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Council of Academic Advisers Paul W. McCracken, Chairman, Edmund Ezra Day University Professor of Busi­ ness Administration, University of Michigan Kenneth W. Dam, Harold ]. and Marion F. Green Professor of Law, University of Chicago Law School Milton Friedman, Paul Snowden Russell Distinguished Service Professor of Eco­ nomics, University of Chicago; Nobel Laureate in Economic Science Donald C. Hellmann, Professor of Political Science and Comparative and Foreign Area Studies, University of Washington D. Gale Johnson, Eliakim Hastings Moore Distinguished Service Professor of Economics and Provost, University of Cl,icago Robert A. Nisbet, Albert Schweitzer Professor of Humanities, Columbia University G. Warren Nutter, Paul Goodloe Mcintire Professor of Economics, University of Virginia Marina v. N. Whitman, Distinguished Public Service Professor of Economics, Uni­ versity of Pittsburgh James Q. Wilson, Henry Lee Shattuck Professor of Government, Harvard University

Executive Committee Herman J. Schmidt, Chairman of the Board Richard J. Farrell William J. Baroody, Jr., President Richard B. Madden Charles T. Fisher III, Treasurer Richard D. Wood

Gary L. Jones, Vice President, Edward Styles, Director of Administration Publications

Program Directors Periodicals Russell Chapin, Legislative Analyses AEI Defense Review, Robert A. Goldwin, Seminar Programs Robert J. Pranger, Bruce Palmer, Jr., Co-Editors Robert B. Helms, Health Policy Studies AEI Economist, Economic Policy Studies Herbert Stein, Thomas F. Johnson, Editor Marvin H. Kosters/James C. Miller III, Public Opinion, Government Regulation Studies Seymour Martin Lipset, Ben J. Wattenberg, Co­ W. 5. Moore, Legal Policy Studies Editors; David R. Gergen, Rudolph G. Penner, Tax Policy Studies Managing Editor Howard R. Penniman/ Austin Ranney, Regulation, Anne Brunsdale, Political and Social Processes Editor Robert J. Pranger, Foreign and Defense William J. Baroody, Sr., Policy Studies Counsellor and Cl1airman, Laurence H. Silberman, Special Projects Development Committee THE DOLLAR ABROAD. INFLATION AT HOME THE DOLLAR ABIAD. INFLATION ATHOME John Charles Daly, Moderator William Fellner Robert Solomon Herbert Stein Henry Wallich

Held on August 31, 1978 and sponsored by the American Enterprise Institute for Public Policy Research Washington, D.C. This pamphlet contains the edited transcript of one of a series of AEI forums. These forumsoffer a medium for informal exchanges of ideas on current policy problems of national and international import. As part of AEl's program of providing opportunities for the presentation of competing views, they serve to enhance the prospect that decisions within our democracy will be based on a more informed publicopinion. AEI forumsare also available on audio and color video cassettes.

AEI Forum 22

© 1978 by American Enterprise Institute forPublic Policy Research, Washington, D.C. Permission to quote from or reproduce materials in this publication is granted when due acknowledgment is made.

Views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI.

ISBN 0-8447-2141-7 Library of Congress Catalog Card No. 78-57945

Printed in United States of America OHN CHARLES DALY, former ABC News execu­ J tive and forummoderator: This Public Policy Forum, part of a series presented by the American Enterprise Institute, is concerned with the economic well-being of this nation at home and abroad. Our subject is, The Dollar Abroad, Inflationat Home. Our dollar has been fallingin value against other major currencies for a year. Now, bruised, battered, and sliding steeply to record lows, the declining dollar has taken center stage as one of the most urgent economic issues facedby the free world nations. Foreign central banks, which bought $30 billion in 1977 to support the dollar against their currencies, have criticized the United States for its reluctance to intervene in the cur­ rency markets, on a large scale, to that same purpose. The administration's position has been that we support the pres­ ent system of managed floating currencies, and that inter­ vention should be used only to counter disorderly market conditions, not to establish, or peg, values at any particular level. In the dog days of August 1978, the administration seems to have decided that disorderly market conditions have arrived. The White House announced that the sharp decline in the dollar and disorderly market conditions, at a time when the trade position is showing signs of real im­ provement, could threaten progress toward dealing with

I our inflation and achieving orderly growth at home and abroad. Federal Reserve Board chairman William Miller and Secretary of the Treasury Michael Blumenthal were asked by the White House to consider what actions would be appropriate on their part, and to recommend presidential action to deal with this situation. The Fed and the Treasury moved promptly in the foreign currency and domestic credit markets, and increased gold sales. The situation stabilized briefly, but the late August an­ nouncement that the U.S. trade deficit for July was just under $3 billion, the fourthlargest monthly deficitever, lost the ground gained by the administration's announced de­ termination to strengthen the dollar. For the average layman, all was confusion.What are the causes of the dollar's decline? What does it have to do with inflationat home? And what, if anything, can we do about it? Dr. Stein, for five years you served as a member of the President's Council of Economic Advisers, and forthree of those years as its chairman. Would you be good enough to explain in layman's terms why the dollar has steadily lost value around the world?

HERBERT STEIN, A. Willis Robertson professor of economics at the University of Virginia and AEI senior fellow: John, I don't know whether the question was meant to imply that the dollar has lost value because I was there for five years, but if that is the implication, I would like to deny it. [Laugh­ ter.] The dollar did decline somewhat while I was there, but that was only a correction of a great overvaluation of the dollar, which had been building up for a long time. If you are asking why the dollar has declined more recently-that is, several years after I left the govern­ ment-I think there are a number of reasons. There is something to the most common argument, which has often

2 been made by the administration, that the large imports of oil have something to do with it. We pay a great deal more to the oil-exporting countries than they spend here. I think our big balance of trade deficitswith countries other than the oil-exporting countries also have something to do with it. There are a number of reasons why people outside the United States, who have been holding an enormous part of their liquid assets in the formof dollars, would want to shift out of dollars and have a wider diversificationof their assets, which would put some downward pressure on the dollar. But while all of these factors and others would tend to explain why the dollar has gone down, I do not think any of them, or all of them together, would explain why the dollar has gone down as much as it has, without bringing in the fact that the United States has recently had more inflationthan many of the other industrial countries. And there is a great suspicion, which is not without foundation, that we will go on having a higher inflationrate than the rest of the world. So if we project this kind of situation forfive years, the U.S. price level may rise by that time to 30 percent more than the Swiss price level, or the German price level, or the Japanese price level. That has a large effectand is a crucial part of the explanation, because, according to the textbooks, we hold or value currencies for what they will buy. And we are seeing that the dollar will buy less than other currencies. So it has gone down.

MR. DALY: Dr. Wallich, you have served on the President's Council of Economic Advisers and now are a member of the Board of Governors of the Federal Reserve. At the end of August, you warned that we may face an inflationrate of 8 percent through the end of 1979, which is considerably higher than the administration's official fore­ cast. Does the dollar's loss of value play a major role in inflation at home?

3 HENRY WALLICH, member of the Board of Governors of the Federal Reserve System: The broad answer to that is yes. Let me make clear that I did not predict an 8 percent rate of inflation; I said that this might happen, and we need to take urgent action. It was part of a proposal I was making-to tax companies that give excessively high wage increases, and thereby help other measures we must take to restrain infla­ tion. The other measures we have to take are very familiar. We have to bring the budget deficit down and keep the money supply fromgrowing excessively; these are essential things. My proposal fora tax on excessive wage increases is something that would also be helpful,but I do not expect it to be enacted very soon. As far as the relationship of inflation and the dollar is concerned, I do see a two-way street. On one side, inflation causes our trade balance to deteriorate; it also causes people to take their money out of the United States. On the other side, the decline in the dollar that results fromthose events tends to accelerate our own inflation to some measurable degree.

MR. DALY: Dr. Fellner, after nearly fortyyears as professor of economics at the University of California, Berkeley, and at Yale, capped with service as a member of the President's Council of Economic Advisers, you are now directing a project on contemporary economic problems at the Ameri­ can Enterprise Institute. How do you rank the dollar crisis, if that is a proper description, among the current economic problems?

WILLIAM FELLNER, Sterling professor of economics emeritus at Yale University and AEI resident scholar: It is a very serious problem that is intimately connected with our do­ mestic inflationproblem.

4 In 1976, at a time when our inflation rate was coming down and our current account was approximately balanced, the dollar remained reasonably stable in the international markets. Then, in 1977, when our inflation rate was again accelerating, the valuation of the dollar in foreign markets declined sharply. We do not know what the futurewill bring in this regard. So far, I do not see any firmanti-inflationary policy develop­ ing in this country. Nor do people in other countries see such a policy developing. This has a very large influenceon the valuation of the dollar abroad. The fact is that we had a very large deficit in our mer­ chandise balance in 1977, as well as a very large deficitin our current account. And those deficits developed at a time when our inflationrate was accelerating. There may be other reasons that are simply not captured in the price statistics, and they have to do with the improve­ ments in the quality of traded goods of various countries. But what we call the inflation rateplayed a very large role in this, and I do not think that the dollar will recover, unless the foreign markets see us develop a firm policy to get our inflationrate down.

MR. DALY: Dr. Solomon, you served with the Federal Re­ serve Board fornearly thirty years, focusingparticularly on international finance, and as a senior fellow at the Brook­ ings Institution, you are now exploring the relationship between the exchange-rate system and world inflation. What are the bases of that relationship?

ROBERT SOLOMON, senior fellow at the Brookings Institu­ tion: Let me introduce a little diversity, ifl may, by differing slightly with what some of my colleagues have been saying. I would like to approach the subject from a different angle and say that what has been called the dollar problem can also

5 be looked upon as a problem of the rising value of three other currencies: the German mark, the Swiss franc,and the Japanese yen. Those are not the only currencies that have gone up, but they are the ones that have gone up most. When we speak of the falling dollar,we mean that the dollar has lost value in relation to those currencies, which we can also describe as an increase in their value. In my view, this change in exchange rates, however we describe it, is not only the result of the acceleration of infla­ tion in the United States-which I take as seriously as my colleagues do-but also a result of what has been happening in those three countries. And that has not been mentioned yet; I'm sure it will come up as our discussion goes along. So I would simply like to broaden our topic and say that the economic stagnation in Europe and very slow expansion in Japan have a lot to do with the movement of exchange rates, which we've been calling the fall of the dollar.

DR. FELLNER: May I ask a question here? I do not think the markets anticipate a continuation of these growth rate dif­ ferentials, because we have not had a record of growing more rapidly than those other countries, and I do not think anybody expects us to grow more rapidly. Indeed, if this were the expectation, it would have provided substantial incentives for investing capital in the United States during 1977. The reason why that incentive has not developed is that nobody really expected these growth rate differentials to continue. Our growth rate was considered to be an un­ sound, inflationary growth rate that would prevail tem­ porarily. Other countries were considered sounder, in that they paid a price fora healthier futuregrowth development. Therefore, if the markets valued the dollar as they did in 1977, it was not a consequence of anybody's believing that these growth rate differentialswould continue, but rather a

6 consequence of the factthat these growth rates were associ­ ated with the flare-upof inflationin the United States. The much more moderate growth rates of the other countries were interpreted as clearing the ground for futurehealthy growth. This leads me back to the assumption that inflationhas played the dominant role here, because what people feel might continue is the inflation differential,not the growth rate differential.

DR. SOLOMON: Is that a question? [Laughter.]

DR. WALLICH: I think you might give us a little more credit for good performance, Dr. Fellner. We have had a good expansion that has lasted a long time, and we have come to full employment. At full employment, we buy a lot. Other countries are far from full employment. Since they are lagging, they buy little from us, and that has given us a big deficit.

MR. DALY: You have used the phrase"full employment," Dr. Wallich, and some of us who are not economists want to know more about unemployment rates. Would you describe why you called it "full employment"?

DR. WALLICH: I would say that somewhere in the range of 5% to 6 percent unemployment, we have a condition where we can not expand further withoutgenerating inflationary pressl,lre,and that is what I call fullemployment. We are not exactly at it, but we are very close to it. And under those conditions, if the rest of the world is not at fullemployment, we naturally develop a trade deficit.I would say that maybe $10, $15, or even $20 billion of our trade deficit is due simply to this difference in the phase of the business cycle here and abroad. And that has certainly hurt the dollar.

7 DR. STEIN: But the question is why a trade deficit of$15 or $20 billion, if it was believed to have resulted from some­ thing as certainly temporary as the divergence in the growth rates, should have had such a large effect on the dollar. Afterall, the rest of the world is holding hundreds ofbillions of dollars. How much decline of the dollar is required to make them willing to hold another $15 or $20 billion worth? It seems to me that if there was confidence that our inflationrate would not exceed that of other countries, and that this divergence of the growth rates would be tempo­ rary, it would have taken only a very small decline of the dollar to induce people to hold the dollars that were gener­ ated by our trade deficits and current account deficits.So I think the trade deficit contributed something, but it is hard to explain declines of the magnitude we've had by that factor.

DR. SOLOMON: May I respond to the question that both Dr. Fellner and Dr. Stein have posed?

MR. DALY: Would you begin your response by differentiat­ ing between the trade account and the current account?

DR. SOLOMON: Well, the so-called trade account is simply the result of our merchandise imports and exports. Our mer­ chandise imports have been exceeding our merchandise exports; therefore, we have what is called a trade deficit. The current account position, which is also in deficit, includes our receipts fromtravel abroad, our expenditures for travel abroad, our receipts from U.S. investments abroad, and our payments for foreign investments in the United States-so-called invisible items in the balance of payment. I would like to make a couple of points in response to the questions that were put.

8 It may well be that the public expected the differencein growth rates to continue for some time. I do not know whether the public fully appreciated· how stagnant the economies of Europe were. But we all know that, despite the stagnation, the head of the German government, like the leaders of other European countries, again and again stressed that he did not intend to take stimulative actions recommended by people on the other side of the Atlantic­ that is, the United States. He had his own good reasons for making those statements; he is concerned about inflation. Those who are forming expectations about the future may expect that the European economy will remain sluggish and stagnant forsome considerable period of time. They do not regard this differencein growth rates as being quite as temporary as Dr. Fellner and Dr. Stein may believe.

DR. WALLICH: I suspect that technicalities, like differences in growth rates, are not the primary thing that the market perceives, although they surely are perceived. And I do not know what market expectations are, but in every discussion of the dollar in the newspapers, foreign exchange traders talk about the deficit. And it has to be explained that the deficitis partly ternporary because of this cyclical divergence of our growth rates. And there are other factors, like the oil situation. Behind it all lies inflation, which gets us back to our topic.

DR. SOLOMON: But inflation does not lie behind the oil deficit. Another reason why I think my colleagues are put­ ting excessive emphasis on inflation as an explanation for the exchange-rate movement is that in late 1977 and early 1978 most of the talk in the newspapers, which was attempt­ ing to explain the fall in the dollar or the rise in the other currencies, focused on our excessive oil imports.

9 To my knowledge, no one has said that we import oil excessively because of inflation. That is quite a separate factor. So there is at least one other consideration besides inflationto explain the exchange-rate movement.

DR. STEIN: Of course, it is unwise to rely on the newspapers for explanations of why things happen. [Laughter.]

DR. SOLOMON: But we're talking about market expectations, which, presumably, are formedpartly in that way.

DR. STEIN: It is interesting that the bigg�st decline of the dollar has come during the period in which the oil deficithas been declining. The oil deficithas been declining since the firstor second quarter of 1977.

DR. SOLOMON: 1978.

DR. STEIN: No, our trade deficit with the OPEC countries has declined since the second quarter of 1977, quarter by quarter. And, of course, it is quite natural that the admin­ istration-ofwhich none of us is a member-should have attributed the decline of the dollar to the energy problem and the oil problem. Every administration forthe last twenty years has attributed the decline of the dollar, or the problem of the dollar, to the failureto enact some policy that it was pushing. That's the way Lyndon Johnson got the tax sur­ charge through, by saying that if it wasn't passed, the dollar would decline. That has been going on fora long time. It is a way to frighten the American people into doing something the administratio.n wants done, by raising the scarecrow that if they don't do it, the dollar will go down. And there are lots of good reasons why the Europeans should also focusattention on the energy problem; it diverts

10 attention fromthem. After all, when we firsthad the energy problem and began to run the big deficits with the OPEC countries, the dollar went up. There was a lot of explanation and very good reasoning behind the idea that the oil situa­ tion would make the dollar go up, and that is what it did.

DR. SOLOMON: Dr. Fellner put us on the track of talking about what people expect, and I think this has led us to say some things that we ourselves may not believe. We are trying to explain peoples' expectations about exchange rates, be­ cause those expectations have been influencing exchange rates.

DR. WALLI CH: The psychology of the falling dollar.

DR. SOLOMON: Right.

DR. FELLNER: Yes, but if people had expected growth rate differentials to continue-those growth rate differentials favoringthe United States that we observed in 1977-there would have been a very large incentive forcapital to move into the United States.

DR. SOLOMON: Well, direct investment did move into the United States.

DR. FELLNER: On a very small scale. On the whole, the balance of private capital movements was strongly negative in 1977.

DR. SOLOMON: That's right-again, because of those same expectations.

DR. FELLNER: I don't think people really expected the Amer­ ican growth rate to be permanently and soundly higher than

11 that of the rival countries. They expected the differential to be a temporary one that would not induce any substantial capital movements into the United States.

DR. WALLICH: I think people abroad regard the United States as a good place to invest, Dr. Fellner. They say every­ thing is cheap here, which cannot be denied if you look at the rate of the Swiss franc,the D-mark, and the yen. This is a country with political stability, giving assurance of con­ tinuity in the investment climate, and a lot of money has been coming in. What we have observed in outflow of capital is, in good part, a result of the factthat the central bankshave bought dollars; that is, they have moved money into the United States. And when money is moved into one place, other money tends to flow out. Many of the private capital out­ flowsthat we had in 1977 occurred because foreigncentral banks intervened in the markets by buying dollars, thus pushing money into the United States.

MR. DALY: Can I bring us all back to what has happened in these first seven months of 1978? Following the White House call foraction in August, the Fed and the Treasury moved on a broad frontto correct the fallof the dollar. There is, of course, a broad public relations drive that hopes to persuade the international financial markets that the dollar is stronger than it looks, and that it will soon be on the road to recovery. But what are the reasons for the more specific moves, and what results are hoped for? Did the Fed intervene on a substantial scale in the exchange markets? What did it do, and is it working? Dr. Wallich?

DR. WALLICH: I suppose I'm on the spot there. We report on our intervention with a certain time-lag, and indeed,

12 whenever there have been disorderly markets, the Fed has intervened. There is a belief that all we have to do is to intervene in the market, that is, buy dollars and sell D-marks, and the dollar will stabilize. Well, that is not so. There are hundreds of billions of dollars that can move. But if the market be­ lieves that the rate will go one way, and the central bank tries not to let it, the market will overrule the central bank be­ cause it has so much more money. So the question isn't really whether, by exchange-market intervention, one should try to change the course of events and the rate of the dollar in particular; it's simply that one cannot have more than a small influence. That influenceis best exerted if one tries to keep the exchange market or­ derly, but otherwise lets the fundamentals of the situa­ tion-including inflation, unfortunately-workthemselves out.

DR. STEIN: The most fundamental development that has occurred in policy to support the dollar has been the admin­ istration's support, however tacit or passive, of the Federal Reserve's policy of tightening money and allowing interest rates to rise. It is significant that when the Federal Reserve raised the discount rate, the administration said that it fully understood why the Federal Reserve did so.

MR. DALY: Would you define the discount rate forus?

DR. STEIN: The Federal Reserve discount rate is the rate at which the Federal Reserve banks will lend to their member banks. The member banks come to borrow when they are short on reserves, when they want to extend more credit and do not have the basis for doing so. By raising the discount rate, the Federal Reserve makes it a little more expensive for 13 them, and they tend not to do it so much. Anyway, in the financial community it is regarded as a signal of tightness. Previously, there had been a feeling around the country, and perhaps the world., that the administration was very reluctant to see money tightened and to see interest rates rise. There had been a lot of grumbling fromvarious admin­ istration officials aboutit. And this led to doubts, here and abroad, about whether the Federal Reserve would be able to carry out an anti-inflationary policy, especially one that in­ volved higher interest rates. Now that doubt has been re­ moved somewhat, although not conclusively in my opinion. Nevertheless, I think it was a good thing to have happened.

MR. DALY: All right, the federal funds rate target was also raised. Would one of you please tell the members of our audience-who may have read about this in the paper­ what the federalfunds rate target is and what it is supposed to do?

DR. WALLICH: As you know, the Federal Reserve tries to regulate the growth of the money supply. This is done by changing one interest rate-the rate at which banks borrow and lend to each other what surplus funds they have. By changing that rate slightly, we can influencethis interbank borrowing and lending, and therefore the banks' willing­ ness to lend to customers and thereby expand the money supply. The federal funds rate, thus, is a means of regulat­ ing the growth of the money supply.

MR. DALY: Monthly gold sales will increase materially in November from 300,000 ounces a month to 750,000 ounces. Is the sale of gold wise? If so, is it productive in a dollar crisis, Dr. Fellner? 14 DR. FELLNER: I think the sale of gold fallsin the category of operations which Dr. Wallich described a moment ago. In other words, it is essentially a support operation. It is an intervention in favorof the dollar, meant to strengthen the dollar. I do not expect very much yield from that kind of operation, and I think the basic problem there is getting the inflation rate down gradually. If that is done in a credible fashion, I think the dollar will recover; if not, I do not think the dollar's recovery will come simply from these support operations.

DR. WALLICH: Without disagreeing on the fundamental im­ portance of inflation, Dr. Fellner, I think you might give the Treasury a little more credit forits gold operation. In addi­ tion to its being an intervention-type operation, it also means a substantial reduction in our net gold imports. When we import gold, we put dollars out into the world.just as we do when we import cars or televisions. Sale of Treas­ ury gold can offset some $1.5-2 billion in gold imports, which is a substantial improvement in our trade account. And it has a strong psychological effecton foreigners, who are really not convinced that the United States wants to see its currency strong. No matter what we say or do, the rumor abroad is that the United States wants the dollar down. When we take an action that involves giving up some of our reserve assets, it carries a lot of conviction.

DR. STEIN: Do you think it important for us to correct this mistaken perception of our views, if it is a mistaken percep­ tion? I was impressed with something Mr. Daly said earlier about the dollar being "bruised and battered." That figure of speech is commonly used in these discussions, and it suggests that the dollar really ought to be standing up straight as a ramrod, and that something terrible has hap­ pened if it is bruised and battered. Other people might say

15 that the dollar is just swimming about gracefully, like a fish in a pond, and though for the moment it is declining, at some time it will rise. So why be concerned about it?

DR. SOLOMON: I tried to say something like that at the begin­ ning, but I didn't say it as gracefully as you just did, Dr. Stein.

DR. STEIN: I think it is a good question forus to discuss. I was particularly struck by that phrase, "bruised and battered," because I read in a news magazine that the Americans in Europe were "battered" by the decline of the dollar. I read it on a plane while returning from France, where I had spent two weeks. During that time, the dollar had fallen 2.2 per­ cent against the franc, and I calculated that the cost of that was about the equivalent of one medium-priced lunch. So I didn't feelbattered by it at all. And it is not at all clear that we need to feel greatly concerned about this. Dr. Wallich said that the decline of the dollar is inflation­ ary. That is a common statement, and maybe there is a lot to it. But it always puzzles me, because, if we generated the decline of the dollar by our own inflation, until the dollar does decline we have really just put offon the rest of the world some of the inflationary consequences of our own inflation. When the dollar declines, then those inflationary consequences come back home to us. It is not because the dollar declined that we have inflation; it is because we did things that were inflationary.We can pawn that offon other people fora while, by getting them to sell us stuffcheap, but after a while they won't.

DR. SOLOMON: Well, there is another side to this, and I hope it is not too technical. But one can make the same point Dr. Stein just made from the point of view of the European countries. Consider Germany, forinstance. By operating its

16 economy at much too low a level and holding its industrial production virtually unchanged for a year and a half while its exports went up, Germany experienced an appreciation of its currency, which in turn reduced the cost (in D-marks) of its imports and helped to bring about a lower rate of inflation in Germany. The lower rate of inflation abroad, particularly in the three countries mentioned earlier, is partly a result of the factthat their exchange rates have gone up. So in a sense, by firstoperating their economies at too stagnant a condition, they have exported inflation to the rest of us, making our currencies go down in relation to their currencies and making the cost of our imports go up. The point is not often stated that way, but I did so to give the counterpart of what Herb Stein just said. While he may believe that the United States has exported inflationto other countries, I believe that Germany has exported inflation, or achieved its own low rate of inflationat the expense of other countries.

DR. WALLICH: Well, I wouldn't wish inflation on anybody, and I would not argue that a country ought to inflate in order to get out of that bind, but I think there is something to what Dr. Solomon says. The countries with strong cur­ rencies have had cheaper imports, and that has helped them to bring down their inflation. I suppose that is a testimonial to the success of their policies. So it still comes down to the question, How do we get rid of our own inflation, despite the fact that the dollar has declined, thereby making it harder? As we succeed in an­ swering that, the dollar will, of course, respond favorably.

DR. FELLNER: May I very brieflycome back to one question? Dr. Stein asked why it really matters whether or not an exchange rate goes down.

17 If there were very regular differentialsin exchange rates year after year, the markets could predict them and could gear their activities to them. That might describe an equilib­ rium condition. I think it is inconceivable that equilibrium would develop in response to the differentialsbetween in­ flation rates which we now see. We observed in 1977 that things were quite unpredictable. The markets were in great uncertainty, and that must have had an adverse influenceon their activities. And there continues to be uncertainty as to what these inflation rates and exchange rates will be even next month. This uncertainty can become very damaging to world trade and to the activities in the various economies. So it is the unpredictability, rather than the existence, of the differential that-

DR. STEIN: So that is a reason for being concerned about a rapid, erratic, and unforeseen decline, as compared with some other kind of decline, if some other kind is conceiv­ able. Nevertheless, while the uncertainty must increase the cost of doing business in some way and must impair effi­ ciency, I don't know whether anybody, looking at things from an international perspective, has seen the damaging consequences of that. Is trade growing less rapidly than was expected?

DR. SOLOMON: It is growing less rapidly, but forother rea­ sons.

DR. STEIN: Yes, but can you attribute any of it to this uncer­ tainty factor?

DR. WALLICH: It's probably growing more slowly than it would otherwise.

18 DR. STEIN: Does it manifest itself as something more than an increase in the cost of ship insurance, or something like that?

DR. SOLOMON: You are asking a good question, Dr. Stein. I doubt that any of us at this table can answer it, but it is a question well worth asking.

MR. DALY: Then let me move to a fewmore technical things that the general public reads about, but may not quite un­ derstand. Reading the story of the fall of the dollar, we learn of proposals that might be used by the Fed, the Treasury, or the administration: proposals about borrowing foreignex­ change fromthe international monetary fund, about using our special drawing rights, and about something called "swap lines." Would someone definethose three elements and tell us whether or not there is any substantial reason to think they can relieve the pressure on the dollar?

DR. SOLOMON: I think Henry Wallich has already answered that question, but let me quickly go over what is involved in the proposals you have just referred to. By any of the three methods-(!) using its right to borrow from the interna­ tional monetary fund,(2) using the special drawing right, or (3) using lines of credit that the Federal Reserve has with other central banks-the United States could borrow or get hold of additional amounts of foreign currencies. Selling those in the market would tend to prop up the dollar. By absorbing dollars, we would be increasing the supply of other currencies and reducing the supply of dollars in mar­ kets. That is the purpose of those proposals. But, as Henry Wallich has already said, the amounts of dollars and other currencies held in the world are very large, and as our many, many years of fixedexchange rates under

19 the Bretton Woods system have shown, it is not possible for the monetary authorities to stand up against a market that believes an exchange rate will move. So I doubt very much that the proposals I have just tried to describe will do very much to solve what we have been calling "the dollar problem," which, again, could also be thought of as a German mark problem, a Japanese yen problem, or a Swiss franc problem.

MR. DALY: One school of thought suggests that speculation is probably playing a large part in what is happening to the dollar, and that we should have free-floating exchange rates. Supposedly, if we have free-floating exchange rates, the speculators will get out because speculating will become too risky. Do you findany particular worth in the concept of free-floating exchange rates, as against the managed float we have now?

DR. SOLOMON: I think the float has been managed rather lightly, actually, which is consistent with what Henry Wallich has said. So forthe most part, speculators have to take their chances against what they think other private individuals will do, and only occasionally do they have to contend with the possibility that a central bank will step into the market. I do not think we are all that far from a free float. The speculators do not have a free ride.

DR. FELLNER: May I ask Dr. Solomon and Dr. Wallich a question? Were those interventions in 1977 really so small? I would deduct the OPEC part from the $30 billion, because maybe it's market-oriented, even if it is-

DR. SOLOMON: You might also deduct the one-time move­ ment into the pound sterling, which was certainly not de­ signed to prop up the dollar.

20 DR. FELLNER: No, but it was designed to prevent sterling from rising.

DR. SOLOMON: Right.

MR. DALY: Please, I can hardly handle the dollar. Let's leave sterling out. [Laughter.]

DR. So LOMON: You're a sterling fellow,John. [Laughter.]

DR. FELLNER: But what is the differencebetween preventing sterling fromrising and preventing the dollar fromfalling?

DR. SOLOMON: The fact that sterling was rising against all currencies, not just the dollar. There is a difference.

DR. FELLNER: Well, yes, it was rising against many cur­ rencies. Nevertheless, even if we deduct that, there remain rather substantial interventions in 1977. And what about the first quarter of 1978? There seems to have been very substantial interventions, in excess of $10 billion, in that quarter. What is substantial is a relative concept, I will admit, but I wouldn't say that those interventions could be called small.

DR. WALLICH: Evidently, they were nowhere near large enough to prevent the movement on the exchange rate.

DR. FELLNER: That is absolutely correct.

DR. SOLOMON: Let me introduce one further factor which hasn't come up yet. Between March and June or early July of 1978, the exchange rate between the dollar and the Euro­ pean currencies was virtually stable; it hardly moved at all. 21 There may have been some ups and downs, but there was very little net movement. Now, the yen did continue to move up against the dollar, and against other currencies as well. But there was a period of three months of stability, and it was during that period when inflation seemed to be ac­ celerating in the United States. This is a fact that I think my friends Dr. Stein and Dr. Fellner ought to digest and bring into their thoughts.

DR. STEIN: My interpretation of that period was exactly the opposite of yours. In that period, it seemed to me that despite the very high inflationrates that were heavily influ­ enced by food, there was, for the first time in six or nine months, some glimmer of hope that we would get the infla­ tion rate down. It was the time of Mr. Carter's April 11th speech, in which he said that inflation was his first priority, and that we would have a new national program to fightit. It was the time that the public became convinced that Mr. Miller, the new chairman of the Federal Reserve, was firmly devoted to fighting inflation. And the stock markets and money markets at home also reflected the hope that this surge of inflation would, indeed, prove to be temporary, and that we were finally on our way towards a more anti­ inflationary policy. And the renewal of the decline of the dollar coincided with the waning of that hope, which was partly caused by the evidence that Mr. Carter's anti-inflation program was not working, that the incomes policy did not amount to any­ thing. It was also caused by new questions about the inten­ tions of the Federal Reserve that were precipitated by some · statements and actions of the chairman. So if you look, not at the current inflation rate for that period, but at the prevailing expectations, which can be judged intuitively by examining one's own expectations and assuming that other people share them, the expectations

22 about inflationcorresponded closely to the movement of the exchange rate.

DR. SOLOMON: Let me present an alternative explanation. (After all, when foureconomists get together, they come up with at least fivedifferent views.) It just so happens that, during the fourth quarter of 1977 and into January 1978, the German economy acceler­ ated aftera period of stagnation. And two months after that the dollar stabilized. The Japanese economy began to ex­ pand as well in the late fallof 1977, and it continued expand­ ing rapidly into the spring of this year. I believe those two facts-theapparent speedup in eco­ nomic activity and therefore imports into Europe and Japan-had something to do with the stabilization of the exchange rate in the spring of 1978. Now, in June, German industrial production fell, and the expansion of the Japanese economy seemed to have stopped and reversed itself. Once again, I would attribute this move in exchange rates partly to the developments within those economies.

DR. STEIN: Well, Mr. Daly, I think we know everything except two things: why the dollar went down, and whether it makes any differencethat it did. So, maybe we should ex­ plain to you how to stop it. [Laughter.]

MR. DALY: I have heard that there are 400 or 500 billion American dollars in foreignhands. Is that correct? And, if so, isn't it one of our basic problems that there are so many dollars outside the country, in the hands of people whom we cannot influence, in terms of how to use it?

DR. WALLICH: I think that is a scare number which we should not be very concerned about.

23 DR. SOLOMON: Agreed.

DR. WALLICH: And it includes a great deal of double count­ ing. One bank in London deposits dollars in another bank, which deposits the dollars in still another bank. Each bank makes an eighth of 1 percent by doing so, and the same dollars are counted more than once. Nevertheless, the amount of dollars outside the United States is very large. But remember that the dollars in our country count, too-a person can take his money abroad, if he feels sufficiently concerned. So it does not really matter whether there are dollars outside or dollars here as long as we have free capital movements, and those cannot be changed. The world is much too integrated to do anything about that. As long as capital can move freely, there will be very large movements. And the only way to prevent adverse movements is to create an environment in which people have confidencein the currency and country that they have their money in. That's what we have to address ourselves to.

MR. DALY: So again we come back to expectations. After listening to this learned argument with much fascination, I would say there is general agreement that inflationat home does have an impact-whether great or minor--onthe dol­ lar and where it stands. One other area that we have touched upon only indi­ rectly through our discussion of inflation is the federal budget deficit. There is a school of thought that claims a drastic reduction in our federal budget deficitwould have a beneficial effect on people's expectations, which you gen­ tlemen findso very important to the picture. I wonder what we can do to reduce the federalbudget deficit.Is this the one route above all others that must be travelled in order to fight inflation?

24 DR. WALLICH: It is essential, but it is not the only route. We are almost at full employment in this country, and we still have a very large budget deficit. In the old days, we used to say that at fullemployment, we should have a surplus. Now, though, we're not talking about a surplus, or even about getting to balance very quickly. We will in time, I hope. To have a large deficitat this stage ofthe business cycle is pretty troublesome; we have made considerable headway, however, in bringing down the expected deficit for 1979.

DR. SOLOMON: I might say one thing, not necessarily in defense of budget deficits, but in explanation of at least a part of the budget deficit that we have even though we are near fullemployment. Two important factsshould be men­ tioned. First, our state and local governments have a surplus of some $30 billion, which is unusual; and second, as we've already said, our balance of payments has a current account deficitsomewhere in the vicinity of$18-20 billion. It is desirable that that balance of payments deficit be reduced, and as it is reduced, there should be a correspond­ ing reduction in the federalbudget deficit.But as long as we have that balance ofpayments deficitand that large surplus in the state and local governments, it makes sense to have a larger federalbudget deficitthan we would have normally. That doesn't mean that every dollar of the deficitis justified or that the deficit should not go down, but it explains why the deficit is larger now, as we approach full employment, than it has been in the past.

DR. STEIN: Or one could say the reverse, that as long as we have this big budget deficit, we will have the deficit in our international accounts, because the budget deficit-

DR. SOLOMON: You can't really-

25 DR. STEIN: -pumps up the U.S. economy, and makes us suck in all these imports-

DR. SOLOMON: But you don't really believe that, Herb.

DR. STEIN: I believe that getting the budget deficitdown is part of this process of getting down the rate of inflation,and getting down the rate of inflationin this country is a way of correcting both the dollar position and the balance of pay­ ments position. And there is another possible use for all those savings. Private investment might expand if the budget were not absorbing so much. The key question is whether or not the U.S. economy is being subjected to excess demand.

DR. SOLOMON: Do you believe it is today?

DR. STEIN: Yes, I think it is. I think it has been fora year.

DR. SOLOMON: Then I think we have a basic difference of view there.

MR. DALY: When you say "excess demand," do you mean demand fromthe public forgoods and services?

DR. STEIN: Demand fromeverybody forgoods and services.

DR. SOLOMON: I think this is one basic differencebetween us.

DR. STEIN: Sure.

DR. FELLNER: Excess demand can be satisfied only by mis­ leading people as to what their real incomes will turn out to be. That is to say, demand will lead to an unanticipated rise

26 in prices, and thus lead people to do things for which they won't earn the real incomes they were expecting. That is, I think, a situation into which we have, indeed, arrived.

DR. WALLICH: Look at the data. The economy and manufac­ turing are operating at about 84 percent of capacity. But that doesn't mean that we have to go up to 100 percent. Historically, we have gotten some impression of shortages, some pressures on capacity, in the range of 87-88 percent, and there are always some lines, like cement, right now, in which there are significant shortages, even though other industries are not yet at that level.

MR. DALY: There is a theory that our economy is beginning to cool offa bit. Perhaps that will help us with the general problem we have discussed this evening. This concludes another Public Policy Forum, presented by the American Enterprise Institute for Public Policy Re­ search. On behalf of AEI, our heartfelt thanks to the distin­ guished panelists, Dr. William Fellner, Dr. Robert Solomon, Dr. Herbert Stein, and Dr. Henry Wallich, for their partici­ pation.

27 AEI ASSOCIATES PROGRAM

The American Enterprise Institute invites your participa­ tion in the competition of ideas through its AEI Associates Program. This program has two objectives: The first is to broaden the distribution of AEI studies, conferences, forums, and reviews, and thereby to extend public familiarity with the issues. AEI Associates receive regular information on AEI research and programs, and they can order publications and cassettes at a savings. The second objective is to increase the research activity of the American Enterprise Institute and the dissemination of its published materials to policy makers, the academic community, journalists, and others who help shape public attitudes. Your contribution, which in most cases is partly tax deductible, will help ensure that decision makers have the benefit of scholarly research on the practical options to be considered before programs are formulated. The issues studied by AEI include: • Defense Policy • Economic Policy • Energy Policy • Foreign Policy • Government Regulation • Health Policy • Legal Policy • Political and Social Processes • Social Security and Retirement Policy • Tax Policy For more information, write to: American Enterprise Institute 1150 Seventeenth Street, N.W. Washington, D.C. 20036 The Dollar Abroad, Inflation at Home, an edited transcript of an AEI Public Policy Forum, examines the relationship · between domestic inflation and the dollar's decline in inter­ national trade. Among the questions discussed by the panel are the following: How concerned should Americans be about the dollar's loss in value around the world? Is domes­ tic inflationthe cause or the effectof the devaluation of the dollar? What are the prospects of curbing the rising U.S. inflation rate and U.S. goverqment deficit spending? And what steps can President Carter take to stop the erosion of confidencein the dollar abroad? John Charles Daly, former ABC News chief, serves as moderator for the panel: • William Fellner, resident scholar at AEI, Sterling pro­ fessor of economics emeritus at Yale University, and a former member of the President's Council of Economic Advisers under Presidents Nixon and Ford. • Robert Solomon, a senior fellow at the Brookings Insti­ tution, formerly with the Federal Reserve Board and senior staff economist with the President's Council of Economic Advisers under Presidents Kennedy and Johnson. • Herbert Stein, an AEI senior fellow, A. Willis Robertson professor of economics at the University of Vir­ ginia, and former chairman of the President's Council of Economic Advisers under Presidents Nixon and Ford. • Henry Wallich, a member of the Board of Governors of the Federal Reserve System, former professor of eco­ nomics at Yale University, and a former member of the President's Council of Economic Advisers under President Eisenhower. S2.oo

� American Enterprise Institute for Public Policy Research � 1150 Seventeenth Street, N.W., Washington, D.C. 20036

The American Enterprise Institute for Public Policy Research, established in 1943, is a publicly supported, nonpartisan, research and educational organization. Its purpose is to assist policy makers, scholars, businessmen, the press, and the public by providing objective analysis of national and international issues. Views expressed in the institute's publications are those of the authors and do not neces­ sarily reflect the views of the staff, advisory panels, officers, or trustees of AEI.

Council of Academic Advisers Paul W. McCracken, Chairman, Edmund Ezra Day University Professor of Busi­ ness Administration, University of Michigan Kenneth W. Dam, Harold ]. and Marion F. Green Professor of Law, University of Chicago Law School Milton Friedman, Senior Research Fellow, The Hoover Institution on War, Revo­ lution and Peace; Nobel Laureate in Economic Science Donald C. Hellmann, Professor of Political Science and International Studies, University of Washington D. Gale Johnson, Eliaki111 Hastings Moore Distinguished Service Professor of Economics and Provost, University of Chicago Robert A. Nisbet, Resident Scholar, American Enterprise Institute G. Warren Nutter, Paul Goodloe Mclntirn Professor of Economics, University of Virginia Marina v. N. Whitman, Distinguished Public Service Professor of Economics, Uni­ versity of Pittsburgh James Q. Wilson, Henry Lee Slznttuck Professor of Government, Harvard University

Executive Committee Herman J. Schmidt, Chairman of the Board Richard J. Farrell William J. Baroody, Jr., President Richard B. Madden Charles T. Fisher III, Treasurer Richard D. Wood

Gary L. Jones, Vice President, Edward Styles, Director of Administration Publications

Program Directors Periodicals Russell Chapin, Legislative Analyses AEI Defense Review, Robert A. Gold win, Seminar Programs Robert J. Pranger, Editor Robert B. Helms, Health Policy Studies AEI Economist, Herbert Stein, Editor Thomas F. Johnson, Economic Policy Studies Public Opinion, Marvin H. Kosters/James C. Miller III, Seymour Martin Government Regulation Studies Upset, Ben J. Wattenberg, Co­ Editors; David R. Gergen, W. 5. Moore, Legal Policy Studies Managing Editor Rudolph G. Penner, Tax Policy Studies Regulation, Anne Brunsdale, Howard R. Penniman/ Austin Ranney, Editor Political and Social Processes Robert J. Pranger, Foreign and Defense William J. Baroody, Sr., Policy Studies Counsellor and Chairman, Laurence H. Silberman, Special Projects Development Committee THE PRESS •THE COURTS: c•n1NG PRmlES John Charles Daly, Moderator Jack C. Landau Larry L. Simms Ralph K. Winter Edwin Yoder

Held on October 3, 1978 and sponsored by the American Enterprise Institute for Public Policy Research Washington, D.C. This pamphlet contains the edited transcript of one of a series of AEI forums. These forumsoffer a medium for informalexchanges of ideas on current policy problems of national and international import. As part of AEl's program of providing opportunities forthe presentation. of competing views, they serve to enhance the prospect that decisions within our democracy will be based on a more informedpublic opinion. AEI forums are also available on audio and color-video cassettes.

AEI Forum 23

© 1978 by American Enterprise Institute forPublic Policy Research, Washington, D.C. Permission to quote from or reproduce materials in this publication is granted when due acknowledgment is made. Views expressed in the publicationsof the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff; advisory panels, officers, or trustees of AEI.

ISBN 0-8447-2142-5 Library of Congress Catalog Card No. 78-74485

Printed in United States of America OHN CHARLES DALY, former ABC News execu­ tive and forummoderator: This Public Policy Forum, part of a series presented by the American Enterprise Institute,J is concerned with the relationship between the news media and the American public through its govern­ ment. Our subject is, "The Press and the Courts: Competing Principles." The basic relationship was established by the First Amendment guarantee of freedomof the press. Trying to interpret and define that freedom, however, has been an emotional and contentious issue for two centuries. George Washington once accused newspapers of being calculated, if not absolutely intended, to disturb the peace. Andrew Jackson claimed that some editors appeared to thrive on slandering their neighbors, and that they hired writers to lie forthem. President Woodrow Wilson wanted to set up a federal publicity bureau to give the people the real facts, because he felt the regular newspapers highlighted differencesof opinion and forecast difficulties,thereby im­ peding the public business. The special place of the press in our society is often explained by Thomas Jefferson's declarationthat, given his choice of a government without newspapers or·newspapers without a government, he would opt for newspapers with­ out a government. The same Thomas Jefferson, however, once said that newspapers ought to be divided into four

I sections: true, probable, possible, and lies. [Laughter.] The smallest section, he added, would be that labeled "True." And the largest section by far would be simply and plainly titled "Lies." This description of conflict between government and · the press at the nation's birth sets the stage for the present struggle, which runs through the warp and woof of our society, public and private. Inevitably, the issues land in the courts, where the competing principles must find balance. In a free society, if the news media consider court decisions endangering, they file appeals and seek congressional ac­ tion to protect First Amendment freedoms. Mr. Landau, the Reporters Committee for Freedom of the Press, of which you are a leader, has urgently sought to informthe public of the dangers to press freedom. How do you respond to charges that what your committee advocates is really special interest legislation on behalf of the news media?

JACK C. LANDAU, Reporters Committee for Freedom of the Press: "Special interest" is a relative concept. The First Amendment says that Congress shall make no law abridging the freedomof the press. In the past three months, we have seen the Supreme Court say that, if they obtain a search warrant, the police can march into newsrooms without any notice and rummage through the whole place on the pretext of looking for a document. The New Jersey court said that more than 5,000 documents-virtually the entire fileof the New York Times--can be seized, shown to a judge, and then possibly turned over to the defense. And the United States Court of Appeals in the District of Columbia ruled that the government may secretly seize up to six months of a news­ paper office's telephone records, which, of course, reveal everyone that the office has talked to. Now, if the police can march into a newspaper office

2 unannounced, rummage through the files,seize the filesen masse, and secretly monitor telephone calls, it seems to me that the government is clearly abridging the freedomof the press; that is what it amounts to. And today the First Amendment is probably under the most severe attack that it has been under in recent years.

MR. DALY: Professor Winter, the thrust of the first ten amendments to the Constitution was to protect the rights and freedomsof all Americans. Is new congressional action needed to recognize the press's special function and yet assure the fundamental rightsof others?

RALPHK. WINTER, professor of law, Yale Law School: As the law presently stands, I think that the press is fullyprotected in publication. That has been demonstrated in case after case, no matter how often the justices on the Supreme Court are replaced by new justices. To the extent that the law presently allows unnecessary intrusion into the workings of the press-unnecessary in the sense that the intrusion serves no particularly important governmental interest-then the press is deserving of more freedom. But it seems to me that the recent claims to an absolute privilege for the press, even when another impor­ tant interest calls for a minor intrusion, are very hard to justify. It is certainly as hard to justify an absolute privilege for the press as it is to justify an absolute privilege for the president of the United States.

MR. DALY: Mr. Yoder, as an editorial page editor, public issues and public policy are your special province. In your view, does granting newsmen a degree of immunity from official inquiry threaten to bring with it the danger of broadened government regulation of the media?

3 EDWIN YoDER, WashingtonStar: I have always thought that it would be a very serious error for the press to seek special immunities, legislated immunities particularly. I have no objection to the extension of certain immunities by appellate courts on consideration of the constitutional claims in­ volved, but I am very skeptical of special immunities confer- red by legislation. I suppose my most fundamentalreason forbeing reluc­ tant to seek or endorse that kind of immunity is that a legislative body can subtract what it gives, even, perhaps, to the extent that there is less than there was to begin with. That is why I am skeptical.

MR. DALY: Mr. Simms, you counseled the Reporters Com­ mittee forFreedom of the Press, and now you are an attor­ ney advisor in the Office of Legal Coµnsel in the Depart­ ment of Justice, and you also teach a free press seminar at Georgetown University. With that broad base of experience, do you think the present relationship between the news media and the public interest serves us well, or is change necessary?

LARRY L. SIMMS, attorney, U.S. Department of Justice, and adjunct professor,Georgetown University Law Center: The present relationship between most of the press and the public interest is a good, healthy one and is working quite well. Any statistical analysis of the facts would indicate that in the great majority of cases members of the press are very cooperative with law enforcement efforts, on both the fed­ eral and state levels, because they recognize fullytheir obli­ gations as citizens. They have no trouble stepping out of their press role and doing their civic duty. Much of the recent controversy comes fromcases which are recognized as hard cases by lawyers and judges alike. It is in dealing with those hard cases that the press finallygets to

4 the point where it wants to draw the line. We need to focus our attention on these cases without losing sight of the fact that the press does serve the public interest and does make judgments with the public interest in mind before printing stories. The hard cases are the ones that bring us here tonight and that need to be focused on.

MR. DALY: All right, gentlemen, let's come to grips with two recent major events that highlight the conflict between the press and the courts. Mr. Landau, the case of Zurcher v. The Stanford Daily 1 brought you to the Senate Judiciary Committee to testifyfor the Reporters Committee for Freedom of the Press. Your testimony supported five Senate and six House bills that would reverse the Supreme Court decision in that case. Would you brieflyoutline the issues and the dangers to press and public freedomsthat you perceived?

MR. LANDAU: The factsof the case are fairlysimple. During a political demonstration in April 1971 at the StanfordUni­ versity Hospital, a group of demonstrators got into a scuffle with police. Some photographers from the local student newspaper, the Stanford Daily, were on the scene. In an effort to identify who was involved in the scuffle, the police went to a magistrate, as they are entitled to do, and obtained a search warrant, telling the magistrate that they had probable cause to believe the newspaper had some documentation that would help them in their investigation. Then, without warning, they showed up at the door of the newspaper. There is some dispute about what happened next, but apparently the newspaper took photographs of the police looking through documents in desk drawers and so on,

1Zurcher v. The Stanford Daily,98 S. Ct. 1970 (1978).

5 which they were entitled to do. They were entitled to go through the whole place. The police never did find the photographs of the dem­ onstration. And the Stanford Dailythen fileda lawsuit, saying that its First Amendment rights were violated. Its argument was not that the government could not ultimately obtain the photographs it was looking for, but only that the govern­ ment should have given the newspaper notice-that is, served a subpoena and let the newspaper come to court and argue whether the police needed that photograph .. The newspaper claimed that, otherwise, the police could just show up at the door and rummage through the whole place, seeing confidential memoranda, correspondence, and notebooks on dozens of stories having nothing to do with that particular case. The Supreme Court ruled that newspapers are not en­ titled to notice, nor is anyone else, and that the police, if they want to, can obtain a warrant and go into any house or office looking forwhat they want. It is important to note that this ruling applies to persons who are not suspects in a crime. There are some facts about the case which Mr. Simms will point out as moderating circumstances, perhaps. But that was basically the issue, and there are thirteen bills now in Congress to reverse it. Some of the bills would restrict only federalsearch warrants; some would restrict both fed­ eral and state. Some of the bills would apply only to the press; others would apply to everyone. Our committee has supported the concept of a bill that would restrict both federal and state search warrants and that would protect everyone, not just the news media.

MR. DALY: Mr. Simms, would you like to give us some moderating circumstances?

MR. SIMMS: Yes.

6 The StanfordDaily case is a hard case because of a critical factto which Justice Powell's concurring opinion gave prom­ inent attention. Before the police went to get their search warrant, the Stanford Daily had announced that it would destroy any evidence of possible criminal activity if it had any notion that the police were going to come after it. Such a policy just throws down the gauntlet to anybody who is the least bit interested in enforcingthe criminal laws. Indeed, destruction of evidence is itself a criminal offense, and I doubt that any responsible members of the press would ever advocate that. Mr. Farber has certainly not advocated it. He is willing to go through the court process. My experience at the Reporters Committee indicated to me that an over­ whelming majority of the press is perfectly willing to go through that process. The StanfordDaily, however, indicated in advance that it would not do so. And that may well have been an influential factor in causing the case to be decided the way it was. It certainly appears to have influenced Mr. Justice Powell. We are talking about practical considerations. Weare not talking about the history of the Fourth Amendment as it had been interpreted by the Supreme Court in the past, but about a very practical consideration.

MR. DALY: I think that sums up the details of the Stanford Daily case. Mr. Yoder, your paper, the Washington Star, has edito­ rialized on the issue of the Farber2 case. Would you be good enough to outline briefly the issues in that case and the dangers that you see inherent to the freedomsof the press?

MR. YODER: Mr. Farber is a reporter forthe New York Times,

2New York Times Co. and Myron Farber v. The State of New Jersey and Mario Jascalevich, cert. docketed, U.S. Sup. Ct., No. 78-540 (Sept. 28, 1978).

7 · whose stories about some mysterious hospital deaths ap­ proximately ten years ago in New Jersey are thought to have led to a revival of the authorities' interest in the case and the subsequent indictment of a New Jersey physician who was charged with murder in connection with a number of these deaths. Inasmuch as Mr. Farber's stories are thought to have been instrumental in reviving the case and leading to the indictment, the defense in the case asked the judge for access to Mr. Farber's notes. When his notes were demanded in full for an in-chambers inspection by the judge to deter­ mine their possible relevance to the defense case, Mr. Farber refusedto turn them over. He was held in contempt of court, as was his newspaper. The fundamental issue there, it seems to me, has been twofold. First, Mr. Farber was placed in jail and finedrather severely, as was his newspaper, without a satisfactory hear­ ing of his constitutional claims or, indeed, his statutory claims, since New Jersey has a so-called newsman's shield law. Second, on the matter of the judge's order for Mr. Farber's notes, the judge refused to specify precisely what the possible relevance of the notes might be to the case, or what part of the notes might be relevant, and in what sense. There was just a blanket insistence that Farber turn over all of his filesand notes on the case to the court forthe court's private inspection to determine their relevance. That has been the sticking point for the press.

MR. DALY:Professor Winter, I know you have some opinions on both of these cases. Wouldyou like to talk to them?

PROFESSOR WINTER: I am not as sympathetic with Mr. Farber's case. I think he had a hearing on his claims. The New Jersey Supreme Court has held that the guarantee of a fairtrial outweighs whatever claims Mr. Farber has. And the

8 matter of the judge's refusalto specify what part of his notes . are concerned strikes me as being rather a red herring. The judge cannot specifywhich notes he wants unless he knows what notes are there. If he were asking fornotes that were unrelated to the particular murder trial, it would be a dif­ ferentmatter. But the request that the notes be handed over to a judge, so that the judge may decide whether any are of help to the defense, is not a particularly unreasonable re­ quirement when somebody is on trial for his life. In a lot of discussions and debates about this, people who want this absolute privilege always stop the discussion with a lot of predictions about what might happen to the press if their sources were revealed. But what are we going to do in cases like this if we uphold an absolute privilege? Are w.e then going to let the defendantsgo freeon the ground that they have not had a fairtrial? If Farber does not have to turn over his notes, counsel forthe defendant in that trial ought to, and I assume will, move for a judgment of acquittal on the ground that the defendant has not had a fair trial. In addition, the case has demonstrated that the privilege Mr. Farber claims is distinct from other privileges that the law knows. If someone comes to me and requests my advice as an attorney, concerning their legal liability in a particular case, what they tell me about the case is almost always privi­ leged. The privilege, however, is that of the client, of the person who came to me. I cannot go before a judge and refuse to tell him because I have invoked the privilege. I have to tell the judge that the client has invoked the privi­ lege. In the case of the reporter, we cannot know who the source is or where the information came from ahead of time. So, it is the reporter who invokes the privilege. It is the reporter who decides what will be known, what will not be known, when it will be known, and in what formit will be known. I understand Mr. Farber is writing a book. It would be a

9 heck of a thing if,four years fromnow , when the defendant is languishing in a New Jersey prison, the book is published and informationappears in it that would have been relevant to the defense of the case, even if it doesn't identify the source. In fact, this is quite likely. I would think Mr. Farber was in league with the prosecution if his subsequent book did not contain theories about the case that were at odds with the prosecution's theory. If the prosecution's case is based on evidence that is in the reporter's possession, then that kind of evidence ought to be made available to the defense. To the extent that the judge can sanitize it to protect sources and the like, he ought to do so. But if it is not made available to the defense, then it seems to me the alternative is that the person cannot be put on trial.

MR. YODER: Am I wrong in thinking that Mr. Farber did, at one stage, offer to turn over the manuscript and notes on the book to the court?

MR. DALY: He offeredto turn over the manuscript, I believe.

PROFESSOR WINTER: So faras it has been completed. That is differentfrom saying he is turning over the book as it will appear in print.

MR. Yo DER: One of the oddities of the Farber case is that it is the reverse of the situation in the subpoena cases which the Supreme Court decided in Branzburg v. Hayes 3 about six years ago. The insistence at that time was on the part of prosecutors, grand juries, and so forththat reporters' notes and information should be accessible to the prosecutorial arm of the law. In the Farber case, the situation is oddly

3Branzburg v. Hayes, 408 U.S. 665 (1972).

10 reversed in that the claim to his information and notes is being made by the defense. I am inclined to be considerably more sympathetic in the current case. For one thing, important Sixth Amendment claims on behalf of an accused individual are involved, and I think that modifies the situation considerably. Previous claims of reporter's privilege were made to prevent exces­ sive government curiosity and attempts, as Justice Stewart said in his dissent in the Branzburg case, to co-opt the jour­ nalist as an arm of prosecution. That is a very, very different kind of case. What interests me here is that the lawyers, prosecutors, judges, and so forth seem unable to discharge their func­ tions and duties without an independent institution­ namely, the press. I have difficulty understanding why it is necessary in any of these instances to drag in the press. If it does become necessary, then I would say let the prosecutions go by the boards. If the prosecution in New Jersey cannot make a satisfactory case against Dr. Jascalevich without dragging in the press, or if the defense cannot make a satisfactorycase without the press, then let the case collapse. It is much more important that this value of the independ­ ence of the press be upheld and preserved than it is to have successfulprosecutions and trials. That is my point of view.

PROFESSOR WINTER: Doesn't it strike you as a bit odd that Mr. Farber writes a series of articles saying a doctor has mur­ dered a large number of people and, as a result of the articles, that doctor cannot be tried formurder? The press is not serving much of a public functionin that case in terms of informing the people about prosecution, murders, or any­ thing else. It is providing an immunity. Also, Mr. Yodersays that if the courts cannot get along without the press, the case should fall. I am not out of sympathy with that. But it all began when Mr. Farber got the

11 prosecutor's file and then went after the story. If he did nothing more than that, he got a headstart with the prosecu­ tor's fil�venif the filewas dead. I think he became an arm of the prosecutor at that time. So, if Mr. Farber cannot get along without the prosecutor, let him not claim the privilege.

MR. LANDAU: He did not get the file from the prosecutor, but from somebody who had formerly been a prosecutor and was no longer in the employ of the state. I think it is somewhat ironic, as Mr. Yoder points out, that the whole state of New Jersey, with its judges and marshals, subpoenas, search warrants, and all the power of the state, cannot get what it wants, but has to go after this one re­ porter. That has been the pattern in these cases. Take the Stanford Daily case. If they had wanted to, the Palo Alto police could have gotten one of those 300 demonstrators to identify somebody who attacked the police. But what did they do instead? They went against the press, because it was convenient and easy, and because we do our job well.

PRonssoR WINTER: Don't confuse the Stanford Daily case with the Farber case. Sheriffsand the police are not running around to get Mr. Farber. The defense wanted access to his information;that is the only reason anybody is going after it. I agree with you that it is a very different situation when a prosecutor goes out and, with a search warrant, tries to get to a newspaper's files. There are a lot of reasons forthe difference. One is that the prosecutor is likely to be a political figurewho may have particular antagonisms toward the press and may be in­ terested in getting information other than what is listed in the search warrant. The prosecutor may be a person who has been criticized by the press. There is, admittedly, much room for abuse when a prosecutor seeks to get into the _press's files. I don't mean that I would favor an absolute

12 privilege in that instance, but it is very different from the Farber case. Mr. Farber, one way or another, obtained the prosecutor's file and conducted an investigation that led directly to the prosecution of an individual. That individual would like to see all the available evidence against him, and not read about it while he is in prison. And there is an impartial judge, who would read the material in private and would turn back anything that is not necessary forthe de­ fense.

MR. LANDAU: But people are in jail all over this country who probably could be acquitted, iflawyers produced fromtheir files information covered by the attorney-client privilege. Why is it a cosmic disaster if the exact same privilege is claimed by the press? Why does the system self-destruct when a newspaperman claims the privilege, but not when a lawyer claims the privilege?

MR. SIMMS: I think that the information in lawyers' files, which is protected by the attorney-client privilege, would be more likely to get people convicted than acquitted. [Laugh­ ter.] That is a significant difference. With regard to the Farbercase, one aspect that has gotten very little attention is the existence in New Jersey of a virtu­ ally absolute newsman shield law. This relates to the point of whether the doctor in New Jersey, or any other criminal defendant, will in factgo through the trial process, be con­ victed, wake up in jail four years later to find exculpatory evidence, and then be set free.Those cases do occur. But the real significanceof the New Jersey shield law, which appar­ ently has been set aside in the name of a fair trial, is that the political organs of the New Jersey government-the legislature and the governor-have adopted a policy that newsmen shall have an absolute privilege from disclosing the kind of information the judge and defendant in the

13 Farber case want disclosed. Theoretically, that law represents a decision by the political organs of government in New Jersey that, if such evidence is necessary to the trial, the doctor shall not be prosecuted. It is not a matter of the press coming in and saying that the doctor shall not be prosecuted. What I find phenomenal about the case is that in the name of a fairtrial, the courts have simply laid waste to the politicaljudgments of the state legislature. I think that is an absolutely indefensible act on the part of the court. The court is saying that the trial will go forwardwhen in factthe state legislature has decreed that the trial shall not go for­ ward under certain circumstances. That may be the most outrageous aspect of the Farber case.

MR. LANDAU: Has the legislature said it will not go forward, or that it will go forwardwithout this evidence?

MR. SIMMS: Well,I don't think that anyone is prepared to say people ought to receive unfairtrials. The decision has to be made whether there will be a trial or not. The number of prosecutions that are aborted by virtue of the exclusionary rule to keep tainted evidence out of criminal prosecutions must certainly be far greater than the number of prosecutions a shield law would abort. So, we have a very odd situation. In the name of Fourth Amend­ ment privacy, we abort prosecutions on a daily basis; but when a state legislature decides that certain criminal prose­ cutions shall be aborted because of a perceived threat to First Amendment interests, the court says the prosecution shall go forward. Thatis a central aspect of the Farber case that needs to be talked about further.

MR. YODER: I would like to query something ProfessorWin­ ter said in connection with the Farber case. I understood him

14 to say he thought Mr. Farber had had a due process hearing on his claims. My understanding was that, in his claims to a hearing, Mr. Farber apparently assumed in good faith that his position was protected by the New Jersey shield law. That is a stipulated factof the case, as I understand it. I have not read the text of the decision of the New Jersey Supreme Court, and it is always hazardous to interpret what a court has said fromnews accounts, I regret to say. But, as I understood the reports, the New Jersey Supreme Court has held that a hearing forMr. Farber on the issue of the shield law was, in effect,pointless, inasmuch as Judge Arnold, the presiding judge in the case, apparently was presumed to know the factsas to the relevance of the shield law. Thus, it was considered pointless for Mr. Farber to be given an opportunity to be heard. Am I mistaken in that?

MR. LANDAU: That is about what it said.

MR. YODER: It is a very strange thing foran appellate court to say.

MR. LANDAU: Larry Simms makes a very interesting point about the Fourth Amendment. In 1924, when a subpoena similar to this was served, calling for thousands of docu­ ments, Justice Holmes made a statement. He said that it is. contrary to the firstprinciples of justice, under the Fourth Amendment, to allow the party wanting evidence to call for all documents, in order to see if they contain something relevant. It is an interesting parallel that the Fourth Amendment protection against having one's private papers seized en masse is precisely the same Fourth Amendment argument that is used under the exclusionary rule.

MR. YODER: My understanding was that the foundersof the American Republic were exercised by general warrants in

15 the tradition of the colonial and revolutionary period. And this, it seems to me, is nothing, if not a general warrant­ loosely speaking, of course.

PROFESSOR WINTER: No, I wouldn't think so in the Farber case, giventhe relationship of the prosecution to the news­ paper stories and everything else. It is a very peculiar case, and a very bad case, in my opinion, for the press to be raising. For one thing, I think the problem of a fairtrial would go away if the press didn't raise the issue. In most cases, a reporter could turn the filesover to a judge, who would look at them and turn them back, and that would be the end of the matter. But the minute the defense lawyer knows that privilege is going to be raised in every case, he makes the motion foracquittal because there is nothing to lose. When the reporter refuses to turn over evidence, the defense lawyer is left standing there saying, "Well, my client cannot get a fairtrial." Again, I would emphasize that there is a difference between this and the prosecutor roaming through filesand even using the subpoena power.

MR. DALY: I think we have covered the Farber case in depth, and I would like to return for a moment to StanfordDaily. Senior officers of the Justice Department supported the ruling in that case but suggested that there ought to be safeguards, by way of policy or even statute, to limit and control searches. Do any of you think that a policy or statute could provide a satisfactory settlement of the competing claims here? Mr. Simms?

MR. SIMMS: I don't represent the Justice Department, but, as everyone is aware, the problem that arose in the Branzburg case continues to be dealt with.

16 MR. DALY: Since we brought this case up several times, would you give us the facts of the Branzburg case?

MR. SIMMS: In its decision on the Branzburg case in 1972, the Court held that a newsman subpoenaed to appear beforea grand jury to present relevant evidence of criminal activity had neither a privilege not to appear nor a privilege to refuse to give what relevant evidence he had, including, possibly, names of confidential sources. The Justice Department has had regulations for han­ dling this problem, so that when the press is subpoenaed there is very strict control at the highest levels of the de­ partment. My own view is that it has worked quite well. That kind of control also preserves the ultimate authority of the attorney general to deal with the hard cases that I was talking about. It is an excellent kind of accommodation and it is workable. I am not sure that the press should ask for more than that. Obviously, though, that kind of action on the federal level does not solve the problems that may exist at the state level; those must be dealt with separately.

MR. YooER: Weall are quite happy to have a sensitive attor­ ney general who issues guidelines which are binding on people in the Justice Department. That certainly is regarded as an improvement over certain other regimes in the Justice Department. But Mr. Simms makes it sound as if the press is, in effect, a supplicant or a petitioner forsome special treatment that is not inherent in the text and spirit of the First Amendment. Those of us in the newspaper trade rather emphatically reject that assumption. The only material or important issue in the StanfordDail y case is the issue of notice, which should have been given by subpoena. This is not an exotic pretense on the part of the press; it is precisely the position that was taken by Justice Stewart, who has spoken wisely and, in my

17 opinion, with true attention to the meaning of the First Amendment. Many of these cases involving the press are sensitive ones; we're not looking fora special privilege. I have already said that I am very leery of privileges extended by special edict of the attorney general, by Congress, or by anybody else. We are simply looking for a reasonable interpretation of the First Amendment.

MR. DALY: I believe a case was lodged in Richmond that relates to this issue of privileges. The local press there tried to get a court order to bar the telephone company from giving over the records of its long-distance phone calls with­ out first notifying the press. The lower court decided the case in the press's favor, but the federal court of appeals ruled two to one that that was tantamount to giving the journalist a privileged status-giving him a right that was denied to other ordinary citizens. You know that case, Professor Winter. What do you think about it?

PROFESSOR WINTER: As I indicated before, I don't like the idea of compelling the press to give information that is unrelated to the particular need of law enforcement offi­ cials. If, forexample, there is probable cause to believe that newspapers are engaged in price fixingor some other fed­ eral crime, it would seem reasonable to have some kind of inspection of the phone records, in order to permit law enforcement to go ahead. But it is wrong to give law en­ forcement officials accessto all phone calls, checks, photo­ graphs, and so forth. In every case like that, the request should be narrowed.

MR. YoDER: It seems to me that the claims of the press are really no more extensive than the ordinary claims and ex-

18 pectations of a private citizen. I take exception to the idea that the telephone company or the bank can make my rec­ ords available to anybody forany reason without my notice and permission.

MR. LANDAU: There is debate in the press about this special privilege thing. But examine the constitutional history of this country. In 1760, the British raided a little newspaper in the north of England called The North Britain, because they wanted to know who was giving the publisher all of the seditious material he was writing about the king. They broke into the newspaper, and they rummaged all through it. The publisher then fileda lawsuit, which he took to the House of Lords. And the House of Lords struck down the warrant, saying it was unlawful to break into people's houses and forceably take their papers away. That case, Entick v. Carrington, was the basis of the Fourth Amendment. The letters fromthe Boston patriots to the Constitutional Convention make it evident that two groups of people were continually harrassed by the British in those days-the religious dissenters and the colonial printers. And the Founding Fathers specifically put protec­ tions into the Constitution for the printers and the dissen­ ters. Those fellows back in the eighteenth century knew precisely the two major evils that government would try to visit on the people; namely, it would try to establish a state church, and it would try to establish a party political line.

MR. SIMMS: Beforewe end this session, it ought to be at least noted that the conflict here is not solely between the press and the government. Most of the issues we have talked about seem to pit the press against the courts, the executive au­ thority, or the law enforcement authority. There are some very serious issues involving libel actions as well. The Supreme Court will hear argument in Herbert v.

19 Lando,4 a case out of the second circuit, which involves the right of a private person seeking damages foralleged libel to have access, essentially, to the innermost sanctum of the editorial process-the minds of the editors and the re­ porters who worked on a particular story. In my view, that is a very serious problem. And I bring it up to demonstrate that the conflicts are not just between the government and the press. They are between private citizens trying to re­ cover for libel. The emerging legal area of privacy is a two-edged sword, which often cuts as much against the press's interest as it does in favorof the press's interest.

R. DALY: I am sure there will be furtherdiscussion M of all these areas when we begin the question-and­ answer session. May I have the first question, please?

JOHN BRAITHWAITE, student, Catholic University: Mr. Landau, when you first mentioned the StanfordDaily case, you said the police had not informed the newspaper that they were going to come. From that remark, you implied that the police should have informed the newspaper. Wouldn't that have been a departure from legalprecedent in court cases on search and seizure?

MR. LANDAU: Well, I don't think we should get into a long argument about Wardenv. Hayden.5 But the basic question is

4Herbert v. Lando, 568 F.2d 974 (2d Cir. 1977), cert. granted, 98 S. Ct. 1483 (1978). 5Warden, Maryland Penitentiary v. Hayden, 387 U.S. 294 (1967).

20 whether the police could have gotten their evidence in the Stanford Daily case by serving a subpoena. When a subpoena is served on someone, fromthe min­ ute it is delivered, he is obligated to preserve the informa­ tion. And in none of the newspaper cases that I know of is there any evidence that a newspaper has ever destroyed informationsought by subpoena. The Stanford Daily merely said that the police should have subpoenaed the documents they wanted, instead of marching into the newsroom and going through all of the filingcabinets.

BILL FAULKNER, student, Catholic University: Are the people who talk to reporters being denied due process of law? When they arequestioned by reporters as confidential sources, they are not warned of their rights, nor are they allowed to invoke the FifthAmendment.

PROFESSOR WINTER: I'm not sure whether you are saying that, since they were not warned, their evidence should not be turned over in court, or that they should sue the re­ porters under the Civil Rights Act.

MR. DALY: You were concerned with whether it was proper evidence in court, right?

MR. FAULKNER: Yes.

PROFESSOR WINTER: Well, let me ask you a question in re­ turn. A person is interviewed by a reporter, and he tells the reporter that he was a witness to the murder of several patients in New Jersey hospitals and that the murderer was not Dr. X. This person testifies at the trial that he was a witness to the murders and that the murderer was Dr. X. Do you think Dr. X is seriously deprived of his rights if the contradiction in statements is not brought to the jury's attention?

21 MR. DALY: I guess you do. Next question, please?

CHARLES GOLDSMITH, student, Georgetown University Law School: ProfessorWinter, a couple of articles have said that the Herbert v. Lando case will undermine the New YorkTimes v. Sullivan 6 decision. What are your thoughts on that?

MR. DALY: Would you define thecase,.too, professor?

PROFESSOR WINTER: Herbert v. Lando is a press-against-press case that started when a former U.S. Army colonel pub­ lished a book which, if not a truthful account, was defama­ tory of a large number of people. A CBS program, "Sixty Minutes," interviewed people who were named in the book, all of whom, as I recall, denied knowing anything about the incidents in the book. "Sixty Minutes" confronted Colonel Herbert in person with some of these witnesses. Colonel Herbert then sued CBS. The present law of defamation gives a privilege to the press, including Colonel Herbert and CBS, to publish something so long as it is not knowingly false. As a result of that legal standard for which the press had fought so long, Colonel Herbert claimed, essentially, that he was entitled to know what was going on in the mind of the editor of the CBS program, Barry Lando. I do not know how the case will come out, and I am not sure how it ought to be decided. But it is not likely to weaken the New YorkTimes v. Sullivan decision, because it is a natural outgrowth of that case. New York Times v. Sullivan makes the newspaper's state of mind a relevant issue, and it is natural to pursue that.

MR. YoDER: In the Herbert case, how would producing the records of CBS and the artifactsof the production of "Sixty Minutes," including outtakes and so forth, throw light on 8New YorkTimes v. Sullivan, 376 U.S. 254 (1964).

22 the state of mind of the editors and producers of that pro­ gram? I have difficulty understanding how a state of mind could be established by evidence that would be admissible in a court, other than by calling people and having contradic­ tory testimony.

PROFESSOR WINTER: They asked the editor direct questions in a deposition, like "Why did you leave this out? Why did you emphasize that? What were you trying to get across?" It was a very direct inquiry.

MR. YODER: This may, indeed, be a press-against-press case, but I suspect that when at last the law gains access to the editorial mind, it will be paralyzed with boredom at the banality and routineness of the editorial process in this case as in others. It will be a gain without a gain.

MR. LANDAU: One thing should be pointed out here. CBS has produced something like 23,000 pages of depositions in this case. There is no claim of absolute privilege. CBS has provided boxloads of stuff,and dozens of people have been interviewed. But when it came down to questions like "What were you thinking? Why did you make that editorial judg­ ment? What did you discuss with the editor, and what did the editor say to you?" CBS at that point said, "Stop. You can't go into our minds. At least leave us that." That is really the issue.

MR. SIMMS: Jack Landau raises an important point, regard­ ing how that kind of evidence is used. CBS turned over boxloads of informationand submitted to all sorts of depo­ sitions. Apparently, this caused its reporters a great deal of anguish but made its lawyers feelmuch better, since their job is to insulate CBS fromwhat could be a phenomenally high judgment. To get back to the original question, the real danger in

23 the case is that it could establish a precedent for making direct inquiry into the minds of reporters. For example, the first draft of the story might have said that Herbert was a good guy and just misguided; the second draft, which an­ other editor helped on, might have said he was a bad guy who was misguided. Finally, when it got to Mike Wallaceor someone else, Herbert was allegedly turned into the second coming of Satan. That is how state of mind could be proved by objective evidence. At that point, if the press wanted to take a chance of surviving a jury verdict or getting some kind of directed verdict, it could do so. But once the right to inquire into the editorial process is recognized, then the danger of undermining New YorkTimes · v. Sullivan is that the press might impose upon itself the kind of self-censorship that New York Times v. Sullivan was de­ signed to prevent.

MR. DALY: In view of the various references to New York Times v. Sullivan, would you lay down the bare bones of that case?

MR. SIMMS: The case involved an advertisement placed in the New York Times in 1963, at the height of the civil rights movement in the South, that made false and defamatory charges against unnamed but subsequently identified Ala­ bama officials. In that case, the Court held that the First Amendment provided a protection to the media. The media could not be held liable for those statements, even though they were false,unless it could be shown that a defendant in the libel action had actual knowledge of the falsity,or that he recklessly disregarded the fairly high probability that the statements he was printing were false.

LESTER BARRER, bureau chief, Today News Service, Inc.: The government has hundreds, if not thousands, of publi-

24 cations that are put out by its press representatives. What would you think of the shield privileges being applied to these government officials who are, in reality, media people?

MR. LANDAU: As you know, there has long been an argu­ ment about U.S. Information Agency reporters. Are they reporters or government officials?The same thing occurred in the early days of public broadcasting. My own opinion is that while a person is doing a job for the government and receiving money fromthe government, he is a government employee. He is not an independent member of the news media. This is the position taken, forexample, by the House and Senate gallery committees. They will not give conventional gallery passes to persons who are in the employ of govern­ ment. If government wants to censor itself-if Mr. Carter wants to censor Jody Powell, or Jody Powell wants to censor the USIA reporter-that is a problem they will have to work out among themselves. We have enough problems right now. If these people were to be given an independent status, like the Corporation for Public Broadcasting or something of that nature, then the situation might be different.

MR. SIMMS: I reach the same conclusion, but for a slightly differentreason. I think it would be fairlydangerous even to think of a government-sponsored press outfitas the kind of freepress that is protected by the First Amendment. One of the basic assumptions of the First Amendment is that the press exists outside of the government. In fact, one of the most important roles of the press is to criticize the govern­ ment. If the general public ever comes to believe that a government-sponsored press organization is, in fact, play­ ing that vital role, the public would be most likely deluded,

25 and the free press that does exist might well suffer �ery greatly from that. The notion of a government press is antithetical to the First Amendment.

JACK PELTASON, American Council on Education: If mem­ bers of the press have rights of speech �eyond those of other persons, who decides who belongs to the press? Why can't everybody who can write and put out a newspaper claim to be a member of the press?

MR. SIMMS: At the constitutional level, that is a very difficult question. The notion that the First Amendment is designed to protect Thomas Paine, the lonely pamphleteer, as well as the New York Times or an equivalent media outlet runs pretty strongly in the history of the First Amendment and in latter day decisions. The distinctions are very difficultto make on a constitutional level. We also may run into hard cases. What happens, for example, when a terrorist organization starts a little press in the United States and claims the kind of constitutional privi­ lege that was claimed in Branzburg, forexample, and in the Stanford Daily case? Should the court take evidence on whether it is a legitimate press outfit? Should it inquire into the motives of these people who claim to be the press? It's difficult. At the statutory level, either in Congress or in the states, I think it is fairly clear, as the recent Houchins v. · KQED7 case shows, that-

MR. DALY: What is Houchins v. KQED?

MR. SIMMS: That's a case in which a somewhat divided court reaffirmed the principle that the press shall be given no special access, under the First Amendment, to prison facili-

7Houchins v. KQED, 98 S. Ct. 2588 (1978).

26 ties. A concurring opinion of Justice Stewart, though, sug­ gested that the free press clause, as opposed to the free speech clause, may in some situations require what appears to be special treatment for the press, but in fact is not. It simply gives the press the tools to performits function of communicating information to the people. But getting back to the question, I think that Congress, or a state legislature, has a reasonable amount of freedomin defining the press narrowly to solve part of the problem, without including all of the people who might be thought to come within the ambit of the press from a constitutional perspective.

PROFESSOR WINTER: That is one of the great difficulties in defending a so-called special privilege forthe press. I don't think people would put up with a special privilege that extended to media conglomerates but not to people who want to publish handbills or lawjournals. The press includes all publishing, and it includes such a large number of people that it would be intolerable to give them the kind of privilege that is occasionally talked about. Definingthe press is one of the really serious problems of any press privilege.

MR. YonER: I emphatically agree with that, and I think that the institutional press has an unfortunate tendency some­ times to forgetwhat the court has frequentlyreminded us to bear in mind. The freedomstendered by the First Amend­ ment to the press include the right to publish a handbill as well as the right to publish an uninhibited Washington Star. We had a very interesting case in the last term of the Supreme Court, in which the Court upheld the right of a bank to place newspaper advertising which was, in effect, political advocacy concerning a referendum on a state in­ come tax law in Massachusetts. There had been a half-baked Massachusetts law which sought to inhibit business and insti-

27 tutional advertising that carried a political doctrine or mes­ sage. It was, quite correctly, struck down by the Court. In a very interesting concurring opinion which caused a ripple of excitement in the institutional press, ChiefJustice Burger went over some points about the claimed special privileges of the institutional press, saying that the First Amendment is essentially foreverybody. I welcome that kind of decision, as long as it doesn't portend a move by the Supreme Court to curtail the institutional press in the name of expanding the privileges of individual persons.

PROFESSOR WINTER: That's right. I do not think Chief Jus­ tice Burger was attacking the institutional press.

MR. YODER: I didn't think he was, either.

PROFESSOR WINTER: Rather, he was warning that the law cannot prohibit people from buying advertisements while permitting them to buy a newspaper and print whatever they want. The two things are inconsistent; people must be permitted to go out and use the press, to purchase adver­ tisements where they can. That is absolutely essential. There are all kinds of laws regulating how people can buy political advertisements, and things like that. If we ever get into the situation in which the only way a person can use the press is to own the paper, we may be forced to turn to remedies that more and more people are suggesting, like breaking up the press, and extending a fairness doctrineto the print media as well as the broadcast media, where it poses a terrible threat of censorship right now. That was a terribly important decision. Unfortunately,it was a split decision, five to four, I think.

MR. YODER: You touched a sensitive nerve, too, with the question of who really is in control of the utterance of

28 opinion. In the case of the established institutional press, many outlets are now owned by conglomerates which con­ trol not only publishing houses, but, in some cases, baseball teams and other interests. It's very difficult to distinguish between, say, CBS, the New York Times, and the bank estab­ lishment in Massachusetts which was prohibited from this utterance by the rather ridiculous Massachusetts law.

MR. LANDAU: As this discussion shows, people misunder­ stand the position of the establishment press. Remember that the establishment press supported a little university newspaper that was raided by the cops, and a little FM station in Los Angeles that wasn't allowed to say seven dirty words. During the shield law hearings in 1973, all conceivable constitutional horrors were suggested. If the Mafiastarts a newspaper, said Senator Ervin, what are we going to do about it? But in over 200 litigated subpoena cases, there has never really been a question as to whether the person was a member of what we would consider the press. There was a case in New Mexico about five years ago of a fellow who joined a picket line and later took out a pad and interviewed people. Then he put his pad back in his pocket and rejoined the picket line. In all the cases that have been litigated, that is about the closest anybody has come to questioning whether a person is a member of the press. As a matter of fact, I think the district court there said that he was, although they thought his behavior was somewhat unconventional. [Laughter.]

PROFESSOR WINTER: I do not agree with Mr. Landau. I think all cases that involve political advertising involve the press. I also think that the establishment and institutional press has not defended them. The institutional press defendsowners of radio stations and of newspapers. It did not cry in alarm

29 when Congress passed the law, which was held unconstitu­ tional, saying people could not spend more than a thousand dollars to purchase political advertising.

MR. YoDER: Oh yes, it did.

PROFESSOR WINTER: Well, your paper did, but others did not. The New York Times was in favor of it.

BRUCE FEIN, attorney, Department of Justice: I see two problems in the wholesale substitution of subpoenas for search warrants in the conduct of criminal investigation. First, issuing a subpoena leads to the possibility of destruc­ tion of evidence. For example, a subpoena was used in part of the Watergateinvestigation, and we foundsome gaps on tapes later on. Second, if subpoenas are contested, a delay occurs, and time is oftenof the essence in gaining access to informationso that leads can be followedup. It seems to me that use of subpoenas could substantially curtail the effec­ tiveness of some kinds of criminal investigations. But if we allow search warrants to be used only when the police can show that delay or destruction of evidence is likely to ensue, wouldn't that encourage the police to gather dos­ siers on newspapers or individuals so that they can prove a particular person or newspaper would be likely to dishonor a subpoena?

MR. LANDAU: I cannot sympathize with the delay argument. The orderly processes of the law give a person notice and a right to be heard. What you are saying is, "Let me trample your rights and, afterwards, come in and complain to me. If you are wrong, we will give all the stuffback, having seen it." I cannot sympathize with that, unless, perhaps, there is a danger to lifeor a clear and present danger to the national security of �he United States, as opposed to just a delay in the investigation.

30 As forthe destruction of evidence, I believe every one of the thirteen bills beforeCongress has a provision in it which would permit police to obtain a search warrant if there is cause to believe that the person in possession of the informa­ tion has committed a crime or will destroy the evidence. So, two of your worries are solved by virtually every one of those bills. As to your third one, I would only hope that law enforcementofficials will not go around wiretapping us in order to prove that we might destroy evidence.

PROFESSOR WINTER: My understanding is that, until the last decade, search warrants were not used extensively upon third parties; they were used only upon suspects. They were extended so they could be used upon third parties. That is a major change in the law. Unfortunately,getting a search warrant is no big deal in most places in the United States. The police know which magistrate is most likely to give it. They can put allegations in an affidavit without great fear of being prosecuted for perjury. If they want to harass the press or to get informationon sources, they don't have to fear the exclusionary rule. A civil rights action against them is unlikely, and unlikely to bring damages. Considering the ease with which warrants can be obtained and the fact that they let the police go through everything, we ought to have very severe restrictions on them. Search warrants are a very dangerous business. I really have not thought it through. I might even be prepared to go so faras to say that a subpoena should have been issued in the StanfordDaily case, not a search warrant. If the police didn't get the photographs because the paper had suppressed evidence of a crime-that might raise a differentissue. But in the case of photographs, I cannot see any serious chilling of the press, unless a reporter had an independent interest in seeing people get away with a crime.

31 Taking a photograph is not like talking to a source.

MR. YODER: It seems to me that the interests involved here are unbalanced. It is absurd to establish a precedent permit­ ting the right to rummage through a newspaper office and the offices of other innocent parties in search of evidence. And for what in return? A picture of some demonstrator giving a black eye to a policeman! What a total asymmetry of interest is involved there. The underlying assumption of Mr. Fein's question is that efficiencyis a supreme value in our constitutional system. It may be in some cases, when life is demonstrably endan­ gered, or when national security is jeopardized. But to get a photograph of a policeman being socked by a demonstrator seems a pretty trivial gain in exchange for throwing away very important rights of privacy and crucial protection against search warrants.

Juuus DuscHA, Washington Journalism Center: I would like to ask both Mr. Yoder and Mr. Landau.whether they think the courts' reaction to the press these days reflects a general feeling in the country that the press has gotten too big and too monopolistic. Mr. Yoder's paper is now owned by Time Inc., one of the big media conglomerates in the country. Mr. Landau works for one of the big groups of newspapers, the New­ house papers. As we all know, judges are human too and tend to reflectthe feelings in the country.

MR. YoDER: Mr. Duscha, you are asking for a speculation about the state of mind of Supreme Court justicesand other judges. I could speak with more informationabout the state of mind of some lower courtjudges, but I would not venture to speculate about the justices of the Supreme Court. All I would say is that if their recent pronouncements indicate a

32 state of skepticism and maybe even some alarm about the increasingly monopolistic structure of the press, I would not be surprised. And if they do, notwithstanding the anomaly of my saying this, I think it is well warranted. It is something that everybody should be concerned about. It is also important, of course, forpeople to understand that many of the recent tendencies toward agglomeration and monopoly in the press are dictated by economic and technological circumstances, as well as social factors. They are not the result of a deliberate conspiratorial process. If there is some suspicion or alarm, it may be warranted, but it should not affect the interpretation of the First Amendment.

MR. LANDAU: I think there is a certain hostility, not only in the Supreme Court, but in other courts too, toward the press. In one sense, though, we are talking about apples and oranges. What the Supreme Court sees in Washingtonis a very affluent, superbly equipped, well trained corps of re­ porters with bureaus and big expense budgets. The Court cases, though, involve a little FM station in Californiaand a reporter from Virginia. I don't think the courts really un­ derstand how difficultit is to be a reporter, especially on the local scene where most of these cases arise. And, in a sense, they transfer their feelings about this arrogant, affluent press establishment in Washington to the weekly reporter who may be the only investigative reporter in the county. If he is thrown in jail or discloses his sources, people won't talk to him. That is the end of any investigation in that county. There is a big distinction between what we are trying to tell the Court about the news business and what the Court is convinced it knows about the news business.

MR. YODER: To be fairto the Court, though, let's not suggest

33 that all justices see eye to eye on the principles of the press cases that come before them. I am certain that they are no more of a piece in their views of the press than any group of nine well-informedand responsible people would be.

MR. LANDAU: I was merely trying to point out that I think there is a different perspective here in Washington.

MICHAEL BALZANO, American Enterprise Institute: In your opening comments, Mr. Landau, you discussed the Bill of Rights in terms of absolutes, the invocation that Congress shall make no law abridging the freedomof the press. The Bill of Rights is affixed to the Constitution; it does not nullify the Constitution. The Constitution names the Court as an arbiter in such discussions. Do you see the Bill of Rights as a set of absolutes without an arbiter, or would you accept · that the Court can interpret the Bill of Rights?

MR. LANDAU: I think the Court sees itself as an absolute, perhaps much more than the Bill of Rights. One has only to go back to previous Court decisions which said that blacks could be discriminated against and women were nonpeople to realize that the Court's interpretation of the Constitution may not be any more authoritative than yours or mine.

MAX IsENBERGH, law professor, University of Maryland Law School: The order providing for the search in the Stanford Daily case was an order of a court. The First Amendment provides that Congress shall make no law abridging the freedomof the press. Mr. Yoder, by what logic do you assume that First Amendment rights are involved in a case like the Stanford Daily case? Perhaps some of your lawyer co-panelists might want to contribute to this.

34 MR. YODER: I am not certain that any peculiar First Amendment rights are involved in that case. The First Amendment connection, as I understand it and would sub­ scribe to it, is contained in Justice Stewart's dissent in the case in which he reiterates many of the cautionary argu­ ments about the possible chilling or inhibiting effecton the press of this kind of intrusion by authorities. But to my mind, as far as the interest of the press is concerned, the question is a procedural one rather than a First Amendment question. I would have exactly the same reservations about the case if it had been a doctor's officeor a lawyer's office or, indeed, your study at the University of Maryland or any similar place in which a blanket search warrant was used for the intrusion of the authorities upon a presumably innocent third party in search of criminal evidence. That is why I do not necessarily believe that peculiarly First Amendment questions are involved except to the de­ gree that Justice Stewart raised them in his dissent.

MR. SIMMS: Your question is largely a legal one. Any number of cases decided by the Supreme Court have made com­ pletely clear that the word "Congress" as it is used in the First Amendment extends to the government generally. It is clear fromvarious Court decisions that if courts act on their own, not at the behest of the executive branch of a state or federal government, and if they enter an injunction enjoining the press forwhatever reason, that iajunctionis as much subject to First Amendment constraints as would be an act of Congress. Essentially there is no distinction under First Amend­ ment law between governmental actions taken by a legisla­ ture or governmental actions taken by an executive or by a court. It is clear that the law and the First Amendment apply to iajunctiverelief fashioned by a court under its common

35 law power as well as under power that might be granted to the court by a statute. I do not think there is any constitu­ tional distinction there at all.

JAMES TOOTHMAN, attorney, Sanjose, California: My ques­ tion is to those members of the panel who think that some power less than an absolute power of the press should exist. Do you draw any distinction between a review by the police and/ or prosecutor of evidence or informationand a review by the court, particularly a lower court, of information to determine whether or not that informationis, in fact,mate­ rial to the issues beforethat court and to determine how that evidence and/or informationmay relate to a violation of an individual's rights?

MR. LANDAU: The position we generally take is that a judge is the government. He is one of the three branches, and ifwe will not give evidence to the prosecutor or the governor, we will not give it to the judge either. That is part of the fightin the Farber case over the in-camera inspection. All judges seem to think that they are somewhat more sensitive than anybody else, so they have a right to see evidence even though nobody else has the right. Even in the attorney-client privilege cases, once the court finds that the privilege has been properly invoked, there is no in-camera inspection of the client's material. There may be an in-camera inspection to see if the privilege was properly invoked, but if they agree that the privilege was invoked, nobody gets the material. The press is on fairly sound ground, especially because of the advocate position of the press and the courts. The Farber articles were written because the courts and grand juries in Bergen County did not do their job in the first place. Lots of folksout there-who were friendlywith those judges, of the same political party, and who ran on the same

36 tickets-had their ears burned as a result of this investiga­ tion.

MR. BALZANO: Mr. Landau, I would like to followup on my earlier question. When I asked about your discussion of the Bill of Rights in terms of absolutes, you answered me that you would submit that the Court's opinion of the Constitu­ tion might not be any more authoritative than my opinion. My question was that since the Constitution sets up the Court as an arbiter, do you think this is the proper arbiter? And if it isn't an arbiter, then who should be the arbiter?

MR. LANDAU: The Supreme Court is a fine arbiter, and I think it will come to its senses on some of these issues. It will just take a little time. As in Plessyv. Ferguson, we may have to wait a little while.

MR. DALY: Thank you. This concludes another Public Policy Forum presented by the American Enterprise Institute for Public Policy Research. On behalf of AEI, our heartfelt thanks to the distin­ guished and expert panelists, Mr. Jack Landau, Mr. Ed · Yoder, Mr. Larry Simms, and Professor Ralph Winter, and our thanks also to our guests and experts in the audience for their participation. [Applause.]

37 AEI ASSOCIATES PROGRAM

The American Enterprise Institute invites your participa­ tion in the competition of ideas through its AEI Associates Program. This program has two objectives: The first is to broaden the distribution of AEI studies, conferences, forums, and reviews, and thereby to extend public familiarity with the issues. AEI Associates receive regular information on AEI research and programs, and they can order publications and cassettes at a savings. The second objective is to increase the research activity of the American Enterprise Institute and the dissemination of its published materials to policy makers, the academic community, journalists, and others who help shape public attitudes. Your contribution, which in most cases is partly tax deductible, will help ensure that decision makers have the benefit of scholarly research on the practical options to be considered before programs are formulated. The issues studied by AEI include: • Defense Policy • Economic Policy • Energy Policy • Foreign Policy • Government Regulation • Health Policy • Legal Policy • Political and Social Processes • Social Security and Retirement Policy • Tax Policy For more information, write to: American Enterprise Institute 1150 Seventeenth Street, N.W. Washington, D.C. 20036 The Press and the Courts: Competing Principles, an edited transcript of an AEI Public Policy Forum, examines the role of the press in America under the First Amend­ ment. The participants discuss the competing interests of the news media, the government, and the public, including a defendant's right to a fair trial and the press's need to protect confidential sources. Some argue that new legisla­ tive safeguards are needed to protect the press from gov­ ernment searches and subpoenas. Others believe that such special immunities would lead to broadened government regulation of the media. These and other issues are consid­ ered in the light of several recent and important judicial decisions. John Charles Daly, former ABC News chief, serves as moderator for the panel: • Jack C. Landau, director of the Reporters Committee for Freedom of the Press and Supreme Court correspond­ ent forthe Newhouse Newspapers • Larry L. Simms, attorney advisor, U.S. Department of Justice and adjunct professor, Georgetown University Law Center • Ralph K. Winter, William K. Townsend professor of law at Yale Law School, AEI adjunct scholar, and member of the AEI Legal Policy Studies Advisory Council • Edwin Yoder, editorial page editor and columnist, the Washington Star. S2JD

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