annual report text pgs PRINT - Cato Institute · Edward H. Crane 2 Cato Institute • 2004 Annual...

1000 Massachusetts Ave., NWWashington, District of Columbia 20001tel. 202.842.0200 fax. 202.842.3490www.cato.org

2004 Annual Report

CATO

Institute 200

4 A

nnual Report

annual_report_cover_PRINT.qxp 3/7/2005 5:22 PM

The mission of the Cato Institute is to increase the understanding of public policies based on the principlesof limited government, free markets, individual liberty, and peace. The Institute will use the most effectivemeans to originate, advocate, promote, and disseminate applicable policy proposals that create free, open,and civil societies in the United States and throughout the world. Mission Statement adopted by the CatoBoard, December 16, 1992

annual_report_text_pgs_PRINT.qxp 3/9/2005 7:08 PM

1

The Cato Institute is named for Cato’s Letters,a series of 18th-century essays that warned theBritish people of the dangers of unlimited powerand advanced a revolutionary vision of a free society. That vision inspired Thomas Jefferson incrafting the Declaration of Independence, and itwas foremost in the minds of the framers of theConstitution, a radical blueprint for limited government and individual liberty.

In the 19th century, that same vision inspiredAmerican abolitionists, whose agitation helped toovercome the glaring contradiction between theDeclaration’s soaring rhetoric of equality and thecrime of slavery. It inspired campaigners for freetrade, the essential ingredient in lifting millionsout of poverty, as well as movements to eliminatethe subjugation of women. And it motivated braveopponents of war, collectivist totalitarianism, andtyrannical socialism in the 20th century.

Since its founding in 1977, the Cato Institutehas helped to spark a rebirth of that Jeffersonianvision. As you will see in the pages that follow, theCato Institute is on the front lines in the battle ofideas, exposing policymakers and the educatedlay public to the timeless principles of liberty andproposing timely and concrete policy solutions torealize those principles. To ensure that their workhas an impact outside the ivory tower, members of Cato’s policy staff are both scholars and com-municators. Their efforts in 2004 have made the principles of the American Founding onceagain an important part of the political debate in Washington, across the country, and around the world.

2004 Annual Report

annual_report_text_pgs_PRINT.qxp 3/9/2005 7:08 PM Page 1

Edward H. Crane

2

Cato Ins t i tu te • 2004 Annua l Repor t

As is the case every year, 2004 witnessed a mixtureof gains and losses in the never-ending battle to preserveand extend the freedoms that are our heritage asAmericans. It is a sad but true state of affairs that “eternal vigilance” is required to defend our libertiesfrom the seemingly insatiable efforts of the politicalestablishment to extend the tendrils of the state intoevery corner of civil society.

For many of our supporters Cato is their vehicle forstaying vigilant. We believe the Institute’s efforts during 2004 justified that trust. We are proud of ourcolleagues’ achievements in terms of both the quanti-ty and quality of their work. On issues ranging fromSocial Security reform to protecting our civil liberties to defending our nation in the face of terrorism, Cato had a prominent place at the table of nationalpolicy debate.

Our scholars published 14 books, 48 policy studies, 8 Supreme Court amicus briefs, and hundredsof op-eds and magazine articles. We were, once again,one of the most quoted think tanks in America. Ourperiodicals included six issues of Cato Policy Reportunder the editorship of executive vice president David Boaz; three editions of the 24th volume of the Cato Journal, edited by vice president for academicaffairs James Dorn; four editions of the 27th volume

of Regulation, edited by Peter Van Doren; and the thirdannual Cato Supreme Court Review, under the neweditorship of Mark Moller.

In addition, thousands of new subscribers wereattracted to our two online newsletters, Tech-Knowledge, edited by Adam Thierer, and the Tax andBudget Bulletin, edited by Chris Edwards. Our freeperiodical, Cato’s Letter, is now sent to about 112,000readers four times a year. Cato’s award-winning website, www.cato.org, had a record 26,000 individ-ual visitors per day toward the end of the year. Wehosted 194 events in Washington, across the country,and in Moscow and St. Petersburg. And, of course, ourscholars were ubiquitous on radio and television programs as guest policy experts. All in all, Cato hadan active, high-profile year.

B U S H ’ S B I G G O V E R N M E N TFrom a classical liberal or libertarian perspective,

the first term of George W. Bush’s presidency wasmore than a little disappointing. Spending increaseddramatically, with no apparent interest in reining it inby either the administration or Congress, giving drunk-en sailors a bad name. Civil liberties were under siegeas the administration attempted to claim the authorityto arrest and detain indefinitely, with no charges and no access to an attorney, an American citizen on thesay-so of the president. The war in Iraq was tragicallyconducted on the basis of false information and poorplanning. It has proven enormously costly in terms oflives, money, and diplomatic capital. For transparentlypolitical reasons, the administration betrayed its freetrade rhetoric to place burdensome tariffs on importedsteel. It threw billions in subsidies to agribusinesses in key farm belt states. It created a nearly $1 trillion“entitlement” to prescription drugs through the already

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


bankrupt Medicare system. The administration contin-ues its efforts to federalize education with its No ChildLeft Behind program. Not a good record.

To those who point to tax cuts as a positive in thefirst Bush administration, we say, fine, we’re all for taxcuts, but they should be accompanied by spendingcuts. Milton Friedman, our good friend for whom ourMilton Friedman Prize for Advancing Liberty is named,always reminds us that the true burden on the privatesector is the resources extracted from it and employedin the inevitably inefficient public sector. Whether that extraction is financed by taxes, borrowing, or regulation is less important than the fact that theseresources are being taken from private citizens by thegovernment. As we have mentioned in past reports,neoconservatives in the administration are leading thefight for a bigger, stronger national government. Fromwhere we sit, “compassionate conservatism” seems tomean never having to say “no.” Not a good record.

T H E O W N E R S H I P S O C I E T YWe are, however, encouraged by Bush’s second-

term economic agenda. His “Ownership Society” initiative underscores the importance of issues theCato Institute has been working on for decades. To us,the essence of America is a respect for the dignity ofthe individual. It seems axiomatic that such dignity isenhanced to the extent one has control over one’s ownlife. Ownership is the key to that. Personal accountswithin Social Security, something Cato first broughtinto the national dialogue in 1980, will clearly giveAmericans more control over their retirement.Expanded Health Savings Accounts, first promoted in1992 in Cato’s book Patient Power, by John Goodmanand Gerald Musgrave, will just as clearly giveAmericans more power over their health care by eliminating some element of third-party payers.

Fundamental tax reform is also something we’veworked on from near the beginning. Steve Moore tooka leave of absence from Cato in the mid-1990s towrite Rep. Dick Armey’s flat tax proposal. Again, getting rid of the social engineering contained in the60,000-page tax code will give Americans more control over how they spend the money they earn. Andwe have long supported the case for tort reform andimmigration reform.

So, we are cautiously optimistic as we enter 2005.Our talented and committed staff and the loyalty andgenerosity of many thousands of Cato Sponsors aroundthe nation give us further reason for optimism.Because of them, we will continue to be vigilant in thepursuit of liberty. We trust this Annual Report will confirm that commitment.

Edward H. Crane William A. Niskanen

3

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

William A. Niskanen


4

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

A V E R T I N GF I S C A L C ATA S T R O P H E

D E F E N D I N G A M E R I C A

PAGE 6Policymakers and the public must be constantlyreminded of America’s heritage of liberty and theConstitution's limits on government power.

PAGE 10Reckless spending and out-of-control entitlements have put us on a path toward fiscal crisis. We will need to make tough choices to restore the nation to fiscal health.

PAGE 14We must hunt down the people responsible for terrorist attacks against innocent Americans whilestrengthening homeland security and avoiding unnecessary military interventions.

T H E I S S U E S

The Cato Institute has been in the thick of the public debate, producingauthoritative research and practical policy proposals on a wide range of public policy issues. The Institutehas broadened the terms of debate by raising issues that would otherwisebe ignored or forgotten by politiciansand pundits focused on the presidentialhorse race. The diversity and timelinessof Cato’s research program are a testament to the versatility and vitalityof the classical liberal tradition.


5

P R O M O T I N G A D Y N A M I C E C O N O M Y

E M P O W E R I N G T H E P O O R

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

A D VA N C I N G T H E W O R L DW I D E L I B E R A L R E V O L U T I O N

PAGE 18America’s dynamic economy continues to generateunprecedented prosperity. By removing regulatory barriers to innovation and entrepreneurship, we cangenerate even greater and more widespread wealth and opportunity.

PAGE 26Many observers claim that the protections of the Bill of Rights must be weakened in order to fight terrorism,reduce corruption, ensure decency on the airwaves, and more. But liberty is too important to be sacrificedfor political expediency.

PAGE 25The poor are often the greatest victims of the welfarestate. Policies such as school choice, welfare reform,and a more equitable immigration system can bring the American dream within reach of everyone.

PAGE 30Freedom is on the rise around the world, as nationsembrace free markets, private property, and the rule of law. Those reforms must continue so that the world’s poorest citizens can enjoy the prosperity most Americans take for granted.



America was founded by visionaries steeped in a rich tradition of individual rights and limited government. TheAmerican Founders were wary of concentrated governmentpower and unchecked majorities, so they created a limitedfederal republic that—they hoped—would leave most decisions in the hands of individuals or their locally electedgovernments. The federal government, in the Founders’ conception, has only those very limited powers delegated toit by the Constitution. All other powers (as the TenthAmendment makes explicit) are “reserved to the Statesrespectively, or to the people.”

America has become unmoored from those founding principles. As Cato’s scholars have pointed out repeatedlyover the years, today’s federal government is anything butlimited. In 2004 Cato’s Center for Constitutional Studiescontinued to focus attention on the questions that most policymakers ignore: Where in the Constitution is the federalgovernment empowered to meddle in every aspect of ourlives? By what right do federal officials presume to make somany of our decisions for us, from how to spend trillions ofdollars, to the size of our toilets and the width of the hallways in our homes?

In February Cato senior fellow Randy Barnett publishedan important new work of constitutional scholarship,Restoring the Lost Constitution. In it, Barnett argues that theConstitution enforced by today’s courts bears little resemblance to the Constitution the Founding Fathers craft-ed two centuries ago. By adopting an implausibly broadinterpretation of the Commerce Clause and ignoring theNinth and Tenth Amendments, the courts have givenCongress essentially unlimited powers, checked only by certain of the explicit restrictions on government power foundin the Bill of Rights. Barnett promoted his book with a speaking tour to more than 40 colleges around the country.

That originalist, limited government perspective on thelaw continued to inform Cato’s work throughout the year. For the third year running, Cato held a major conference tomark Constitution Day, September 17, featuring analysis

of the just-completed Supreme Court term by leading consti-tutional experts. Constitution Day was the occasion for theunveiling of the third annual Cato Supreme Court Review. Inthe Review, George Washington University law professorJonathan Turley labels the Court’s major war power rulings“judicial impressionism.” Like the impressionist paintingsyou might find in a freshman art class, he writes, the year’smajor decisions eschewed clarity in favor of vague, multifac-eted opinions that look different to each interpreter. As Catovice president for legal affairs Roger Pilon wrote after lookingat other decisions, “If a cardinal purpose of law is to givenotice about what is permitted and prohibited, we are with-out law on this matter.”

The Review is edited by Mark Moller, who joined Cato as a senior fellow in 2004. Cato will soon publish a paper by Moller on class action reform, a subject now squarelybefore Congress.

Cato continued its campaign to ensure wide distributionof America’s founding documents, selling 23,000 copies of its pocket Constitution and Declaration of Independenceand distributing 34,000 more copies by direct mail. Cato’sConstitution was mentioned in the November issue of VanityFair. More than four million are now in circulation.

Few people in history have done more for the cause oflimited government than F. A. Hayek, Nobel prize winner andauthor of The Road to Serfdom. Cato held a pair of winterBook Forums to celebrate the 60th anniversary of the publi-cation of The Road to Serfdom. Published at a time whenvirtually all Western intellectuals were socialists, The Road toSerfdom sparked a debate over the feasibility of the socialistproject that raged until the collapse of the Soviet Union in 1991. A February Book Forum featured the authors of twomajor studies of Hayek’s work, with commentary from formerHouse majority leader Dick Armey, who praised Hayek’sintellectual courage in standing against the collectivist ideo-logical currents of his era. The second forum, held in March,featured Cato president Ed Crane, Nobel laureate JamesBuchanan, and Daniel Yergin, coauthor of The Commanding


6

“Freedom in America rests upon a framework of checks and balances that was designed by men who were steeped in historyand political philosophy. If that framework is neglected, constitu-tional guarantees will become nothing more than hollow promiseson pieces of paper.” Tim Lynch, Wall Street Journal, 4.23.04


7


Nina Totenberg and otherreporters interview Cato senior fellow Randy Barnett,author of Restoring the Lost Constitution, outside the Supreme Court after heargued the case of Raich v.Ashcroft, dealing with med-ical marijuana and federalism.

Senior fellow Tom G. Palmerleads a seminar for internsand research staff on the ideas found in JohnLocke and the Declaration of Independence.



8

Former House majority leaderDick Armey discussed therecord of the 1995 Repub-lican Congress at a confer-ence, published in early2005 as The RepublicanRevolution 10 Years Later:Smaller Government orBusiness as Usual?

Walter Dellinger, a seniormember of PresidentClinton’s Justice Department,contributed “The Indivisibilityof Economic Rights andPersonal Liberty” to the third annual Cato SupremeCourt Review.

Piotr Kaznacheev, an economic adviser to Russianpresident Vladimir Putin, tells Cato University atten-dees that bananas were so rare under communismthat they became a symbol of freedom after the end of the Soviet Union.


9


Heights: The Battle for the World Economy, a book that waslater made into a PBS documentary.

America’s electorate reaffirmed its heritage of limitedgovernment in 1994 when it swept into power a RepublicanCongress pledged to reducing the size of government. At aMay conference marking the 10th anniversary of the so-called Republican Revolution, Armey and former Housespeaker Newt Gingrich described their decade-long struggleto win a congressional majority. Thomas Edsall of theWashington Post charged that the Republican Congress hasabandoned its principles over the last decade, pointing to rising spending and the passage of campaign finance restrictions as major retreats. Ed Crane traced the ideologicaldecline of the Republican Party much further back than the104th Congress. The substance-free Reagan reelection campaign of 1984 and the decision to nominate George H.W. Bush—a man not known for his commitment to theGoldwater tradition of limited government—in 1988 weremajor missed opportunities, he said.

Federalism was a major issue in 2004. In Novembersenior fellow Randy Barnett argued before the SupremeCourt in the case of Raich v. Ashcroft that Congress exceed-ed its power under the Commerce Clause when it authorizedfederal agents to arrest patients using marijuana underCalifornia’s Compassionate Use Act. Barnett argued thatallowing federal agents to arrest patients who grow medicalcannabis for personal use would amount to abandoning themodest limits on federal power revived by the 1995 case ofUnited States v. Lopez.

Federalism was also under attack in Congress, where aconstitutional amendment was proposed that would bansame-sex marriages and prevent state and federal govern-ments from providing “the incidents of marriage” to gay couples. In September Cato published a White Paper by lawprofessor Dale Carpenter of the University of Minnesota arguing that the amendment was “unnecessary, anti-federal-ist, and anti-democratic”: unnecessary because the federalDefense of Marriage Act gives states the right to refuse torecognize gay marriages performed in other states and anti-federalist because it nationalizes an area of law traditionally reserved to the states.

In December Cato submitted an amicus brief by distin-guished constitutional scholar Richard A. Epstein in thepending Supreme Court case of Kelo v. New London. Thebrief challenges the practice whereby governments take private land, only to transfer it to private developers forvaguely defined “economic development” purposes. A rulingstriking down the practice would shore up property rightsthat have suffered decades of neglect by the courts.

In addition to reminding elected officials and members of the judiciary of America’s founding principles, Cato seeks

to broaden and deepen the understanding of those principlesamong the general public. The foremost vehicle for doingthat is Cato University, directed by senior fellow Tom G.Palmer, which encompasses both a home-study course anda series of seminars. Participants include students, workingadults, and retirees. In 2004 Cato held two Cato Universityseminars. The week-long August seminar, held in San Diego, featured Stanford law professor Marcus Cole, psychol-ogist Nathaniel Branden, Richard Stroup and Jane Shaw ofthe Property and Environment Research Center, Moscowpolitical scientist Piotr Kaznacheev, and other favorites. More than 100 people attended. The October weekend seminar was held in Quebec City, Canada. Speakers such as Palmer, Canadian MP Monte Solberg, and Cato senior editor Gene Healy led workshops on writing and publicspeaking to communicate the ideas of liberty to friends, family, and fellow citizens. Participants leave Cato Universitywith a renewed appreciation for the principles that madeWestern civilization possible and a commitment to ensuring that our heritage of liberty is passed on, intact, tothe next generation.

Palmer is also one of the world’s most energetic emissaries of liberty. He gave speeches to numerous organi-zations and made regular appearances on college campusesacross the country. In February he participated in a conference in Baghdad, where he assisted with the foundingof an Iraqi libertarian think tank and commissioned thetranslation of the Declaration of Independence into Arabic.

Cato’s legal scholars—Roger Pilon, Mark Moller, RobertA. Levy, and Timothy Lynch—are highly visible in the legalcommunity. In 2004 they appeared at dozens of law schoolsgiving speeches or participating in debates on current legalcontroversies. Pilon frequently spoke about and debated constitutional law, judicial nominations, drug reimportation,same-sex marriage, and property rights at the law schools atHarvard, Yale, Chicago, Georgetown, Northwestern, theUniversity of Pennsylvania, and elsewhere. Levy made similar appearances on tort reform, federalism, and theSecond Amendment. Such exposure ensures that students atmany of the nation’s top law schools have the opportunity tohear the Madisonian vision of the Constitution that is sooften absent from their classrooms.



The U.S. government is facing serious fiscal strains in thedecades ahead. But elected officials continue to make theproblems worse. During President Bush’s first term, federalspending rose at the fastest rate since Lyndon Johnson’sGreat Society. As if that weren’t enough, the 108th Congressadded a half-trillion dollar prescription drug benefit toMedicare—the largest new entitlement program since the 1960s.

Meanwhile, the Social Security Administration predictsthat Social Security will go into deficit within 15 years. Inearly 2004 Cato introduced a plan to fix Social Security byallowing workers to divert their share of the payroll tax to apersonal account that they would own and control. The plan,which was unveiled at a January Capitol Hill Briefing, wouldgive workers true ownership in and legal rights to their SocialSecurity retirement benefits, restore the Social Security system to permanent solvency, increase the rate of return foryounger workers, and avoid raising taxes or cutting benefitsfor those at or near retirement. Michael Tanner, director ofCato’s Project on Social Security Choice, laid out the detailsof the plan in a February paper.

Support and enthusiasm for the idea grew steadily duringthe course of 2004. In March, Tanner and William Shipman,co-chairman of the Project on Social Security Choice,reprised Cato’s annual “Social Security University,” a three-day series of lunchtime lectures on Capitol Hill that gave congressional staffers, lobbyists, and journalists backgroundinformation on the case for privatization. Also in March, Catopublished Social Security and Its Discontents: Perspectiveson Choice, edited by Michael Tanner and featuring essays byMilton Friedman, Martin Feldstein, June O’Neill, John Zogby,and others. The book was named an “Outstanding AcademicTitle” of 2004 by Choice, the leading magazine for academ-ic librarians. Former Cato vice president Leanne Abdnor, amember of the president’s Commission to Strengthen SocialSecurity, published a paper arguing that Social Security isstuck in the 1930s when it comes to its treatment of women,as it discriminates against two-earner couples.

Jagadeesh Gokhale, one of the nation’s leading econo-mists and an expert on entitlement reform, joined Cato as asenior fellow at the beginning of 2004. Since then, he hastestified twice before the Senate Special Committee onAging about the future of retirement in the United States.Financial services analyst Jacobo Rodríguez testified beforethe same committee in May on the Chilean experience withsocial security privatization. In the Wall Street Journal, Gohkalecriticized Sen. John F. Kerry for his do-nothing position onSocial Security. By ruling out personal accounts and benefitcuts, Gokhale argued, Kerry was effectively committing thenation to massive tax increases.

In July Rep. Sam Johnson (R-TX) introduced legislationbased on the Cato plan. Initially cosponsored by Reps. PatToomey (R-PA) and Jeff Flake (R-AZ), the legislation had 19cosponsors by the end of 2004—the most of any personalaccounts legislation.

Cato spent the fall of 2004 building broader support forSocial Security reform. A Community Leader’s Guide toSocial Security Choice was sent to all Cato Sponsors andthousands of other influential Americans around the country.Tanner and Susan Chamberlin, vice president for governmentaffairs, embarked on a fall tour of six cities to educate finan-cial professionals at more than three dozen leading financialinstitutions about Cato’s work on the issue. Tanner gavedozens of speeches to organizations around the country insupport of Social Security privatization. Cato also maintainsthe Web’s best site on Social Security reform atwww.socialsecurity.org.

The drumbeat for Social Security choice intensified withthe reelection of President Bush, who has said that SocialSecurity is his top domestic priority for 2005, and Cato waswidely recognized by the media as the original author andadvocate of private accounts. A Time magazine article promi-nently featured Cato’s work on the issue and dubbed Tanneran architect of the privatization concept. Ed Crane appearedon NBC Nightly News, Cato executive vice president DavidBoaz appeared on the CBS Evening News, and Tanner appeared

“Under the current system, you pay in and the politicians inWashington decide how much you’re going to get in the end.Under individual accounts, you own and control that money. It belongs to you.” Mike Tanner, New York Times, 9.18.04

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

10


11


Reps. Pat Toomey, SamJohnson, and Jeff Flake, lead sponsors of theIndividual Social SecurityInvestment Program Act, listen as Cato president Ed Crane discusses the bill at a Capitol Hill news conference.

Cato Institute scholars frequently publish their research results in leading journals and newspapers.



12

Michael Tanner, director of Cato’s Project on SocialSecurity Choice, unveils a plan to give Americanworkers the option to puttheir entire 6.2 percent share of the payroll tax into a private account.

Cato scholars published 48 studies and briefing papers in 2004,along with 14 books and 8 amicus curiae briefs filed with theSupreme Court.

Nobel laureate MiltonFriedman, shown at theMilton Friedman Prize forAdvancing Liberty dinner, is one of the contributors to Social Security and ItsDiscontents, which alsoincludes José Piñera andJune O’Neill.


13


on Good Morning America, ABC World News Tonight, and theNewsHour with Jim Lehrer to discuss the issue. Tanner andother Cato scholars were frequent guests on the Fox NewsChannel, CNN, NPR, and other networks. Tanner appearedas a guest on the Rush Limbaugh Show. The New York Timesasked Cato distinguished senior fellow José Piñera to pen anearly full-page op-ed on his successful reform of Chile’ssocial security system. A December 10 Washington Timesstory described Cato as “the libertarian think tank that hashelped the White House hammer out its reform plans.”

As Social Security reform moves to the top of the con-gressional agenda next year, Cato’s scholars will be workingat a fever pitch to provide authoritative analysis and informa-tion on the case for personal accounts. A major conferencein February will include heavyweights in the privatizationdebate, including Edward Prescott, who received the 2004Nobel Prize in economics, and Martin Feldstein of HarvardUniversity. Cato will again hold Social Security University onCapitol Hill.

While praising the president’s commitment to reformSocial Security, Cato scholars have been fiercely critical ofthe administration’s lack of fiscal discipline in other areas. InJanuary testimony before the Senate and a February WallStreet Journal op-ed, director of fiscal policy studies ChrisEdwards argued that federal spending should be cut toreduce the deficit. In March policy analyst Veronique de Rugypublished “The Republican Spending Explosion,” whichexposes the dismal fiscal record of Republicans in Congressand the White House during the first three years of the Bushadministration. In June Edwards published “Downsizing theFederal Government,” a detailed and comprehensive plan forcutting wasteful and unnecessary federal government programs by privatizing them or devolving some of their func-tions to state and local government. In all, Edwards’s propos-al would save taxpayers more than $300 billion per year infederal taxes. Policy analyst Neal McCluskey criticized federal education spending in a June Policy Analysis thatargues that state and local governments and the private sector are better able to spend education dollars effectively.

Perhaps the most daunting fiscal challenge facing theUnited States is the tremendous growth of Medicare spend-ing. Gokhale wrote in the Wall Street Journal in April thatthe $22 trillion projected shortfall in the Medicare programactually understates the problem, which could be as high as$62 trillion. Future Cato research will develop proposals toensure that the program does not bankrupt the country.

Cato was among the first to predict the savings-and-loancrisis in the 1980s. Alarmingly, the federal governmentseems not to have learned the lessons of that debacle. Twopotential trouble spots are Freddie Mac and Fannie Mae, the“government-sponsored entities” that resell home mortgages.

An October Policy Analysis by former Freddie Mac boardmember Lawrence J. White argues that the two companies’quasi-public status allows them to borrow money at a lowerinterest rate, on the expectation that the federal governmentwill bail them out in the event of a crisis. That expectation,White argues, represents a serious threat to taxpayers,because it creates a moral hazard problem that could leadthe companies to take the same kinds of foolish risks thatmany savings and loans took in the 1980s.

Another area of concern is the Pension Benefit GuarantyCorporation, which guarantees the pensions of private-sectoremployees when their employers are unable to provide thepromised benefits. If a market downturn caused a rash ofcorporate bankruptcies, the federal government could be onthe hook for tens of billions of dollars. An August study byRichard Ippolito, the former chief economist of the PBGC,advocates that the PBGC be privatized and its liabilitiesmade the joint financial responsibility of the companieswhose pensions it insures.

Cato scholars criticized reckless fiscal policies at thelocal level as well. Two papers by Raymond Keating, chiefeconomist of the Small Business Survival Committee—“Cleaning Up New York State’s Budget Mess” in January and“Budget Reforms to Solve New York City’s High-Tax Crisis” inAugust—blame overspending for New York’s perpetual budget crises and propose spending cuts and budgetaryreforms to deal with the problem. Cato also struck a blow forfiscal sanity in its own backyard, publishing a briefing paperin October that debunked the case for a publicly fundedbaseball stadium in the District of Columbia.

Cato’s efforts on behalf of limited government will contin-ue in 2005. Stephen Slivinski, who joined Cato in 2004 as director of budget studies, will publish a study criticizingcorporate welfare in early 2005 and examine the federaltransportation budget with an eye to saving taxpayers money.Also on tap for 2005 is Cato’s biennial fiscal report card on America’s governors. President Bush has promised deficitreduction and entitlement reform in his second term. Catoscholars will keep up the pressure for those badly neededchanges in the coming year.



For more than a quarter century, Cato scholars haveadvocated a strong national defense to deter aggression coupled with a restrained foreign policy to avoid entanglingAmericans in peripheral conflicts that have little or no bearing on America’s security.

Cato foreign policy scholars have been consistently aheadof the curve on foreign policy issues, especially on the issueof terrorism. In the 1997 edition of the Cato Handbook forCongress, Ted Galen Carpenter, vice president for defenseand foreign policy, warned that “Americans have become targets of international terrorism.” “The potential for thou-sands, rather than dozens or hundreds, of casualties in anysingle incident is also rising,” he wrote. In 1998 Ivan Elandwrote a Cato Foreign Policy Briefing warning that internation-al resentment of America’s promiscuous interventionismcould lead to “devastating, and potentially catastrophic, terrorist attacks.” Eland’s and Carpenter’s predictions provedall too prescient.

Sadly, Cato scholars’ predictions about the Iraq warproved accurate as well. In the months leading up to the Iraqwar, they warned that a war with Iraq would be neither quicknor painless and would instead become, as senior fellowDoug Bandow put it, an “urban conflict that will be costly inhuman and political terms.” As the situation in Iraq deterio-rated, Christopher Preble, director of foreign policy studies,assembled a task force to consider how to deal with theproblem. They released their report, titled Exiting Iraq: Whythe U.S. Must End the Occupation and Renew the Waragainst Al Qaeda, in July. It argues that the war is goingbadly and that the situation will only get worse. Moreover,continuing to pour lives and resources into Iraq endangersAmerican national security by diverting resources from theongoing fight against Al Qaeda in Afghanistan and elsewhere.

Cato’s scholars were ubiquitous in the media supportingthe task force’s recommendations, appearing regularly onsuch television programs as The O’Reilly Factor, Lou DobbsTonight, and Newsnight with Aaron Brown; such radio programs as The Radio Factor with Bill O’Reilly and NPR’s

Morning Edition; and in the op-ed pages of USA Todayand the Chicago Sun-Times. Chuck Peña, Cato’s director ofdefense policy studies, was named an MSNBC terrorism analyst in 2003 and continued to appear frequently on thenetwork throughout 2004.

When it was released in July, Exiting Iraq’s recommenda-tion for a 2005 pullout was viewed by some as radical. Butas the crisis has deepened, it has increasingly become a subject of debate. The Boston Globe reported in Novemberthat Exiting Iraq had “struck a chord” with many experts,and it was featured in a New York Review of Books essay byHarvard’s Stanley Hoffman.

In discussing the near-term prospects for liberal democracy in Iraq, the task force drew on the work of Catosenior fellow Patrick Basham, who published a study inJanuary titled “Can Iraq Be Democratic?” He argues that the building blocks of democracy “are not elections, parties,and legislatures. Rather, the building blocks of democracyare supportive cultural values.” Iraq—like most Muslim andArab nations—currently lacks such a supportive culture, he concluded.

Cato research fellow Jonathan Clarke charges that theIraq war represents a radical departure from the traditionalprinciples of the Republican Party in America Alone: TheNeo-Conservatives and the Global Order, coauthored withStefan Halper. The neoconservative agenda, they charge,threatens American security by stirring up hornets’ nestsaround the world while overstretching military resources. Italso endangers liberty at home, as the demands of constantwarfare eat away at the constraints of limited government.

Despite Cato scholars’ reservations over the Iraq war,some of Cato’s traditional allies were supporters of the invasion. Seeking to improve understanding of the issue onboth sides of the debate, Cato assembled leading libertariansboth for and against the Iraq war for an October conference,“Lessons from the Iraq War: Reconciling Liberty andSecurity.” Reason’s Ron Bailey advocated a return of theReagan Doctrine under which the United States armed local

“This has become a terribly messy, difficult situation, and the United States does not have a clear exit strategy.”Ted Galen Carpenter, USA Today, 3.19.04


14


15


“[Exiting Iraq] convincingly argues [that] the prolonged occupation

is an open invitation for a steady buildup of grassroots Muslim

anger, and a breeding ground for terrorism.”

—The New York Review of Books

Dan Griswold, director ofCato’s Center for Trade PolicyStudies, lays out the facts ata Cato Capitol Hill Briefing,“The Truth about Job Losses and Free Trade.”

Columnist and television hostRobert Novak comments on the book America Alone: The Neo-Conservatives andthe Global Order, by StefanHalper and Cato research fellow Jonathan Clarke.



16

During 2004 Ted GalenCarpenter, vice president fordefense and foreign policystudies, published studies onKorea, Taiwan, and Iran, aswell as Iraq and the threat of terrorism.

Charles Peña, director of defense policy studies, listens as Irshad Manjidiscusses her book, The Trouble with Islam: A Muslim’s Call for Reform in Her Faith, calling for arevival of moderation andcritical thinking within Islam.

Amb. Edward Peck, formerchief of the U.S. mission in Baghdad, tells a PolicyForum audience that democracy is not like a cellphone; it doesn’t comewith a manual.


17


insurgents in oppressed countries. Cato’s Ted GalenCarpenter and Christopher Preble argued that a commitmentto limited government at home should translate into skepticism about adventurism abroad.

A September Policy Analysis argues that because most ofIraq’s debts were acquired by Saddam Hussein for the purpose of oppressing his own people, those debts are “odious” under international law and can be legally repudiat-ed. Given that any new Iraqi government will be struggling toestablish legitimacy and financial solvency, economistPatricia Adams argues, it would be both immoral and irresponsible for the Iraqi people to pay off creditors whohelped finance their oppression.

The war in Iraq isn’t the only distraction from the waragainst Al Qaeda. A November Foreign Policy Briefing byCarpenter argues that recent attempts to stamp out theopium trade in Afghanistan will alienate local warlords aswell as vast numbers of farmers whose support is critical inthe war against terrorism.

Cato scholars have emphasized that fighting terrorismrequires more than killing those plotting terrorist acts. To winthe war on terrorism, the United States must deter futuregenerations of Muslims from joining the terrorist cause. Oneway to do that is by creating economic opportunities in theMuslim world. In a January Trade Policy Briefing, “TradingTyranny for Freedom: How Open Markets Till the Soil forDemocracy,” Dan Griswold, director of Cato’s Center forTrade Policy Studies, argues that by concluding trade dealswith developing nations in troubled areas, the United Statescan spur economic growth and strengthen democratic andliberal forces within those nations. Terrorism experts speaking at a Cato Policy Forum in September agreed thatmore must be done to bridge the cultural gap between theUnited States and the Islamic world, but warned that U.S.foreign policy often undermines that broader goal by contributing to the misperception that the United States iswaging war on Islam.

Cato published a paper in March by Andrew Coulson,author of Market Education: The Unknown History, thatexamines the state of education in the Muslim world andargues that reducing the influence of extremist Islamistschools is critical to preventing another generation of youngMuslims from becoming terrorists. Strengthening fee-charging private schools is the most promising alternative, he argues. To ensure that parents in Muslim countries havethe resources to send their children to such schools, he advocates expanding free trade and focusing private foreignaid in the region on the private education sector.

Port security is vital to defending America. An April paper by Trade Policy Analyst Aaron Lukas proposes that the government set general standards and monitor private ship-

ping companies to ensure compliance. Wherever possible, heargues, government should not mandate specific technolo-gies or tactics, leaving implementation details to the privatesector. Since security is a necessary cost of doing businessinternationally, he argues, businesses and their customersshould bear the costs.

Cato also kept a close eye on other gathering threats to national security. At an October Policy Forum, experts considered the prospects of deterring Iran’s alleged nuclearprogram and the consequences if deterrence fails. Ted GalenCarpenter published an article on North Korean nuclear proliferation in the National Interest. In December Palgrave/Macmillan published The Korean Conundrum: America’sTroubled Relations with North and South Korea by Carpenterand Bandow. It examines the standoff on the Korean penin-sula and recommends that the United States lower its ownprofile in the region. That will force China and South Koreato take the lead in dealing with the rogue state. Cato alsowon major grants from the Ford Foundation and the New-Land Foundation to study how to strengthen nonprolif-eration efforts and explore how best to deal with the problemif nonproliferation efforts fail.

America’s implicit security commitment to Taiwan isanother source of danger to American security. At a JulyCapitol Hill Briefing, Carpenter said that both Taiwan andChina have become increasingly belligerent in recent years.Taiwan, he said, has grown used to de facto independencefrom China, and there are growing pressures to declare formal independence. China, on the other hand, has becomeincreasingly impatient with the status quo and has been rapidly expanding its military. The United States would dobest to clearly distance itself from any commitment to defendTaiwan before it gets caught in a war that could kill hundredsof thousands of Americans, Carpenter concluded.

With the situation in Iraq showing mixed signs ofimprovement, Cato’s stature on foreign policy issues can onlyincrease. Its analysts will continue to develop compellingalternatives to the failed interventionist policies of recentadministrations. The lessons of the Iraq war should lendthose proposals an increased urgency in the coming year.



America’s economy is the envy of the world. During thelast quarter century, the United States has not only been the richest nation on earth; it has also been growing faster than most other rich countries, widening its lead over thesclerotic economies of Western Europe. Still, the Americaneconomy can do much better in the years ahead. Cato’sscholars are at the forefront of the effort to build the freest,most dynamic, and most entrepreneurial economy the worldhas ever seen.

In almost every sector of the economy, Cato scholarsidentify government-imposed barriers to innovation and suggest ways to dismantle those barriers. Cato publishedstudies proposing reforms in such industries as health care,energy, telecommunications, and pharmaceuticals. Catoscholars advocated tax cuts and the simplification ofAmerica’s byzantine income tax system. They demonstratedthe dramatic economic benefits of “outsourcing” service jobsto low-wage countries like China and India—and the closelyrelated “insourcing” of jobs to the United States. And theycriticized recent abuses of the legal system that threaten tostifle innovation.

In September Cato published a book that clearly illustrates the advantages of America’s dynamic economy,Cowboy Capitalism: European Myths, American Realities byOlaf Gersemann. Gersemann, the Washington reporter forGermany’s leading business weekly, demonstrates that thegreater dynamism of the American economy was the drivingforce behind its impressive record of wealth creation. Thebook made a big impact, receiving prominent coverage in theWashington Post, the Wall Street Journal, and theInternational Herald Tribune. Nobel laureate MiltonFriedman called it a “devastating rejection of commonEuropean fallacies about the American economy. A realtreasure trove of thoughtful analysis.”

Few economic trends generated more controversy in2004 than the growing trade in services. Hyperbolic andmisleading media coverage of the “outsourcing” trend gavethe impression that America’s economic vitality was

slipping and that millions of American workers would soonfind themselves out on the street.

Throughout the year, Cato’s Center for Trade PolicyStudies provided a much-needed counterpoint to the scare-mongers. In March Brink Lindsey, Cato’s vice president forresearch, wrote a Trade Briefing Paper, “Job Losses andTrade: A Reality Check.” He argues that job churn is a stress-ful but necessary part of a dynamic economy. Technologicalprogress has been destroying jobs for decades, he notes, yetthere are more jobs today than ever before. Dan Griswold,director of the Center for Trade Policy Studies, spoke out regularly on the subject, appearing at events on Capitol Hilland on national television, including two spots on Lou DobbsTonight. He published a cover story in National Review, andLindsey published a cover story in Reason.

In October Cato held a major conference on jobs andtrade featuring such key figures as Sen. Chuck Hagel (R-NE);Greg Mankiw, chairman of the president’s Council ofEconomic Advisers; Martin Baily, Mankiw’s predecessorunder President Clinton; and Roger Ferguson, vice chairmanof the Federal Reserve Board. Panelists discussed the impactof the rising trade in services and emphasized that the short-term dislocations caused by “outsourcing” will payhandsome dividends as they increase the productivity of theAmerican economy, creating new, higher-paying jobs andlowering prices for American consumers. C-SPAN coveredthe conference live and later rebroadcast six hours of the proceedings.

Free trade was also an important issue in the controversy over drug “reimportation.” Roger Pilon, Cato’svice president for legal affairs, made a splash with theAugust publication of “Drug Reimportation: The Free MarketSolution,” which argues that Congress should lift the ban ondrug reimportation and allow the free market to sort out theconsequences. The study was covered on page two of theWashington Post and mentioned in a USA Today editorial.Pilon promoted his views in an October op-ed in the WallStreet Journal.

“The last thing patients need is for the government to inject moresocialism into their health care in the name of expanding cover-age. To borrow a phrase from President Reagan, government is not the solution to U.S. health care problems. It is the problem.”Michael Cannon, USA Today, 6.15.04


18


19


At Cato’s 22nd AnnualMonetary Conference—cosponsored with The Economist—KristinForbes of the Council ofEconomic Advisers arguesthat capital controls amountto “mud in the wheels ofmarket efficiency.”

Milton Friedman callsCowboy Capitalism “a comprehensive, indeed trulyencyclopedic, comparison of economic conditions andpolicies in the United Stateswith those in Germany,France, and Italy.”



20

Jack Valenti, longtime head of the Motion PictureAssociation of America, tellsa Cato conference that prop-erty rights are fundamentaland that young peopleshould be discouraged frompirating music and moviesusing the Internet.

At Cato’s conference on“Trade and the Future ofAmerican Workers,” RogerFerguson, vice chairman ofthe Federal Reserve Board,argues that economists mustdo a better job of clearlycommunicating the benefitsof trade to a skeptical public.


21


Corporate tax reform was a hot issue in the presidentialcampaign. A September issue of Cato’s Tax and BudgetBulletin by Chris Edwards, director of tax policy studies,examined Senator Kerry’s reform proposal and found it lack-ing. Throughout the year, Edwards emphasized that corpo-rate taxes are too high and too complicated. With PresidentBush’s reelection, fundamental reform of the personalincome tax will be a major issue in the coming year. Edwardswill publish a study in early 2005 reviewing the benefits ofthe leading alternatives, the flat tax and the national salestax, as well as proposing new alternatives. An October studyby senior fellow Stephen Moore and Phil Kerpen of the Clubfor Growth showed the positive impact of President Bush’sdividend tax cuts on corporate dividends.

Health care was another major issue in the 2004 campaign, and Cato scholars provided a wealth of researchemphasizing the benefits of markets, choice, and competi-tion in the health care field. Health Savings Accounts—a concept that Cato has promoted for more than a decade—came into their own in 2004. HSAs give control overhealth care decisions to patients instead of health carebureaucrats. The accounts were first proposed in the 1992book Patient Power, published by Cato. Congress introducedthe accounts in 1997 and dramatically expanded them inthe 2003 Medicare reform bill. By the end of 2004, morethan 70 insurance companies had announced plans to introduce HSA products. Surveys estimate that as many as73 percent of employers plan to offer HSAs by 2006. Asmore and more patients get HSAs, they will become moresavvy consumers, putting downward pressure on health carecosts for everyone.

In October Cato published a Policy Analysis byChristopher Conover of Duke University that calculated thecost of regulations in the health care field at a whopping$169 billion annually. Conover concludes that that hiddentax on health care services puts health insurance out of reachfor seven million Americans—one-sixth of the total numberof uninsured Americans. Conover suggests that tort reform,FDA reforms, and deregulation of health insurance and theaccreditation and licensure of medical professionals offer themost promise for health savings.

Cato scholars sharply criticized proposals to increasegovernment control over health care. In a February PolicyAnalysis, health policy studies director Michael Cannondemonstrated how the plans of Senator Kerry and otherDemocrats would lead to exploding health care costs andtransfer power over health care decisions from patients andtheir doctors to government bureaucrats. Cannon’s June op-ed in USA Today argued that greater government interven-tion in the health care market was the wrong way to help the uninsured. Cannon criticized socialized medicine in a

September appearance on The O’Reilly Factor. At aSeptember Policy Forum, John Goodman, president of theNational Center for Policy Analysis and coauthor of PatientPower, promoted his new book, Lives at Risk: Single-PayerNational Health Insurance around the World, and detailedthe often deadly consequences of giving government bureaucrats control over the health care industry. Hisremarks were published in Cato’s Letter, a free publicationthat is sent to 112,000 people every quarter.

Government meddling in health care kills people in moredirect ways as well. Cato held Policy Forums to highlight twoparticularly shocking examples of lethal government regula-tions. A May Forum featuring University of Chicago law professor Richard Epstein examined how government rulesagainst selling organs have led to a critical shortage oforgans, causing thousands of people every year to die onwaiting lists. A June Forum focused on the FDA’s policy ofrefusing possibly life-saving medication to terminally illpatients. Shockingly, the FDA requires that drugs meet the“safe and effective” standard even for patients who are like-ly to die before the completion of clinical trials. The leadersof Abigail Alliance, an organization of terminally ill peopleand their families, told about the FDA’s callous response totheir pleas for access to possibly lifesaving medicine.

A commonly heard excuse for restricting economic liberty is the supposed threat of global warming. But as Catosenior fellow Patrick Michaels documents in his latest book,Meltdown: The Predictable Distortion of Global Warming byScientists, Politicians, and the Media, the media too oftenfail to perform elementary fact checking when reporting onfuture catastrophes. Meltdown was Amazon.com’s number-one bestseller on global warming, and Michaels had evenmore impact when his work formed the scientific basis forMichael Crichton’s latest thriller, State of Fear.

Economic dynamism has been under particular attack inthe energy sector. Jerry Taylor, director of natural resourcestudies, was ubiquitous in the media in 2004. He publisheda trio of op-eds in the Wall Street Journal. An April op-ed,coauthored with Regulation editor Peter Van Doren, pointedout that, after adjusting for inflation, gas prices were notespecially high in historical terms. In July Taylor wrote thatthe common perception that Enron’s activities in the electric-ity business were an emblem of free markets run amok wasbackwards—after California’s electricity “deregulation,” thestate was more heavily involved in the electricity market thanever. Enron, he argued, merely took advantage of the incentives created by California’s byzantine regulatory system. Taylor and Van Doren also contributed an August op-ed on the first anniversary of 2003’s Northeast powerblackout that argued that that blackout’s causes were moreprosaic than is assumed by those who advocate sweeping



regulatory changes—poor tree maintenance near power lineswas the initial cause of the blackout, they write.

Telecommunications is the nervous system of a dynamiceconomy, and Adam Thierer, Cato’s director of telecommuni-cation studies, was a prominent voice on behalf of a innovative and competitive telecom sector. At the invitationof chairman John McCain, Thierer testified twice before theSenate Commerce Committee. In April he argued that the1996 Telecom Act, while a step in the right direction, hadnot gone far enough in freeing the telecom industry from regulatory meddling. At a March Capitol Hill Briefing, formerattorney general Bill Barr argued that the FCC had turned the intent of the 1996 Telecom Act on its head, using the law as an excuse for imposing a raft of new regulations on service providers.

In September Thierer was again asked to testify beforeCongress. He spoke in favor of loosening media ownershiprestrictions, noting that the explosion of media diversity madethe already flimsy rationale for such regulations completelyoutdated. Throughout the year, Thierer appeared on manymedia outlets, including the NewsHour with Jim Lehrer andNational Public Radio, to promote media deregulation.

A June conference examined the controversy over onlinefile-swapping networks, which are commonly used to illegal-ly trade copyrighted music. Speakers included Rep. RickBoucher (D-VA) and Motion Picture Association of Americapresident Jack Valenti. A December seminar in Silicon Valleyfocused on the technology options before Congress in thenext session.

With spyware, identity theft, and new privacy-threateningtechnologies becoming almost daily news, Cato hired Jim Harper as director of information policy studies inSeptember. As editor of Privacilla.org, Harper is a nationallyknown expert on privacy issues. In an August Policy Analysis,he urges lawmakers to focus on reducing government-created threats to privacy, such as comprehensive nationaldatabases and pervasive government surveillance. Attempts to heavily regulate privacy in the private sector,Harper writes, deprive consumers of the freedom to decidehow much personal information they want to share with others.

Cato publishes the quarterly Regulation magazine, aleading review of government regulations and their impact oneconomic dynamism. Regulation bridges the gap betweenacademia and the world of public policy, giving economiststhe opportunity to reach an audience that would otherwisenot be exposed to their work. The Spring issue criticizedEurope’s highly restrictive biotechnology regulations and proposals to require corporations to expense stock options.Contributors to the Summer issue debated the competitive-ness of the market for legal services and the advantages

and disadvantages of local zoning laws. The Fall issue examined the evolution of antitrust law, the interstate marketfor wine, and the advantages of state-based, rather than federal, regulation.

An out-of-control tort system and expansive antitrust lawalso threaten economic dynamism, as Robert A. Levy documents in Shakedown: How Corporations, Government,and Trial Lawyers Abuse the Judicial Process. Lawsuitsagainst tobacco, gun, and fast food manufacturers threaten to drive up costs and take choices away from consumers, he argues. And market losers too often wield antitrust law as a club against their more successful competitors. He proposes procedural reforms that will make it harder forplaintiffs to inflict abusive state tort laws on citizens of other states but argues that substantive tort reform must take place at the state level. Congress should repeal antitrustlaw, he writes.

Cato scholars strive to remind policymakers that everytax, regulation, and government program comes with animplicit cost to innovation and competition. In the comingyear they will press the case for reducing the government burden on the economy to ensure that America’s economycontinues to produce ever greater wealth for decades to come.

22


23


At Cato’s trade conference,Sen. Chuck Hagel stressesnot only that trade is goodfor American consumersbut that it promotes economic stability anddemocracy abroad.

Under the editorship of Peter Van Doren, such distinguished scholars asRichard Epstein, LawrenceLessig, John Mueller, M. A.Adelman, William Fischel,Daniel Shaviro, andLawrence J. White wrote for Regulation in 2004.



24

Secretary of Education Rod Paige tells a Cato BookForum audience that schoolchoice would help fulfill thepromise of Brown v. Board of Education.

Diane Ravitch, author of TheLanguage Police, discussespolitical pressures from rightand left on the textbookadoption process at a PolicyForum televised by C-SPAN.

White House domestic policychief Margaret Spellings,later named secretary of edu-cation, discusses PresidentBush's immigration reform at a Cato Policy Forum.


25


The welfare state hurts all taxpayers, but—because theiropportunities are already limited—it hurts the poor the most.High taxes make it hard to make ends meet. Regulations stifle small business creation and destroy entry-level jobs.And government monopolies cost too much and deliver too little for the money they receive.

As scholars in Cato’s Center for Educational Freedom haveshown, nowhere is that last tendency more obvious than ininner-city schools. Those government schools have some of the nation’s highest per pupil budgets and produce some of its worst educational outcomes. The parents of the children attending those schools often feel trapped—power-less to change how the school is run and unable to afford better alternatives.

Fortunately, there is an alternative: school choice.America’s schoolchildren got a late Christmas present inJanuary when President Bush signed into law a pilot schoolvoucher program for the nation’s capital. The signing cappeda year of hard work by Cato policy analyst Casey Lartigue,who spoke and wrote tirelessly in support of school choicethroughout 2003.

In April Cato published a book that illustrated just howbadly school choice was needed in the inner cities.Educational Freedom in Urban America: Brown v. Board afterHalf a Century demonstrates that America has failed to closethe racial achievement gap that has dogged America’s educa-tion system since the Supreme Court ordered the desegrega-tion of schools in 1954. The contributors argue that onlyschool choice will give parents the authority they need toensure that their children receive a high-quality education.

At a May conference, experts discussed the wide range ofschool choice experiments going on around the world, fromChile to Sweden. In the keynote address, James Tooley of theUniversity of Newcastle described how private schools weresuccessfully educating poor children in the world’s mostsqualid slums. The conference papers will form the basis of a book to be published in 2005.

Studies have shown that the surest ticket out of poverty isa steady job, and Cato has strongly supported the national

effort to move welfare recipients to work. Policy analystJenifer Zeigler published “Implementing Welfare Reform:A State Report Card” in October. She gave each state a lettergrade from A to F based on its success in reducing caseloads,imposing meaningful work requirements, reducing povertyrates, and other factors. The report got widespread coverageacross the country, including more than two dozen radio stations and 30 newspapers.

One group that is especially harmed by the welfare stateis immigrants. Because voters suspect immigrants of comingto America to go on the dole, immigration is severely restrict-ed and immigrants—most of whom are eager to work—oftenexperience an unfair stigma. Dan Griswold, Cato’s director fortrade policy studies, has long studied ways to help immi-grants come to work in the United States legally. In late 2002he published a Trade Policy Analysis calling for a temporaryworker program to allow those who wanted to take jobs in theUnited States to do so. The paper struck a chord. In January2004 President Bush proposed a reform plan of his own thatdrew on Griswold’s proposal.

Griswold received an avalanche of media coverage. InJanuary alone, he appeared on Lou Dobbs Tonight, CNBC’sCapital Report, CNN’s American Morning, PBS’s NightlyBusiness Report, the Fox News Channel’s Fox and Friends,and other national television programs. He was cited in theWashington Post, the New York Times, the San FranciscoChronicle, and other major papers. He appeared on LouDobbs Tonight again in March. In April he testified before theSenate Immigration Subcommittee.

With his reelection secured, President Bush is expected topush his immigration proposal forward in 2005. A forthcom-ing Cato study will focus on the economic need for increasedimmigration. As Congress and state legislatures debate immi-gration reform, welfare reform, school choice, and otherissues affecting the working poor, Cato scholars will promote policies that maximize all persons’ opportunity to earn a living for themselves and their families.

“We have no legal channel for peaceful, hard-working people tocome into the United States and fill the jobs that most Americansdon’t want. And the result is that you have illegal immigration.”Dan Griswold on Lou Dobbs, 11.17.04




America’s Bill of Rights is the strongest document indefense of individual liberty in the world. Its protectionsinclude the freedom of speech and religion, the right to a jurytrial, and guarantees against unreasonable searches andseizures. But those rights have been under attack in recentyears, as government officials have found them increasinglyinconvenient to accomplishing their policy objectives. Catoscholars spent 2004 reminding policymakers that not only isthe Bill of Rights the law of the land; it also contains guidingprinciples that should be embraced by elected officials andjudges, not cynically ignored and evaded.

Sadly, politicians and the courts haven’t always takenthat message to heart. When the Bush administrationdeclared two American citizens, Yaser Hamdi and JoséPadilla, “unlawful enemy combatants” and imprisoned themindefinitely without trial or access to counsel, TimothyLynch, director of Cato’s Project on Criminal Justice, was anearly and vocal critic of the administration’s actions. In 2004Cato filed friend-of-the-court briefs in both cases, arguingthat every U.S. citizen has the right to appear before a civilian judge to contest the grounds for his detention. TheSupreme Court agreed in both cases, requiring that theadministration justify its decisions to hold Hamdi and Padillabefore a “neutral decisionmaker.” Lynch published an op-edin the Wall Street Journal demonstrating that the Hamdicase involved much more fundamental issues than the fateof one suspected terrorist.

A major defeat for free speech came in the case ofMcConnell v. Federal Election Commission, in which theCourt held that restrictions on political advertising did notviolate the First Amendment. During 2004, Cato’s analystshighlighted the troubling consequences of that decision. Twoincidents in the heat of the 2004 presidential campaignillustrated the perils of government regulation of politicalspeech. In a September edition of 60 Minutes II, CBS anchorDan Rather showed documents purporting to cast doubt onPresident Bush’s military record. Those documents turnedout to be forgeries. But when some Republicans called for

congressional investigations of Rather’s reporting, AdamThierer, director of telecommunications studies, cried foul. InTechKnowledge, Cato’s technology policy newsletter, Thiereremphasized that—regardless of the merits of Rather’s reporting—CBS was protected by the First Amendment fromgovernment interference.

Democrats, in contrast, were incensed by an Octoberdocumentary attacking Sen. John F. Kerry for his record inVietnam. Seventeen senators signed a letter to the FederalCommunications Commission asking for an investigation ofthe propriety of airing Stolen Honor: Wounds That NeverHeal on Sinclair Broadcast stations, charging that the proposed broadcast would violate the 2003 McCain-Feingoldbill. Here again, Cato analysts defended the right to freespeech. In an October column for Fox News, John Samples,director of Cato’s Center for Representative Government,argued that it was precisely that kind of political speech thatthe First Amendment was designed to protect. Moreover, henoted, the problem of politicians suppressing citizen speechis bipartisan: Republicans made similar threats whenMichael Moore proposed to air his documentary Fahrenheit9/11 on broadcast TV prior to the election.

Janet Jackson’s February “wardrobe malfunction” set offa flurry of new proposals to censor not only broadcast televi-sion but cable and satellite television as well. Adam Thiererwas a prominent opponent of new “indecency” regulations.In op-eds, issues of TechKnowledge, and television appear-ances, he pointed out that the rationales generally used tojustify censorship of broadcast television do not apply to sub-scription services, which consumers must specifically chooseto order and install in their homes. At a September Cato sem-inar in Beverly Hills, Penn Jillette of the comedy duo Pennand Teller warned that recent congressional and regulatoryattempts to limit freedom of expression on the airwavesthreaten artistic freedom and creativity.

Civil liberties also took a hit in the case of Hiibel v.Nevada. Nevada resident Larry Hiibel was arrested afterrefusing to identify himself as required under state law.

“Whether it was intentional or not, (the law’s authors) staggered into a clear threat to core political rights.” John Samples on McCain-Feingold, Investor’s Business Daily, 6.25.04


26


27


Judge Andrew Napolitano,senior judicial analyst for Fox News and author of Constitutional Chaos:What Happens When theGovernment Breaks Its Own Laws, discusses civil liberties in wartime.



28

Cato’s Adam Thierer andmagician Penn Jillette, a Mencken Research Fellow at Cato, discuss new con-gressional and regulatorythreats to free speech on theairwaves at a Cato Seminarin Los Angeles.

These books offer timelywarnings about growingthreats to free speech fromanti-discrimination laws and the increasing criminal-ization of more and more peaceful activity.


29


He challenged the law on the basis of his Fifth Amendment privilege against self-incrimination, and Cato submitted abrief arguing that the state could not criminalize the simplesilence of a citizen. In a 5-4 decision, the Court held that theFifth Amendment did not protect a right to anonymity.Despite that setback, Cato’s brief generated significant pressattention, including citations in the New York Times, theAssociated Press, and elsewhere. Timothy Lynch and otherCato experts were sought out for dozens of radio and television interviews.

The Bill of Rights protects religious liberty too. Cato submitted an amicus brief in the case of Locke v. Davey,arguing that the state of Washington may not single out students pursuing religious instruction for exclusion from itsotherwise open-ended scholarship program.

In 2004 Cato scholars also continued to defend the rightto trial by jury. In 2002 Cato published a sweeping indict-ment of the present system of judicial sentencing guidelines,which requires judges to enhance defendants’ sentences onthe basis of conduct never brought before a jury. In a land-mark decision in June 2004, the Supreme Court ruled thatsuch enhanced sentences violate the Sixth Amendment’sguarantee of a jury trial. At an August Policy Forum, WilliamYoung, chief judge of the U.S. District Court in Massachusetts,who had anticipated the high court’s ruling with a similardecision earlier in the year, emphasized that juries anchorthe judicial system by providing a check on the unbridleddiscretion of judges. At the same event, Cato author ErikLuna argued that by taking discretion away from both thejudge and the jury, federal sentencing guidelines give defacto sentencing powers to prosecutors, who have wide discretion about the charges to bring against a defendant.

Cato senior editor Gene Healy exposes another worryinglegal trend in Go Directly to Jail: The Criminalization ofAlmost Everything. Congress, he writes, has developed a badhabit of criminalizing minor infractions of the law to scorepolitical points. Go Directly to Jail received favorable cover-age in Business Week, and its associated Cato Book Forumwas broadcast multiple times on C-SPAN. Healy’s FebruaryPolicy Forum on the militarization of law enforcement wasalso broadcast by C-SPAN.

The success of the 2003 title You Can’t Say That!—which demonstrated how anti-discrimination law run amokhas begun to clash with civil liberties—prompted Cato torelease a paperback edition of the book in 2004. It wasreviewed in the Baltimore Sun, the New York Post, and U.S.News and World Report.

Radley Balko joined Cato’s policy staff in April to focus onthe growing trend of government meddling in our personallives. Through lawsuits, regulation, and government-fundedpropaganda campaigns, an army of busy-bodies has sought

to dictate what we eat, what we drink, what we smoke, howoften we exercise, and many other decisions properly left to individuals.

Balko has hit the ground running. A packed Policy Forumin June focused on the growing movement to restrict advertising to children. Also in June, Balko was featured in aTime magazine cover story on the rising obesity rate andpenned an op-ed in the Washington Post on the crusade toban smoking in D.C. bars. In July the Los Angeles Timespublished a Balko commentary criticizing Medicare’s decision to cover obesity treatments without the explicitapproval of Congress. With director of health policy studiesMichael Cannon, Balko wrote an October column for theWashington Times, urging the federal government to make iteasier for health insurance companies to give preferentialrates to customers with good eating habits.

Balko has rapidly become one of the nation’s most prominent opponents of the trend toward a “nanny state.”In early 2005 Balko will publish an article in Playboy magazine and a major paper on obesity. Balko is also editinga forthcoming paper by the University of North Florida’s RonLibby criticizing federal regulators who have wasted lawenforcement resources penalizing doctors who prescribe painkillers liberally.

In 2004 civil liberties were a major theme in CatoAudio,Cato’s monthly audio magazine. The January issue featuredRep. Barney Frank (D-MA) criticizing his fellow liberals forsupporting gambling bans. The April issue featured critiquesby Cato senior editor Gene Healy and former representativeBob Barr (R-GA) of the increasing militarization of lawenforcement. In the October edition, Erik Luna highlightedthe injustice of the present system of federal sentencingguidelines. And Federal Election Commissioner Brad Smithwarned in the November issue that campaign finance restrictions threatened freedom of speech.



The last quarter century has been a heady era for loversof liberty. Around the world, countries unleashed marketforces to improve the lot of their citizens. Rich countries cuttaxes, privatized and deregulated industries, trimmed theirwelfare states, and reined in inflation. Poor countries saweven more dramatic gains. The Soviet Union crumbled,democracy took root in Latin America and Southeast Asia,South Africa ended apartheid, and China and India began toliberalize their socialist economies. The results have beenstunning: creativity and innovation have flourished, the worldhas become more connected, and hundreds of millions ofpeople have been lifted out of poverty.

But that liberal revolution is far from finished.Developing countries still have far too many barriers to entrepreneurship and wealth creation. And some nations—especially in Africa —missed the boat entirely, leaving themmired in poverty. Seeking to add momentum to liberalreforms, the Cato Institute brought together some of theworld’s leading market liberals for a major conference inRussia. Leaders who had successfully implemented reformsin their own countries, including Estonian prime ministerMart Laar, Cato senior fellow José Piñera, former Polishfinance minister Leszek Balcerowicz, former New Zealandfinance minister Ruth Richardson, and Kazakhstan deputyprime minister Grigori Marchenko, explained how they produced rapid economic growth through aggressive reduc-tions in the size of government and strengthening marketinstitutions. Nearly 500 people attended the conference,including participants from more than a dozen former communist nations.

The conference was organized by Ian Vásquez, director ofCato’s Project on Global Economic Liberty, and cosponsoredby the Institute of Economic Analysis and the Russian Unionof Industrialists and Entrepreneurs. It received a blizzard ofinternational press coverage, especially in Russia, where it was front-page news. The conference was capped by afour-hour meeting with Russian president Vladimir Putin,arranged by conference organizer and senior Kremlin adviser

Andrei Illarionov. Putin met with Cato president Ed Craneand other leading conference participants to discuss marketreforms in Russia. José Piñera, the architect of Chile’s successful pension reforms, urged Putin to modernizeRussia’s pension system, and Crane stressed the importancefor Russia’s future of free and independent media.

In May the Cato Institute awarded Hernando de Soto itsbiennial Milton Friedman Prize for Advancing Liberty, whichincludes a $500,000 grant funded by specially earmarkeddonations. De Soto was recognized for his lifelong devotionto conquering poverty by giving the poor access to secure private property and the rule of law. In the 1980s de Sotoand his colleagues at Peru’s Institute for Liberty andDemocracy successfully pressured the Peruvian governmentto enact reforms that, for the first time, gave Peru’s poorestcitizens strong legal protections for their homes, businesses,and other property. Since then, he has offered advice to leaders around the world on how to enact similar reforms intheir countries. Such luminaries as Milton Friedman, GeorgeShultz, Thomas Sowell, and Fareed Zakaria paid tribute to de Soto at a gala dinner in San Francisco.

A 2004 Cato book, Just Get Out of the Way: How Government Can Help Business in Poor Countries,emphasized that, too often, Western experts recommendsophisticated policies that governments in poor countriescannot successfully implement. Instead of adopting policiesthat are common in rich countries, development economistRobert E. Anderson suggests that policymakers take intoaccount the institutional weaknesses typical of developingcountries—corruption, deficient rule of law, cronyism, and soon. Simpler, market-oriented policies are more suitable topoor countries’ institutional environments and more likely to keep the private and public sectors honest, he argues.

One way to judge the progress of liberal reform is toexamine the annual Economic Freedom of the World report,which Cato publishes with the Fraser Institute in Canada. It rates countries on their progress on five major facets ofeconomic freedom—limited government, the rule of law,

“I see the IMF as being a burdensome third party which delays resolution of debt crises and creates uncertainty. It has becomemore and more evident that it has no role in an increasingly liberal world economy.” Ian Vásquez, National Post, 7.22.04

A D V A N C I N G T H E W O R L D W I D E L I B E R A L R E V O L U T I O N

30


31


Newsweek Internationaleditor Fareed Zakaria, amember of the internationalselection committee for theMilton Friedman Prize forAdvancing Liberty, presentsthe prize to Hernando de Soto.

Cato vice president JamesDorn (third from left) was a keynote speaker at theInternational Think TankForum in Shenzhen, China,and at the Atlas EconomicResearch Foundation confer-ence in Hong Kong. His topicwas “Why Freedom Matters.”



32

Senior fellow José Piñeragives Cato pamphlets onSocial Security privatizationto Russian president VladimirPutin at a four-hour meetingfollowing Cato’s Moscowconference, A Liberal Agendafor the New Century.

Kenyan activist June Arungablasts Africa’s kleptocraticrulers for destroying hopeand opportunity on the continent. She spoke at a March 30 Policy Forumfeaturing her new BBC documentary, The Devil’sFootpath: A Young Person’sJourney through Africa.


33


sound money, free trade, and deregulation. In 2004 HongKong retained its top ranking, and the United States wasranked the third-freest economy in the world. Overall, thereport tells an encouraging story: economic freedom isstrongly linked to economic prosperity, and the world’s average economic freedom index rose from 5.1 on a 10-point scale in 1980 to 6.5 today. Policymakers find thereport invaluable. John B. Taylor, under secretary of thetreasury for international affairs, said the economic freedomindex has a “direct impact on public policy, including thedevelopment policy of the United States.”

Sadly, prosperity has passed over some parts of theworld. Most tragic is Africa, which largely failed to partici-pate in the liberal revolution. In 2004 Cato highlighted thefact that most African governments ruthlessly exploit theirpopulations, driving them ever deeper into poverty. In aseries of Cato Policy Forums, speakers described the devas-tating economic effects of corruption, violence, and restric-tions on trade and travel. In March, 22-year-old Kenyanactivist June Arunga screened her new BBC documentaryabout her travels across Africa, in which she detailed the terrible misgovernment that plagues the continent. GeorgeAyittey, a Ghanaian economist at American University and awell-known critic of despotic African regimes, praisedArunga’s work and emphasized that, for the good of theAfrican people, world leaders must condemn the thuggery ofAfrica’s rulers. A June Cato event spotlighted the plight ofZimbabwe, which has seen its economy shrink as PresidentRobert Mugabe has resorted to increasingly drastic measuresto preserve his hold on power. At a November event RobertGuest of The Economist illustrated Africa’s plight with aseries of stories from his years of reporting from there. Heonce hitchhiked on an African beer truck that was stopped47 times by police officers seeking bribes. Little wonder, hesaid, that Africa has failed to prosper, given that commerceis choked off by violence and corruption.

Cato’s 22nd Annual Monetary Conference, titled“International Monetary Reform and Capital Freedom,”focused on the best ways for countries to liberalize their capital markets without precipitating currency crises. Accessto foreign capital is crucial to economic growth, as KristinForbes, a member of the president’s Council of EconomicAdvisers, argued in the luncheon address. Yet many criticswarn that capital liberalization can precipitate currencyinstability. In the keynote address, Federal Reserve BoardGovernor Ben Bernanke argued that monetary stability isbest achieved by choosing one of two extremes: large, stablenations should adopt freely floating exchange rates, whilesome smaller nations with weak political institutions mightbenefit from a “hard peg” to a major world currency, such asdollarization or a currency board. Leszek Balcerowicz, now

the head of Poland’s central bank, gave the closing address.Cato’s monetary conference has become a key venue forhigh-level discussion of monetary policy and financial services regulations.

Papers from the conference will be published in a forthcoming edition of Cato Journal, Cato’s interdisciplinaryjournal of public policy analysis. In 2004 Cato Journalincluded such distinguished contributors as Milton Friedman,Anna Schwartz, Alan Greenspan, and James Buchanan.

In addition to editing Cato Journal, Cato’s vice presidentfor academic affairs James Dorn promotes market reformsaround the world, notably in China. He delivered a keynoteaddress to a major conference of the China DevelopmentInstitute on the importance of liberalizing capital markets. Healso delivered a luncheon talk to the Asian resource bank inHong Kong and met with members of the Hong Kong cabi-net. He edited a Spanish-language collection of Cato writingson the Argentine financial crisis that received widespreadpress attention in Argentina.

Through papers, editorials, and media appearances,Cato’s Center for Trade Policy Studies has highlighted waysin which America’s protectionist policies harm not onlyAmerican consumers but the world’s poorest citizens aswell. At a June Policy Forum, Dan Griswold, director of thecenter, and Jennifer Brant of Oxfam argued that Westernagricultural subsidies depress prices for poor farmers strug-gling to feed their families. In a pair of July events, theambassadors of four Central American nations explained howthe proposed Central American Free Trade Agreement wouldspur economic development in their countries. A SeptemberTrade Briefing Paper by Griswold and policy analyst DanIkenson makes the case for the agreement. Also inSeptember, Ikenson penned a Wall Street Journal op-edwarning of the damage antidumping law is doing to U.S.credibility in trade negotiations.

Cato will continue to promote liberal reform in the com-ing year, bringing the benefits of limited government, privateproperty, free and independent media, and the rule of law tonations around the world.


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

34

As our elected officials debate how best to strengthen nationalsecurity and reform our entitlement programs, America’s foundingideals are at risk of being ignored or forgotten. Fortunately, theCato Institute exists to ensure that the ideals of limited govern-ment, individual liberty, free markets, and peace remain at the center of the policy debate. Cato has nearly 100 employees dedicated to advancing civil society in the policy trenches of ournation’s capital. Our scholars regularly appear on television andbefore congressional committees, but equally important are thesupport staff who work behind the scenes to publish, disseminate,and promote the scholars’ ideas. Their hard work and dedication make possible the steady stream of studies, books, conferences,and Hill Briefings that Cato produces week after week.

None of our efforts would be possible without the financialand moral support of our more than 15,000 individual Sponsorsand increasing numbers of foundation and corporate contributors.Many have supported our efforts for years, even decades. The support of so many intelligent, productive Americans andprestigious organizations from coast to coast reminds us that—contrary to the assumptions of the political class—the nation’sgreatness does not flow from Washington, D.C. And with theirfinancial support, we seek to preserve and expand the liberty that is the source of America’s greatness.


O U T R E A C H S TA F F

F I N A N C E S C O N T R I B U T O R S

PAGE 36Cato’s scholars are among the most influential voices in the national policy debate. They appear on networktelevision and radio, place op-eds in leading newspa-pers, and testify before Congress in defense of libertyand limited government.

PAGE 46Cato increased its revenues in 2004, but extraordinaryexpenses created a challenging fiscal environment. Cato continues to have a strong balance sheet, with net assets of more than $16 million.

PAGE 40Each of Cato’s nearly 100 associates—who include policy experts, writers and editors, artists and mediaprofessionals, programmers and administrators— is vital to the Institute's mission of advancing free markets and individual liberty.

PAGE 47Cato’s Sponsors have made a personal commitment to ensuring that liberty and limited government have a champion in Washington, D.C. Their generositymakes the work of the Institute possible.

35


36


M E D I A

Television Appearances Op-Eds in Newspapers Radio Appearances

1,250

1,000

750

500

250

0

News Coverage in the Media—20041,261

1,237

1,073

Cato's media relations department works to keep the Institute's scholars and ideas in the major national and international media.


37

O U T R E A C H

P O L I C Y A N A LY S I S

Cato’s Policy Analysis andBriefing Paper series provideexpert analysis of public policy issues. Highlights from the 48 papers published in 2004 include:

Jenifer Zeigler compiles a survey of state welfarereform efforts titled“Implementing WelfareReform: A State ReportCard.” In “DrugReimportation: The FreeMarket Solution,” RogerPilon argues that free tradeprinciples require allowingthe reimportation of prescrip-tion drugs. A study by ChrisEdwards gives a detailedblueprint for “Downsizing the Federal Government.”

C A T O A U D I O

Each edition of CatoAudiobrings listeners the bestanalysis and commentaryfrom recent events.

In January, Ed Crane tracesthe Republican Party’s abandonment of limited government principles. A special June edition featuresspeakers from the presenta-tion of the second biennialMilton Friedman Prize forAdvancing Liberty, includingThomas Sowell, FareedZakaria, and prize winnerHernando de Soto. Secretaryof Education Rod Paigeappears in July, and FederalElection Commission chairman Brad Smithis featured in November.

Cato Supreme Court Review 2003–2004,ed. Mark K. Moller

Cowboy Capitalism, Olaf Gersemann

Economic Freedom of the World 2004Annual Report, James Gwartney andRobert Lawson

Educational Freedom in Urban America,ed. David Salisbury and Casey Lartigue

Exiting Iraq, ed. Christopher Preble

Declaración de Independencia y laConstitución de los Estados Unidos de América

Go Directly to Jail, ed. Gene Healy

Just Get Out of the Way, Robert E. Anderson

Korean Conundrum, Ted Galen Carpenter and Doug Bandow

Meltdown, Pat Michaels

Restoring the Lost Constitution, Randy E. Barnett

Shakedown, Robert A. Levy

Social Security and Its Discontents,ed. Michael D. Tanner

You Can’t Say That, David E. Bernstein

B O O K S

P U B L I C AT I O N S

R E G U L A T I O N

Regulation is Cato’s quarterly review of businessand government. Featuredarticles include:

Spring: Daniel Shaviro writesthat cutting taxes while letting spending rage out of control only piles costsonto future taxpayers.

Summer: Stanford’s BruceOwen argues that healthycompetition in the market for high-speed Internetaccess makes governmentintervention unnecessary.

Fall: John Mueller warns thatrecent media attention to ter-rorism overestimates the riskthat everyday Americans face.

T H E C A T O J O U R N A L

The Cato Journal is an interdisciplinary journal of public policy analysis.Featured articles include:

Spring/Summer: In a special joint issue, AlanGreenspan analyzes the sustainability of the U.S.trade deficit and Nobel laure-ate James M. Buchananexamines the constitutionaldesign of the European common currency.

Fall: Leszek Balcerowicz,president of the NationalBank of Poland, arguesthat limited government “provides the best defense of economic liberties and personal freedom.”


38

O U T R E A C H

O N L I N E

W E B S I T E S

The Cato Institute saw strong growth in Web traffic in 2004. In addition to its primary website, w w w. c a t o . o r g , Cato maintainsw w w. s o c i a l s e c u r i t y . o r g , with comprehensive information on Social Security reform; w w w. f r e e t r a d e . o r g , which features the work of Cato's prolific Center for Trade Policy Studies; and w w w. e l c a t o . o r g , featuring Spanish translations of Cato publications.

2000 2001 2002 2003 2004

25,000

20,000

15,000

10,000

5,000

0

www.cato.org

9,035

12,922

15,427

20,024

23,507

E - N E W S L E T T E R S

Tens of thousands of individuals have signed up to receive e-mail updates from Cato. The Cato Daily Dispatch features commentary by Cato scholars on the news of the day. Other e-mail newsletters include TechKnowledge, Social Security this Week, Tax and Budget Bulletin, and the Free Trade Listserv.

12,000 Subscribers to Daily Dispatch

O N L I N E E V E N T S

Website visitors can listen to audio or view videostreams of live or archived Cato events.

P O L I C Y A N A LY S I S

More than 700 studies published by Cato since1980 are available for on-line viewing or download.

107,000Downloads of Real Audio Files

Average Weekday Visitors per Year

Over 1.5 Million Visits to PolicyAnalysis Online


3939


C O N F E R E N C E S

City SeminarsCato held 10 seminars around the country in 2004, in cities from Boston to Atlanta to Los Angeles.With several thousand attendees, the seminars gave Sponsors and others interested in liberty theopportunity to hear from some of the nation’s leading commentators on politics, culture, and society.In New York City, Christopher Hitchens gave a withering critique of Mayor Bloomberg’s smokingban. In Chicago, Charles Murray surveyed human achievement across the centuries and AdrianWooldridge surveyed America's conservative movement across the decades. And, in Philadelphia,Fox News judicial analyst Andrew Napolitano exposed growing threats to civil liberties.

Hill BriefingsThere were 22 Cato Hill Briefings in 2004. They gave congressional staffers up-to-date information on pending legislative issues. In January Mike Tanner unveiled Cato’s Social Securityreform plan, and Dan Griswold appeared with Rep. Jeff Flake (R-AZ) to highlight the need for a temporary worker visa program. In March Adam Thierer and former attorney general Bill Barroutlined key goals for a new telecom act. In July Ted Galen Carpenter warned of the dangers of a U.S.-China war over Taiwan. And in September Roger Pilon spoke in support of drug reimportation. More than 1,600 people attended Hill Briefings in 2004.

Book/Policy ForumsCato brings its own scholars and other leading experts together to discuss new books and debateimportant policy issues in the Cato Book Forum and Cato Policy Forum series. In 2004 Cato heldmore than one Forum per week—26 Book Forums and 34 Policy Forums. The events were verypopular, with nearly 5,000 attendees throughout the year. Speakers included humorist P. J.O’Rourke, Secretary of Education Rod Paige, presidential adviser Margaret Spellings, authors Ron Suskind and David Frum, and former House majority leader Dick Armey.

Major Conferences2004 was a busy year for conferences at Cato. A pair of April events in Moscow and Saint Petersburgdrew more than 500 opinion leaders from around the world. Nearly 300 people gathered in SanFrancisco to see Hernando de Soto receive the second biennial Milton Friedman Prize for AdvancingLiberty. With The Economist magazine, Cato held two major conferences in October—the 22nd annual monetary conference, “International Monetary Reform and Capital Freedom,” and the first annual trade conference, “Trade and the Future of American Workers.” Those and six other conferences were held in Cato’s F. A. Hayek Auditorium, drawing more than a thousand participants.

Cato UniversityCato senior fellow Tom Palmer organized two Cato University seminars in 2004. At the weeklongsummer seminar in San Diego, 100 students, working adults, and retirees learned about libertyfrom distinguished scholars in economics, law, psychology, and history. The October seminar in Quebec City, with 75 attendees, focused on developing skills of persuasion. Gene Healy, DanGriswold, Monte Solberg, and others offered advice on defending free markets and individual liberty in newspapers, on talk radio, and with family and friends.


40

E X E C U T I V E

Edward H. CranePresident and CEO

David BoazExecutive Vice President

William A. NiskanenChairman

A D M I N I S T R AT I O N

Krystal BrandIntern Coordinator

Charlene ChenAdministrative Assistant

Andre DunstonVanguard Security Company, Security Guard

William EricksonVice President for Finance and Administration

R. J. Gaitan-HFacilities Manager

Jessica GuidoAccounting Clerk

Brian HaynesworthMail Room Manager

Madison KitchensAdministrative Assistant

McKinley NussbaumAdministrative Assistant

Brian SakalaController

Janette StoutDirector of Administration

Anna StromanAdministrative Assistant

C E N T E R F O R C O N S T I T U T I O N A L

S T U D I E S

Radley BalkoPolicy Analyst

Robert A. LevySenior Fellow

Timothy LynchDirector, Project on Criminal Justice

Mark MollerSenior Fellow

Roger PilonVice President for Legal Affairs and Director

C E N T E R F O R E D U C AT I O N A L

F R E E D O M

Jessie CreelResearch Assistant

Marie GryphonPolicy Analyst

Neal McCluskeyPolicy Analyst

David SalisburyDirector

C E N T E R F O R R E P R E S E N TAT I V E

G O V E R N M E N T

Patrick BashamSenior Fellow

John SamplesDirector

C E N T E R F O R T R A D E P O L I C Y

S T U D I E S

Dan GriswoldDirector

Matthew KlokelCommunications Assistant

Daniel J. IkensonPolicy Analyst

C O M M U N I C AT I O N S

Jorge ArteagaAudio-Visual Specialist

Athena BejaranoMarketing Assistant

Garrett BrownMarketing Manager, Publications

Jamie DettmerDirector of Media Relations

Wyatt DuBoisSenior Manager of Media Relations

Kristen KestnerMedia Manager

Brian KiefferInternet Content Manager

Jeremy LottManager of Editorial Services

Evans PierreDirector of Broadcasting

Susan SevernDirector of Marketing

C O N F E R E N C E

Margaret BruntragerCoordinator

Maria GamboneAssistant

Linda HertzogDirector

Renee MoranAssociate Director

D E F E N S E A N D F O R E I G N P O L I C Y

S T U D I E S

Doug BandowSenior Fellow

Ted Galen CarpenterVice President for Defense and ForeignPolicy Studies

Justin LoganResearch Assistant

Charles V. PeñaDirector of Defense Policy Studies

Christopher PrebleDirector of Foreign Policy Studies

D E V E L O P M E N T

Lesley AlbaneseDirector of External Affairs

Gordon CummingsDevelopment Coordinator

Ray DormanVice President for Development

Ashley MarchDirector, Foundation Relations

Michael D. PodguskiDevelopment Coordinator

John Tamny Director of Development

James WilsonManager of Data Services

Ben WycheResearch Assistant


S TA F F


F I S C A L P O L I C Y S T U D I E S

Chris EdwardsDirector of Tax Policy Studies

Alan ReynoldsSenior Fellow

Stephen SlivinskiDirector of Budget Studies

Nathan SmithFiscal Policy Research Analyst

G O V E R N M E N T A F FA I R S

Susan ChamberlinVice President for Government Affairs

Duygu “Dee” Erdemgil FureyGovernment Affairs Associate

Ryan YoungGovernment Affairs Assistant

H E A LT H A N D W E L FA R E S T U D I E S

Adrienne AldredgeResearch Assistant

Berna BrannonSocial Security Analyst

Michael F. CannonDirector of Health Policy Studies

Jagadeesh GokhaleSenior Fellow

Brooke OberwetterResearch Assistant

Michael D. TannerDirector, Project on Social Security Choice and Director of Health and Welfare Studies

Jenifer ZeiglerWelfare Policy Analyst

N AT U R A L R E S O U R C E S T U D I E S

Patrick J. MichaelsSenior Fellow in Environmental Studies

Jerry TaylorDirector of Natural Resource Studies

P R O J E C T O N G L O B A L E C O N O M I C

L I B E R T Y

Marian L. TupyAssistant Director

Ian VásquezDirector

P U B L I C AT I O N S

Pat BullockProduction Designer

Gene HealySenior Editor

Elizabeth KaplanSenior Copyeditor

David LampoPublications Director

Timothy B. LeeStaff Writer

Claudia RingelCopyeditor

Elise RiveraAssociate Art Director

Jonathan TragerProofreader

Whitney WardProduction Manager

R E G U L AT I O N

Tom FireyManaging Editor, Regulation Magazine

Peter Van DorenEditor, Regulation Magazine

R E S E A R C H A N D A C A D E M I C

A F FA I R S

James A. DornVice President for Academic Affairs

Brink LindseyVice President for Research

Tom G. PalmerSenior Fellow and Director of Cato University

Will WilkinsonPolicy Analyst

T E C H N O L O G Y A N D

T E L E C O M M U N I C AT I O N S

Jim HarperDirector of Information Policy Studies

Thomas PearsonResearch Assistant

Adam D. ThiererDirector of Telecommunications Studies

W E B A N D M I S S E R V I C E S

Virginia AndersonDirector of Web Services

Mark BoudreauManager of Web Services

Laurie CampbellData Entry Clerk

Scott GammonData Entry Clerk

Lee LasloWeb Services Specialist

Jennifer McMullinDatabase Coordinator

Alan PetersonDirector of MIS

41

S TA F F



42

Doug Bandow

Roger Pilon

Mark Boudreau

José Piñera and Bill Erickson

Jenifer Ziegler

Gene HealyMaria Gambone


S TA F F

43

Wyatt DuBois,Margaret Bruntragerand Ray Dorman

Evans Pierre

Michael Cannon

Marie Gryphon

Lesley Albanese and David Boaz


44


F E L L O W S

F. A. Hayek (1899–1992)Distinguished Senior Fellow

James M. BuchananDistinguished Senior Fellow

José Piñera Distinguished Senior Fellow, Co-chairman,Project on Social Security Choice

Earl C. RavenalDistinguished Senior Fellow in ForeignPolicy Studies

Randy E. BarnettSenior Fellow

James BovardAssociate Policy Analyst

Jonathan G. ClarkeResearch Fellow in Foreign Policy Studies

Lawrence GasmanSenior Fellow in Telecommunications

Leon T. HadarResearch Fellow in Foreign Policy Studies

Ronald HamowyFellow in Social Thought

Steve H. HankeSenior Fellow

John HasnasSenior Fellow

Penn JilletteMencken Research Fellow

Stanley KoberResearch Fellow in Foreign Policy Studies

David KopelAssociate Policy Analyst

Christopher LayneVisiting Fellow in Foreign Policy Studies

Patrick J. MichaelsSenior Fellow in Environmental Studies

Stephen MooreSenior Fellow

Gerald P. O’Driscoll Jr.Senior Fellow

P. J. O’RourkeMencken Research Fellow

Jim PowellSenior Fellow

Ronald D. Rotunda Senior Fellow in Constitutional Studies

William RugerResearch Fellow in Foreign Policy Studies

Teller Mencken Research Fellow

Cathy YoungResearch Associate

A D J U N C T S C H O L A R S

Terry L. AndersonProperty and Environment ResearchCenter

Dominick T. ArmentanoUniversity of Hartford

Ronald A. BaileyReason

Charles W. BairdCalifornia State University at Hayward

Carlos BallAgencia Interamericana de PrensaEcónomica

Tom W. BellChapman University School of Law

Lorenzo Bernaldo de QuirósMadrid, Spain

Donald J. BoudreauxGeorge Mason University

Robert L. Bradley Jr.Institute for Energy Research

Reuven BrennerMcGill University

Robert Corn-RevereHogan and Hartson

Tyler CowenGeorge Mason University

W. Michael CoxFederal Reserve Bank of Dallas

Clyde Wayne Crews Jr.Competitive Enterprise Institute

Jarett B. DeckerWolf, Block, Schorr and Solis-Cohen

Veronique de RugyCenter for Freedom and Prosperity

Kevin DowdNottingham University Business School

Alan EbensteinSanta Barbara, California

Bert ElyEly and Company, Inc.

Catherine EnglandMarymount University

Richard A. EpsteinUniversity of Chicago Law School

Marilyn R. FlowersBall State University

F E L L O W S A N D A D J U N C T S C H O L A R S


45

F E L L O W S A N D A D J U N C T S C H O L A R S

Enrique GhersiUniversidad de Lima

Richard L. GordonPennsylvania State University

Michael GoughBethesda, Maryland

James D. GwartneyFlorida State University

Scott E. HarringtonUniversity of South Carolina

Thomas HazlettManhattan Institute

Robert HiggsSeattle, Washington

Edward L. HudginsObjectivist Center

David A. HymanUniversity of Maryland School of Law

David IsenbergWashington, D.C.

Kay H. Jones Zephyr Consulting

Jerry L. JordanFederal Reserve Bank of Cleveland,Retired

Daniel B. Klein Santa Clara University

Deepak K. Lal University of California, Los Angeles

Dwight R. Lee University of Georgia

Stan LiebowitzUniversity of Texas, Dallas

Jonathan R. Macey Cornell University

Tibor Machan Chapman University

Thomas M. Magstadt University of Missouri, Kansas City

Henry G. Manne University of Chicago Law School

Robert M. S. McDonaldU.S. Military Academy

Richard B. McKenzieUniversity of California at Irvine

David I. Meiselman Virginia Polytechnic Institute

Robert J. Michaels California State University, Fullerton

Steven J. Milloy Junkscience.com

Cassandra Chrones Moore Competitive Enterprise Institute

Thomas Gale Moore Hoover Institution

Michael New University of Alabama

Randal O’Toole Thoreau Institute

Ellen Frankel Paul Bowling Green State University

Sam Peltzman University of Chicago

David G. Post Temple University Law School

Alvin Rabushka Hoover Institution

Richard W. Rahn Novecon Management

Roberto Salinas-León Economist Corporate Network

David Schoenbrod New York Law School

Pedro Schwartz Universidad de Autonoma de Madrid

George A. Selgin University of Georgia

Bernard H. Siegan University of San Diego Law School

Vernon L. Smith George Mason University

Richard L. Stroup Montana State University

Thomas Szasz Upstate Medical University, StateUniversity of New York

Richard H. Timberlake University of Georgia

Charlotte Twight Boise State University

Lawrence H. White University of Missouri, St. Louis

Walter E. WilliamsGeorge Mason University

Leland B. YeagerAuburn University

Kate Xiao Zhou University of Hawaii at Manoa

Benjamin ZycherRand Corporation


2 0 0 4 I N C O M E 2 0 0 4 E X P E N S E S

46


F I N A N C E S

2 0 0 4 I N C O M E

Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . .$11,041,000

Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,830,000

Program Revenue . . . . . . . . . . . . . . . . . . . . . . . .1,032,000

Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .843,000

Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177,000

Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$14,923,000

A S S E T S A N D L I A B I L I T I E S

Cash and Equivalents . . . . . . . . . . . . . . . . . . .$8,466,000

Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . .7,395,000

Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .973,000

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(557,000)

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .$16,277,000

Cato experienced strong increases in individual supportduring 2004. The Institute benefited from a solid baseof donors who renew their sponsorships year after year,coupled with several thousand new Sponsors. Aboutthree of every four dollars in support comes from thegenerosity of individuals. In 2004 donations increased11 percent over the previous year, with most of thisincrease coming from individuals. Total revenues rose to$14.9 million, an increase of $1.5 million over the previous year.

Expenses in 2004 increased $1.4 million, contribut-ing to a deficit for the year. However, several extraordi-nary expenses incurred in 2004 are not anticipated in2005, which should permit us to replenish our reservesgoing forward.

Cato, having no significant endowment, relies onannual support to fund its programs. Overall financialstrength remains strong, with assets of $16.8 million,offset by $557,000 in liabilities.

Individuals 74%

Foundations 12%

Program Revenue 7%

Corporations 6%

Other Income 1%

Program Expenses 73%

Management and General 18%

Development 9%


47

F I N A N C E S & C O N T R I B U T O R S

C O R P O R AT I O N S

Agusta Westland Inc.

Altria Group, Inc.

Amerisure Companies

Bond Market Association

Caterpillar Foundation

Comcast Corporation

Fair Trade Center

FedEx Corporation

Freedom Communications, Inc.

General Motors Corporation

Honda North America Inc.

Judson & Associates

Korea International Trade Association

Mazda North America Operations

Microsoft Corporation

Mitsubishi Motors America Inc.

National Association of Software & Service Companies

Procter & Gamble Company

R. J. Reynolds Tobacco Company

The Economist Newspaper Limited

Time Warner Inc.

Toyota Motor Corporation

UST Inc.

Verisign Inc.

Verizon Communications

Volkswagen of America, Inc.

Wal-Mart Stores Inc.

F O U N D AT I O N S

Achelis & Bodman Foundations

Armstrong Foundation

Carthage Foundation

Castle Rock Foundation

D & D Foundation

William H. Donner Foundation

Dufresne Foundation

Earhart Foundation

Ford Foundation

Milton & Rose Friedman Foundation

Gillette Company

Pierre F. & Enid Goodrich Foundation

Grover Hermann Foundation

Herrick Foundation

John E. and Sue M. Jackson Charitable Trust

Jeld-Wen Foundation

Johnson Family Foundation

Kern Family Foundation

F. M. Kirby Foundation

David Koch Foundation

Vernon K. Krieble Foundation

Lodestar Foundation

New-Land Foundation Inc.

Opportunity Foundation

John William Pope Foundation

Roe Foundation

Sarah Scaife Foundation

Sunmark Capital Corporation

Ruth & Vernon Taylor Foundation

John Templeton Foundation

C O N T R I B U T O R S


K. Tucker AndersenSenior Consultant, Cumberland Associates LLC

Frank BondChairman, The Foundation Group

Edward H. CranePresident, Cato Institute

Richard J. DennisPresident, Dennis Trading Group

Ethelmae C. HumphreysChairman, Tamko Roofing Products, Inc.

David H. Koch,Executive Vice President, Koch Industries, Inc.

John C. MaloneChairman, Liberty Media Corporation

William A. NiskanenChairman, Cato Institute

David H. PaddenPresident, Padden & Company

Lewis E. RandallBoard Member, E*Trade Financial

Howard S. RichChairman, Americans for Limited Government

Frederick W. SmithChairman & CEO, FedEx Corporation

Jeffrey S. YassManaging Director, Susquehanna International Group, LLP

B O A R D O F D I R E C T O R S


1000 Massachusetts Ave., NWWashington, District of Columbia 20001tel. 202.842.0200 fax. 202.842.3490www.cato.org

2004 Annual Report

CATO

Institute 200

4 A

nnual Report

annual_report_cover_PRINT.qxp 3/7/2005 5:22 PM Page 1

annual report text pgs PRINT - Cato Institute · Edward H. Crane 2 Cato Institute • 2004 Annual...

Documents

Transcript of annual report text pgs PRINT - Cato Institute · Edward H. Crane 2 Cato Institute • 2004 Annual...