxpayers mil-lions of dollars and improved thequality of public school education.

A May book edited by Salisbury

and University of Newcastle professorJames Tooley, What America Can Learn from School Choice in Other Countries,

examines longstanding school choiceprograms in Sweden, Chile, Australia,Denmark, and other foreign countriesand concludes that the most salientobjections to voucher programs havebeen overcome in those countries.There is no reason to believe thatschool choice in the United Stateswould not be equally successful.

Following Salisburys departure,one of the contributors to that book,

Andrew J. Coulson, was appointedthe new director of the Center forEducational Freedom. Coulson isthe author of Market Education: TheUnknown History.

Reform of the scandalous SocialSecurity system joined health carechoice and educational freedom as amajor policy initiative of the CatoInstitute in 2005. Major media often

cite Cato as the first to call for reformof the Social Security system.

This year, Catos Project on SocialSecurity Choice focused on remind-ing current workers that they are pay-ing their own money into a retire-ment system that will be unable tosupport them by the time they retire.Cato distributed more than 300,000copies of Its Your Money: A Citizens

Guide to Social Security Reform. Thebooklet explains that in only 12 years,Social Security will begin runninga deficit and that current workerswill likely not recoup the money theyhave paid into the system. This SocialSecurity crisis, however, presents anopportunity to allow younger work-ers a retirement benefit that they cancount on because they own it.

With the generous support ofdonors across the country, the Pro-

ject on Social Security Choice creat-ed radio and television ads centeredon the theme of ownership, inheri-tability, and choice that ran on theCBS Radio Network, the RushLimbaugh and Sean Hannity shows,and more than 1,800 local radio andtelevision stations from Seattle toDes Moines to Little Rock. Morethan 56 million Americans heard atleast one ad reminding them thattheir retirement savings should be

their own and that they shouldchoose how to invest. Print ads werefeatured in the New York Times, theWashington Post, the Wall Street Journal,andRoll Call.

Congressional Quarterly namedMichael Tanner one of the five mostinfluential Social Security experts thisyear. Tanner gave more than 70speeches and testified before Con-

gress four times in 2005. Cato schol-ars wrote for USA Today, the Wall Street

Journal, and other papers and ap-peared on NPRs Morning Edition, the

Newshour with Jim Lehrer,ABCs WorldNews Tonight, andNBC Nightly Newstodiscuss Social Security reform.

As public policy reforms centeredon individual autonomy and choicegain wider footholds, the culture of

dependency underpinning the entitle-ment state will begin to fade. Ul-timately, benefiting from more free-dom and the greater prosperity andhope it brings, millions of individualswill begin to demand further policyreforms that fully reinstate the valuesof Americas founding generation.



24/51

The means ofdefense againstforeign dangerhistorically

have become theinstruments oftyranny at home.

JAMES MADISON

DEFENDING

AMERICA, PROMOTING

WORLD PEACE


25/51

The militaryof the United States is the strongest in theworld and has many times throughout his-tory defended the freedom of the UnitedStates and that of foreign nations from thethreat of tyranny. Catos foreign policyscholars have long advocated a balancebetween maintaining a strong nationaldefense and avoiding dangerous entangle-ments in international conflicts where thesecurity of the United States is not at risk.

In his 2004 book,Exiting Iraq, Catos direc-tor of foreign policy studies ChristopherPreble warned that the conflict had becomefar too costly politically, financially, and interms of life lost. The book recommendeda military withdrawal by January 1, 2005.Unfortunately, the war has continued, the

costs have continued to rise, and the Bushadministration has declared that the UnitedStates will not set a deadline for withdrawaluntil the new Iraqi government is firmlyestablished.

Cato senior fellow Tom Palmer traveledto Iraq twice in 2005 to offer assistance toIraqis working to advance toleration, therule of law, free markets, and political plural-ism in the nascent democracy. Among his

responsibilities, Palmer heads Catos JackByrne Project on Middle East Liberty, anambitious effort to make available libertari-an ideas and policy recommendations in

Arabic, Kurdish, Farsi, and other MiddleEastern languages. In the summer issue ofCatos Letter, Palmer wrote of his hope thatIraq will become a stable market democracy.

American interests in maintaining peacein the Arab world and protecting interna-

tional oil supplies have long been billed as

justifications for continued intervention inthe region. However, in Sandstorm: Policy

Failure in the Middle East, Cato research fellowLeon Hadar argued that American interven-tion in the Arab-Israeli conflict has exacer-bated the problem and that plans for peacemust originate among the players in theconflict. Furthermore, he showed that themultibillion-dollar cost of maintaining aU.S. presence negates any benefit of cheaperoil from the region.

Chris Preble has also been active in thedebate over Americas role in the UnitedNations. In September, he addressed acrowd of Hill staffers on United NationsReform: Beyond the Blame Game, chal-lenging the idea that the UN can improve its

image without addressing fundamentalcontradictions in its mission. Internationallaw, he said, must sometimes choosebetween respecting the sovereignty ofnations and protecting the rights of peopleliving under repressive regimes, and thosechoices cannot be made without cost.

The international community has longfeared the proliferation of nuclear weaponsto aggressive, undemocratic regimes. In

January, Cato held a forum for The KoreanConundrum, a book by vice president fordefense and foreign policy studies Ted GalenCarpenter and former senior fellow DougBandow. Carpenter advocated a policy ofnonaggression in Korea in exchange for ver-ifiable guarantees from North Korea that itwould not pursue its nuclear program. The

view that North Koreas nuclear ambitionscould be stopped with proper incentives

from the United States was vindicated in

Leon Hadars Sandstorm

challenges traditional

assumptions about U.S.-

Middle East relations,

showing how American

attempts to foster stability

and freedom have back-

fired. U.S. intervention has

bred resentment, he says,

which hinders progress and

peace in the region and

hurts Americas economic

and political interests.



26/51

November, when Ambassador JosephDe Trani, U.S. special envoy for theSix-Party Talks, expressed hope thatNorth Korea will agree to abandonits nuclear programs in exchangefor energy and economic assistance.Carpenter appeared on South Koreantelevision, as well as CNN and ReutersTV, to discuss the book and the futureof U.S.-Korea relations.

Cato scholars have actively sup-ported U.S. efforts to build militarystrength to defend America from for-eign and terrorist threats. In April,

former director of defense policystudies Charles Pea concluded thatanti-American terrorist groups havelikely acquired shoulder-fired anti-aircraft missiles. In Flying the Un-friendly Skies: Defending against theThreat of Shoulder-Fired Mis-siles,he advised that commercial aircraftcould be outfitted with technology toprotect against the potential deadly

threat. Pea, a noted terrorism expert,was a frequent guest on radio and tel-evision, appearing on C-SPAN, NBCNewschannel, and MSNBC to discussthe War on Terror.

As the year was coming to a close,an article in the New York Times re-

vealed that the Bush administrationhad authorized the National Security

Agency to conduct warrantless wire-

taps against Americans it suspectsmay be involved in terrorism. TimLynch, director of Catos Project onCriminal Justice, appeared on NBC

Nightly Newsto debate Judge RichardPosner, who argued that warrantlesswiretaps were legal.

Many nativists have taken theview that the best way to prevent for-eign terrorism in the United States is

to keep foreigners out. But despiteincreasingly harsh crackdowns onillegal immigration, more than 10million undocumented immigrantscurrently live in the United States. Inhis June study, Backfire at theBorder: Why Enforcement withoutLegalization Cannot Stop IllegalImmigration, Princeton Universityprofessor Douglas S. Massey showedhow current U.S. policies waste lawenforcement resources and fail to dif-ferentiate between peaceful immi-grants and dangerous criminals.

At a September Hill Briefing,Daniel Griswold, director of CatosCenter for Trade Policy Studies,described the U.S. immigration sys-tem as Bordering on Failure. Heemphasized that as long as there is ademand for labor in the UnitedStates, job-seeking migrants willenter the country, legally or illegally.Griswold testified in May before the

Immigration Subcommittee of theSenate Committee on the Judiciary,and his proposal to create a guestworker program has been incorporat-ed into an immigration bill PresidentBush requested from Congress in his2006 State of the Union address.

Americas War on Drugs has hada deadly impact on the Latin

American countries that produce

them. In his 2003 bookBad NeighborPolicy,Carpenter predicted that crack-downs on drug-exporting nationswould lead to escalating violence,economic instability, and the milita-rization of civilian life in those coun-tries. Colombia has already sufferedthe consequences of its cooperationwith draconian U.S. drug policies,and unfortunately, according to a

D E F E N D I N G A M E R I C A , P R O M O T I N G W O R L D P E A C E


The harsh realityis that terrorist

groups aroundthe world havebeen enrichedby prohibitionistdrug policies thatdrive up drugcosts and deliverenormous profits

to the outlaworganizationswilling to acceptthe risks that gowith the trade.Drug prohibitionis terrorisms

best friend.That symbioticrelationship willcontinue untilthe United Statesand its allies havethe wisdom todramaticallychange theirdrug policies.

TED GALEN CARPENTER,NATIONALPOST,JANUARY 4, 2005


27/51

November Foreign Policy Analysis,Mexico Is Becoming the NextColombia. If Mexico is to stop thistrend, Carpenter explains, the U.S.government must rethink its abso-lutist position on drug interdictionabroad, allowing the Mexican author-ities to tackle corruption and violencewithout also having to fight our Waron Drugs.

The War on Terror is not a fightwith a clear end, making a principled,targeted foreign policy more impor-tant than ever before. Keeping

America safe and strong will requirethe kind of innovative, unconven-tional ideas for which Cato Institutescholars are widely known.

Ted Galen Carpenterasks how best

to guarantee that North Korea abides

by its promises to dismantle nuclear

weapons programs. Christopher

Preble discusses national securityand the war on terrorism at a Cato

policy forum. On a visit to Iraq in

April, senior fellowTom G. Palmer

talks withAmal Kashif al-Ghitta,

member of the Iraqi Parliament.

Palmer addressed Parliament on

Principles of Constitutional Demo-

cracy. Palmer also met with the

Minister of Education,Abdul-Aziz

Tayib, at the Ministry of Education

in Erbil.

D E F E N D I N G A M E R I C A , P R O M O T I N G W O R L D P E A C E


Now is the timeto chart a new

course. The firststep should be afirm pledge to beginthe withdrawal ofAmerican troopssoon after theDecember 2005elections. The Bush

administrationshould furthercommit to have allU.S. troops out ofIraq by the end of2007 at the latest.

CHRISTOPHERPREBLE,

CHICAGO SUN-TIMES,NOVEMBER15, 2005


28/51

Harmony, liberalintercourse withall nations, arerecommended by

policy, humanity,and interest. Buteven our commercialpolicy shouldhold an equal andimpartial hand;neither seeking nor

granting exclusivefavors or preferences;consulting thenatural course ofthings; diffusingand diversifying bygentle means the

streams of com-merce, but forcingnothing.

GEORGE WASHINGTONSFAREWELL ADDRESS

FREEING

THE WORLD

ECONOMY


29/51

and strong property rights are paramount

in creating a healthy and dynamic economy.

The United States has a long history of such

economic freedoms. If developing countries

are to benefit from U.S. prosperity and free-

dom, they must also adopt free trade as a

first principleand the United States mustnot revert to what Alan Greenspan calls

creeping protectionism. Trade policy

experts at the Cato Institute believe that

almost every sector of the American econo-

my could benefit from competition and

trade with the rest of the world.

Unfortunately, interest groups working

on behalf of industries that benefit from

domestic protectionism have worked hard

to convince the public that free trade threat-ens American jobs and the American econo-

my. Certain sectors of the farm industry

have perhaps been most guilty of propagat-

ing such myths. Americans have been told

that the American family farm is dying, and

that farm price supports are necessary to

preserve the quintessential agrarian lifestyle.

Daniel Griswold, director of Catos Center

for Trade Policy Studies; Stephen Slivinski,

director of budget studies; and ChristopherPreble, director of foreign policy studies,

exposed the truth about farm subsidies in

their paper Ripe for Reform: Six Good

Reasons to Reduce U.S. Farm Subsidies and

Trade Barriers. In fact, they argue, most

farm subsidies go to wealthy corporations

and hurt small farms. Farm price supports

and tariffs make food more expensive for

Americans by preventing cheaper foreign

goods from entering the market, and they

prevent labor and resources from being used

more efficiently in other industries.

Agricultural protectionism isnt just

harmful to producers and consumers; its

also illegal. The World Trade Organization

in 2005 ruled in several cases that the United

States was violating its international tradeagreements by maintaining farm subsidies

and trade barriers against its trading part-

ners. In a December Trade Policy Analysis,

Boxed In: Conflicts between U.S. Farm

Policies and WTO Obligations, University

of California professor Daniel Sumner

found that U.S. farm programs for a variety

of commodities may be suppressing market

prices in violation of the WTO commit-

ments. Dan Griswold appeared on CNN,BBCs World Update, and CNBC to discuss

the WTOs decision and its implications for

other longstanding U.S. trade restrictions.

The foreign aid community has for

decades tried one approach after another

in an effort to promote growth in poor

nations. But aid has not reduced poverty,

nor is it likely to do so in the future, accord-

ing to 40-year veteran development practi-

tioner Thomas Dichter in a SeptemberForeign Policy Briefing. Dichter believes that

development assistance to poorly governed

developing countries should be ended.

Moeletsi Mbeki of South Africa agrees that a

lack of money is not the cause of African

poverty. In Underdevelopment in Sub-

Saharan Africa: The Role of the Private

Sector and Political Elites, he observes that

Africas predatory political elite prevent the

African private sector from creating wealth.

27

Fredrik Segerfeldt

explores how millions

of poor households in

the developing world

have gained access to

clean, safe water through

privatization of water

networks in his 2005

book, Water for Sale.Private companies can

raise the capital neces-

sary to quickly improve

water infrastructure,

and competition can

ensure that water

services are provided

efficiently and affordably.


Freetrade


30/51

Peasants, who make up the core of

the private sector, would benefit

from property rights protection and

market reforms.

Marian Tupy, assistant director of

the Cato Institutes Project on

Global Economic Liberty, appeared

on CNN International, the PBS

NewsHour with Jim Lehrer, and NPRs

Marketplace to discuss the pitfalls of

aid to Africa. Tupys December

study, Trade Liberalization and

Poverty Reduction in Sub-Saharan

Africa, presented research showingthat countries with the greatest free-

dom to trade tend to grow faster

than countries that restrict trade.

Developing countries, he said, can

reap the benefits of free trade even if

the developed world retains trade

barriers and should immediately free

trade relations with their neighbors

and the world.

Catos advocacy of free trade paidoff this year in Latin America when

the U.S. House of Representatives

approved the Central American Free

Trade Agreement in July. At a Hill

Briefing in March, Griswold and

Cato trade policy analyst Dan

Ikenson argued that both imports

and exports benefit American con-

sumers by giving buyers access to

new foreign goods and creating newmarkets for American-made goods

abroad. In their 2004 study, The

Case for CAFTA, Griswold and

Ikenson maintained that despite its

flaws, the agreement enhances im-

portant U.S. foreign policy goals by

promoting freedom and democracy

in a region that has been troubled in

the recent past by wars and political

oppression. Ian Vsquez, director

of Catos Project on Global Eco-

nomic Liberty was a frequent guest

on Spanish language radio and tele-

vision to discuss the benefits of

the agreement.

Latin Americas troubled eco-

nomic and political history was the

subject of two policy forums at Cato

in 2005. At a March forum for his

book,Liberty for Latin America: How to

Undo Five Hundred Years of State

Oppression, Peruvian journalist Alvaro

Vargas Llosa explained that stateoppression has been a problem in

the region since the Spanish con-

quest of the New World, and it con-

tinues to preempt good policies and

undermine the efforts of Latin

Americans to lift themselves out of

poverty. Vargas Llosa returned in

November to comment on The Roots

of Poverty in Latin America, a new book

by Argentine author Guillermo Yeatts. The author posited that

poverty persists in Latin America

because countries colonized by

Spain maintain social and economic

institutions that undermine proper-

ty rights and voluntary exchange.

The release of the 2005 edition of

Economic Freedom of the World, copub-

lished with the Fraser Institute in

Canada and more than 60 otherthink tanks around the world,

brought significant international

media attention. Ian Vsquez ap-

peared on CNN to discuss the books

finding that economic freedom is

the key to prosperity. Newspapers in

Thailand, Georgia, Hong Kong, the

United Arab Emirates, Ukraine, and

other nations around the world

Christopher Dell, U.S. ambassador

to Zimbabwe, speaks about the

threats leveled against him after

he criticized the Mugabe regimesseizure of private farmland.Amela

Karabegovic of the Fraser Institute

heralds the release ofEconomic

Freedom of the World: 2005 Report.

South African businessman Moeletsi

Mbeki explains that corruption

and unstable property rights make

building wealth nearly impossible

for many Africans.

F R E E I N G T H E W O R L D E C O N O M Y



31/51

reported their countries successes in

economic freedom and endorsed the

reports conclusion that economic

freedom promotes peace and prosper-

ity. The International Monetary Fund

relied extensively on the report in its

annual World Economic Outlook to sup-

port its findings that institutions such

as property rights and rule of law are

the keys to economic growth.

Nations achieve economic growth

and stability by promoting stable

monetary institutions and encourag-

ing investment in the economy. At the23rd Annual Cato Institute Monetary

Conference, Monetary Institutions

and Economic Development, co-

sponsored with The Economist, leading

monetary economists explained why

institutions matter and suggested

ways that emerging market economies

can improve their monetary institu-

tions to encourage trade. Speakers

included Rodrigo de Rato, managingdirector of the International Mone-

tary Fund; Roger W. Ferguson Jr., vice

chairman of the Federal Reserve

Board; University of CaliforniaLos

Angeles professor Deepak Lal; Mas-

sachusetts Institute of Technology

professor Yasheng Huang; and Cato

chairman William A. Niskanen.

China has, in recent years, begun

to embrace the principles of freetrade. Monetary conference partici-

pants argued that allowing private

investment and increasing the flexi-

bility of the exchange rate would

increase confidence in the Chinese

economy and aid growth. Catos vice

president for academic affairs James

A. Dorn has argued for ending finan-

cial repression in China. He has

warned that China-bashing could

lead to trade wars that would under-

mine Chinas peaceful rise.

In U.S.-China Relations in the

Wake of CNOOC, Dorn argued

that preventing the CNOOC energy

companys bid to buy U.S.-based

Unocal was pure protectionism and

not in the interest of U.S. national

security. Politicizing energy markets

and restricting the free flow of capi-

tal will harm both Chinas political

development and the American econ-

omy. Cato senior fellow Jerry Taylortestified in July before the House

Armed Services Committee, defend-

ing the right of Unocal stockholders

to sell their firm to the highest bidder.

As China moves toward econom-

ic freedom, the Zimbabwean econo-

my has collapsed as a result of

the governments widespread viola-

tions of private property rights.

Christopher Dell, the U.S. ambassa-dor to Zimbabwe, was threatened

with expulsion from the country

after giving a speech at the Africa

University in Mutare in November

condemning the human rights abus-

es and economic mismanagement of

the Mugabe regime. In that speech

he cited a Cato Institute paper, How

the Loss of Property Rights Caused

Zimbabwes Collapse, which blamesthe confiscation of private farmland

for Zimbabwes current economic

and agricultural crisis.

Poor countries that replace gov-

ernment monopolies with market

competition have seen tangible

results. The failure of public utility

companies to provide clean, safe

water to more than 1 billion people



Just as Hayekwarned, the

government'sinitial attack onprivate propertyled to interventionin the economyand, concomitantly,the destruction ofpolitical freedom

in Zimbabwe.If Mr. Mugabecontinues alongthe path markedby other socialistdictators, theworld may yet

see Zimbabwedescend into anorgy of violence.

MARIAN TUPY,THEFINANCIAL TIMES,JULY 27, 2005


32/51

worldwide has created a water crisis,

and 22 people die each minute as a

result. In his June book, Water for Sale,

Fredrik Segerfeldt of the Confedera-

tion of Swedish Enterprise detailed

how weak property rights, bureau-

cratic management, and price distor-

tions have led to inadequate water

supplies throughout Asia, Africa,

and Latin America. Using numerous

examples of successful private water

networks, Segerfeldt showed how

privatizing water distribution can

increase access to affordable pipedwater, especially for the worlds poor-

est people, who otherwise pay high

black market prices for water.

Governments in poor countries

have also failed to educate children.

A Cato Institute Conference in

September asked, Does Private

Education Work for the Poor? and

found that in many of the worlds

poorest countries, low-cost, high-quality private schools are educating

thousands of students whose achieve-

ments go unnoticed by the develop-

ment community. Private school

proprietors from Zimbabwe, India,

Nigeria, and other countries where

public education has failed the poor-

est students described harassment

and demands for bribes from gov-

ernment officials who feel threat-ened by the success of private educa-

tion for the poor. A study by James

Tooley and Pauline Dixon of the

University of Newcastle, copublished

in December by Catos Project on

Global Economic Liberty and its

Center for Educational Freedom,

documented for the first time the

extent and quality of private educa-

tion for the poor in some of the

poorest slums in the world.

European critics of the United

States often claim that social demo-

cratic systems are better for citizens

than free-market economics. In

September, Cato released the paper-

back edition of Olaf Gersemanns

Cowboy Capitalism, the popular book

that shows how greater market free-

doms in the United States create a

more flexible, adaptable, and pros-

perous system than the declining

welfare states of Europe.As Americans complained about

high gas prices in the wake of the

summers hurricanes, Cato senior

fellows Jerry Taylor and Peter Van

Doren appeared on every major news

network to warn against govern-

ment intervention in the oil market.

They also urged opposition to the

pork-laden energy bill, which politi-

cians claimed would help lower ener-gy prices through massive subsidies

to big producers.

Regulation of U.S. goods can have

a direct impact on the global market.

Taylor and Van Doren have long been

skeptical of efforts by the U.S. govern-

ment to control the international

oil market by regulating American

suppliers and storing vast reserves of

domestic oil. In a January Policy Analysis, Economic Amnesia: The

Case against Oil Price Controls and

Windfall Profit Taxes, they show that

price controls and taxes on oil profits

dissuades investment in American oil,

leaving the nation more dependent

on foreign suppliers.

In todays competitive global

economy, policymakers need to re-



Chinas emergencefrom centuries

of isolation andstagnation is oneof the great storiesof our time. Hun-dreds of millionsof its citizens arebeginning to tastethe rewards of

middle-class lifethat most Americanstake for granted.It is profoundlyin our economicand securityinterests to nurture

that progress.DANIEL T. GRISWOLD,

FORBES, NOVEMBER14, 2005


33/51

spond to foreign reforms by cutting

U.S. income tax rates. Catos director

of tax policy Chris Edwards testified

in May before the Presidents Adviso-

ry Panel on Federal Tax Reform.

When the panel released its recom-

mendations to simplify the tax code

and reduce taxes on savings and

investments, Edwards wrote in the

Washington Times in October, policy-

makers should be more aggressive in

responding to global trends and cut-

ting marginal tax rates further than

the tax panel has proposed. He wasalso cited in theFinancial Times, New

York Times, Washington Post, Newsweek,

Investors Business Daily, andForbes on

tax and budget issues.

Countries around the world that

have opened trade and lowered

restrictions on their economies have

reaped extensive rewards. As proper-

ty rights and economic institutions

in developing countries are strength-ened, those countries will generate

wealth and move out of poverty. And

prosperous countries that improve

economic freedom will see still

greater growth and innovation. As

the work of Cato experts consistent-

ly shows, expanding free trade, open-

ing markets, and removing regulato-

ry restraints will lead to economic

progress that benefits people, richand poor alike.

At a September Hill Briefing, Dan

Griswold outlines necessary reforms

to the American immigration system.

James Dorn welcomes nearly 200

guests to Catos 23rd Annual Monetary

Conference. Ian Vsquez moderates

a panel discussion on the role of finan-

cial market liberalization in economic

development. Dan Ikenson makes The

Case for CAFTA at a Cato Hill Briefing.



When you talkabout debt relief,

what youre reallytalking aboutis the failure ofpast foreign aidbecause themajority of thedebt of heavilyindebted countries

is due to officialloans from theWorld Bank,the IMF, andother places.

IAN VSQUEZ,WASHINGTONTIMES,

JULY

8, 2005


34/51

The powers notdelegated to theUnited States bythe Constitution,

nor prohibited byit to the states, arereserved to thestates respectively,or to the people.

CONSTITUTION OFTHE UNITED STATESOF AMERICA

TAKING ON

BIG-GOVERNMENT

CONSERVATIVES


35/51

Historically,

Profligate government

spending will lead to

fiscal crisis for future

generations. Fortunately,

as Cato director of tax policy

studies Chris Edwards

shows in Downsizing the

Federal Government,

we dont need many ofthe programs the federal

government provides.

The book, which offers a

concrete plan for cutting

unconstitutional programs

and streamlining federal

agencies, was lauded by

Nobel laureate James M.

Buchanan as a responsible

program-by-program set

of proposals to get the

federal government within

reasonable l imits.

33

the political left has pushed for more govern-ment spending and intervention, while theright has held that government programscost too much, provide too little benefit tothe taxpayers who fund them, and trampleon liberty. Liberals have insisted that peoplerequire government assistance and protec-tion; conservatives have argued that toomuch regulation harms the economy by sti-fling innovation and destroying jobs.

In recent years, however, many Republi-cans have abandoned their conservativeprinciples in favor of unprecedented federalspending, rapidly rising deficits, and increas-ing government intrusion into every area of

American life. Believing that big governmentof any political stripe is detrimental to liber-

ty, Cato scholars have been especially criticalrecently of big-government Republicans forhiding their excessive spending behind therhetoric of conservatism.

The GOP has broken the Contract withAmerica that led it to victory in the 1994elections. In March, Cato released The

Republican Revolution 10 Years Later: Smaller

Government or Business as Usual? edited byCatos director of tax policy studies Chris

Edwards and director of the Center forRepresentative Government John Samples.Former House speaker Newt Gingrichwrites about his view that the 1994 electionwas the culmination of a Republican tradi-tion that began with Barry Goldwater andRonald Reagan. Other contributors, includ-ing former majority leader Dick Armey andCato president Ed Crane, argue thatRepublicans must return to those philo-

sophical roots if they hope to fulfill the

promise of the Republican Revolution andgive Americans the smaller, more effectivegovernment they deserve.

Republicans are clearly not living up totheir rhetoric of fiscal responsibility. As Catodirector of budget studies Stephen Slivinskishowed in his May Policy Analysis, TheGrand Old Spending Party: How Republi-cans Became Big Spenders, the currentRepublican administration has presidedover the largest increase in federal spendingsince Lyndon Johnson. The federal budgetas a share of the economy grew from 18.5percent of GDP on Clintons last day inoffice to 20.3 percent by the end of Bushsfirst term, and Republicans have continuedto add new programs to the budget. The

study was cited in The Economist, Newsweek,Time, and the Washington Post. Slivinski plansto release a book in 2006 expanding onthe story of how Republicans lost theirfiscal restraint.

In February, Cato released the 6th editionof the Cato Handbook on Policy, a comprehen-sive, issue-by-issue blueprint for reducingthe federal government to the limits intend-ed by the Founding Fathers. The Washington

Posthas called theHandbook a soup-to-nutsagenda to reduce spending, kill programs,terminate whole agencies, and dramaticallyrestrict the power of the federal govern-ment. The 2005 Handbook cited cuttingtaxes and reining in spending as top-priorityissues, along with developing new strategiesto fight the War on Terrorism without vio-lating citizens civil liberties.

The media latched on to stories of profli-

gate government spending in August, when



36/51

34

the pork-laden highway bill camebefore Congress. The bill contained6,371 earmarks for special projectsadded to the bill by powerful mem-bers of Congress. Rep. Don Young (R-

AK), chairman of the TransportationCommittee, secured more than $900million in pork projects for Alaska,including the much-condemnedbridge to nowhere. Cato executive

vice president David Boaz appearedon CNNs Inside Politics to condemnthe bloated bill.

In an op-ed in the Washington

Times, Chris Edwards pointed outthat although Republicans deservedthe blame for producing so muchwaste, the two parties are partners incrime in pork spending, corporatesubsidies, unneeded Pentagon wea-pons systems, misallocated Home-land Security funding, and otherwaste. At a Cato Hill Briefing inOctober, Sen. John McCain (R-AZ)

reminded the audience that RonaldReagan had vetoed a highway bill forproposing 100 pork projects. That billwould be thrifty by todays standards.

After hurricanes devastated theGulf Coast last fall, many Americanswere quick to blame the federal gov-ernment for spending too littlemoney on preparation and failing torespond quickly enough in the after-

math. Cato scholars offered a differ-ent perspective: federal meddlingitself had led to bad local policies thatexacerbated the disaster, and privateindustry was better than governmentat responding to the needs of the

victims. Cato scholars testified beforeCongress; were featured in the WallStreet Journal, National Review, Forbes,

and the Washington Times; and appeared

on CNN, FoxNews, and NPR. Catochairman William Niskanen told theWall Street Journalthat Katrina could bea test of the conservative agenda, fromenterprise zones to school vouchersand the repeal of labor laws, andthese ideas deserve careful thought.

Cato senior editor Gene Healyopposed an expanded role for themilitary in disaster relief. On the

NewsHour with Jim Lehrerand ABCsWorld News Tonight, Healy explainedthat the Posse Comitatus Act ismeant to prevent the president from

using the military in a policing roleagainst American citizens. Healyurged the government not to use anatural disaster as a pretense fordestroying a fundamental principle of

American law: that turning the mili-tary on civilians should be a last resort.

In September, then-House major-ity leader Tom DeLay claimed thatthe government was running at peak

efficiency and that he could find nofat to cut from the budget. He chal-lenged those who believe in reducingthe size of government to bring methe offsets, Ill be glad to do it. ChrisEdwards answered that call with hisbook,Downsizing the Federal Government,a comprehensive catalog of govern-ment waste, mismanagement, fraud,pork, and programs that overstep the

federal governments constitutional-ly recognized powers. Edwards foundmore than $300 billion in unneces-sary, inefficient, and unconstitutionalgovernment programs that should beabolished or delegated to local govern-ments and private actors. Sen. TomCoburn (R-OK) found the book socompelling that he had his entire staffread it during Congresss winter recess.

Chris Edwards proposes to Hill staffers

that fiscal conservatism would be well

received by the voters. Jim Harpertells

the House Committee on Homeland

Security that air travel would be safer

if airlines were held responsible for their

own security. Cato chairmanWilliam

Niskanen testifies before the House

Energy and Commerce Committee on

the folly of price controls.

T A K I N G O N B I G G O V E R N M E N T C O N S E R V A T I V E S



37/51

When the federal governmentcommits to spending it can ill afford,it often foists the costs of such pro-grams on the states. As states contin-ued their efforts to claw their way outof the worst budget hole in years,Catos director of budget studiesStephen Slivinski and senior fellowStephen Moore released the seventhbiennial Fiscal Policy Report Cardon Americas Governors. The reportcards grading is based on 15 objec-tive measures of fiscal performance,with high grades going to governors

who have cut taxes and spendingthe most. The report shows that statescan secure their long-term fiscal healthby restraining spending growth andkeeping taxes low to promote econom-ic development. Slivinski commentedon high-scoring governors ArnoldSchwarzenegger (R-CA) and MarkSanford (R-SC) and failing gover-nors Bob Taft (R-OH) and Edward

Rendell (D-P

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Cato Institute: Annual Report 2005

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