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Contents

HOOVER DIGEST · 2014 · N O. 2 · S P R I N G

T H E E C O NOMY 9

The Myth of “Secular Stagnation” Presented as a profound new insight, the latest explanation for the lackluster recovery is a sorry example of sloppy thinking and stale excuses. By john b. taylor.

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Opportunity Is Knocking Care for a genuine stimulus? Untangle regulation and cut taxes. By gary s. becker.

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Houses of Cards The mortgage market came tumbling down because activists, regulators, and lenders laid such a wobbly foundation. By charles w. calomiris and stephen h. haber.

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Break the Budget Stalemate Both parties should have the good sense to demand less waste, more efficiency, and new technology. By michael j. boskin.

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Where the Falsehoods Roam Where do failed economic policies come from? The president recently delivered a speech representing Exhibit A. By richard a. epstein.

I N E Q U A LITY 37

It Doesn’t Pay Off Most minimum-wage workers aren’t sole breadwinners and don’t live in poor households. That’s why minimum wages do a lot less for the truly poor than you might suppose. By david r. henderson.

Hoover Digest N 2014 · No. 2

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The War on Poverty Is Lost An army of programs didn’t just fail to defeat poverty. It created a culture of permanent government assistance. By lee e. ohanian.

IMMIGRATION 46

Vigorous Youth Why welcome young immigrants? Because there’s an entrepreneurial payoff. By edward paul lazear.

H E A LT H C A R E 50

A Policy too Far Yes, we need to make affordable health insurance available. But to do so we need to scrap the “cover everything” mentality. By george p. shultz, scott w. atlas, and john f. cogan.

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Not too Late for a Cure ObamaCare isn’t settled law if it doesn’t work. Rather than wait for a total collapse, let’s come up with a genuine alternative now. By john h. cochrane.

P O LI T I CS 59

Dealing with the New Deal The debate that erupted in the 1930s still presents us with the same fundamental choice: greater liberty, or greater government power? By david davenport and gordon lloyd.


I N T E LLI GENC E 63

Bringing the NSA in from the Cold Americans need to be convinced the secret agency is working for their good—and that any privacy trade-offs are worth it. By amy b. zegart and marshall erwin.

E D U C A T I ON 68

Diamonds for the Ivies An elegant technique developed by Hoover fellow caroline m. hoxby helps isolated, high-achieving kids get into colleges—good colleges. By nancy hass.

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Test Scores Do Matter Our distaste for international rankings won’t prevent the rest of the world from pulling ahead of us. By eric a. hanushek.

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Right-sizing Our Classrooms A surprising experiment suggests students might benefit from bigger classes—but only if they have good teachers. By michael j. petrilli and amber m. northern.

MEXICO 85

Viva la Reforma Mexico is busting out of a century of stagnation, and the United States is likely to benefit too. By gary s. becker.

CHINA 89

Taiwan’s Voice of Experience If China wants an example of progress, it need only look across the Taiwan Strait. By tai-chun kuo and william ratliff.


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The Empire Strikes Back? More and more, China resembles the confident—and eventually aggressive—Japan of the 1930s. By victor davis hanson.

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The Powers that Will Be China’s rise need not entail America’s fall. How “declinism” distracts us from contemplating a much more complicated future. By josef joffe.

P O LA N D 109

Katyn Keeps Its Secrets The graves were opened long ago, but Russian files may remain closed forever. By adam bosiacki.

T H E M I D D LE EAST 114

Lawrence’s Fallen Star In a tale stranger than any movie, Lawrence of Arabia lived the role of a lifetime. By fouad ajami.

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Israel the Peacemaker For proof that Israel is more than willing to deal in good faith with the Palestinians, just look at the political freedoms Israeli Arabs enjoy. By peter berkowitz.


I S LA M I S M 130

The Arab Spring Implodes We failed to understand the wave of change—or to shape it—because we failed to understand Islamism. By bruce s. thornton.

138

This Time, There Will Be No Surge There is fresh fighting in Anbar, a province once pacified by U.S. troops. In Iraq, Al-Qaeda is far from spent. By peter r. mansoor.

C A LI F O R NIA 141

Golden Agers The Golden State’s senior politicians will eventually surf off into the sunset. What then? By bill whalen.

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Stuck at the Station California’s recovery, like Jerry Brown’s high-speed railroad, remains in the realm of wishful thinking. By lanhee j. chen.

I N T E R V I EW 151

“Are You Part of My Tribe?” David Mamet is one of this generation’s most acclaimed playwrights—and, as of an intellectual conversion just a few years ago, also one of its freshest political thinkers. An interview with peter robinson.

V A LU E S 160

American Dreams and Visions The American dream isn’t just about riches. Even in the twenty-first century, it’s still about freedom. By william damon.


H I S T O R Y A N D C UL TURE 163

Marxist Myopia Why is Marxism still fashionable in some quarters? Because although the free market’s hard edges are easy to see, its benefits are more subtle. By mark harrison.

T H E G R E A T WAR C ENTENNIAL 169

The Zeppelin Menace A century before there was the drone, there was the zeppelin. As a weapon of terror, the airship had no equal at the start of the First World War. By bertrand m. patenaude.

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“And Then Came the War . . .” From the memoirs of Helena Paderewska, wife of the celebrated pianist, a scene of festivity and farewell in the summer of 1914. Introduced by maciej siekierski.

H O O V E R A R CHIVES 199

The Crusade Years When Herbert Hoover left the White House, he remained intensely interested in world affairs, devoting much of the rest of his life to the struggle against collectivism. By george h. nash.


T H E E CO N O M Y

The Myth of “Secular Stagnation” Presented as a profound new insight, the latest explanation for the lackluster recovery is a sorry example of sloppy thinking and stale excuses. By John B. Taylor.

The evidence continues to mount that government policy has been to blame for the disappointing economic performance in recent years. Yet many people don’t want to hear it, and they offer a series of alternative explanations, including most recently the re-emergence of a chestnut, “secular stagnation.” When it became clear that the recovery from recession—which officially ended in mid-2009—was unprecedentedly weak, policy makers found an excuse in the depth of the financial crisis. Treasury Secretary Timothy Geithner argued in August 2010 that “recoveries that follow financial crises are typically a hard climb. That is reality.” This argument is put forth frequently by government officials, and it’s loosely based on a popular 2009 book by Carmen Reinhart and Kenneth Rogoff, This Time Is Different. A careful look at American history by Michael Bordo of Rutgers and Joseph Haubrich of the Cleveland Federal Reserve Bank has blown holes in the argument. Recoveries from deep recessions with financial crises John B. Taylor is the George P. Shultz Senior Fellow in Economics at the Hoover Institution, the chair of Hoover’s Working Group on Economic Policy and a member of Hoover’s Shultz-Stephenson Task Force on Energy Policy, and the Mary and Robert Raymond Professor of Economics at Stanford University.


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have been stronger, not weaker, than recoveries after shallower recessions. These strong recoveries average about 6 percent real GDP growth per year, compared to only 2 percent per year in this recovery. The current recovery should have been much stronger. Five years into a sluggish recovery, this explanation has worn ridiculously thin. The credit crunch and financial disruptions due to crisis have long since been resolved. Residential investment picked up more than two years ago, so the “weak housing market” excuse is gone. Yet the overall economy has failed to rebound strongly, as it did so often in the past. The recovery is already longer than the thirty-threemonth average of all US recoveries. Yet the gap between real GDP and its potential based on population and productivity trends has yet to close appreciably. The fraction of the population employed is still below what it was at its start. There’s little direct evidence for a savings glut.

And now comes a new excuse, emerging like a vampire from the crypt. Though it has been quietly gestating for some time, that new-old idea, “secular stagnation,” has received a great deal of attention since former treasury secretary and White House adviser Lawrence Summers made the case at a Brookings-Hoover conference in October, and then again at an International Monetary Fund conference in November. A similar hypothesis was famously espoused by Alvin Hansen, “the American Keynes,” in the late 1930s to explain America’s poor economic performance. Hansen claimed, rather ludicrously in retrospect, that technological innovation and population growth had played out, depressing investment—and that only government deficit spending could keep employment up. According to the modern version, secular stagnation began ten years ago when the rate of return on capital—or what Summers called in his IMF speech the “real interest rate that was consistent with full employment”—fell well below normal levels experienced since the end of World War II. The decline, say to “negative 2 or negative 3 percent,” continues today and will likely continue into the future, he said. The low rate of return is due to a supposed glut of saving and dearth of investment opportunities. 10


What it means is that firms need an extra-low interest rate—even a negative interest rate—to be induced to invest. With interest rates at or near zero and inflation low, it is hard to get real interest rates down enough to provide these incentives. Hence, the economy stagnates, and there are unavoidable adverse side effects because of the distortions resulting from heavy government interventions, such as the Fed’s quantitative easing and forward guidance, as policy makers try to respond to the secular decline. There are many problems with this neo-secular-stagnation hypothesis. First, it implies that there should have been slack economic conditions and high unemployment in the five years before the crisis, even with the very low interest rates—especially in 2003–5—and the lax regulatory policy. But it was just the opposite. There were boom-like conditions, especially in residential investment, as demand for homes skyrocketed and housing price inflation jumped from around 7 percent per year from 2002–3 to near 14 percent in 2004–5 before busting in 2006–7. The unemployment rate got as low as 4.4 percent—well below the normal rate and not a sign of slack. Inflation was rising, not falling. During the years 2003–5, when the Fed’s interest rate was too low, the annual inflation rate for the GDP price index doubled to 3.4 percent from 1.7 percent. The credit crunch and financial disruptions from the economic crisis have long since been resolved.

Moreover, there is little direct evidence for a savings glut. During this recovery, the personal savings rate is well below what it was during the 1980s rapid recovery from a deep recession; 5.5 percent now versus 9.2 percent then. In my 2009 book on the crisis, Getting Off Track, I examined the claim that there was a global savings glut and found evidence to the contrary: in the past decade global savings rates fell below what they were in the 1980s and 1990s. The United States has been running a current account deficit, which means national saving is below investment. In the current era, business firms have continued to be reluctant to invest and hire, and the ratio of investment to GDP is still below nor-


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mal. That is most likely explained by policy uncertainty and increased regulation, including through the Dodd-Frank and Affordable Care Act, about which there is plenty of evidence, especially in comparison with the secular-stagnation hypothesis. I suppose the emergence of the secular-stagnation hypothesis shouldn’t be surprising. As long as there is a demand to pin the failure of bad government policies on the market system or exogenous factors, there will be a supply of theories. The danger is that this leads to more bad government policy. Reprinted by permission of the Wall Street Journal. © 2013 Dow Jones & Co. All rights reserved.

New from the Hoover Press is Bankruptcy, Not Bailout: A Special Chapter 14, edited by Kenneth E. Scott and John B. Taylor. To order, call 800.888.4741 or visit www. hooverpress.org.

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T H E E CO N O M Y

Opportunity Is Knocking Care for a genuine stimulus? Untangle regulation and cut taxes. By Gary S. Becker.

The increasingly frequent arguments that the United States may be in for a period of “secular stagnation”—that is, long-term slow growth— bring to mind Yogi Berra’s alleged statement that he was observing “déjà vu all over again.” It is all over again because during the latter part of the Great Depression, and again immediately after World War II, many economists were warning about the prospect of slow growth unless governments invested at a high rate. I do not believe this is the prospect for the present economy. The arguments at that time were eerily similar to the current ones. Alvin Hansen of Harvard University claimed in the late 1930s that because of presumed modest technological progress and weak private investment, the economy would make little headway unless the government provided substantial stimulus. Many economists after the Second World War believed that because of high savings rates, especially among richer people, savings would be too large compared to private investment to produce full employment without large government investments. Gary S. Becker is the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and a member of Hoover’s Working Group on Economic Policy and Shultz-Stephenson Task Force on Energy Policy. He is also the University Professor of Economics and Sociology at the University of Chicago. He was awarded the Nobel Memorial Prize in Economic Sciences in 1992.


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Present proponents of the secular-stagnation thesis make closely related arguments, even though the economy has greatly changed over the past seventy years. On the technological front, they claim that despite the development of computers and the Internet, the prospects for major innovations in the next decade are not bright. I believe these arguments are wrong, although the longer-term future is not predictable with any confidence. Most of the pessimism about technological advances does not recognize the latest developments in energy and medical care. Hydraulic fracturing (“fracking”) and the extraction of fossil fuels from shale have greatly increased the supply and lowered the price of natural gas, and to a lesser extent that of oil. Also neglected is the revolution in personalized treatments of cancer and other major diseases. That advances in life expectancy and the quality of life are not captured in GDP measures should not blind us to their robust advances, which have added immense value to consumer welfare. Personalized medicine, which is about to expand dramatically, will raise that value much further. Perhaps because of their belief in limited technological advances, secular-stagnation proponents believe there will be insufficient private and public investment relative to the level of savings, even at nominal interest rates that have been close to zero. They cite the weak investment in the United States, and even more so in Europe, during the slow recovery from the depths of the Great Recession. The growth in GDP has also been disappointing compared to the recovery in GDP from other severe recessions, and the decline from peak unemployment has been slow. However, it seems strange to think the United States could not generate enough investment, considering that the 1990s were a decade of good overall growth in GDP and rapid growth in employment. The first seven years of this century also had low unemployment and high investment, although part of this investment was in the housing industry, which led to an unsustainable bubble in housing prices. I doubt that the American economy underwent a large structural change over this relatively short period, especially given the continuing stimulus in world demand from a rapidly growing Chinese economy and those of other developing countries. Where I agree with the secular-stagnation thesis is that the government should increase overall investment in various kinds of infrastructure, includ14


ing bridges, airports, and roads. However, I strongly urge that whenever feasible, user fees be implemented, including time-of-use fees on roads. The main way governments can help the economy is by reforming tax and regulatory policies. For example, the United States has one of the highest corporate income taxes in the developed world, at about 35 percent. A reduction in this rate to no more than 30 percent, and preferably to 25 percent, combined with giving firms the right to expense all investments, would be a major stimulant to corporate and other investment. Pessimists are blind to the latest developments in energy and medical care.

Regulation in the United States has grown rapidly since the end of the Reagan administration, sufficiently so that America’s world ranking in the degree of regulation has greatly worsened. The US standing will get even worse as a result of the convoluted and extensive financial regulations in the Dodd-Frank Act, and the messy and extensive regulations that seem to be developing in the health care industry as a result of the Affordable Care Act. One way to simplify and reduce these and other regulations is to increase the role of clear, simple rules, such as higher equity requirements for banks, in place of regulator discretion. This would provide investors with clearer and simpler guidelines about what they can and cannot do. I do not believe the American economy will experience secular stagnation over the next decade. Technology will continue to advance at a good pace and there will be no dearth of private investment opportunities. But it would be valuable to cut corporate income taxes and reduce the massive amount of regulation. These changes would stimulate investment and growth in a way that also improves the efficiency of the American economy. Reprinted from the Becker-Posner Blog (www.becker-posner-blog.com). Available from the Hoover Press is Death Grip: Loosening the Law’s Stranglehold over Economic Liberty, by Clint Bolick. To order, call 800.888.4741 or visit www.hooverpress.org.


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T H E EC ONOM Y

Houses of Cards The mortgage market came tumbling down because activists, regulators, and lenders laid such a wobbly foundation. By Charles W. Calomiris and Stephen H. Haber.

According to CNN, Bruce Marks is “a crusader who has become a fierce advocate for struggling homeowners.” As executive director of the Neighborhood Assistance Corporation of America (NACA), Marks has been campaigning to protect homeowners in arrears with their mortgages from foreclosures. Marks told a CNN reporter, “These mortgages of the last ten years were structured to fail.” You would think that had Marks been around in the mid-1990s, he would have opposed the tidal wave of bank mergers that occurred at the time and publicly denounced the mortgage products that violated “back to basics” principles of prudent lending. The truth is just the opposite. Bruce Marks and NACA actively assisted some of those very institutions in amassing their power and size, and they did so with the Charles W. Calomiris is a principal of the Hoover Institution’s Regulation and the Rule of Law Initiative. He is the Henry Kaufman Professor of Financial Institutions at the Columbia University Graduate School of Business and a professor at Columbia’s School of International and Public Affairs. Stephen H. Haber is the Peter and Helen Bing Senior Fellow at the Hoover Institution; director of Hoover’s Working Group on Intellectual Property, Innovation, and Prosperity; and the A. A. and Jeanne Welch Milligan Professor in the School of Humanities and Sciences at Stanford University. They are co-authors of Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (Princeton University Press, 2014), from which this article is drawn.

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explicit aim of getting them to issue mortgages that were “structured to fail.” For example, when NationsBank sought approval from the Federal Reserve Board to acquire Bank of America in 1998, creating the largest bank in the United States, Bruce Marks sent a letter to the Fed, stating: “They [NationsBank and Bank of America] need to be applauded and supported. The regulators need to approve the application immediately.” George Butts, the president of ACORN Housing Corporation, a subsidiary of the Association of Community Organizations for Reform Now (yes, that ACORN), also sent a letter and offered testimony to the Fed in support of the merger. The irony of the situation appears not to have been lost on Butts, who noted: “It’s not the usual role for ACORN Housing Corporation to testify to the Federal Reserve Bank in favor of the merger of banks. This is a different role for us.” Six years later, when Bank of America acquired FleetBoston, Marks and Butts were there again, testifying on behalf of the merger. In that same year, when JPMorgan Chase acquired Bank One, ACORN activists again offered testimony in favor of the merger. Why would populist groups like ACORN and NACA, whose stated goal is to help low-income Americans, actively support the creation of some of the biggest banks on the planet? You do not have to read very far into the transcripts of the Fed hearings to figure out what was going on: activist groups were supporting megamergers because the resulting megabanks allowed the activist groups to award their constituents with billions of dollars in subsidized mortgage credit provided by the banks. The banks were, in effect, agreeing to share with the activists some of the economic benefits that they obtained from growing massively large. The terms of the mortgages granted to ACORN and NACA constituents appeared, to use NACA’s phrase, “too good to be true.” In the case of NACA, borrowers received a one-size-fits-all mortgage with a fixed-rate, thirty-year term, no down payment, no closing costs, no fees, no credit check, and no mortgage insurance premium. Testimony by Marks before the House Committee on Financial Services in 2000 indicates that NACA’s terms attracted borrowers with very low credit ratings: 65 percent of NACA homeowners had a credit score that would


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categorize them as high-risk borrowers (a FICO score of less than 620), while nearly 50 percent had a score that would characterize them as very high-risk borrowers (a score of less than 580). Mortgages directed through ACORN Housing had similarly generous terms, including the right to count food stamps as income. Why would activist groups support megamergers? Because the new megabanks allowed them to reward their constituents with billions of dollars in mortgage credit.

These arrangements with NACA and ACORN were just the tip of the iceberg. An accounting conducted by an activist umbrella group, the National Community Reinvestment Coalition, estimated that America’s banks contractually committed $858 billion in 187 agreements with activist groups between 1992 and 2007. As large as this number is, it represents a lower-bound estimate of the total amount of credit directed through activist groups. The NCRC data indicate that banks committed an additional $3.7 trillion over that same period in “voluntary” lending programs to lowincome or urban homeowners, and a comparison of those data and public statements by activist groups indicates that some of those funds were channeled through the activists. Banks also provided support to activist groups in the form of origination fees for administering the directed-credit programs, or philanthropic contributions, to those groups. A 2010 investigation by the Committee on Oversight and Government Reform of the US House of Representatives found that between 1993 and 2008, ACORN alone received $13.5 million from Bank of America, $9.5 million from JPMorgan Chase, $8.1 million from Citibank, $7.4 million from HSBC, and $1.4 million from Capital One.

TR A N S F OR M A T I O NS To understand how and why populists and financiers decided to become partners, we have to go back to the early 1970s, to trace the transformation of the US banking system that began at that time, and to understand the economic and political opportunities that transformation created. 18


Circa 1970, it was illegal for banks to branch across state lines, and the vast majority of states (thirty-eight out of fifty) limited the ability of banks to open branches even within the state. Some states, such as Texas, outlawed branches entirely: all banks were single-office “unit banks.” As the result of a variety of influences, the limits on bank branching became increasingly unsustainable in the 1980s. By the mid-1990s, subject to approval by regulators, American banks were free for the first time in their history to merge and branch wherever they liked. There was a crucial catch to the legal changes that permitted bank consolidation: acquisitions had to be approved by regulators. The criterion for approval of a merger that mattered the most was the acquiring bank’s ability to demonstrate its good citizenship. As a practical matter, the Community Reinvestment Act (CRA) of 1977, which had established that good-citizenship requirement, had little immediate consequence for banks: from 1977 to 1991, total commitments by banks to improve their ratings under this law equaled only $8.8 billion. Once the rapid-fire mergers of the 1990s got under way, however, this largely moribund piece of legislation became a powerful lever for activists to negotiate directed-credit deals with merging banks. Sixty-five percent of NACA homeowners had a credit score that categorized them as high-risk borrowers. Nearly 50 percent were very high-risk borrowers.

The National Community Reinvestment Coalition even put together a guide offering advice on how to negotiate agreements with banks that were in the process of merging: “Some banks are very desirous of Outstanding ratings so that they can present a clean reinvestment record to regulators when they ask for permission to merge. . . . Activists should keep in mind that change from Outstanding to Satisfactory ratings (and back again) is effective in leveraging reinvestment [CRA lending commitments].” Banks contemplating mergers and activist groups seeking to grow their organizations therefore had incentives to seek one another out to further their mutual interests. But banks are in the business of making money,


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not providing loans at below-market interest rates to borrowers without collateral. They therefore looked for ways to unload the risky loans they were making through activist groups. Fannie Mae and Freddie Mac, the mortgage-purchasing giants, were, however, reluctant to purchase them, because they realized that these loans were risky. The director of ACORN Housing, in testimony before a US Senate committee, explicitly drew a link between the ability of banks to sell their loans to Fannie and Freddie and the willingness of those banks to participate in partnerships with ACORN: “Many of the lenders we work with who now hold multimillion-dollar CRA portfolios have told us that they may soon be unable to originate more of these loans if they remain unable to sell them to Fannie Mae or Freddie Mac.” Activist groups soon came up with a way to solve this problem: they enlisted political allies in the House and Senate to force Fannie and Freddie to buy bank mortgages generated through CRA commitments. Senator Alan Dixon of Illinois convened a Senate Banking Committee hearing in 1991 and invited representatives from ACORN and other activist groups to testify—and they went after the underwriting standards of Fannie and Freddie with hammer and tongs. Consider the testimony of the director of ACORN Housing: “It is ACORN’s observation that the underwriting criteria employed by Fannie Mae and Freddie Mac have been developed not for the general mortgage market, which includes low- and moderate-income homeowners, but for a middle-income and substantially suburban mortgage market. As a result, it is our firm belief that the underwriting standards dictated by the secondary mortgage market are, at a minimum, income discriminatory and may, by extension, be racially discriminatory [emphasis added].” The managers of Fannie and Freddie could see that they were being outmaneuvered, but they were not powerless, passive observers. In return for agreeing to lower their underwriting standards in order to purchase CRA commitment loans, they obtained the right to back their mortgage portfolios with paper-thin levels of capital, and to be regulated by an office within the Office of Housing and Urban Development (HUD) that had little power and no experience in financial-services regulation. 20


In short, Fannie and Freddie agreed to go along with purchasing highrisk loans provided they could fund the expansion of their portfolios with borrowed money. And by virtue of Fannie and Freddie’s special charters as Government Sponsored Enterprises, those debts were implicitly guaranteed by the US treasury, which is to say by taxpayers. Activist groups enlisted political allies in the House and Senate to force Fannie and Freddie to buy bank mortgages.

The resulting deal was codified in the Federal Housing Enterprises Financial Safety and Soundness Act (usually called the GSE Act), which was signed into law by President George H. W. Bush just before the 1992 election. The election of Bill Clinton in 1992 allowed activist groups to apply vastly more pressure on merging banks, as well as on Fannie and Freddie, because Clinton saw the banks and the GSEs as a way to redistribute income outside the government’s fiscal policies. As he proudly proclaimed in a 1999 speech, the banking-reform legislation of that year “establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act.” Activist groups jumped on the opportunities that Clinton created. Consider Bruce Marks’s testimony before the House Committee on Financial Services in 2000 regarding Fannie Mae’s underwriting standards: The GSEs, and in particular Fannie Mae, have been a big part of both the creation and the continuation of predatory lending practices. With over a trillion dollars in assets, they set the standards in this country for access to home ownership for working people. They determine what is a conventional loan and what is considered a subprime loan. . . . Those who receive subprime loans are considered subprime borrowers and are excluded from the conventional ‘Fannie Mae’ loans. They are the ones who become the victims of what we know as predatory loans. By creating the system that excludes these borrowers from conventional affordable financing, Fannie Mae and the GSEs set them up to become victims of predatory lending.

The affordable-lending mandates to Fannie and Freddie were therefore increased throughout the Clinton administration. When George W. Bush


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came into office in 2001, he further increased the affordable-housing mandates that the Clinton administration had imposed on Fannie and Freddie. By 2008, something on the order of 80 percent of Fannie or Freddie mortgage purchases in the secondary market were likely to be in one of the mandated categories. In return for lowering their underwriting standards, Fannie and Freddie won the right to back their mortgage portfolios with paper-thin levels of capital.

Meeting these ever-escalating targets became increasingly difficult. A first, crucial step in GSE relaxation of underwriting standards to meet HUD targets was a 1994 decision to purchase mortgages with loan-to-value ratios of 97 percent (a 3 percent down payment). The increasing tolerance for low down payments was not enough. Fannie and Freddie also had to buy increasing numbers of loans to borrowers with weak credit reports. They also aggressively moved into the markets for adjustable-rate mortgage loans (ARMs) and interest-only loans. Even these steps were not sufficient. In 2004, Fannie and Freddie removed the limits that they had earlier placed on their purchases of so-called no-docs loans (loans in which the applicant simply stated his or her income and employment history, with no independent verification). When Freddie Mac decided to make this aggressive move into no-docs loans, its own risk managers pointed out that it was a grave error in a series of e-mails to Freddie’s senior management. (One of us received these e-mails from the staff of the Committee on Oversight and Government Reform of the US House of Representatives, and they were included in his testimony to that committee.) These warnings fell on deaf ears because politics was driving decision making. A July 14, 2004, e-mail from Senior Vice President Robert Tsien to Dick Syron, chair and CEO of Freddie Mac, suggests as much: “Tipping the scale in favor of no cap [on no-doc lending] at this time was the pragmatic consideration that, under the current circumstances, a cap would be interpreted by external critics as additional proof we are not really committed to affordable lending.” Representative Henry Waxman, who chaired the Committee on Oversight and Government Reform in which these e-mails came to light, 22


summed up the situation in his opening statement to the hearings: “Fannie Mae and Freddie Mac knew what they were doing. Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market, but these warnings were ignored. . . . Mr. Syron did not accept the chief risk officer’s recommendation. Instead, the company fired him.”

E V E R Y B O D Y L O SE S How did these arrangements give rise to the subprime crisis? Financial meltdowns of that magnitude occur only when two conditions exist simultaneously: banks hold too many risky assets, and they back those risky assets with inadequate capital. When Freddie Mac decided to make an aggressive move into no-documents loans, its own risk managers pointed out it was a grave error.

Let us start with the riskiness of bank-lending portfolios. Although the mandates driving the debasement of GSE underwriting were intended to be selective, in meeting those mandates Fannie and Freddie found it more politically convenient to relax standards for everyone—inner-city dwellers seeking to purchase a modest home as well as suburbanites who aspired to trade up to a McMansion. Curiously, this is a point that has been missed by activists and academics intent on showing that the Community Reinvestment Act played no role in the subprime crisis because they detect no difference in default rates between loans made to satisfy the CRA and other loans made at the same time. Joseph Stiglitz, for example, claims in his book Freefall that “default rates on the CRA lending were actually comparable to other areas of lending—showing that such lending, if done well, does not pose greater risks.” But whether or not that is true—and it’s been hotly contested—it misses the point. Community Reinvestment Act loans by banks, as well as the mandates imposed on Fannie and Freddie that effectively forced them to purchase those loans, set in motion a process by which America arrived at debased lending standards for everyone. The point is simple, but it seems to have eluded many researchers: suburbanites would not have been able to take advantage of lax lending


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standards had there been no megabank-activist-GSE partnership working to undermine those standards. When Fannie and Freddie agreed to purchase loans that required only a 3 percent down payment, no documentation of income or employment, and a far-from-perfect credit score, they changed the risk calculus of millions of American families, not just the urban poor. Moreover, Fannie and Freddie, by virtue of their size and their capacity to repurchase and securitize loans made by banks, set the standards for the entire mortgage industry. Commercial banks and other mortgage lenders increasingly tolerated poor credit histories, and were willing to accept less and less documentation, because they knew that they could sell risky loans to Fannie or Freddie. CRA loans by banks set in motion a process that debased lending standards for everyone.

Had banks and the GSEs backed these loans with adequate prudential capital, their failure would have caused shareholders to lose money but it would not have threatened to take down the entire financial system. But the same political forces that pushed for the explosion of high-risk mortgages also encouraged regulators to underestimate mortgage risk, and to permit banks and GSEs to maintain paper-thin capital buffers against that risk. Capital requirements for banks encouraged banks to restructure their mortgages as mortgage-backed securities, either through their own securitization operations or those of the GSEs, and regulators required very little capital against the mortgage-backed securities that were issued in those transactions. Prudential standards for the GSEs were especially weak. The deal that underpinned the GSE Act of 1992 allowed Fannie and Freddie to put up only $2.50 in capital for every $100 in mortgages they purchased—compared with $4.00 for the commercial banks that originated those mortgages. Furthermore, if Fannie or Freddie bundled these mortgages together, and provided an additional 45 cents in capital per $100 of mortgages as a buffer against default risk, they could create a mortgage-backed security, the purchaser of which had to hold only $1.60 in capital per $100 invested. 24


This structure of capital requirements created an opportunity for banks to lower the amount of capital backing their mortgage portfolios (by selling loans to Fannie and Freddie and then buying them back as mortgagebacked securities whose capital requirements were half those of the original loans), and it created an opportunity for Fannie and Freddie to make a tremendous amount of money by buying mortgages, securitizing them, and then selling those mortgage-backed securities back to banks. Not surprisingly, Fannie and Freddie’s business grew rapidly: in 1990, they accounted for roughly a quarter of all single-family home mortgages; by 2003, their share had risen to half. This business turned out to be so lucrative that Fannie and Freddie went to extraordinary lengths to make sure that lawmakers did not force more-stringent capital requirements or tighter underwriting standards on them. Between 1998 and 2008, Fannie spent $79.5 million and Freddie spent $94.9 million on lobbying Congress, making them the twentieth- and thirteenth-biggest spenders on lobbying during that period. In sum, by the early 2000s, amazingly lax lending standards were available for everyone to take advantage of, and the banks and GSEs that provided this risky credit were allowed to maintain paper-thin capital ratios. It would not take much to push millions of Americans, as well as many banks and the GSEs, into insolvency. Whether or not homeowners or bankers realized it, they had been corrupted: they had been offered a deal that was too good to be true, and they had taken it. We are still living with the tragic consequences. Adapted from Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, By Charles W. Calomiris and Stephen H. Haber. © 2014 Princeton University Press. Reprinted by permission.

Available from the Hoover Press is Pension Wise: Confronting Employer Pension Underfunding—And Sparing Taxpayers the Next Bailout, by Charles Blahous. To order, call 800.888.4741 or visit www.hooverpress.org.


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T H E EC ONOM Y

Break the Budget Stalemate Both parties should have the good sense to demand less waste, more efficiency, and new technology. By Michael J. Boskin.

Our political leaders will eventually have to negotiate meaningful spending cuts and entitlement reforms. Otherwise, the country will lurch from one stalemate-and-crisis to another. Here’s a proposal that might bring the two sides together. First, appoint a commission to propose specific reforms to reduce and eliminate waste, inefficiency, and fraud in government programs—with a minimum target of $1 trillion in the next decade. Yes, “government commission” has often been a synonym for inaction— witness the Simpson-Bowles commission on fiscal reform created by President Obama, who ignored its report. Yet several rounds of Defense Base Realignment and Closure Commissions since the 1990s have led to the closure of hundreds of military installations, most recently in 2005. This time a commission to fix wasteful spending might work. The commission must consist of highly respected, high-ranking officials from both parties—the likes of Paul Volcker, Alice Rivlin, George Shultz, and James A. Baker III—who have no recent policy to defend. Then make Michael J. Boskin is a senior fellow at the Hoover Institution, a member of Hoover’s Shultz-Stephenson Task Force on Energy Policy and Working Group on Economic Policy, and the T. M. Friedman Professor of Economics at Stanford University.

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Congress vote up or down on the recommendations (as lawmakers do on base closings), so voters can hold their officials accountable. Second, for every $2 of savings from reducing waste and inefficiency, ease up to $1 in spending caps. Lest projected savings evaporate before they occur, the two-for-one rule would apply only after the fact. In other words, for every $2 of verified savings from the past year, a maximum of $1 in relief would be granted that year. The procedure is similar to the look-back provisions many states employ to enforce balanced budgets. Why agree to such a plan? Democrats would get relief on such programs as education and public housing. Republicans would get less spending and debt, as well as relief for defense. Citizens would get a more efficient government, costing less. Where are the savings? Many can be found in the reports by SimpsonBowles and other commissions, private studies, the president’s 2014 budget, congressional budget resolutions, and previous “almost” budget deals. Here are a few. • Consolidate and reform duplicative programs that are not achieving their goals. Forty-six separate job-training programs in nine federal agencies cost $18 billion a year, with few performance metrics. There are also more than one hundred federal housing programs. Cabinet members and congressional committees cannot possibly manage such sprawl. Having a few programs that work would focus accountability, improve effectiveness, and reduce costs. The Government Accountability Office has identified duplication and inefficiencies within the federal government costing “tens of billions of dollars annually,” and thus hundreds of billions a decade. • Curtail improper payments and fraud, and improve collection of vast unpaid loans and penalties. Every major private business deploys advanced analytics to deter fraud. The GAO documents considerable fraud in such benefit programs as the earned-income tax credit and Medicare. Fraudulent providers and recipients are to blame. Press reports highlight egregious examples, like the Los Angeles outpatient Medicaid drug-treatment program that last year was found to be billing the government for many times its number of clients.


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The IRS estimated that in 2006 unreported income meant more than $300 billion in taxes went uncollected. Some of this was not the result of fraud but of the complexity in tax laws, eligibility formulas, and paperwork requirements—which a simpler, flatter tax code could reduce. • Modernize and upgrade personnel and technology. The federal government spends vast amounts on information technology; the snafus in the ObamaCare rollout added to a long list of IT problems. Unnecessary segmentation, poor interoperability across agencies, obsolete hardware and software, and inadequate technical training and pay result in the government spending too much to achieve too little. Roughly 40 percent of federal civilian workers (half of the payroll) are expected to retire in the coming decade. Replacing a considerable fraction with upgraded technology and one-stop shopping would save hundreds of billions of dollars and result in a leaner, more productive workforce. • The federal personnel system should be overhauled so that the government finds it easier to reward high productivity and fire poor performers. New York University’s Paul Light recently highlighted $1 trillion of potential savings from federal personnel reform. • Move government programs closer to their original intent. The government’s disability insurance program was intended to help those who could no longer work, but faulty eligibility screening has allowed it to expand so that it will be broke in three years. The program must be reined in to help only those who truly need it. • Using a more accurate measure of inflation for government programs is also essential. Each month, the Bureau of Labor Statistics publishes the improved measure recommended by the Consumer Price Index Commission in the late 1990s. Switching to “chained CPI”—tying the price index closer to the rate of inflation—would save $300 billion in over-adjustments (two-thirds in spending, one-third in taxes) in a decade, approaching $1 trillion in two.

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These reforms offer a constructive way out of the recurring debt-limit and budget stalemates. What they would not do: obviate the urgent need for Congress and the White House to finally start doing the heavy lifting of entitlement and tax reform. Reprinted by permission of the Wall Street Journal. © 2013 Dow Jones & Co. All rights reserved.

New from the Hoover Press is Entitlement Spending: Our Coming Fiscal Tsunami, by David Koitz. To order, call 800.888.4741 or visit www.hooverpress.org.


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T H E EC ONOM Y

Where the Falsehoods Roam Where do failed economic policies come from? The president recently delivered a speech representing Exhibit A. By Richard A. Epstein.

Recently President Obama spoke about the state of the economy and his determination to reform it. A great deal of what he said was reminiscent of a major address he gave in 2011 on economic policy before a friendly audience in Osawatomie, Kansas. The president there talked with dizzying rapidity about the lost greatness of America’s past and his plans to restore that greatness. It’s worth revisiting some of the basic themes of that speech since they obviously continue to inform his policy decisions today. As is common in speeches that romanticize history to advocate change, Obama’s address contains an unforgivable level of jingoism. He claimed, “It was here in America that the most productive workers, the most innovative companies turned out the best products on earth. . . . Today, we’re still home to the world’s most productive workers. We’re still home to the world’s most innovative companies.” No one, not even the United States, can be that good. In fact, our national status will only become worse if we fail to understand that the American position has eroded from its glory days, in part because of the very policies that the president champions as the solution. Richard A. Epstein is the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution and a member of the steering committee for Hoover’s Working Group on Intellectual Property, Innovation, and Prosperity. He is also the Laurence A. Tisch Professor of Law at New York University Law School and a senior lecturer at the University of Chicago.

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But where to begin? The president managed to pack so many economic and historical falsehoods into his 2011 speech that it is nearly impossible to take them all on. In but one of his illustrative sentences, he said: “The truth is we’ll never be able to compete with other countries when it comes to who’s best at letting their businesses pay the lowest wages, who’s best at busting unions, who’s best at letting companies pollute as much as they want.” For the president, each of these goals represents the ugly end of an economic “race to the bottom” that the United States should do its best to avoid. Unfortunately, his statement is wrong on every point.

“ P A Y T HE L O WE ST WAG E S” There is nothing wrong with letting businesses pay the lowest wages that they can. The point of allowing them this option is not to rejoice in any decision to pay low wages; it is to recognize that once they are endowed with this freedom, they are still bound by the implicit constraint that no business has the power to set whatever wages it chooses. All firms still have to attract workers in the face of competition. The effort to force-feed labor markets by various forms of protection has turned out to be counterproductive.

Sometimes wages fall because of a sharp increase in supply. Efforts to prop them up artificially will lead to a breakdown of labor markets. The correct response lets firms make their individual adjustments. In each case the dominant constraint on the employer is the constant trade-off between marginal benefits and marginal costs. The firm that sets its wage scale too low will not attract sufficient labor to allow it to remain in business. In many markets, therefore, firms will be obligated to pay increasing wages, up to the point that their marginal benefits are just balanced off by their marginal costs. In this world, there is no need for government intervention to raise wages. An increase in labor productivity will result in higher sustainable wages. Labor markets are almost always competitive because most workers can work in multiple industries that compete in different product mar-


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© EPA/Erik S. Lesser

kets. The result is that during the Progressive period, in which there was little or no wage protection, wages grew at a rapid rate, female participation increased in labor markets, and average hours of work went down with higher rates of productivity. Contrast that picture with the stagnant results of the past five years, and it is clear that the effort to force-feed labor markets by various forms of protection has turned out to be counterproductive. The president repeatedly laments the decline in employment policies and real wages during the past decade but refuses to take ownership of his administration’s policies, which have thrown multiple monkey wrenches into labor markets, particularly at the bottom end of the distribution, that is, with the least welloff people. These are the people whom the president wishes to place in the expanding “middle class,” to which he referred repeatedly in his speech. But the expansion of the middle class cannot happen through labor policies that work to keep people off the first step of the employment ladder. If the president is worried about giving everyone a “fair shot” at opportunities, why does he adopt policies that impose the greatest toll on the most vulnerable portion of the population? One of the many great vices of the minimum-wage law is that it concentrates on the wage element of the labor contract. Yet for people low on the economic ladder, learning skills on the job, gaining experience, and establishing contacts often count for a great deal more than dollars, which is why young people often take summer internships for zero pay. It gives them a chance to work in a vibrant environment and collect a letter of recommendation. Entry-level workers start from a lower base but they too acquire human capital that lets them climb the employment ladder. Unfortunately, our visionary president knows little of the unintended consequences of legal intervention, so he continues to push hard on policies that fail. Meanwhile he accuses those who disagree with him of “collective amnesia,” caricaturing them as believing that “we are better off when everybody is left to fend for themselves and play by their own rules.” Both halves of that sentence grossly mischaracterize his opposition. The laissez-faire system does not mandate that people should not help each other. There is no nefarious cohort advocating the position that it is somehow wrong to give assistance to people in need. Indeed, voluntary

LABOR INTENSIVE: Workers assemble Passat sedans at Volkswagen’s plant in Chattanooga, Tennessee. The United Auto Workers, whose ranks have been diminishing for years, tried to unionize the VW plant in February and failed.

forms of targeted assistance will generate more bang for the buck than government grants. Nor should any firm ever be allowed to “play by their own rules.” Rather, within the strong legal constraints that define and establish competitive markets, firms should be allowed to offer whatever package of wages and collateral terms they choose—knowing that they have to keep pace with the market to succeed.

“ W HO ’ S B E S T AT B U STI NG U NI O NS” This five-word defense of unions also needs serious unpacking. It is an open secret that most employers are unflinchingly hostile to unionization of their workforce under the National Labor Relations Act. Unfortunately, the president never once asked why that is so. The simple answer is that under the current state of American labor law, unions work to the disadvantage of the employer. Employers’ ability to set wages and terms of employment are effectively curtailed. Huge administrative costs are added Hoover Digest N 2014 · No. 2

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in the cumbersome collective bargaining process, wherein a union with a monopoly position is intent not only on extracting high wages but also on imposing a variety of work rules that impair the efficiency of the firm. These employers have fiduciary duties to their shareholders that require them to do what they can to minimize the adverse consequences of unionization. If in fact unions did help improve labor market efficiency, employers would welcome them even if we repealed all the collective bargaining rules tomorrow. But unionized firms operate at a competitive disadvantage with non-unionized ones, which is why the United Auto Workers has seen its ranks shrink in recent years. Unions’ capacity to disrupt the economy by slowdowns and strikes is not the way to expand membership in the middle class.

This puts “union busting” into perspective. Right now, no firm can refuse to bargain in good faith with its unionized workers. Nor can any employer make statements that are properly construed to contain a “threat of reprisal or force or promise of benefit.” Under the current law, it is proper to say that an employer is engaged in an unfair labor practice if its statements during an organization include either of these practices. But it is not proper to treat the employer as engaging in union busting if it points out to its own workers the disappointing performance of other unionized workplaces. However, union defenders follow the lead of former NLRB member Craig Becker, who has denounced as meddlesome all non-union speech in union elections. Becker would have a point if the employer could walk away from any union selected by either a majority vote or card check. But make no mistake: the successful union becomes a part owner of the unionized firm. So long as its unionization constitutes a partial takeover, employers are entitled to defend themselves by resisting the inefficiencies and dislocations that unions force on the overall economy, which extend from top to bottom. Before the passage of modern labor laws, that efficient solution was achieved by the so-called “yellow dog contract,” which I have long defended. That contract allows employers to hire only workers who agree not 34


to be union members while employed by the firm. That one stroke lets the employer preserve flexibility in labor markets without having to fight through a thicket of labor laws. But the president wants stronger unions at any cost, while failing to recognize that union bosses work only for union members, leaving diminished opportunities for all non-union workers who have to compete for the leftovers. The capacity of unions to disrupt the overall economy by slowdowns and strikes is not the way to expand membership into the middle class. Free entry by employers who then bid up wages without social dislocations is a far superior alternative.

“ P OL L U T E A S MU CH AS TH E Y WANT” In many ways, this last canard is the worst of all. The principle of laissez-faire argues that competitive markets best determine wages and other employment terms. I know of no defender of laissez-faire, anywhere, ever, who has taken the ridiculous position that pollution is just fine. Indeed, a line of cases going back to at least 1535 stands for the precise opposite position. One representative case is the 1900 New York Court of Appeals decision in Strobel v. Kerr Salt Co. Pollution that renders water “so salty, at times, that cattle will not drink it unless forced to by necessity, fish are destroyed in great numbers, vegetation is killed, and machinery rusted . . . as a matter of law, is unreasonable and entitles the lower riparian owner to relief.” Further, the courts “will not change the law relating to the ownership and use of property in order to accommodate a great business enterprise.” Firms should be allowed to offer whatever package of wages and collateral terms they choose—knowing they have to keep pace with the market.

The president’s account is not inaccurate by happenstance; it is inexcusable slander to characterize laissez-faire theorists as recklessly inattentive to the harms that business activities could cause strangers. Nothing could be further from the truth. Laissez-faire judges got the tort law right. Modern environmentalists, meanwhile, go astray by insisting on elaborate permitting systems that, as Philip K. Howard recently reminded us, don’t allow


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new projects to start until they pass endless sets of reviews that frustrate development of the “best infrastructure” needed to help domestic firms compete in global markets. It is sheer slander to accuse laissez-faire theorists of being recklessly inattentive to the harms business activities can cause.

What is needed here is not a feeble apology for pollution but the adoption of a regulatory regime that dispenses with the permit thicket blocking new major projects, both public and private. The way to keep builders in line is to subject them to an iron command that their operations will be shut down or curtailed should pollution take place. But the president has no patience with these niceties of system design and thus backs an Environmental Protection Agency that always seems to get its priorities wrong. These are some of the flaws baked into just one of Obama’s sentences. If his substantive knowledge could keep pace with his soaring rhetoric, this country might start to unleash its productive powers. But so long as the president keeps pushing failed and flawed policies, we can expect more mediocrity and drift, both for ourselves and for future generations. Reprinted from Defining Ideas (www.hoover.org/publications/defining-ideas). © 2013 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

Available from the Hoover Press is The Case against the Employee Free Choice Act, by Richard A. Epstein. To order, call 800.888.4741 or visit www.hooverpress.org.

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I N E Q U AL I T Y

It Doesn’t Pay Off Most minimum-wage workers aren’t sole breadwinners and don’t live in poor households. That’s why minimum wages do a lot less for the truly poor than you might suppose. By David R. Henderson.

Most people who earn the minimum wage or slightly more are the only earners in their households and therefore are poor, right? And so, if the federal government or state governments raise the minimum wage, that will be a nicely targeted way of helping poor people, right? Well, no. Wrong on both counts. Most workers earning at or close to the minimum wage are not the sole earners in a household, and most of them are not in poor households. For those two reasons, raising the minimum wage is not a targeted way to help poor people. That’s the finding of a study by Joseph J. Sabia, professor of economics at San Diego State University, and Richard V. Burkhauser, economics professor at Cornell. From 2003 to 2009, the federal hourly minimum wage rose in steps from $5.15 to $5.85, and from $6.55 to $7.25, where it remains today. Between 2003 and 2007, twenty-eight states increased their minimum wages to a level higher than the federal minimum. In an article in the Southern Economic Journal, Sabia and Burkhauser reported that they “find no evidence that minimum-wage increases between 2003 and 2007 lowered state poverty rates.” David R. Henderson is a research fellow at the Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California. He conducted this analysis for the National Center for Policy Analysis (www.ncpa.org/pub/ba792).


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Moreover, they concluded that a proposed increase in the minimum wage from $7.25 to $9.50 per hour “will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour.” Specifically, they found that if the federal minimum wage were increased to $9.50: • Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor. • A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more. • Some 42.3 percent of workers who would gain were second or even third earners who live in households with incomes equal to three times the poverty line or more.

Only 11.3 percent of the workers who would gain from a proposed minimum-wage hike live in households officially defined as poor.

When they take this job-loss effect into account, Sabia and Burkhauser conclude, an increase in the minimum wage will be even less effective at reducing poverty. A low-end estimate of the reduction in jobs attributed to an increase in the minimum wage is that a 10 percent increase would reduce the number of low-wage jobs by only 1 percent. But even in this best case, Sabia 38


Illustration by Taylor Jones for the Hoover Digest.

It gets worse. Estimated gains in income for households with low-wage workers are necessarily overstated if they do not take account of one of the most well-documented effects of the minimum wage: it destroys low-wage jobs. For more than sixty years, economists have been aware that increases in the minimum wage cause some low-wage workers to lose their jobs. The reason: at a higher wage, the value of their output per hour (productivity) is not high enough for employers to gain by hiring them.


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and Burkhauser found that an increase to $9.50 per hour would destroy 468,000 jobs. Another reasonable estimate from earlier studies is that a 10 percent increase in the minimum wage would destroy 3 percent of low-wage jobs. If that estimate is correct, increasing the minimum wage to $9.50 per hour would destroy 1.4 million jobs. According to one estimate, increasing the minimum wage to $9.50 per hour would destroy 1.4 million jobs.

The net benefit to households containing low-wage workers would then be only $2.63 billion per month, of which only $287 million would be a gain to households in poverty. But there’s more. These estimates overstate the gains to households from increasing the minimum wage because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation. Such an effect will not show up in the government’s data because the data on incomes don’t measure those non-money parts of the compensation package. But that’s small comfort to those who would find themselves with higher-paying jobs but reduced benefits. Reprinted by permission of Investor’s Business Daily. © 2014 Investor’s Business Daily Inc. All rights reserved.

New from the Hoover Press is Issues on My Mind: Strategies for the Future, by George P. Shultz. To order, call 800.888.4741 or visit www.hooverpress.org.

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I N E Q U AL I T Y

The War on Poverty Is Lost An army of programs didn’t just fail to defeat poverty. It created a culture of permanent government assistance. By Lee E. Ohanian.

We have lost the War on Poverty. But it is not because the Census Bureau classifies the same percentage of Americans living in poverty today— around 15 percent—as in the 1960s. Living standards for the lowest earners are much higher today than in the past because of the many means-tested welfare programs offered by national, state, and local governments, but these welfare payments and transfers are not counted by the Census Bureau in measuring poverty rates. In the early 1960s, government assistance was modest, and consumer spending by poor households exceeded their income by about 10 percent. By 2005, however, consumer spending by poor households was about twice as much as their income because of much higher government assistance and tax credits. A four-person household is in poverty today, according to federal poverty guidelines, if they earn less than $23,550 per year, but the consumer spending of this same household is around $45,000 per year. Based on these estimates, you might be tempted to say that the War on Poverty has been won, as very few Americans today face the same ecoLee E. Ohanian, a senior fellow at the Hoover Institution, is a professor of economics and director of the Robert Ettinger Family Program in Macroeconomic Research at the University of California, Los Angeles.


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nomic circumstances that were facing the Southern sharecroppers visited by President Johnson fifty years ago. The reason the War on Poverty has not been won is that too many Americans are not able to succeed economically without permanent and substan-

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tial government assistance. And an important reason that they are not able to succeed is because of government policies, ranging from assistance programs that penalize work and marriage to an education system that leaves too many of our children unprepared to compete in today’s economy. The War on Poverty will not be won until work is rewarded and the poorest Americans acquire the skills necessary to compete in an economy that is so different from the economy of fifty years ago. When Johnson launched the War on Poverty, those who completed high school—and even those who did not—could compete for high-paying jobs. This is because there were many opportunities for workers at this skill level, and because US education was relatively strong.

Today, workers face much different job opportunities in a world in which we increasingly compete with workers from other countries, and in which technological change is no longer the rising tide that raises all fortunes. Those who are highly trained, with four or more years of college, have benefited enormously from the advances in information processing and communications technologies that have raised the productivity and salaries of highly skilled workers. But these new technologies are not helping low-skilled workers. In fact, new technologies are providing some of the


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same services that low-skilled labor can provide, but at much lower costs. And the opportunities available to our least-skilled workers are further diminished because some of these jobs can be offshored to low-wage labor in other countries. Very few Americans face the economic circumstances that confronted Southern sharecroppers fifty years ago. But many still can’t succeed on their own.

This means that relatively few low-skilled workers can compete for high-paying jobs. Moreover, many of our policies substantially penalize taking jobs. This is because most government assistance programs are means-tested, so that assistance declines as income rises, which in turn implicitly taxes work at a very high rate for the poorest Americans. The Congressional Budget Office estimates that a single parent with one child would effectively keep only $8,000 if he or she were to take a job paying $30,000 per year compared to earning no income. And much of this $8,000 would likely go toward child care. The Commonwealth of Pennsylvania has calculated that a single parent with two children is better off earning $5,000 per year than earning $30,000 per year. These examples show how our assistance policies are punishing work, not rewarding it, with the income earned by poor households being effectively taxed at rates that can exceed 100 percent. By punishing work, assistance policies create chronic use of government assistance by poor households because there is little incentive to leave government assistance. We can win the War on Poverty by changing policies so that we don’t depress the incentive to take jobs by the poorest households. Public education reforms are required to raise student achievement, particularly in math and science, so that our workers are as well-trained as workers in other countries. The starting point is to confront teachers’ unions that have fought against merit-based pay and protected poorly performing teachers. 44


We also need far more opportunities for American workers, which requires a much higher rate of business formation, as new businesses create a disproportionately large number of jobs. Entrepreneurship in this country is much lower than in the past. About half of our most successful new businesses are founded by immigrants. We need immigration reform that makes it much easier for immigrant entrepreneurs to stay in this country and build new businesses. In the absence of policy reforms that change the incentive to work, improve worker skills, and create new businesses, we will continue to lose the War on Poverty and watch future generations of poor Americans never realize their true economic potential. Reprinted by permission of Fox News (www.foxnews.com). © 2014 Fox News Network, LLC. All rights reserved.

Available from the Hoover Press is Government Policies and the Delayed Economic Recovery, edited by Lee E. Ohanian, John B. Taylor, and Ian J. Wright. To order, call 800.888.4741 or visit www.hooverpress.org.


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I M MIGRAT ION

Vigorous Youth Why welcome young immigrants? Because there’s an entrepreneurial payoff. By Edward Paul Lazear.

The growth of GDP since the official end of the recession in June 2009 has been substandard. Some worry that the United States may follow in Japan’s footsteps, experiencing a “lost decade” of economic stagnation. It may sound strange, but here’s one way to avoid Japan’s fate: import young people. Like many developed countries, Japan has a rapidly aging population. Countries with older populations have lower rates of entrepreneurship. Economic stagnation can be a consequence of slow innovation and lethargic business formation. To avoid becoming Japan, the United States needs a younger population. More and improved immigration is one way to achieve that goal. In a current study analyzing the most recent Global Entrepreneurship Monitor (GEM) survey, my colleagues James Liang, Jackie Wang, and I found there is a strong correlation between youth and entrepreneurship. The GEM survey is an annual assessment of the “entrepreneurial activity, aspirations, and attitudes” of thousands of individuals across sixty-five countries. In our study of GEM data, to be issued this year, we found that young societies tend to generate more new businesses than older societies. Young people are more energetic and have many innovative ideas. But starting a Edward Paul Lazear is the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution, co-chair of Hoover’s Conte Initiative on Immigration Reform, and the Jack Steele Parker Professor of Human Resources Management and Economics at Stanford University’s Graduate School of Business.

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successful business requires more than ideas. Business acumen is essential to the entrepreneur. Previous positions of responsibility in companies provide the skills needed to successfully start businesses, and young workers often do not hold those positions in aging societies, where managerial slots are clogged with older workers. In earlier work (published in the Journal of Labor Economics, 2005), I found that Stanford MBAs who became entrepreneurs typically worked for others for five to ten years before starting their own businesses. The GEM data reveal that in the United States the entrepreneurship rate peaks for individuals in their late twenties and stays high throughout the thirties. Those in their early twenties have new-business ownership rates that are only two-thirds of peak rates. Those in their fifties start businesses at about half the rate of thirty-year-olds. Silicon Valley provides a case in point. Especially during the dot-com era, the valley was filled with young people who had senior positions in startups. Some of the firms succeeded, but even those that failed provided their managers with valuable business lessons. My co-author on the GEM study, James Liang, is an example. After spending his early years as a manager at the young and rapidly growing company Oracle, he moved back to China to start Ctrip, one of the country’s largest Internet travel sites. The median age of green-card holders is five years lower than that of the U.S. population.

The importance of youth is illustrated by the stark contrast between two neighboring countries, Japan and Korea. Using the GEM survey data, we found that Japan’s rate of entrepreneurship (the proportion of individuals who own a business that they founded in the past forty-two months) is just 1.5 percent. In Korea the rate is much higher, 8 percent. The median age in Japan is forty-three; in Korea it is thirty-four. The United States, with an entrepreneurship rate of 4.4 percent and a median age of thirty-six, is in the middle of the pack on both entrepreneurship rates and median age. More surprising, our analysis of the GEM survey finds that a country with a population that is just three years younger—Brazil as compared


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JUST BEGINNING: Harley Meme Patino, 3, and her mother, Stephanie Patino of Yorba Linda, attend a swearing-in ceremony for new U.S. citizens last summer in Anaheim. Immigrants to the United States tend to be younger than the general population, and a younger population is linked to greater entrepreneurship.

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with Argentina, for instance—has about 21 percent more entrepreneurship. For Organization for Economic Cooperation and Development countries, cutting the median age by two years (like the difference between the younger United States and older Britain) implies about a 10 percent increase in new-business formation. One way to change the age structure of a country is to increase immigration. Immigrants tend to be younger than the general population. According to the Department of Homeland Security, the median age of green-card holders is five years lower than that of the US population. Those who come in on H-1B skilled-foreign-worker visas are younger still. In 2012, 77 percent of H-1B workers were under the age of thirty-five. Young people are energetic and have many innovative ideas.

Favoring immigration of those who are likely to be more entrepreneurial—say, by raising the annual visa quota for H-1B workers, as the immigration bill passed by the Senate would do—would be an added plus. But even without selecting high-potential entrepreneurs, younger populations are more prone to create businesses by putting young workers in positions where they acquire the skills to innovate. If Japan, a rapidly aging country with famously prohibitive immigration laws, teaches us anything, it is this: if you want to avoid a lost decade, open your doors to immigrants. Reprinted by permission of the Wall Street Journal. © 2013 Dow Jones & Co. All rights reserved.

Available from the Hoover Press is Education in the Twenty-First Century, edited by Edward P. Lazear. To © Reuters/Alex Gallardo

order, call 800.888.4741 or visit www.hooverpress.org.


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H EALT H C ARE

A Policy too Far Yes, we need to make affordable health insurance available. But to do so we need to scrap the “cover everything” mentality. By George P. Shultz, Scott W. Atlas, and John F. Cogan.

As the acute problems of the Affordable Care Act become increasingly apparent, it also has become clear that we need new ways of ensuring access to health care for all Americans. We should begin with an examination of health insurance. Insurance is about protecting against risk. In the health arena, the risk at issue is of large and unexpected medical expenses. The proper role of health insurance should be to finance necessary and expensive medical services without the patient incurring devastating financial consequences. Over the past decade, however, Americans have come to expect their health insurance to subsidize the consumption of all medical care. Rather than simply protecting against financial catastrophe, insurance has become a pass-through mechanism to pay for every type of medical service, including routine ones. This shift in expectation has meant that health insurance stands out as entirely different from all other types of insurance. Ask yourself: would George P. Shultz is the Thomas W. and Susan B. Ford Distinguished Fellow at the Hoover Institution, the chair of Hoover’s Shultz-Stephenson Task Force on Energy Policy, and a member of Hoover’s Working Group on Economic Policy. Scott W. Atlas, MD, is the David and Joan Traitel Senior Fellow at the Hoover Institution. John F. Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a member of the Shultz-Stephenson Task Force on Energy Policy and the Working Group on Economic Policy.

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you use car insurance to buy gasoline? Would you use homeowner’s insurance to finance painting your house? This wrongheaded view has played an important role in contributing to rapidly rising health care costs. Patients with insurance do not perceive themselves as paying for the cost of routine services, nor do their physicians and other health care providers. The natural result has been a moreis-better approach, with patients and doctors embracing costly health care services that are often of little value to the patient. Given health care’s crucial role in well-being, it is important to assist individuals who can’t afford even routine medical expenses. But it shouldn’t be done through hidden insurance subsidies. The entire concept of health insurance must be reconsidered. One attractive option for insuring those in need would be to expand the use of high-deductible health plans in combination with health savings accounts. This approach provides a cost-effective vehicle for insuring against catastrophic medical expenses while simultaneously helping individuals defray the costs of routine medical care. The proper role of health insurance should be to finance necessary and expensive medical services.

Such coverage protects individuals from losing a lifetime of assets and from the devastating consequence of financial bankruptcy because of unpaid hospital and associated medical bills, a contributor to financial stress for millions of Americans every year. Such coverage means less-costly insurance policies, since they cover only major expenses and thereby reduce the bureaucracy and expense of smaller claims. And, with high deductibles, the hidden prices of medical care become far more visible, a necessity for containing costs. Price transparency coupled with greater availability of accurate information on health outcomes and provider quality is essential if patients are to choose health care services based on value. Combining high-deductible insurance with health savings accounts provides a way to help individuals defray the costs of necessary, but routine, medical expenses. Such savings accounts allow individuals to set aside money tax-free to purchase immediate or future medical care.


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Health savings accounts in combination with high-deductible insurance plans could also provide an excellent method for modernizing Medicaid. States could deposit Medicaid funds into individual health care accounts owned by low-income recipients. The funds could then be used to purchase routine care and high-deductible health plans. They could also be used to defray deductible costs. Any funds left over at the end of each year would accumulate to help defray medical expenses in future years. Health savings accounts have grown rapidly in the past ten years, and for good reason. They should now be made available to Medicare recipients as well. This growth could be enhanced—and the growth in health care costs slowed—if the accounts were made available to the poor and the elderly. Another change Americans should embrace is an increase in the supply of health care providers. The Affordable Care Act tries to control costs, in considerable part, by wage and price controls. We know from decades of experience that this approach leads to less of whatever you try to control and reduces overall quality. We need more, not less. To modernize the delivery of primary care and increase access to it, reforms must facilitate a wider availability of clinics staffed by nurse practitioners and physician assistants working in collaboration with physicians. Where they exist, such private-sector clinics provide health care at lower cost, especially for routine and preventive care such as flu shots, blood-pressure monitoring, and standard tests. The use of such clinics increased tenfold between 2007 and 2009, according to a Rand study, and it is continuing to grow at 15 percent annually. Meanwhile, major hospitals are beginning to partner with them. Pharmacies and health centers in retail stores—potential neighborhood health centers—should be expanded and transformed into clinics with broader capabilities. Another necessary reform is to increase competition among insurance companies. Currently, insurance can’t be sold across state boundaries. That system sets up archaic barriers to competition and choice. Medical care and the research associated with it have changed the world, not only by transforming previously incurable diseases into treatable ones but by enabling safer and more effective care for millions of Americans. 52


But to fully realize the extraordinary promise of medical science, we must change the way we use and finance health care services. Insurance is key to protecting individuals and families from the risk of financial devastation and to ensuring access to major medical care. Public financing of the routine and fully anticipated health needs of chronically ill and low-income people is important, but insurance isn’t the proper vehicle for accomplishing that. Decades of experience teach us this: wage and price controls lead to less of whatever you try to control.

The first essential step in reforming the health system is to recognize what insurance is and what it is not. Coupling that important understanding with a vital modernization of the health care delivery system is the beginning of a greatly improved system. Reprinted by permission of the Los Angeles Times. © 2014 Los Angeles Times.

Available from the Hoover Press is In Excellent Health: Setting the Record Straight on America’s Health Care, by Scott W. Atlas. To order, call 800.888.4741 or visit www. hooverpress.org.


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H EALT H C ARE

Not too Late for a Cure ObamaCare isn’t settled law if it doesn’t work. Rather than wait for a total collapse, let’s come up with a genuine alternative now. By John H. Cochrane.

Proponents of ObamaCare call it “settled law,” but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative. The individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and “accountable care organizations” will take their turns in the news. There will be scandals. There will be fraud. This will go on for years. Yet opponents should not sit back and revel in dysfunction. The Affordable Care Act was enacted in response to genuine problems. Without a clear alternative, we will simply patch more, subsidize more, and ignore frauds and scandals, as we do in Medicare and other programs. There is an alternative. A much freer market in health care and health insurance can work, can deliver high-quality, technically innovative care at much lower cost, and can solve the pathologies of the existing system. The US health care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: health care and health insurance are strongly protected from competition. There are explicit barriers to entry, for example the laws in many states that require a “cerJohn H. Cochrane is a senior fellow at the Hoover Institution and the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business.

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tificate of need” before one can build a new hospital. Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out. Hospitals whose main clients are uncompetitive insurers and the government cannot innovate and provide efficient cash service. We need to allow the equivalents of Southwest Airlines, Walmart, Amazon, and Apple to bring to health care the same dramatic improvements in price, quality, variety, technology, and efficiency that they brought to goods like air travel, retail, and electronics. We will know we are there when prices are on hospital websites, cash customers get discounts, and new hospitals and insurers swamp your inbox with attractive offers and great service. Insurance should be a safeguard against large, unforeseen, necessary expenses—not a wildly inefficient payment plan for routine expenses.

The Affordable Care Act bets instead that more regulation, price controls, effectiveness panels, and “accountable care” organizations will force efficiency, innovation, quality, and service from the top down. Has this ever worked? Did we get smartphones by government pressure on the 1960s AT&T phone monopoly? Did effectiveness panels force United Airlines and American Airlines to cut costs, and push TWA and Pan Am out of business? Did the post office invent FedEx, UPS, and e-mail? What are the records of public schools or the past twenty or more health care “cost control” ideas? Only deregulation can unleash competition. And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs, and innovation. Health insurance should be individual; portable across jobs, states, and providers; lifelong; and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick. Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.


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People want to buy this insurance and companies want to sell it. It would be cheap and would solve the problem of pre-existing conditions. We do not have such health insurance now, but only because it was regulated out of existence. Businesses cannot establish or contribute to portable individual policies, or employees would have to pay taxes. So businesses only offer group plans. Knowing they will abandon individual insurance when they get a job, and without crossstate portability, there is

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little reason for young people to invest in lifelong, portable health insurance. Mandated coverage, pressure against full risk rating, and a dysfunctional cash market do the rest. Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance. Allow national individual insurance to be offered and sold to anyone, anywhere, without the tangled mess of state mandates and regulations. Allow employers to contribute to individual insurance at least on an even basis with group plans. Current group plans can convert to individual plans, at once or as people leave. Since all members in a group convert, there is no adverse selection of sicker people. ObamaCare defenders say we must suffer the dysfunction and patch the law because there is no alternative. They are wrong. On November 2, for example, New York Times columnist Nicholas Kristof wrote movingly about his friend who lost employer-based insurance and died of colon cancer. Kristof concluded, “This is why we need ObamaCare.” No, this is why we need individual, portable, guaranteedrenewable, inexpensive, catastrophic-coverage insurance. On November 15, MIT’s Jonathan Gruber, an ObamaCare architect, argued on Real Clear Politics that “we currently have a highly discriminatory system where if you’re sick, if you’ve been sick, or you’re going to get sick, you cannot get health insurance.” We do. He concluded that the Affordable Care Act is “the only way to end that discriminatory system.” It is not. On December 3, President Obama himself said that “the only alternative that ObamaCare’s critics have, is, well, let’s just go back to the status quo.” Not so. Yes, there must be private and governmentprovided charity care for the very poor. What about people who don’t get enough checkups? Send them vouchers. To solve these problems we do not need a federal takeover of health care and insurance for you, me, and every American.


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No other country has a free health market, you may object. The rest of the world is closer to single payer, and spends less. Sure. We can have a single, government-run airline too. We can ban FedEx and UPS, and have a single-payer post office. We can have government-run telephones and TV. Thirty years ago every other country had all of these, and worthies said markets couldn’t work for travel, package delivery, or the “natural monopoly” of telephones and TV. Until we tried it. That the rest of the world spends less just shows how dysfunctional our current system is, not how a free market would work. Let’s allow national individual insurance to be offered and sold to anyone, anywhere.

While economically straightforward, liberalization is always politically hard. Innovation and cost reduction require new businesses to displace familiar, well-connected incumbents. Protected businesses spawn “good jobs” for protected workers, dues for their unions, easy lives for their managers, political support for their regulators and politicians, and cushy jobs for health policy wonks. Protection from competition allows private insurance to cross-subsidize Medicare, Medicaid, and emergency rooms. But it can happen. The first step: the American public must understand that there is an alternative. Stand up and demand it. Reprinted by permission of the Wall Street Journal. © 2013 Dow Jones & Co. All rights reserved.

Available from the Hoover Press is Healthy, Wealthy, and Wise: Five Steps to a Better Health Care System, second edition, by John F. Cogan, R. Glenn Hubbard, and Daniel P. Kessler. To order, call 800.888.4741 or visit www. hooverpress.org.

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PO L I T I CS

Dealing with the New Deal The debate that erupted in the 1930s still presents us with the same fundamental choice: greater liberty, or greater government power? By David Davenport and Gordon Lloyd.

The debate surrounding the Affordable Care Act continues—remarkably—more than three years after it was signed into law. Liberals and conservatives alike seem to understand that this is not only the signature accomplishment of Barack Obama’s presidency but the most important extension of the New Deal since the adoption of Medicare and Medicaid in the 1960s. Indeed, the health care debate is a reminder that after eighty years, the New Deal remains the basic framework of American domestic policy and is still going strong. When we go back to examine the debates between Franklin D. Roosevelt and Herbert Hoover about the New Deal in the 1930s, we get a better understanding of the principles underlying public policy debates today. Both Roosevelt and the incumbent, Hoover, agreed that the quarrel of the 1932 election was, as Hoover said, “more than a contest between two men, more than a contest between two parties.” It was a contest, said Hoover, “between two philosophies of government” that would decide “the direction our nation will take over a century to come.” Roosevelt agreed: David Davenport is counselor to the director and a research fellow at the Hoover Institution. Gordon Lloyd is a professor of public policy at Pepperdine University. They are co-authors of The New Deal and Modern American Conservatism: A Defining Rivalry (Hoover Institution Press, 2013).


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Herbert Hoover argued there was no need to radically transform basic values, regiment people’s lives, or treat constitutional principles as the plaything of lawyers.

And in his Second Inaugural, Roosevelt declared “the challenge to democracy: I see one-third of a nation ill housed, ill clad, and ill nourished. . . . We are determined to make every American citizen the subject of his country’s interest and concern. . . . The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” 60


Raymond Moley Papers—Hoover Institution Archives

March 4, 1933 (his inauguration as president), marked the transformation of America. It was a historic clash between liberty and democracy. Starting with his 1932 Commonwealth Club campaign speech and continuing through his Second Inaugural Address in 1937, Roosevelt proclaimed that the old American order of “the financial Titan” and donothing laissez-faire government had come to an end. “The day of enlightened administration has come,” Roosevelt concluded. It was time for a “new deal” to secure a decent life for “the forgotten man.” We need to realize, Roosevelt proclaimed, that democracy is actually “a quest, a never-ending seeking for better things.” We needed a reappraisal of American values articulated in the Declaration of Independence as well as the Constitution and Bill of Rights, away from the earlier attachment to Jeffersonian individualism and states’ rights and toward an interdependent “national democracy.” We needed to turn away from a focus on the negative rights of the individual that constrains a government already constitutionally divided against itself and move toward a united centralized administration that secures the positive rights of “everyone.” In his First Inaugural Address, Roosevelt reinforced his intention to move the country away from congressional deliberation to presidential action: “I shall ask the Congress for the one remaining instrument to meet the crisis: broad executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.”

ON THE STUMP: Franklin D. Roosevelt campaigns in 1932 in New England. Later, President Roosevelt and his New Deal programs represented “a radical departure from the foundations of one hundred fifty years which have made this the greatest nation in the world,” argued former president Herbert Hoover.

Former president Hoover, however, was shocked by the excesses of the New Deal in the 1930s, seeing Roosevelt’s philosophy and governmental programs as “a challenge to (individual) liberty” and a deliberate effort to replace robust, even “rugged” American individualism and a limited but constructive government—what Hoover called the exceptional American system—with a European version of regimented community. The New Deal programs, he argued, represented “a radical departure from the foundations of one hundred fifty years which have made this the greatest nation in the world.” To be sure, the American system contained imperfections, Hoover acknowledged, but these problems were at the margin rather than systemic. Besides, the really “forgotten man” was a much lower percentage of the population than Roosevelt claimed. Accordingly, Hoover argued, there was no need to engage in a radical transformation of basic values, regi-


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ment the lives of a majority of the people, or treat constitutional principles as the plaything of lawyers. The New Deal “steps off the solid highways of true American liberty into the dangerous quicksands of governmental direction,” Hoover said. There was no need for “a gigantic shift of government from the function of umpire to the function of directing, dictating, and competing in our economic life.” Hoover urged Americans to resist the temptation to adopt the regimented European system. The two icons of the 1930s, Hoover’s “rugged individual” and Roosevelt’s “forgotten man,” must learn to coexist.

This is precisely the debate that continues today. In order to deal with a relatively small percentage of Americans who were unable to obtain health insurance, Obama and his fellow progressives sought to implement a transformation of the entire health care system. Realizing now that they do not have the “liberty” the president promised of keeping their own policies, the American people are even more unhappy with the transformation than before. Progressives and conservatives alike acknowledge that the Affordable Care Act is doubtless an interim step toward a single-payer (government) system. The two icons of the 1930s, Hoover’s “rugged individual” and Roosevelt’s “forgotten man,” must learn to coexist. There must be room for both individual liberty—in this case, allowing people to earn and keep their preferred health policies—and coverage for those who cannot otherwise get coverage. The American people seem to understand that ObamaCare tips the scales too heavily away from liberty and toward government regimentation. Let’s hope our leaders in Washington get that message soon. Reprinted by permission of History News Network. Licensed under Creative Commons. New from the Hoover Press is The New Deal and Modern American Conservatism: A Defining Rivalry, by Gordon Lloyd and David Davenport. To order, call 800.888.4741 or visit www.hooverpress.org.

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I N T E L L I G E N CE

Bringing the NSA in from the Cold Americans need to be convinced the secret agency is working for their good—and that any privacy trade-offs are worth it. By Amy B. Zegart and Marshall Erwin.

The National Security Agency is facing the worst crisis in its sixty-year history. Today, too many Americans mistakenly believe that the NSA is listening to their phone calls and reading their e-mail. But misperception is only part of the agency’s problem. In a YouGov national poll we commissioned last October, we also found that the more Americans understand the NSA’s activities, the less they support the agency. Our initial hunch was that Americans knew little about the intelligence agencies that have kept us safe since 9/11, and that public ignorance was compounding the NSA’s trust problems. Without a baseline understanding of what the NSA does and how it works, Americans would be more likely to believe the worst about America’s premier code-breaking and signals-intelligence agency. Or so we thought. Amy B. Zegart is a Davies Family Senior Fellow at the Hoover Institution, co-chair of Hoover’s Working Group on Foreign Policy and Grand Strategy, and a member of the Hoover task forces focusing on national security and law, Arctic security, military history, and intellectual property and innovation. She is also the co-director of the Center for International Security and Cooperation at Stanford University. Marshall Erwin is a research fellow at the Hoover Institution and a member of Hoover’s Working Group on Foreign Policy and Grand Strategy.


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Our poll results found the part about the public’s ignorance was true. But we did not find that ignorance bred greater distrust of the agency. Nearly half of respondents had no idea that the NSA breaks foreign codes, even though that has been one of the agency’s core missions since its creation and one of the reasons why the NSA employs more mathematicians than any organization in the United States. Of respondents, 39 percent believed that metadata—the information the NSA collects as part of its bulk phone records program—includes the content of phone calls. It doesn’t. And 35 percent mistakenly think the NSA interrogates terrorist detainees. Nearly as many (32 percent) wrongly think the agency conducts operations to capture or kill terrorists, and an additional 39 percent weren’t sure. And although 43 percent of Americans could correctly pick out James Clapper as the director of national intelligence, 74 percent could correctly identify Miley Cyrus as the person who twerked at the MTV Video Music Awards. When a celebrity’s bottom has better name recognition than the intelligence community’s head, you know spy agencies have some public relations work to do. But our poll also suggests that knowing more about intelligence agencies does not automatically translate into higher public support. For example, Americans who accurately understood the NSA’s telephone metadata program were no more favorable toward the agency than those who mistakenly thought metadata involved snooping on the content of calls. In many cases, we found that more knowledge corresponded with lower support. Among those who correctly identified Clapper, 53 percent had an unfavorable impression of the NSA, compared with 33 percent for those who could not identify him. Among those who erroneously believed that


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the NSA conducts operations to kill terrorists, 35 percent had an unfavorable view of the agency. Among those who answered this question correctly, 64 percent viewed the NSA unfavorably. General Keith Alexander, then-director of the NSA, argued in a speech in September that surveillance programs had been sensationalized by the media: “And so what’s hyped up in a lot of the reporting is that we’re listening to your phone calls. We’re reading your e-mails. That’s just not true.” He’s right. But if you read between the lines, what Alexander and other intelligence officials are saying is that their biggest problem is misperception: if only the public knew more, they would approve of what the NSA is doing. This is why the Obama administration’s response to the leaks by Edward Snowden has focused so much on transparency. Increased transparency, the logic goes, will correct misperceptions and win support. Our results suggest this approach is misguided. To know the NSA is not to love the NSA. The NSA needs to win this debate on the merits. What we need to know is whether the agency’s telephone and Internet surveillance programs are wise and effective. “What’s hyped up in a lot of the reporting is that we’re listening to your phone calls. We’re reading your e-mails. That’s just not true.”

For months, we have been obsessing over the legality of the surveillance programs. But recent administration disclosures have provided a remarkable amount of information about the legal rationale and oversight regime governing the programs. Though legal scholars will continue to debate just what “relevance” or “targeting” means, the message from these disclosures for the public is this: there is no evidence that the NSA is engaged in any illegal domestic snooping operations. For national security, the more important question now is whether these programs are good counterterrorism policy. We have lost sight of that.

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Our poll shows that Americans are willing to give their government significant leeway if they think counterterrorism tools are effective. Support for assassinating known terrorists, for example, has hovered at around 65 percent for years. However, we have yet to hear a compelling case for why the NSA’s programs are valuable. This is how the administration can win an NSA debate: by demonstrating with clear examples that these programs have been critical, and by convincing the public that the privacy trade-offs involved are worth it. Reprinted by permission of the Los Angeles Times. © 2013 Los Angeles Times.

Available from the Hoover Press is Eyes on Spies: Congress and the United States Intelligence Community, by Amy B. Zegart. To order, call 800.888.4741 or visit www.hooverpress.org.


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ED U C AT ION

Diamonds for the Ivies An elegant technique developed by Hoover fellow Caroline M. Hoxby helps isolated, high-achieving kids get into colleges—good colleges. By Nancy Hass.

Sometimes, late at night, you stare out your window at the black Nebraska sky and wonder if you really are a freak like everyone at school says. It’s not just the pile of Jane Austens under your bed that you’ve read till the pages are ragged or the A’s you’ve racked up in everything from chemistry to AP history. It’s your stubborn belief that there’s more out there than homecoming, keggers, and road trips to the mall eighty miles away in Lincoln. Your mom is sympathetic but between cleaning floors at the nursing home and taking care of your little brothers, she has even less time than she has money. Your dad? Last you heard, he was driving a forklift at a Hy-Vee in Kansas City. You scored 2150 on your SATs, highest anyone around here remembers, so it will be easy to get into the state school a couple of towns away. But maybe you’ll go to the community college close by so you can save a little money and help your mom out—and it would save having to take out loans to pay for tuition. Pretty much everyone winds up dropping out eventually anyway. By the time you’re nineteen or twenty, it’s time to start bringing home a paycheck, earning your keep. Caroline M. Hoxby is a senior fellow at the Hoover Institution and a member of Hoover’s Koret Task Force on K–12 Education. She is the Scott and Donya Bommer Professor of Economics at Stanford University and directs the Economics of Education Program for the National Bureau of Economic Research. Nancy Hass is a contributor to Smithsonian magazine, where this article first appeared.

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Then, on a balmy afternoon, you come home from school, toss your backpack on the kitchen table, and see that a thick packet has come in the mail. You don’t know it yet, but what’s inside will change your life. You open the envelope and find a personalized letter from the College Board, the SAT people. It says that because your grades and scores are in the top 10 percent of test takers in the nation, there are colleges asking you to apply. Princeton, Harvard, Emory, Smith—there’s a long list, places you’ve read about in books. And here’s an even more shocking page: it says the College Board somehow knows your mom can’t afford to pay for your schooling so it will be free. There’s even a chart comparing costs to these schools and your community college and the state campus, breaking them down in black and white—it turns out your mom would have to pay more to send you to the community college than to Princeton or Harvard. To top it all off, clipped to the packet are eight no-cost vouchers to cover your application fees! You sit at the table, stunned. Could this be true? No one you’ve ever known has even gone to a top-tier college. Blood rushes to your head and you feel a little faint as the thought takes over your brain: you could do this. You could really do this. You could be the first. © © © “The amount of untapped talent out there is staggering,” says Hoover senior fellow Caroline Hoxby, the woman who created that magic packet, as she sits in her office on the Stanford campus, a thousand miles away, in every way, from that small Nebraska town. (The privacy of participants is fiercely protected, so the girl and the town are composites.) Dressed in her usual uniform, a sleek suit jacket and slacks, with her hair pulled back tightly and small earrings dangling, she radiates intensity. A Harvard grad, she’s married to Blair Hoxby, an English professor at Stanford. The information packet, which grew out of two landmark studies she published, is the crowning achievement of her two decades as the country’s leading educational economist. Last September, her idea was rolled out nationally by the College Board, the group that administers the SAT. Now, every qualified student in the nation receives that packet. In a world


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where poverty and inequality seem intractable, this may be one problem on the way to being solved. “It can take a generation to make a fundamental change like this,” says William Fitzsimmons, director of admissions at Harvard. “What Caroline has done will leapfrog us ahead.” It was an unsettling experience at Harvard that spurred Hoxby to study the students she now is obsessed with helping. In the summer of 2004, then-president Lawrence Summers and his brain trust were frustrated that the school was still largely a place for the affluent. Despite the fact that low-income students had long had virtually a free ride, only 7 percent of the class was coming from the bottom quartile of income, while nearly a third came from families earning more than $150,000 a year. So the school announced to much fanfare that it would officially be free for those with less than $40,000 in annual family income (now up to $65,000). No loans, just grants to cover the entire cost. The administration figured the program would instantly flush out superstar high school seniors from unexpected places—hardscrabble Midwestern farming communities, crime-pocked cities too small for a recruiter to visit, maybe even a small Nebraska town where a girl with straight A’s seemed destined to languish in her local community college. “Need blind” admissions, used by about sixty top schools, actually made things worse. The schools weren’t allowed to ask applicants about their household income.

But when April rolled around, there was nothing to celebrate. The number of incoming freshmen with family incomes below $40,000 was virtually flat, fewer than ninety in a class of fifteen hundred, a tiny bump of only fifteen or so students. Other elite institutions that had quickly matched Harvard’s program reported even more depressing statistics. So Hoxby, who was on the faculty at the time, began to analyze what had gone wrong. A former Rhodes scholar with a PhD from MIT, she had almost single-handedly created the field of educational economics. Her previous work had measured whether charter schools raise student 70


achievement, whether class size really mattered, and how school vouchers worked. The problem captured her immediately. She had analyzed the data enough to know that many qualified low-income students were not applying to selective schools. While Harvard could afford to step up its expensive outreach—in recent years it and other top schools have increased the proportion of low-income students to as much as 20 percent—Hoxby estimated that there were huge swaths of kids who were being overlooked. “Caroline,” says Harvard’s Fitzsimmons, “has a great heart as well as a great intellect. And like every economist, she hates waste, especially a waste of human capital.” “Like every economist, she hates waste, especially a waste of human capital.”

First she had to figure out how many qualified students were actually out there—and where. The College Board and its counterpart, the ACT, which administers another admissions test, knew who had high scores, but not who was poor. Test-takers are asked about family income, but only about 38 percent respond, and, as Hoxby says, “lots of kids have no idea what their parents make.” Colleges glance at application ZIP codes, but that’s a blunt instrument, especially in vast rural areas. Ironically, “need blind” admissions, used by about sixty top schools, had contributed to the dearth of information. The policy, instituted to make sure the process didn’t favor wealthy students, precludes schools from asking applicants about their household income. So Hoxby and co-author Christopher Avery, a public policy professor at Harvard’s John F. Kennedy School of Government, tackled a monumental data challenge. They decided to look at every senior in the United States in a single year (2008). They devised a complicated set of cross-references, using block-by-block census tract data. They matched each student with an in-depth description of his or her neighborhood, by race, sex, and age, and calculated the value of every student’s house. Parents’ employment, education, and IRS income data from ZIP codes were also part of the mix. They even tracked the students’ behavior in applying to college.


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The results were shocking. They found approximately thirty-five thousand low-income kids with scores and grades in the top 10 percentile— and discovered that more than 80 percent of them didn’t apply to a single selective institution. In fact, a huge proportion applied to only one college, generally a non-selective school that required only a high-school diploma or a GED, and where a typical student had below-average scores and grades. Mostly from rural backgrounds, crumbling industrial outposts, or vast exurbs, these students had been falling through the cracks for generations. Elite institutions traditionally concentrated on a small number of cities and high schools in densely populated, high-poverty areas, places that had reliably produced talented low-income students in the past. Smaller markets such as Nashville, Topeka, and Abilene rarely got a look. Kids in rural settings were even less likely to catch the eye of college admissions staff, especially with college counselors an endangered species—the ratio of counselors to students nationally is 333 to 1. “When you’re in admissions, you go to the schools that you know, to areas likely to have a number of kids like that,” says Hoxby. “You might have a school in New York, for instance, that has a really great English teacher whose judgment you trust. You work your contacts, just like in everything else.” It was a shocking discovery: more than 80 percent of the high-performing low-income kids didn’t apply to a single selective institution.

Hoxby realized it wasn’t practical to expect colleges to try to locate these kids. She had to find a way to motivate the students themselves to take action. Getting the usual “think about applying” form letter from, say, Haverford or Cornell wasn’t doing the trick. Low-income students and their parents were dismissive of such prompts, seeing them as confusing and meaningless. While some students chose a local school because they didn’t want to leave home, others were deterred by the sticker price. With all the hoopla about rising college costs, they assumed that a fancy private education would be far out of their range. Just the cost of applying to schools—often $75 per shot—was often prohibitive. While creating the packet, Hoxby and a second co-author, economist Sarah Turner of the University of Virginia, found that small tweaks made 72


a huge difference. With the help of graphic designers, they fiddled with everything from the photos to the language, the fonts, and the ink color. They also tested which family member should get the packet (parents, students, or both). “There I was, discussing whether or not we should use sixteen-point type in a particular headline,” she recalls. “It’s not the usual thing for an economist to be doing.” Low-income students and their parents dismissed the typical “think about applying” form letters from distant colleges as confusing and meaningless. They needed something better.

The packets are tailored for each student, with local options and net costs calculated and compared, apples to apples. It’s a process Hoxby likens to Amazon’s algorithms. “You know how when you log in you see things that are just for you? It looks very simple, but the back office is actually massively complicated. If everyone just saw the same thing, randomly, we’d never buy anything.” In the end, students who got the packet during the two years of her study—2010 to 2012—started acting more like their affluent peers. They applied to many more colleges, and were accepted at rates as high as Hoxby estimated they would be. For $6 apiece, she likely changed the course of thousands of lives—as well as the future of the ivory tower. “We will do anything we can to make sure that people who qualify for an education of this caliber can have one,” says Michael Roth, president of Wesleyan. The Supreme Court has begun to weaken the case for race-based preferences, and Hoxby—whose father, Steven Minter, former undersecretary of education under Jimmy Carter, is black—often gets asked if her studies herald a new era of class-based affirmative action. It’s a policy that would put poor rural kids, who are often white, on the same footing as inner-city students, who are almost always not. Such questions clearly annoy her. “What people need to understand is that this is not affirmative action. These kids are just as qualified as their privileged counterparts in terms of their grades and scores. They graduate


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those colleges at the same rate. No requirements are being bent. The issue is just finding them.” For $6 apiece, Hoxby probably changed thousands of lives—as well as the future of the ivory tower.

Even so, Hoxby’s work has sparked discussions about economic affirmative action. Currently few if any schools give weight to applications from low-income students, though some do look at whether an applicant is the first in the family to go to college. That may soon change, says Maria Laskaris, dean of admissions at Dartmouth. But giving greater preference to low-income applicants could spark blowback from upper-middle-class families. “If we decide to take more of any sort of student, others don’t make it in. It’s challenging,” she says. While schools such as Harvard, Yale, and Dartmouth can provide full aid to more low-income students, schools with smaller endowments could find it hard to finance a new wave of need. In a recent letter to the New York Times, Catharine Hill, president of Vassar, applauded the College Board’s intentions but cautioned that the intervention that Hoxby engineered “will indeed create tensions surrounding financial aid” at the more than 150 top institutions that cannot afford to be need-blind. Hoxby responds to such fears with her usual mixture of iron will and confidence, softened by a rueful laugh. “Schools have no reason to be afraid. It’s not going to happen overnight; there isn’t going to be a sudden flood. That isn’t the way the world works. It takes time. The information will spread gradually over the next few years. In the meantime, colleges will find a way to do this.” “They have to,” she concludes. “We have to.” Reprinted from Smithsonian magazine. Available from the Hoover Press is Tests, Testing, and Genuine School Reform, by Herbert J. Walberg. To order, call 800.888.4741 or visit www.hooverpress.org.

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E D U CAT I O N

Test Scores Do Matter Our distaste for international rankings won’t prevent the rest of the world from pulling ahead of us. By Eric A. Hanushek.

In 2012, sixty-five nations and education systems participated in the Program for International Student Assessment (PISA). These tests, covering mathematics, science, and reading, provide direct international comparisons of skills. Sadly for the United States, the recently released results are sobering. According to PISA, the United States placed significantly below the average for member-nations in the Organization for Economic Cooperation and Development for mathematics—and significantly worse than the OECD distribution at both ends of the assessment spectrum, with more low performers and fewer high performers. The US math performance is not statistically different from those of Norway, Portugal, Italy, Spain, Russia, Slovakia, Lithuania, Sweden, and Hungary—not the most sought-after group of countries for comparison’s sake. More disturbing, US students’ scores have been stagnant for the past decade. Since 2003, the United States has made virtually no gains, even as a range of countries have made substantial ones. The most rapid PISA gains were made in very-low-performing countries, such as Qatar and Kazakhstan. Yet some higher-performing nations also made substantial advances: Israel, Singapore, Italy, Poland, and Germany. Poland, for example, steadily improved over the past decade and Eric A. Hanushek is the Paul and Jean Hanna Senior Fellow at the Hoover Institution and a member of Hoover’s Koret Task Force on K–12 Education.


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now ranks eighth within the OECD (fourteenth among all sixty-five participating countries or education systems). In the simplest terms, even among high-performing countries, change for the better is possible. A number of commentators have tried to counsel ignoring the results, and their misleading arguments—that these test scores really do not matter—warrant correction. • Criticism one: We have a strong economy; we are not being pulled down by our schools. Indeed, we have had strong growth over the thirty years since A Nation at Risk first warned that schools were endangering our economy. But we also have the world’s best economic system and institutions, and this has protected us from the deficiencies of our schools. It is also likely that we will not be so sheltered in the future and will have to rely on our skills (human capital). My analysis, with Paul E. Peterson and Ludger Woessmann, shows that long-term growth is closely related to the skills measured by assessments such as PISA. From historical experience, the differences in potential economic outcomes from improvements comparable to those seen in other countries are many multiples of the total cost of the 2008 recession until now. Moreover, the increased taxes and greater government intrusion necessarily implied by continuing US deficits and long-term imbalances of Social Security and Medicare will weaken our economic institutions. At the same time, other countries have emulated many of the features of our economic institutions while producing improved human capital, which implies we may no longer be the world’s leader in innovation in the future. • Criticism two: The US ranking is completely explained by poverty; we should be fixing poverty, not our schools. Various (poor quality) analyses have suggested that because the United States has a higher poverty rate than other industrialized countries, our low international-assessment scores can be explained by poverty. Indeed, in response to the PISA 2012 scores, the American Association of School Administrators (now called AASA, the School Super76


intendents Association) argued that their members’ schools are not to blame for poor achievement. The group issued the following statement: “The problem we find in American education isn’t that schools are ‘falling behind,’ it is that schools are ‘pulling apart.’ Poverty in America is the real issue behind today’s education gap, and it means students can experience different education trajectories because of where they live.” But if the superintendents’ group were correct, the United States would turn out the same share of high-performing students as other countries. To the contrary, only 9 percent of US students perform at the highest proficiency levels in math (Levels 5 and 6), far below the 20 percent to 30 percent performing at that level in countries such as South Korea, Japan, Switzerland, and the Netherlands. Canada turns out almost twice as many high fliers as the United States. Moreover, if an income gap makes the United States unique, the percentage of American students performing well below proficiency in math should be higher in this nation than in countries with comparable average test scores. But that’s not the case. We have the same average scores as Slovakia, Lithuania, and Hungary. And, as in those countries, about a quarter of our students performed well below proficiency in math. In simplest terms, both top and bottom American students do poorly when compared with students in other industrialized countries. • Criticism three: Other things, such as grit, determination, and teamwork skills, are more important than cognitive skills. While these noncognitive skills probably are important, the empirical evidence on economic outcomes remains thin. At the same time, we know that measured achievement has very high economic returns to individuals. Recent work shows that the United States rewards high-level skills (as measured by international math tests) with greater earnings in the labor market more than any of the twenty-two other countries surveyed by the OECD. Moreover, there is no evidence that having higher cognitive skills detracts from noncognitive development or skills. In fact, there is some evidence that they complement each other.


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Interestingly, US students have always felt confident that they were above average and more self-efficacious in doing math problems—perceptions that belie their performance. • Criticism four: We don’t really need any more skilled workers because we already have enough unemployed or underemployed college graduates. Clearly, there is always some transitory unemployment as workers move across jobs and as some workers (even college graduates) find that their skills built on old technologies are no longer needed. But over the long run, the nature of production adapts to the available workforce. With a highly skilled workforce, technology tends to expand in ways that employ these skills. With lower levels of skills, industry expands on dimensions that do not need as many skills. But these expansions are generally not at the forefront of technology and historically have not seen growth in wages matching that in more skill-using technologies. Moreover, the modest proportion of Level 5 and 6 students suggests that the future development of US scientists and engineers will be constrained—a fact now evident in the demand in Silicon Valley for highly skilled workers educated abroad. Some conclusions: first, the United States is not doing well. While our low ranking has been seen on earlier international assessments, there are many reasons to believe that low cognitive skills (as assessed by PISA) will be increasingly important for our economic future. Second, by historical patterns, improving our achievement—which identifies the human capital of our workforce in the future—has huge economic ramifications. Getting to Canadian achievement levels translates, by historical economic-growth patterns, into 20 percent higher paychecks for the average worker over the entire twenty-first century. Not only could this solve our cur-


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rent fiscal and distributional woes, but it also could establish our future economic and international leadership. Third, other countries have shown that it is possible to improve. While changing achievement might be difficult, there is ample evidence that it is critical to the future of the United States. Reprinted by permission from Education Week (www.edweek.org).

New from the Hoover Press is The Best Teachers in the World: Why We Don’t Have Them and How We Could, by John E. Chubb. To order, call 800.888.4741 or visit www. hooverpress.org.

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E D U CAT I O N

Right-sizing Our Classrooms A surprising experiment suggests students might benefit from bigger classes—but only if they have good teachers. By Michael J. Petrilli and Amber M. Northern.

Last fall, USA Today reported that officials in the Brevard County schools had broken Florida state law—on purpose. Their offense? Placing more kids in classrooms than Florida’s Class Size Reduction statute allows. Officials had done the math and decided that complying with state policy would cost more than the penalty they would pay for adding a handful of students to each classroom. The estimated fines totaled roughly $170,000, which paled in comparison to the cost of the teachers that the district would have had to hire to comply with the size-limiting mandate. Yet it’s unclear how Brevard chose to allocate these additional students. Did administrators give every teacher more students in equal shares? Did they apportion shares to seasoned veterans or, more likely, to senioritydeprived new teachers? Maybe they drew straws? But what if Brevard officials had chosen another option? What if they had assigned the “extra” students to their most effective teachers, leaving fewer pupils in classrooms presided over by weaker instructors? What would be the impact of such a practice on student achievement? Michael J. Petrilli is a research fellow at the Hoover Institution, executive editor of Education Next, and executive vice president of the Thomas B. Fordham Institute. Amber M. Northern is a research fellow at the Hoover Institution and vice president for research at the Fordham Institute.


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That’s the scenario modeled by a new empirical paper, Right-sizing the Classroom: Making the Most of Great Teachers, conducted by economist Michael Hansen and available at www.edexcellence.net. The idea is straightforward: give the better teachers more kids and the weaker teachers fewer, then see what happens. It’s a commonsense option with many supporters. We know, for instance, that parents say they would opt for larger classes taught by excellent teachers rather than smaller classes with instructors of unknown ability. In a recent study for the Fordham Institute, the FDR Group found that a whopping 73 percent of parents would choose a class with twenty-seven students—provided it is “taught by one of the district’s best-performing teachers”—over a class of twenty-two students “taught by a randomly chosen teacher.” Further, given the choice between fewer students and more compensation, the teachers themselves choose the latter. In a well-done study of their own, Dan Goldhaber and colleagues found that 83 percent of educators in Washington state would prefer an additional $5,000 in compensation versus having two fewer students in their classes. Yet, to our knowledge, no district assigns students to teachers based on their instructional effectiveness. Instead, pupils are divided roughly equally among teachers of the same grade in the same school, since parceling them out uniformly is viewed as fair to teachers. But what if it’s not fair for kids? Or what if the costs fail to justify the benefits? We aimed to find out. Given districts’ aversion to assigning students in this way, we were forced to simulate such assignment using actual data from one state (North Carolina). To perform this statistical maneuver, we approached Hansen, a senior researcher at the American Institutes for Research. Hansen, an expert in labor economics and the economics of education, has ample experience mining North Carolina data and conducting simulations of this genre. Hansen starts by examining the extent to which North Carolina already assigns students within schools based on teacher effectiveness. (He finds the state has a slight tendency to do so.) Then he turns to the simulation, looking at fifth- and eighth-grade test scores. He uses three years of data (2007–10) to generate past value-added measures. For the fourth 82


year, he estimates how teachers actually performed, and then he simulates what the impact would have been if students instead had been allocated to teachers based on their prior performance, with an eye towards maximizing student gains. The allocation process results in larger classes for the most effective teachers and smaller for the least effective. The key finding: minor changes in assignment lead to improvements in student learning. The results were relatively modest for the fifth grade; there, even when as many as twelve additional pupils were assigned to effective teachers, it yielded gains equivalent to extending the school year by just two days. Given a choice between fewer students and more compensation, the teachers chose the latter.

At the eighth-grade level, however, the results were much more robust. Hansen found that assigning up to twelve more students than average to effective eighth-grade teachers can produce gains equivalent to adding two-and-a-half extra weeks of school. Yet adding fewer students pays dividends, too. In fact, 75 percent of the potential gain from allowing up to twelve students to be assigned to the best teachers’ classes is already realized when allowing just six students to move. Specifically, adding up to six more than the school’s average produces math and science gains akin to extending the school year by nearly two weeks. This impact is the equivalent of removing the lowest-performing 5 percent of teachers from the classroom. That last point is worth reflection. Moving a handful of students to the most effective eighth-grade teachers is comparable to the gains we would see by removing the lowest 5 percent of teachers. And that is without actually removing them. As Hansen explains, “Class-size shifting enables the lowest-performing teachers to become more effective than they may be otherwise.” That’s certainly a good thing. But does it mean that we should hang on to persistently ineffective teachers? Given the cost of keeping them on the payroll, probably not. At some point, giving ineffective teachers the luxury of small classes becomes an unsustainable financial burden. Or, to put it


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another way, we should shrink some teachers’ classes down to zero students—and take the money saved thereby to bump up the compensation of effective teachers. Last, Hansen examines whether this reallocation policy helps our neediest students gain more access to effective teachers. In a word, no. Gaps in access for economically disadvantaged students persist, primarily because the pool of available teachers in high-poverty schools remains unchanged under this strategy. Hence, this policy alone won’t remedy achievement gaps. (Recall that the reassignment occurred within schools; if it had been carried out across schools, perhaps the results would differ.) At some point, giving ineffective teachers the luxury of small classes becomes an unsustainable financial burden.

As for costs, Hansen shows that some class-size variation already exists within schools (a differential of three to five students); presumably these small differences are not compensated. Perhaps, then, principals could choose to assign these extra students to their most effective teachers without costing taxpayers an extra penny. After all, that’s the beauty of this strategy: it does not require a change in state policy or, in many cases, teacher contracts to make it happen. In the end, one simple change—giving effective teachers a handful more students—could mean a big boost to student achievement. Still, this change has not been tested in the real world. We’ve now simulated its impact using actual data from an actual state. But which district or state will be the first to try it out in real classrooms? Reprinted from Education Next (www.educationnext.org). © 2013 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. New from the Hoover Press is What Lies Ahead for America’s Children and Their Schools, edited by Chester E. Finn Jr. and Richard Sousa. To order, call 800.888.4741 or visit www.hooverpress.org.

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M E X I CO

Viva la Reforma Mexico is busting out of a century of stagnation, and the United States is likely to benefit too. By Gary S. Becker.

In the year and a half since he became Mexico’s president, Enrique Peña Nieto has joined hands with rival political parties to push through a series of remarkable changes that may transform Mexico into a world-class nation. This will have profound implications for the United States as well. One reform that has received great attention is the opening up of the energy sector to private capital and private companies. Peña Nieto’s party, the traditionally leftist Institutional Revolutionary Party (PRI), nationalized Mexico’s oil fields in 1938 to great fanfare. Since then the national oil company, Pemex, has held a monopoly and, not surprising, has fallen behind world standards in efficiency and innovation. As a result, Mexico’s oil production has been badly lagging in recent years and Pemex has not developed new sources of oil, including shale. The introduction of foreign capital and enterprise should shake up a seriously underperforming sector that could greatly raise Mexico’s fossil-fuel production. A second major reform is the attack on the teachers’ union, which has had a stranglehold on K–12 education. The result of this control is a weak system of public education that has especially shortchanged the bottom half of the population, who cannot afford private education. This sizable Gary S. Becker is the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and a member of Hoover’s Working Group on Economic Policy and Shultz-Stephenson Task Force on Energy Policy. He is also the University Professor of Economics and Sociology at the University of Chicago. He was awarded the Nobel Memorial Prize in Economic Sciences in 1992.


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inequality in access to education has contributed to the large spread in the distribution of Mexico’s income. It takes years before reforms in a country’s education system bear fruit, but these first steps to rein in the teachers’ union monopoly are necessary to offer the next generation of young Mexicans much better education and earnings prospects. Another reform is to allow much more competition in the largely monopolized telecommunications industry. This should greatly reduce the prices of phones and tolls, allowing poorer families to communicate more easily within Mexico and with the outside world. Watch for foreign capital and enterprise to shake up Mexico’s underperforming energy sector.

Other reforms are still necessary and are pending, including greater competition in the financial sector and more freedom by employers to lay off workers. Still, what has been already accomplished, along with the new attitude toward reform, gives hope that Mexico will move toward a faster rate of growth in aggregate income and improvements in the earnings of Mexicans at the lower end of the income distribution. Advances in the Mexican economy will be of the utmost importance not only to Mexicans but also to the United States. They will reduce illegal and legal immigration from Mexico to the United States. Much evidence from other countries, such as South Korea, shows that immigration from a country declines greatly when its economy is growing faster and there is increased optimism about the economic future. Young people tend not to leave, even to countries with much higher incomes, if there are good job opportunities and if they expect to improve their economic situation as they get older. Net immigration from Mexico to the United States ceased during the past five years as a result of the Great Recession. If Mexico begins to boom, this situation might persist even after the United States fully recovers. The end of immigration from Mexico would not be good for the American economy, but it would certainly tame one of the most divisive issues among the American public: how to handle illegal immigrants and the inflow of additional illegal immigrants. Attitudes toward illegal immi86



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grants in this country will change if there is a general expectation that the number of future illegal immigrants will be modest. The market for American capital and enterprise in Mexico’s energy sector, telecommunications, and other industries will improve as Mexico becomes more welcoming to foreign capital and businesses. The United States is by far the major trading partner of Mexico, and reforms in that nation will improve opportunities for both countries to import and export a greater collection of goods and services. Illegal immigration to the United States is likely to stay low if Mexico’s economy improves.

Both Canada and Mexico are adjacent to the United States, but while the per capita incomes of Canada and America are similar, Mexico’s per capita income is only about 30 percent of the American level. I believe this major difference in productivity is due mainly to Mexico’s tradition of favoring public and private monopolies over private competition, Mexico’s failure to improve the education of most of its population, and the price and other restrictions imposed in labor, financial, and other markets. For the first time in a hundred years there is real hope that Mexico is getting its act together. Mexico might even eventually join its North American neighbors in doing justice to its people and natural resources and attaining top-level economic status. The United States will benefit from having a much stronger neighbor. Reprinted from the Becker-Posner Blog (www.becker-posner-blog.com).

Available from the Hoover Press is Living with the UN: American Responsibilities and International Order, by Kenneth Anderson. To order, call 800.888.4741 or visit www.hooverpress.org.

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CH I N A

Taiwan’s Voice of Experience If China wants an example of progress, it need only look across the Taiwan Strait. By Tai-chun Kuo and William Ratliff.

Several months ago, Chinese President Xi Jinping made headlines in China and abroad when he personally bought and ate steamed dumplings with the people in a simple Beijing eatery. The Communist Party of China (CPC) website now describes him as “a man of the people” as well as “a statesman of vision.” Indeed, Xi has become the most omnipresent and powerful leader in the People’s Republic of China (PRC) since the death of Deng Xiaoping seventeen years ago. Besides being president, Xi is general secretary of the CPC, chairman of the Central Military Commission, and head of two powerful committees set up in recent months that focus on national security and major economic reform. He constantly promotes his key themes of the “Chinese dream” and “rejuvenating the great Chinese nation” before a wide variety of political, economic, social, military, and other constituencies, whose aims often conflict. But will he or any official in the Communist Party be willing or able to fully face up to China’s current profound economic, social, political, environmental, and other challenges? China has made phenomenal economic progress in the past three decades, but its future is uncertain. Fortunately Xi and other leading Chinese leaders today don’t need to reinvent the development wheel Tai-chun Kuo is a research fellow at the Hoover Institution. William Ratliff is a research fellow at the Hoover Institution and the Independent Institute.


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because China’s neighbors in Asia, the so-called tigers, have already shown the way. The most relevant example for China has long been the ethnic Chinese government in Taiwan, which launched truly comprehensive economic reforms less than a decade after the end of the Second World War. By the mid-1960s, Taiwan’s economic and financial reforms were more comprehensive and profound—indeed more “revolutionary” in terms of Chinese history and institutions—than anything that has yet occurred on mainland China within the shifting parameters of Deng’s ideological and political grab bag, “socialism with Chinese characteristics.” Underlying all the changes in Taiwan was a focused commitment to reforms that built on but were also often “outside the box” of Chinese tradition and of so-called revolution, whether of Sun Yat-sen, Mao Zedong, or Deng and his successors. But to see how Taiwan’s experiences are relevant to mainland China we must first look at how its leaders see conditions today and what their plans are for the coming years, according to the major Communist Party meeting held in Beijing last November.

TH E L A T E S T BL UE PR I NT In October, China’s Xinhua News Agency eagerly anticipated that the upcoming third plenary session of the 18th CPC Central Committee would “follow party tradition and be a springboard for major national reform.” There were precedents, for CPC third plenums have a history of making history. Most important, thirty-six years ago the third plenum of the 11th CPC Central Committee turned the country away from Maoist “class struggle,” domestic chaos, and international conflict to stability and productive, internationally oriented economic reform. The third plenary in November 1993 developed the concept of the socialist market economy. But the sixty-section document titled Decisions on Major Issues Concerning Comprehensively Deepening Reform, released several days after the 2013 third plenum, sketched out less than the springboard Xinhua and many others had expected or hoped for. Proposed economic and social reforms were significant, but most were still clearly within the party’s ideological box or supportive of that box. Political change was not progressive, 90


unless one believes that a more authoritarian leadership will enhance the prospects for constructive, comprehensive reform. (Many Chinese, understandably, do view the proposed adjustments in the “one child” policy and the abolition of the “re-education through labor” program as progressive.) Throughout Decisions the party proclaimed its control over the content and implementation of all economic reforms, the attainment of the Chinese dream, and, importantly, the People’s Liberation Army. Decisions emphasized both market-oriented reforms and ultimate socialist goals. These positions in some ways conform to and in other ways break with traditional or revolutionary beliefs and institutions, and sometimes are internally contradictory. The current blueprint for political change in China appears to be more nonexistent than progressive.

Decisions pledged to deepen reforms by better realizing the structural, systemic nature of change. Most important, according to Decisions, the country must adhere to the lessons of past successes, which above all are to persist in Communist Party leadership and implement the party’s basic line. The central government will play an active role in formulating and managing market and institutional reform as well as other aspects of development. The overall objective, according to this key document, is to perfect “socialism with Chinese characteristics” and to modernize state governance and capabilities. The preliminary stage of socialism will be long and will lead eventually to a “moderately prosperous society.” For now the party must cultivate and consolidate socialism by broad economic reform as well as by promoting Marxist ideology and the core values of socialism. Markets now are designated to play a decisive—it used to be basic— role in allocating resources and determining prices. The mainstay of the economic system, however, remains the state sector that will accelerate development of the socialist market economy. The party pledged to unswervingly consolidate and develop the public economy, and to uphold and enhance the dominant position and leading role of public ownership.


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IN COMMAND: Chinese President Xi Jinping and other leaders attend the opening of a labor conference last October in Beijing. “Socialism with Chinese characteristics” remains a dominant theme for China’s Communist Party. How far Xi will lead China into meaningful economic and other reform remains an open question.

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© Xinhua/Xie Huanchi

The flagship of the state economy is the state-owned enterprise (SOE), defined as belonging to all the people. The plenum report says SOEs must adapt to new trends in marketization and internationalization, improve efficiency and business mechanisms, increase the value of their assets, and contribute more to the national budget. Decisions never spoke of a “private” sector. However, the party also pledged to unswervingly encourage, support, stimulate, and guide the “nonpublic” economy, property rights, entrepreneurialism, growth, innovation, and employment. The party is to vigorously develop and protect the mixed-ownership economy involving the Chinese state, Chinese nonstate sectors, and international players. The party pledged to provide equality of rights, opportunities, rules, competition, and choice for nonstate forces, and to repeal unreasonable regulations, hidden barriers, and inequalities of resource allocation. The discussions of political conditions and goals will not hearten supporters of liberal democracy. All political change must be under the supervision of the Communist Party. Democracy is often mentioned, but it remains (in practice and goals) either grass-roots democracy in urban and rural communities or more broadly “consultative democracy,” which the party calls a unique and especially effective form of communication developed in China between the party and the people. Top party decision makers pledge to listen seriously to what others think before concluding and implementing policies via Leninist democratic centralism. Xi has warned people not to dismiss Mao Zedong, saying Mao did a lot more good than bad and that undermining Mao could undermine the legitimacy of the Communist Party. The Chinese party has concluded that the Communist Party of the former Soviet Union was subverted by domestic traitors urged on by hostile foreign forces. It intends to avoid that fate.

C H A L L EN GE S AND CO NTR AD I CTI O NS The plenum did project serious reforms, but the goals and potential implementation raise questions and contradictions. First, there are repeated pledges of comprehensive reform when many economic and political options, including some of the most profound, are Hoover Digest N 2014 · No. 2

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off the table. That is, the Communist Party is proposing a substantial but still partial and largely conventional reform program rather than a proactive, comprehensive one. Second, legal reform far from guarantees equal treatment. In economic terms, Decisions pledged equal protection and opportunities for the public and nonpublic sectors—but the former, with its flagship state-owned enterprises, was emphatically identified as the mainstay of the nation’s development program. In practice, what will be the real relationship between the government and the market, the public and nonpublic sectors, the people and the party? A key document insists that China continue its Communist Party leadership and implement the party’s basic line.

And finally, there is the shift of so much power to one leader. By the beginning of 2014 Xi Jinping had aggressively concentrated even economic power in his own hands. Decisions and many recent developments suggest that economic reform under Xi may be much more cautious than what Li Keqiang, a highly trained economist who was expected to guide economic change, had so forcefully articulated after becoming premier in March 2013. At this point a siege mentality, overconfidence, an excessive concentration of power, and the leadership’s refusal to make and enforce tough decisions stand in the way of China’s dream.

TA I W A N ’ S OW N G R E AT LE AP Of course, the People’s Republic of China and Taiwan differ in many important ways, not least in geography, population size, and current needs, but in some of the basics related to development there is much common ground. The island’s recent history speaks clearly to many of mainland China’s current challenges. Taiwan’s productive changes began in the early 1950s, after the arrival on the island of a small group of defeated Chinese Nationalist Party (Kuomintang) leaders headed by Chiang Kai-shek. While on the mainland, most of these Nationalists believed ardently in a command econo94


my—as propounded by Sun Yat-sen in his principle of the “People’s Livelihood”—almost as dogmatically as Mao Zedong did in his version of Marxism. But almost immediately after Chiang and the team of reformers he supported reached Taiwan, they had owned up to their earlier mistakes and undergone one of history’s most dramatic intellectual transformations. The broad issue debated in Taiwan was: should the country have a permanent command economy dominated by state-owned enterprises and state planning, as well as a single, all-powerful elite, as had been the practice over the millennia in China and was then the case on the mainland and to some degree still in Taiwan? Or should it have a capitalist market economy led by private enterprise and (eventually) a more open political system? With US aid and advice, Taiwan’s reformers hashed out new policies during the 1950s in three transformative economic/financial debates. The reformers in Taiwan argued for limiting state control in favor of laissezfaire policies that were backed up by laws and enforced. The reforms brought a new generation of entrepreneurs into existence, with increased market integration and expanded market efficiency. Taiwan did not abolish state-owned enterprises when reforms began in the 1950s but simply forced them to compete with private enterprises which, without special government support, were motivated to innovate and compete or risk failure. The bulk of the economy was, and is, in private hands. Markets in China now are supposed to play a decisive—no longer basic—role in prices and resource allocation.

What’s more, beginning in 1960 Taiwan’s team of reformers under Chiang realized that true economic reform could not be achieved only by economic and financial changes. Instead, a more comprehensive reform strategy was launched to pursue political, social, and cultural changes. Over the next several decades, Taiwan leaped into the developed world and ultimately created the first thriving and productive free market democracy in the millennia-long history of Chinese civilization. Even as Taiwan’s leaders were carrying out these historic reforms, Mao and the


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Chinese Communist Party were scorching the mainland with the tragic campaigns dubbed the Hundred Flowers, the Great Leap Forward, and the Cultural Revolution.

A PR A C T IC A L P A TH What was the essence of Taiwan’s learning curve toward good governance? • Honest, responsible government. Nationalist reformers had been humiliated by failure on the mainland and were determined to “get it right” in Taiwan. Led by Chiang, they pledged to serve the people in the best spirit of traditional Confucian civilization. Among other things, Taiwan’s reformers and their families were barred from any involvement in business that could be seen as a conflict of interest. In contrast, while Communist leaders constantly speak of serving the people, in recent decades many party leaders and hangers-on have conspired to make fortunes through party membership, power, and connections. This corruption is perhaps the most difficult challenge in China today. • Pragmatism, creativity, and risk-taking. Chinese leaders often speak of pragmatically “crossing the river by feeling for the stones,” and there is much of that in their practice. But Taiwan’s reformers practiced pragmatism decades before the Communist Party and did so much more broadly. Reforming Nationalist leaders were willing to retain or break from the past even when doing so defied revered ideological principles. They encountered strong ideological and self-interested opposition and fears of excessive foreign domination—both with strong parallels in China today—but in Taiwan the reformers persisted and succeeded. Taiwan’s reform characteristics, discussed in detail by Tai-chun Kuo and Ramon H. Myers in Taiwan’s Economic Transformation (Routledge, 2011), also included: 1. Leaders honest and humble enough to acknowledge the serious mistakes they had made in the past; 2. Sincere acceptance of the ruler’s traditional Confucian duty to serve the people as a father would his family, despite some early rough periods; 96


3. Insistence on principled pragmatism rather than the utopianism typical of much Chinese tradition and found in Mao’s most tragically destructive policies and many lingering beliefs of current Communist leaders; 4. Willingness to be creative beyond previously accepted norms and to take risks, accepting failure of public or private enterprises as part of the entrepreneurial process; 5. Inclusion of diverse economic and social sectors of the public when planning and implementing policies; 6. Understanding the critical role of education in individual and national growth. Taiwan, led by reformers, underwent one of history’s most dramatic intellectual transformations.

A real shift in thought and policy was a wrenching challenge in Taiwan. It is so today for mainland China and the Communist Party, where perhaps irreparable mistakes of the past—such as tolerating corruption— have made challenges still more difficult. Chiang Kai-shek and those who worked with and after him knew that pressing ahead with economic and later political reforms would eventually reduce and even supplant the Kuomintang’s power, but they were determined to do it nonetheless. The next few years will tell whether Xi and the CPC want or are able to use their authoritarian power as constructively for the Chinese people and the world as Chiang Kai-shek and his team did decades ago in Taiwan. Special to the Hoover Digest. Available from the Hoover Press is The Struggle across the Taiwan Strait: The Divided China Problem, by Ramon H. Myers and Jialin Zhang. To order, call 800.888.4741 or visit www.hooverpress.org.


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The Empire Strikes Back? More and more, China resembles the confident—and eventually aggressive—Japan of the 1930s. By Victor Davis Hanson.

In the 1920s, after a fifty-year crash course in Western capitalism and industrialization, Japan began to translate its growing economic might into formidable military power. At first, few of its possible rivals seemed to care. America and condescending European colonials did not quite believe that any Asian power could ever dare to threaten their own Pacific interests. Japan had been a British ally and a partner of the democracies in World War I. Most of its engineering talent was trained in Britain and France. The West even declared Japan to be one of the “Big Five” world economic powers that shared common interests in peace, prosperity, and global security. Occasional parliamentary reforms had convinced many in the West that Japan’s growing standard of living would eventually ensure cultural and political liberality. That was a comforting dream, given that by the 1930s Americans were disillusioned over the cost of their recent intervention in the Great War in Europe. They were weary of overseas engagement and just wanted a return to normalcy. A terrible decadelong depression at home only added to the American popular desire for isolation from the world’s problems. Victor Davis Hanson is the Martin and Illie Anderson Senior Fellow at the Hoover Institution and the chair of Hoover’s Working Group on the Role of Military History in Contemporary Conflict.

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Americans sympathized with China’s security worries—but not enough to do much other than hector Japanese military governments with haughty sermons about fair play and international law, and threaten to impose crippling embargoes. Japan ignored such sanctimoniousness. Instead, it harangued its Asian neighbors on the evils of Western colonialism and the need for them to combine under Japan’s own tutorship to reassert their Asian influence in world politics. The League of Nations did nothing when Japan began colonizing Manchuria in 1931. Westerners seemed more impressed by the astonishing rate of Japanese economic progress and growing armed clout than they were determined to stop Japanese aggression. By 1941, few Americans were even aware that the Imperial Japanese Navy had almost magically grown more powerful than the Pacific Fleet of the United States in every category of battleships, carriers, cruisers, destroyers, and submarines. The idea that Japan was waiting for an opportune moment to exploit American weakness, at a time when Europe was convulsed in war, would have seemed absurd to most Americans. The 1940 American relocation of its Pacific Fleet homeport from San Diego to an exposed Pearl Harbor was supposed to deter Japan. But the Japanese interpreted such muscle-flexing as empty and foolhardy. The attack on Pearl Harbor followed. Westerners of the 1930s seemed more impressed by the astonishing rate of Japanese economic and military progress than they were determined to stop Japanese aggression.

Substitute communist China for imperial Japan, and something familiar is now taking shape in the Pacific. China believes it is finally time to make its military reflect its enormous economic power. Beijing’s armed forces are growing while America’s are shrinking. China does not like visiting Americans—most recently, Vice President Joe Biden—lecturing on human rights, especially when American power, both military and economic, appears to be waning.


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ADVANCING: A Japanese destroyer sails the Yangtze River in the 1930s. By 1941, few Americans were aware that the Imperial Japanese Navy had grown more powerful than the Pacific Fleet of the United States in every category of battleships, carriers, cruisers, destroyers, and submarines.

If the Japanese of the 1930s once talked of Western decadence and American frivolity, so too the Chinese now sense that American global influence is not being earned by the current generation of Americans who enjoy the high life on $17 trillion in borrowed money, much of it from China. China likewise senses growing American isolationism, hears parlor talk about the United States reducing its nuclear arsenal, and notices America’s new habit of distancing itself from allies. Americans once talked tough about Iraq, Iran, Afghanistan, Libya, and Syria. But China tuned out that empty rhetoric and instead noted that Americans abandoned Iraq after the successful surge, are exhausted by Afghanistan, were humiliated by Bashar al-Assad in Syria, and were seemingly paid back with Benghazi after removing Muammar Gadhafi in Libya. China is reassured that what America says and what America does are not quite the same. More important, the Chinese also appear to hate the Japanese in the same way the latter apparently despised China in the 1930s. China resents Japan’s undeniable lack of contrition over the fifteen million Chinese killed by Japanese aggression in World War II. The Chinese also sense 100


that Japan may be a has-been power, with an aging, shrinking population; energy woes; a sluggish, deflationary economy; and increasingly without its once-ubiquitous American patron at its side. China accepts that the United Nations, like the old League of Nations, is useless in solving global tensions, and prefers that it be so. China is reassured that what America says and what America does are

Mirrorpix/Newscom

not quite the same.

Add everything up and China seems about as confident of the future as Japan once was in the 1930s. It is eager to teach Japan a lesson, as Japan once did China. And America once again appears confused by these radical changes in the Pacific. That is, until someone in the region tries something stupid— once again. Reprinted by permission of Tribune Content Agency. © 2014 Tribune Content Agency, Inc. All rights reserved.

Available from the Hoover Press is Freedom Betrayed: Herbert Hoover’s Secret History of the Second World War and Its Aftermath, edited by George H. Nash. To order, call 800.888.4741 or visit www.hooverpress.org.


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The Powers that Will Be China’s rise need not entail America’s fall. How “declinism” distracts us from contemplating a much more complicated future. By Josef Joffe.

The big question of the twentieth century has not disappeared in the twenty-first: who is on the right side of history? Is it liberal democracy, with power growing from the bottom up, hedged in by free markets, the rule of law, accountability, and the separation of powers? Or is it despotic centralism in the way of Stalin and Hitler, the most recent, though far less cruel, variant being the Chinese one: state capitalism plus one-party rule? The demise of communism did not dispatch the big question; it only laid it to rest for a couple of decades. Now the spectacular rise of China and the crises of the democratic economies—bubbles and busts, overspending and astronomical debt—have disinterred what seemed safely buried in a graveyard called “The End of History,” when liberal democracy would triumph everywhere. Now the dead have risen from their graves, strutting and crowing. And many in the West are asking: isn’t top-down capitalism, as practiced in the past by the Asian “dragons” (South Korea, Taiwan, Josef Joffe is the Marc and Anita Abramowitz Fellow in International Relations at the Hoover Institution, a member of Hoover’s Working Group on the Role of Military History in Contemporary Conflict, a senior fellow at Stanford University’s Freeman Spogli Institute of International Studies, and publishereditor of the German weekly Die Zeit. His latest book is The Myth of America’s Decline: Politics, Economics, and a Half Century of False Prophecies (Liveright, 2013).

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Japan) and currently by China, the better road to riches and global muscle than the muddled, self-stultifying ways of liberal democracy? The rise-of-the-rest school assumes that tomorrow will be a remake of yesterday—that it is up, up, and away for China. Yet history bids us to be wary. Rapid growth characterized every “economic miracle” in the past. It started with Britain, the United States, and Germany in the nineteenth century, and it continued with Japan, Taiwan, Korea, and West Germany after World War II. But none of them managed to sustain the wondrous pace of the early decades, and all of them eventually slowed down. They all declined to a “normal” rate as youthful exuberance gave way to maturity. What is normal? For the United States, the average of the three decades before the crash of 2008 was well above 3 percent. Germany came down from 3 percent to less than 2 percent. Japan declined from 4.5 percent to 1.2 percent. What rises comes down and levels out as countries progress from agriculture and crafts to manufacturing and thence to a service and knowledge economy. In the process, the countryside empties out and no longer provides a seemingly limitless reservoir of cheap labor. As fixed investment rises, its marginal return declines, and each new unit of capital generates less output than the preceding one. This is one of the oldest laws of economics: the law of diminishing returns. The leveling-out effect also applies to industrialized economies that emerged from a catch-up phase in the aftermath of war and destruction, as did Japan and West Germany after World War II. In either case, the pattern is the same. Think of a sharply rising plane that overshoots as it climbs skyward, then descends and straightens out into the horizontal of a normal flight pattern. The trend line, it should be stressed, is never smooth. In the shorter run, it is twisted by the ups and downs of the business cycle or by shocks from beyond the economy, such as civil strife or war.

V E R D I C T S OF H I STO R Y Only hindsight reveals what has endured. In the middle of the “surging Seventies,” Japanese growth flip-flopped from 8 percent to below zero in the space of two years. South Korea, another wunderkind of the 1970s, gyrated between 12 percent and minus 1.5 percent. As the Cultural RevoHoover Digest N 2014 · No. 2

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lution burned through China in the same decade, growth plunged from a historical onetime high of 19 percent to below zero. Recent Chinese history perfectly illustrates the role of “exogenous” shocks, whose ravages are far worse than those wrought by a cyclical downturn. Next to war, domestic turmoil is the most brutal brake on growth. In the first two years of the Cultural Revolution, growth shrank by 8, then by 7, percentage points. After the Tiananmen Square massacre of 1989, double-digit growth dropped to a measly 2.5 percent for two years in a row. What rises comes down—and levels out.

The Cultural Revolution and Tiananmen hint at a curse that may return to haunt China down the line: the stronger the state’s grip, the more vulnerable the economy to political shocks. That is why the Chinese authorities obsessively look at every civic disturbance through the prism of Tiananmen, though that revolt occurred a generation ago. “Chinese leaders are haunted by the fear that their days in power are numbered,” writes the China scholar Susan Shirk. “They watched with foreboding as communist governments in the Soviet Union and Eastern Europe collapsed almost overnight beginning in 1989, the same year in which massive pro-democracy protests in Beijing’s Tiananmen Square and more than one hundred other cities nearly toppled communist rule in China.” Today, the world is mesmerized by awesome growth in China. But why should China defy the verdict of economic history from here to eternity? No other country has escaped from this history since the Industrial Revolution unleashed the West’s spectacular expansion in the middle of the nineteenth century. What explains the infatuation with China? Western intellectuals of all shades have had a soft spot for strongmen. Just think of Jean-Paul Sartre’s adulation of Stalin or the German professoriate’s early defection to Hitler. The French Nobelist André Gide saw the “promise of salvation for mankind” embodied in Stalin’s Russia. And no wonder: these tyrants promised not only earthly redemption but also economic rebirth; they were the hands-on engineers, while think104


ers dream and debate, craving power but too timorous to go for it. Too bad that the price was untold human suffering, but as Bertolt Brecht, the poet laureate of German communism, famously lectured, “First the grub, then the morals.” Today’s declinists succumb to a similar temptation. They survey the crises of Western capitalism and look at China’s thirty-year miracle. Then they conclude once more that state supremacy, especially when flanked by markets and profits, can do better than liberal democracy. Power does breed growth initially, but in the longer run, it falters, as the pockmarked history of the twentieth century reveals. The supreme leader does well in whipping his people into frenzied industrialization, achieving in years what took the democracies decades or centuries. Under Hitler, the Flying Hamburger train covered the distance between Berlin and Hamburg in 138 minutes; in postwar democratic Germany, it took the railroad sixty-six years to match that record. The reasons are simple. The Nazis didn’t have to worry about local resistance and environmental-impact statements. A German-designed maglev train now whizzes back and forth between Shanghai and the city’s Pudong International Airport; at home, it was derailed by a cantankerous democracy rallying against the noise and the subsidies. The stronger the state’s grip, the more vulnerable the economy to political shocks.

Top-down economics succeeds at first but fails later, as the Soviet model shows. Or it doesn’t even reach the takeoff point, as a long list of imitators, from Gamal Abdel Nasser’s Egypt to Fidel Castro’s Cuba, demonstrates. Nor are twenty-first-century populist caudillos doing better, as Argentina, Ecuador, and Venezuela illustrate.

H I D D E N R I S KS Authoritarian or “guided” modernization plants the seeds of its own demise. The system moves mountains in its youth but eventually hardens into a mountain range itself—stony, impenetrable, and immovable. It empowers vested interests that, like privileged players throughout history, Hoover Digest N 2014 · No. 2

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first ignore and then resist change because it poses a mortal threat to their status and income. This sort of “rent seeking” is visible in every such society. As the social scientist Francis Fukuyama explains, reflecting on the French ancien régime: “In such a society, the elites spend all of their time trying to capture public office in order to secure a rent for themselves”—that is, more riches than a free market would grant. In the French case, the rent was a “legal claim to a specific revenue stream that could be appropriated for private use.” In other words, the game of the mighty is to convert public power into personal profit—damn the markets and competition. A supreme leader does well in whipping his people into frenzied industrialization, achieving in years what took the democracies decades or centuries. But then he falters.

The French example easily extends to twentieth-century East Asia, where the game was played by both state and society, be it openly or by underhanded give-and-take. Raising the banner of national advantage, the state favors industries and organized interests; in turn, these seek more power in order to gain monopolies, subsidies, tax breaks, and protection so as to increase their rents—wealth and status above and beyond what a competitive system would deliver. The larger the state, the richer the rents. If the state rather than the market determines economic outcomes, politics beats profitability as an allocator of resources. Licenses, building permits, capital, import barriers, and anticompetitive regulations go to the state’s own or to favored players, breeding corruption and inefficiency. Nor is such a system easily repaired. The state depends on its clients, just as its clients depend on their mighty benefactor. This widening web of collusion breeds either stagnation or revolt. What can the little dragons tell us about the big one, China? The model followed by all of them is virtually the same. But some differences are glaring. One is sheer size. China will remain a heavyweight in the world economy no matter what. Another is demography. The little dragons have completed 106


the classic course. Along that route, toilers of the land, just as in the West, thronged the cities in search of a better life. This “industrial reserve army” held down wages, driving up the profit rate and the capital stock. And so South Korea, Taiwan, and Japan turned into mighty “factories of the world,” whose textiles, tools, cars, and electronics threatened to overwhelm Western industry, as China’s export juggernaut does today. Once it empties out, the countryside can no longer feed the industrial machine with cheap labor. China still has many millions of people poised to leave rural poverty behind, so don’t confuse it with Japan, whose shrinking and aging population won’t be replenished soon by immigration or procreation. Japan ranks at the bottom of the world fertility table, one notch above Taiwan and one below South Korea. Call it East Asia’s “death wish.” China’s reserve army still has a long way to go. Nor has this very poor country exhausted the classical advantages of state capitalism, such as forced capital accumulation, suppressed consumption, and a cavalier disregard for the environment. But beware the curse of 2015. Despite its rural masses yearning to go urban, China’s workforce will start to decline while its legion of graying dependents keeps ballooning—the result of an abysmally low fertility rate, better health, and rising life expectancy. As China gets older, America will become younger thanks to its high rates of birth and immigration. An aging society implies not only a smaller workforce but also a changing cultural balance between those who seek safety and stability and those who want to risk and acquire—traits that are the invisible drivers of economic growth.

S T EE R I N G T HE SH O ALS At any rate, China’s cost advantage is plummeting. Since 2000, average wages have quadrupled, and the country’s once-spectacular annual rate of growth no longer registers in the double digits. Discontent there, as measured by the frequency of “public disturbances,” is rising, but it is about local corruption and elite rent seeking, not about cracking the political monopoly of the Communist Party. One Tiananmen demonstration does not a revolution make. There is no shortcut to the mass-based protests that dispatched the tyrants of Taipei and Seoul. Hoover Digest N 2014 · No. 2

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Nor is there an imminent ballot-box revolution in China’s future. It took Japan’s voters a half century to dismantle the informal one-party state run by the Liberal Democratic Party, and this in a land of free elections. The Chinese Communist Party need not fear such a calamity; it is the one and only party in a land of make-believe elections. And yet. Authoritarianism moves mountains in its youth but eventually hardens into a mountain range itself.

History does not bode well for authoritarian modernization, whether in the form of “controlled,” “guided,” or plain state capitalism. Either the system freezes up and then turns upon itself, devouring the seeds of spectacular growth and finally producing stagnation (this is the Japanese “model” that began to falter twenty years before the de facto monopoly of the LDP was broken), or the country follows the Western route, whereby growth first spawned wealth, then a middle class, then democratization cum welfare state and slowing growth. This is the road traveled by Taiwan and South Korea—their version of Westernization. The irony is that both despotism and democracy, though for very different reasons, are incompatible with dazzling growth over the long haul. So far, China has been able to steer past either shoal. It has had rising riches without slowdown or revolt—a political miracle without precedent. The strategy is to unleash markets and to fetter politics: “make money, not trouble.” Can China continue on this path? History’s verdict is not encouraging. © Copyright 2014 by Josef Joffe. Reprinted by permission.

Available from the Hoover Press is The Best Defense? Legitimacy and Preventive Force, by Abraham D. Sofaer. To order, call 800.888.4741 or visit www.hooverpress.org.

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Katyn Keeps Its Secrets The graves were opened long ago, but Russian files may remain closed forever. By Adam Bosiacki.

Last October, the Grand Chamber of the European Court of Human Rights in Strasbourg issued its final judgment on the Katyn massacre. The complainants, fifteen Polish nationals, had accused Russia of violating basic principles of the European Convention on Human Rights of 1950. This verdict, the court’s second in the matter, rebuffed most of the Poles’ claims, including their complaint that Russia continues to hide parts of an investigation it undertook from 1990 to 2004. The campaign to learn the full truth of the 1940 Katyn massacre, a crime the Polish people have not forgotten, appears to have reached another dead end. Polish public opinion after the final verdict was reserved, though obviously negative. Many people had questioned from the outset whether an international verdict could impose on a foreign state the obligation to throw open its investigation. Still, no one familiar with the court’s practices had expected a verdict that basically adopted the Russian position. The two leading Polish organizations dedicated to memorializing and investigating the Katyn massacre considered the judgment a defeat. Negative attitudes toward Russia were not soothed when Russian officials announced that some information connected with the secret services would never be revealed. Among the 183 volumes of the Russian investigation, 36 are to remain sealed under the “most secret” clause. Adam Bosiacki is a professor of the faculty of law and administration, University of Warsaw.


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The complainants were relatives of twelve victims of the Katyn massacre, three of whom had been identified as far back as 1943, when Nazi forces uncovered the mass graves in the woods near the village of Katyn, Russia. Soviet secret police murdered a total of 21,857 prisoners between March and June 1940 as “hardened enemies of Soviet power without any hope for improvement,” offering them neither investigation nor trial. The victims had been captured at the outset of the Second World War in September 1939, when both German and Soviet forces invaded Poland within the framework of the Hitler-Stalin pact. They were killed in several locations, but until 1990 the only site known was the eponymous Katyn forest. Among the 183 volumes of the Russian investigation, 36 are to remain

The head of the secret police, Lavrenty Beria (1899–1953), had written to Josef Stalin in March 1940 requesting to kill all the captives. Beria stated that 97 percent of them were of Polish nationality—primarily soldiers, police officers, and intellectuals. Thus for Poles the killings remain a symbol of Soviet domination, an example of the liquidation of Polish elites by the communist system. While World War II was still raging, the Polish government in exile proposed that an international committee investigate this crime, which the Soviet Union was blaming on Nazi forces (and continued to do for half a century). Instead, Stalin used this proposal as an excuse to break diplomatic relations with the government in exile. He intrigued to replace it with a new communist government a year later (see “The Unfinished Business of Katyn,” Hoover Digest 2012:1). After the war, Katyn was a taboo subject in communist Poland. Eventually Soviet authorities and their successors in the post-communist Russian Federation acknowledged Soviet responsibility for the massacre, but have steadfastly refused to classify it as a war crime or genocide. Struggles over Katyn continue to divide Poles and Russians.

V I O L A T I O N S O F HU MAN R I G H TS The fifteen complainants who took their case to the European Court of Human Rights alleged that “Russian authorities had not carried out an 110


© Reuters/Vasily Fedosenko

sealed as “most secret.”

REMEMBRANCE: A wall bears the names of thousands of Poles at a memorial in Katyn, west of Moscow. The memorial was erected on the spot of the 1940 massacre. When fifteen Poles asked the European Court of Human Rights to compel a fuller disclosure of the Russian investigation into the killings, many observers rightly doubted that an international verdict could force a foreign state to throw open its investigation.

effective investigation into the deaths of their relatives and had displayed a dismissive attitude to all their requests for information about their relatives’ fate.” Part of the Russian investigation’s report was withheld, the victims were not posthumously rehabilitated, and a substantial part of the materials (particularly the victims’ files) was never released—indeed, Russia does not officially recognize the existence of those missing files. Hence it was also alleged that “Russian authorities failed to carry out an adequate criminal investigation into the circumstances surrounding the deaths of the victims.” Moreover, the complainants alleged that by committing the crime, the Soviet Union violated basic provisions of the European Convention on Human Rights: the right to life (Article 2) and the prohibition against inhuman or degrading treatment of human beings (Article 3).


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Russian authorities were of the opinion that accepting such complaints would open the door to possible demands for compensation from all the victims’ descendants. The complainants denied this, but did claim compensation for their humiliation within the contemporary Russian legal investigation and procedures. For Poles the killings remain a symbol of Soviet domination, an example of the liquidation of Polish elites by the communist system.

In the first verdict, delivered April 16, 2012, the court held that the rights of ten applicants had been violated with respect to the prohibition of inhuman or degrading treatment of human beings. It found that it could not examine the merits of the complaint brought under the right to life. But the court also found that Russia had breached its obligation to cooperate and to furnish necessary facilities to examine the case. In the next set of proceedings, third parties were allowed to participate. They included the Polish government, Amnesty International, and the Memorial Society in Russia, which had demanded that a Russian court reveal all the materials of the investigation. (Memorial’s demand was rejected under Russian law, whereby a Russian court found the decision to terminate the investigation to be legal, thus closing the case domestically.) Allowing the third parties, particularly the Polish government, to participate probably avoided international litigation between Poland and Russia—but it also implied it was fruitless to try to solve the question within the framework of international negotiations. Russia did not ratify the European Convention on Human Rights until 1998. Thus the case was out of the court’s hands.

In its final verdict of October 21, 2013, the Grand Chamber rejected the complainants’ right to claim a violation of the right to life on behalf of the murdered victims, along with the claim of inhuman or degrading treatment. The court did, however, share the complainants’ opinion about the necessity of revealing the Russian investigative materials. 112


Regardless, the second verdict was worse for the complainants than the first.

NO CLOSURE Closure in the Katyn case remains out of reach. This legal campaign foundered on several issues, principally of jurisdiction. The court found it lacked jurisdiction to investigate the issues arising before November 1950, when the European Convention on Human Rights was signed, as well as before 1998, when Russia ratified the document. The court did not find it possible to analyze the facts before 1950. And although it suggested that the crime could have had a genocidal character or been a crime against humanity, it pointed out that many substantial actions in the Russian investigation were performed before 1998, when Russia had yet to sign the convention. Hence the final verdict in this international court did not settle the Katyn matter, and the crucial issue of disclosing the Russian investigative materials remains. It is still theoretically possible for the United Nations Human Rights Committee to address the case, even after the final verdict of the Grand Chamber. But it is very unlikely that such a body would compel a change in the verdict of a court with such an international character. The complainants say they have lost hope of obtaining any more information in their lifetimes. After decades of denials, the Katyn crime is now well known, but the investigation into the massacre, such as it was, has satisfied neither Poland, nor the victims’ families, nor history. If someday all the facts do come to light, it will probably not be due to the force of international law. Special to the Hoover Digest. Available from the Hoover Press is In Search of Poland: The Superpowers’ Response to Solidarity, 1980–1989, by Arthur Rachwald. To order, call 800.888.4741 or visit www.hooverpress.org.


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T H E M IDDLE EAS T

Lawrence’s Fallen Star In a tale stranger than any movie, Lawrence of Arabia lived the role of a lifetime. By Fouad Ajami.

The passing of Peter O’Toole, some fifty years after the release of Lawrence of Arabia, hardly merited a notice in the Arabic media. Perhaps the film could have been titled Lawrence in Arabia. On the other hand, one who reads his sublime Seven Pillars of Wisdom knows there is absolutely room for Lawrence on Arabia. But the more celebrated formulation, denoting a relationship between a man and place, was always a Western projection. Arabs never claimed T. E. Lawrence or his revolt in the desert. The Hashemites did well by that revolt—they came out of the Great War with thrones in Iraq and Jordan. (They would lose the reign in Baghdad, in a gruesome case of regicide in the summer of 1958.) But even the court historians of the Hashemites had their own reasons for belittling Lawrence and depicting the Arab revolt as an affair of the Arabs. When Arab writers and historians addressed the topic of T. E. Lawrence, they tended to repay the hostility he had shown the Arabs of the coastal lands and the cities. Lawrence and his peers thought of the Arab towns as bastardized and false; what glory they attributed to the Arabs, they attributed to the desert, the repository of all that was noble and “uncluttered” (the word recurs in the travel writing and the colonial dispatches). When the late PalestinianAmerican intellectual Edward Said wrote in 1989 that “Lawrence was Fouad Ajami is a senior fellow at the Hoover Institution and co-chair of Hoover’s Herbert and Jane Dwight Working Group on Islamism and the International Order.

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a British imperial agent, not an innocent enthusiast for Arab independence,” he caught the consensus of the intellectual class. The Anglo-Arab encounter, it was believed, had been the stuff of deceit and unequal power; it had begotten no indigenous liberalism. It began in double-dealing. The Arabs had believed that the end of Ottoman rule would issue in independence, only to discover that their homelands were partitioned and divided by a pact between Britain and France. The French had come into the diplomacy convinced that the sacrifices France made in the European war had to be redeemed in the Levant. The French, joining this enterprise after colonial experience in North Africa, were oldfashioned masters without guilt or second thoughts. The big swath of Arab territory up for grabs in the aftermath of the war had never been united. What unity it possessed was the gift given it by Ottoman rule. But a new Arab historiography was born—it emphasized the unity of the Arabs. It saw these new states that emerged after the Great War as illegitimate and contrived. A schism was born between the practice of states and the ways of emirs and rulers on the one hand, and the history of victimization transmitted to politically impressionable young people on the other. © © © David Lean’s film was released in 1962. By then, Lawrence was long gone, having died in a motorcycle accident in 1935. So was Emir Feisal, the Hashemite prince who had bewitched Lawrence. Abdullah, who ended up the unhappy claimant of the wilderness of Transjordan, had been struck down by a Palestinian assassin in 1951. Lean was true to Lawrence’s Seven Pillars of Wisdom. The rhythm and cadence of the book are the rhythm of the film. The early narrative leads up to Lawrence’s arrival at Feisal’s camp in Wadi Safra. Lean didn’t have to add much to Lawrence’s depiction. A slave led Lawrence to an inner court, on whose further side, framed between the uprights of a black doorway, stood a white figure, waiting tensely for me. I felt at first glance that this was the man I had come to Arabia to seek—the leader who would bring


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the Arab revolt to full glory. Feisal looked very tall, and pillar-like, and very slender in his white silk robes and his brown head-cloth bound with a brilliant scarlet and gold cord. His eyelids were drooped; and his black beard and colorless face were like a mask against the strange, still watchfulness of his body. His hands were crossed in front of him on his dagger.

The British had wearied of Feisal’s father, the sharif of Mecca. They thought he was a stubborn old man. The sharif had declared himself “king of the Arabs.” He thought of himself and his sons as the inheritors of the Arab domains of the Ottoman empire. With a big war on their hands, the British indulged the sharif. They needed the cover of the sharif’s participation in the war on their side to keep the Muslims of India at peace with British rule. The Ottoman sultan had declared that his campaign was a holy war, and Britain had to be on guard against a Muslim uprising within its ranks. The Arabs inspired by Lawrence believed that the end of Ottoman rule

But the campaign in the desert was always a sideshow. The carnage had taken place on the Western Front, a whole generation had been wiped out in the trenches; by contrast, fighting in the “uncluttered desert” was light fare. The Great War begot no heroes. Lawrence was as close to a hero as Britain could get. Lean had made the desert itself not merely setting and background; he gave it a life and a power all its own. But as Alec Guinness—superbly playing Prince Feisal—reminded the “desert-loving Englishman,” Arabs did not love the desert; they longed for gardens and trees and greenery. The desert couldn’t have cast a spell over Cairenes and Beirutis. Modernity was their lodestar in the early 1960s. Feisal was an agile politician with courtly manners, but this was hardly the culture that appealed to the Arabs at the time. The Hashemites had been brought up to court politics in the late Ottoman age. They didn’t know how to harangue a crowd; they were in need of British guns and money, and the exquisite subtlety of Feisal haggling with General Allenby over what could be gotten from the powerful commander held no appeal to the Arabs. Feisal was a realist, 116



would be independence. Instead, their homelands were divided up.


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“FAMOUSLY OBSCURE”: This sketch (opposite page) by an unknown artist depicts the figure one writer described as “the most famously obscure man of our time.” It comes from a biography published by Robert Graves and Basil Liddell Hart in 1938. Graves wrote of the sketch, “It gives a most interesting contemporary expression of Lawrence with the Arab look in his eyes and was probably done during one of his flying visits to Egypt in 1918.”

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T. E. Lawrence Letters—Hoover Institution Archives

and realism was not in vogue in a highly nationalistic era. Evicted by the French from the throne in Damascus that he truly wanted, he was willing to bide his time, and to settle for what he could get: the throne in Iraq, a country he had never set foot in before. What glory the Hashemites once possessed had receded. Modern massbased nationalism was unkind to their brand of politics. The exquisite manners of Feisal—and Lean must have savored the man and his charm—were out of place in an Araby set to boil over by radical politics. But, then again, Feisal was what British diplomacy needed at the time—a touch of class and refinement in a world that had seen the tearing asunder of European life. In contrast to Feisal’s manners there was the coarse desert raider, Auda Abu Tayyi, played by Anthony Quinn. Auda is a braggart, a bandit chieftain, who enters the worldly city of Damascus and then heads back to his familiar world in the desert. Auda is a charming rogue: he is a warrior for hire, in quest of gold and honor. His proclamation, made to the approval of his tribesmen, “I am a river to my people,” is one of the film’s more memorable moments. Auda is a thief, but he steals for his people, and he steals for his pleasure. His loyalty is to his tribe, the Hiweitat. He has no patience for nationalism and its exalted claims. He sees no Arabs in that world, only warring tribes. Young Arabs of the 1960s, and beyond, are embarrassed by Auda, but they ignore him at their peril. He and his type were authentic embodiments of a genuine sense of belonging. The one character who catches the ambiguity of a world torn between desert and town, horrified by the tribalism of it all, pained by the duplicity and paternalism of the British, is Sharif Ali, a role that gave Omar Sharif


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his big break in the movies. For David Lean, this was a blessed choice. Omar Sharif was Egyptian, not yet thirty years old when Lean found him. He was an Egyptian of a particular breed, born to Lebanese ancestry. His first name was Michael. But he changed it because he wanted a career in Egyptian film. The Great War begot no heroes. Lawrence was as close to one as Britain could get.

He had been educated at an elite prep school in Alexandria. (His classmates were the future King Hussein of Jordan and Edward Said.) He was true to the role he played, a modern Arab in quest of something larger than Cairo. He was the same age as Peter O’Toole; they hit it off, and Sharif introduced him to the casinos of Lebanon and Morocco. There is worldliness in Sharif Ali: he knows his people cannot win. And yet despite the worldliness, he shoots dead a man from another tribe who had dared break the desert code by drawing water from a well that did not belong to him. He is nothing, he said about the man he slew; the well is everything. © © © Ever since the legend of Lawrence took hold—writers never tire of the man—there have been debunkers aplenty. He was a fantasist, some argued, his Seven Pillars a work of embellished fiction. His Arabic was poor, others claimed, he could not pass himself off as an Arab. He was too short, room was made for him in active service only when Turkey joined the Central Powers and he was sent to Egypt and attached to a military intelligence section. There were Arabs, in particular, who ridiculed his appearance in traditional Arab attire in the streets of Beirut and Cairo, and in the chancelleries of London and Paris. No one could say with certainty if he loved or loathed the Arabs. It is easy to say that he was drawn to their “nobility,” which in this context meant the backward classes and tribes. Doubtless, Arabia held real attractions for him. He was of illegitimate birth, and Arabia made it possible for him to become “El-Orens,” the man of legend and fame. 120


The best book by far about Lawrence, A Prince of Our Disorder, by the psychiatrist John Mack, makes a decent and honored place for him in the Arab revolt. He didn’t make that revolt but he enabled it. He conceived a notion of reconciling Britain’s needs with the desires of his Arab allies: he thought that the Arab lands could be made into a “brown dominion” of the British empire. But this was fantasy. No such scheme could be implemented in a world awakening to the call of nationalism. There was always self-awareness in Lawrence. He was loyal to “Britain and other things.” In Seven Pillars he wrote of that great clash of loyalties at the heart of his work with the Arabs: A man who gives himself to be a possession of aliens leads a yahoo life, having bartered his soul to a brute-master. He is not of them. He may stand against them, persuade himself of a mission, barter and twist them into something which they, of their own accord, would not have been. Then he is exploiting his old environment to press them out of theirs. Or, after my model, he may imitate them so well that they spuriously imitate him back again. Then he is giving away his own environment: pretending to theirs; and pretences are hollow, worthless things. In neither case does he do a thing of himself, nor a thing so clean as to be his own (without thought of conversion), letting them take what action or reaction they please from the silent example.

He had tried to live in the dress of the Arabs, and to “imitate their mental foundation.” There was his English self, and there was the Arab affectation. “Sometimes these selves would converse in the void; and then madness was very near, as I believe it would be near the man who could see things through the veils at once of two customs, two educations, two environments.” No one could say with certainty if Lawrence loved or loathed the Arabs.

British rule came late into the Arab domains—this was not India where the Raj cohabitated with the world it had conquered. (Lawrence himself didn’t think much of what Britain had brought forth in India; the experiment had lasted too long and was issuing in failure, he wrote in a letter to


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his mother in 1925.) Britain was exhausted and broke and couldn’t give much of itself to the Arabs at the receiving end of its power. It cut corners; it used air power to subdue the rebellions; it spoke of constitutional principles as it bought off tribal chieftains not so unlike Auda Abu Tayyi. Lawrence was part of this compromise, the fantasist and amateur student of Crusader castles turned guerrilla leader and destroyer of railroad trains. He knew the bargain he had made with the men of empire who sent him to Arabia, and with the Arabs who took him in as they distrusted him all the same. Reprinted from Defining Ideas (www.hoover.org/publications/defining-ideas). © 2013 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

New from the Hoover Press is The Syrian Rebellion, by Fouad Ajami. To order, call 800.888.4741 or visit www. hooverpress.org.

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Israel the Peacemaker For proof that Israel is more than willing to deal in good faith with the Palestinians, just look at the political freedoms Israeli Arabs enjoy. By Peter Berkowitz.

This essay was originally delivered as a response to an address by Cardinal Theodore McCarrick, archbishop emeritus of Washington, DC, at a Catholic University conference titled “Religious Freedom and Human Rights: Path to Peace in the Holy Land—That All May Be Free.” I begin with a provocation: “Today it has become evident that leaders and members of the Islamic Movement in Israel enjoy more freedom and rights than the Muslim Brotherhood in Egypt, Jordan, and even—under the Palestinian Authority in the West Bank—Hamas.” Those are not my words. They are not the words of the Israeli government. They are not the words of an American Jewish organization. Rather, those words highlighting individual freedom in Israel are the words of my friend Khaled Abu Toameh. Khaled is a remarkable man. He is an Arab-Muslim citizen of Israel; his father was an Arab citizen of Israel and his mother a Palestinian from beyond the Green Line. Khaled writes for the Jerusalem Post; for more than twenty years he has been a producer and consultant for NBC News; his articles have appeared in US News & World Report, the Wall Street Journal, Al-Fajr, and other newspapers; and he is a fellow at the Gatestone Institute. Peter Berkowitz is the Tad and Dianne Taube Senior Fellow at the Hoover Institution, chair of Hoover’s Jean Perkins Task Force on National Security and Law, and a member of Hoover’s working groups on military history and foreign policy.


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As one who has roots in and reports from both sides of the Green Line and who puts his life on the line for the news he publishes and the opinions he expresses, Khaled Abu Toameh carries special weight. But at the end of the day, Khaled’s words are important because they are true. They are empirically verifiable and consistent with what we know about Israel and the countries that surround it. Writing recently, Khaled further observed the following about the fundamental rights of minorities in Israel: Arab journalists and columnists in Israel have been expressing their views about the Egyptian crisis without fear, while their colleagues in Egypt, Jordan, and the Palestinian Authority are afraid to speak their mind. Israel, for example, is one of the few countries in the Middle East where Muslims are permitted to demonstrate in favor of ousted Egyptian President Mohamed Morsi and his Muslim Brotherhood organization.

This is not because Israel supports Morsi or the Muslim Brother-

hood; it is because the Muslim protesters [in Israel] know that in a democratic country like Israel they can hold peaceful demonstrations and express their views without having to worry about being targeted by the authorities.

Israel has become a safe place not only for Arab Christians, but also

for Muslims who wish to express their opinion away from intimidation and violence. While pro-Morsi demonstrators are being shot, wounded, arrested, and harassed in Egypt, the Palestinian Authority–controlled territories, and some Arab countries, in Israel they are free to stage protests and express their views even in the heart of Jerusalem and Tel Aviv. In Israel, pro-Morsi demonstrators even feel free to chant slogans against Israel and the US, and to hoist Hamas flags.

Unfortunately, these illuminating facts about freedom and human rights in Israel are often overlooked in Western reporting. Indeed, it is likely that few people were aware that in August, Muslim Arabs in Israel demonstrated in support of deposed Egyptian president Morsi at Al-Aqsa Mosque in the old city of Jerusalem, in Nazareth, and outside the Egyp124


tian embassy in Tel Aviv. And in these demonstrations no Arab citizen of Israel was detained or injured. Meanwhile, the situation is dramatically different in the West Bank under the control of the Palestinian Authority. The PA has made clear that public shows of support for Morsi and the Muslim Brotherhood will not be tolerated, and the PA has detained and arrested those who have expressed sympathy for the Muslim Brotherhood. No discussion that touches upon human rights and Israel can ignore the condition of Palestinians living in the Gaza Strip and West Bank.

One could go so far as to say that the freest Arabs in the Middle East are the Arab citizens of Israel. It is important to immediately emphasize that by virtue of their citizenship, Arab Israelis enjoy all the political rights— not only of speech, but also of religion, voting, assembly, and the rest— that Jewish citizens of Israel enjoy. In pointing out the glorious extent of political freedom in Israel, I do not mean to paper over the disabilities that minorities in Israel can suffer. Israel faces challenges within its borders as a Jewish state devoted to the individual freedom and equality under law of all its citizens. As in other liberal democracies, so too in Israel: political rights do not always translate directly into first-class treatment for minorities. And Israel faces challenges beyond its borders, particularly in regard to the Gaza Strip, where Palestinians have governed themselves since Israel’s withdrawal in 2005, and in the West Bank, where, though it has substantially reduced its presence, Israel shares authority with the PA. You will hear a great deal about the challenges that Israel faces both inside its borders and beyond them in safeguarding human rights, and you will hear much about Israel’s shortcomings. That is proper. Israel has a vital national security interest in securing the rights of all of its citizens, and in assisting Palestinians in the West Bank and Gaza in securing their rights. Moreover, recognizing its shortcomings is crucial if Israel is to meet its challenges and advance its interests. But Israel’s challenges, shortcomings, and interests must be understood in context. Israel, the nation-state of the Jewish people, is a liberal democ-


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racy devoted to the principles of freedom and equality. The state of Israel has made great strides in a short time under extremely demanding circumstances in honoring those principles. And the state of Israel can expect that it will confront extremely demanding circumstances for quite some time as it seeks to make further progress in honoring its promise of freedom and equality to all its citizens.

FR E ED O M A N D EQ U ALI TY The basics of Israel’s promise of religious freedom in particular and freedom and equality more generally are worth restating. Israel protects the free exercise of religion. Its guarantee of religious freedom for all of its citizens is grounded in the Declaration of the Establishment of the State of Israel. The Declaration, read by David Ben Gurion on May 14, 1948, as five Arab armies prepared to invade and destroy the new Jewish state, proclaims that Israel will foster the development of the country for the benefit of all its inhabitants; it will be based on freedom, justice, and peace as envisaged by the prophets of Israel; it will ensure complete equality of social and political rights to all its inhabitants irrespective of religion, race, or sex; it will guarantee freedom of religion, conscience, language, education, and culture; it will safeguard the Holy Places of all religions; and it will be faithful to the principles of the Charter of the United Nations.

In 1992, Israel reaffirmed the centrality of individual freedom through enactment of the Basic Law: Human Dignity and Liberty. The Israeli Supreme Court has held that “dignity” in the Basic Law encompasses freedom of religion for all citizens. In deference to the sensibilities of its Muslim citizens, the government of Israel has gone so far as to bar Jews from praying on the Temple Mount. Keep in mind that while the Temple Mount, home to the AlAqsa Mosque and the Dome of the Rock, is the third-holiest site in Islam, it is also for Jews the site of the First Temple and the Second Temple, the mountaintop where, according to Jewish tradition, Abraham bound Isaac, and it is believed by observant Jews to be the site where the Third Temple will be built. 126


Israel also guarantees the right of workers to observe the holidays and weekly day of rest of their religion. For all of its guarantees of religious freedom, Israel does not strictly separate religion and the state as we do in the United States. There is no established religion in Israel. But the government recognizes and even provides financial support to a wide variety of religions. The government, for example, maintains religious courts for the different faiths of Israel; these religious courts have jurisdiction over matters of personal status. The government funds organizations that provide religious services to the various religious communities. And of course the government applies norms and practices that derive from the Jewish tradition to certain sectors of the public sphere—for example, the army serves kosher food and the official day of rest is the Jewish Sabbath. In the West Bank, Palestinian President Mahmoud Abbas is now serving the ninth year of the four-year term to which he was elected in 2005.

The larger problem in Israel may involve the protection of Jewish citizens’ rights to be free from religion. In particular, non-Orthodox Jews in Israel chafe at state-supported religious authorities dictating matters in personal areas such as marriage and conversion. Beyond the securing of formal political rights, Israel has much work to do in improving the situation of its minorities. Ultra-Orthodox Jews, who live a life largely apart from the secular majority, constitute about 9 percent of the population and 12 percent of the Jewish population. While respecting their religious liberty, Israel must devise incentives to encourage them to acquire the basics of a liberal education, to take part more fully in the workforce, and to serve in the army. Israel must also strive to improve the lives of its Arab citizens, who constitute almost 21 percent of the population. Even as Israel safeguards the political rights of Arab citizens—to express their opinions, worship as they wish, serve in the Knesset, sit on the Israeli Supreme Court, and all the other political rights enjoyed by all Israeli citizens— Israel must channel greater resources to enhance the physical infrastructure in Arab communities and improve Arab schools. And Israel


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must craft reforms to impose on Arab citizens too the obligations of national service.

TH E P A T H T O P EACE No discussion that touches upon human rights and Israel can be adequate that does not address the condition of Palestinians living in the Gaza Strip and West Bank. Israelis and Palestinians face formidable issues including security, settlements, refugees, water, borders, and Jerusalem. However these thorny issues are resolved, the rights of the Palestinians will not be fully realized until the Palestinians establish for themselves—with the cooperation of Israel, the active assistance of the United States, and the support of the international community—a liberal and democratic state that recognizes Israel as a Jewish, liberal, and democratic state, and is dedicated to living side-by-side with Israel in peace and security. Israel has much work to do in improving the situation of its minorities.

Unfortunately, since Israel evacuated Gaza in 2005, the Palestinians of Gaza have moved in the opposite direction. Hamas seized control of the government in Gaza from the Palestinian Authority in June 2007 in a bloody coup. Today Hamas rules Gaza by force and tramples on rights. Hamas, furthermore, is publicly dedicated to the destruction of the state of Israel; has launched thousands of mortar shells, rockets, and missiles at Israel; and continues to seek to import destructive weapons, including missiles that can reach Tel Aviv and beyond. As a result, Israel has been compelled to adopt a defensive posture toward Gaza, which includes a naval blockade. The United Nations’ 2011 “Report of the SecretaryGeneral’s Panel of Inquiry on the 31 May 2010 Flotilla Incident”—also known as the Palmer report—concluded that Israel’s blockade was legal under international law, justified by military necessity, and consistent with the discharge of Israel’s humanitarian responsibility. In the West Bank, Palestinian President Mahmoud Abbas is now serving the ninth year of the four-year term to which he was elected in 2005. Meanwhile, Israel has withdrawn from some of the most populous sections of the West Bank, eliminated roadblocks, and lifted travel restrictions. Since 2007, 128


the West Bank economy has grown steadily, in 2008 and 2009 enjoying double-digit growth. And Israel cooperates with the PA on security matters, the collection of taxes, commercial enterprises, and more. In June 2009, in a historic speech at Bar Ilan University, Benjamin Netanyahu became the first conservative prime minister of Israel to endorse the necessity and the justice of negotiating a two-state solution that recognizes the national aspirations of both Jews and Palestinians. To this day, no Palestinian leader has made a speech like Netanyahu’s that recognizes the right of a Jewish, liberal, and democratic state to exist side-byside in peace and security with a Palestinian state. Instead, in a September 2012 address to the UN General Assembly, President Abbas denounced Israel and, by urging the United Nations to recognize a Palestinian state, sought to bypass the negotiated settlement provided for in UN Resolutions 242 and 338 as the method for resolving the conflict between Israel and the Palestinians. And the Palestinian Authority continues to conduct a campaign of vilification of Israel though state-run media, the educational system, and speeches made by PA political leaders in Arabic. The path to peace in the Holy Land passes through the mutual recognition by Israelis and Palestinians of the legitimacy of the other side’s national claims and the inalienability of their human rights. The path to peace in the Holy Land requires that both Israel and the Palestinians grasp that painful concessions are warranted not only by justice but by the vital interests of both peoples in peace and security. Special to the Hoover Digest.

Available from the Hoover Press is Israel and the Struggle over the International Laws of War, by Peter Berkowitz. To order, call 800.888.4741 or visit www. hooverpress.org.


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I S L AM IS M

The Arab Spring Implodes We failed to understand the wave of change—or to shape it— because we failed to understand Islamism. By Bruce S. Thornton.

The revolutions dubbed the Arab Spring have degenerated into a complex, bloody mélange: coups and countercoups, as in Egypt; vicious civil wars, as in Syria; a resurgence by jihadists in Libya, Iraq, Afghanistan, and the Sinai; and a shifting and fracturing of alliances and enmities that has thrown the likes of Lebanon and Jordan into turmoil. Meanwhile, American foreign policy has been confused, incompetent, and feckless in making sure the security and interests of the United States and its allies are protected. Our foreign policy failures are largely driven by our inability to take into account the intricate diversity of ideological, political, and especially theological motives behind events. Just within the Islamist outfits, Sunni and Shia groups are at odds—not to mention the many bitter divisions within Sunni and Shia groups. Add the other players in the Middle East–– military dictators, secular democrats, leftover communists, and nationalists of various stripes––and the whole region seems embroiled in endlessly complex divisions and issues. Yet a greater impediment to understanding this bloody, complex region is our biases. Too often we rely on explanations that gratify our ideologiBruce S. Thornton is a research fellow at the Hoover Institution, a member of Hoover’s Working Group on the Role of Military History in Contemporary Conflict, and a professor of classics and humanities at California State University, Fresno.

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cal preferences and prejudices but function like mental stencils: they are a priori patterns we superimpose on events to create the picture we want to see, while concealing other events that do not fit the pattern. We indulge the most serious error of foreign policy: assuming that other peoples think like us and desire the same goods we do, like political freedom and prosperity, at the expense of others, like religious obedience and honor.

A C O N VE N IE NT U NTR U TH One persistent narrative attributes the region’s disorder to Western colonialism and imperialism. The intrusion of European colonial powers into the region, the story goes, disrupted the native social and political institutions, imposing in their place racist norms and alien values that demeaned Muslims as the “other” and denigrated their culture to justify the exploitation of resources and markets. This process culminated after World War I in the dismantling of the caliphate and the creation of Western-style nation-states that ignored the traditional ethnic and sectarian identities of the region. As a result, resentment and anger at colonial occupation and exploitation erupted in Islamist jihadism against the oppressor. When speaking to fellow Muslims, most Islamist groups continue calling for war against the infidel and the enemies of Islam.

The Islamists themselves have found this narrative a convenient pretext for their violence, thus reinforcing this explanation for some Westerners. The Egyptian Sayyid Qutb, the most important jihadist theorist, wrote, “It is necessary to revive the Muslim community which is buried under the debris of the man-made traditions of several generations, and which is crushed under the weight of those false laws and customs which are not even remotely related to the Islamic teachings.” Qutb was clearly alluding to the European colonial presence in the Middle East, and specifically to the nearly half-century of British control of Egypt. Al-Qaeda, Hamas, and other jihadist groups similarly lace their communiques with references to colonial “oppression” and neo-imperialist interference, as when Osama bin Laden scolded the United States in 2002 for waging war in the region “so that you can secure the profit


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Illustrations by Taylor Jones for the Hoover Digest.

of your greedy companies and industries.” The Arabs likewise routinely describe the creation of Israel as a particularly offensive act of colonial aggression against the lands of Islam. Such pretexts, however, are clearly for Western consumption. They exploit the Marxist demonization of imperialism and colonialism that informs the ideology of many leftist intellectuals in Europe and America. When speaking to fellow Muslims, however, most Islamist groups ground their motives in the traditional doctrines of Islam, which call for war against the infidel and the enemies of Islam. The narrative of colonial oppression may be gratifying to leftist Western intellectuals, but it cannot alone explain the disorder of the region that has persisted long after the exit of the colonial powers. And it is hard to take seriously complaints of imperialism, colonialism, and occupation coming from followers of Islam. Muslims, after all, were among history’s most successful conquerors and imperialists who, as Efraim Karsh writes, “acted in a typically imperialist fashion from the start, subjugating indig132


enous populations, colonizing their lands, and expropriating their wealth, resources, and labor.” Something else is needed to explain Islamic violence when neither India, a British colony for nearly two hundred years, nor South Africa, another ex-colony subjected to the indignities of racial apartheid, has spawned global terrorist networks responsible for over twenty thousand violent attacks just since 9/11. The most serious error of foreign policy is to assume that other peoples think like us and desire the same goods.

The other dominant narrative is a reprise of Wilsonian democracy promotion. In this view, the dysfunctions of the region reflect the absence of open economies, liberal democratic governments, and recognition of human rights. Subjected to autocrats and dictators, the peoples of the Middle East are denied freedom, individual rights, and economic opportunity, and as a result are mired in poverty, oppression, and political disorder that explode into violent jihad. George W. Bush sounded these themes in January 2005 in his inaugural speech, in which he linked US security and global peace to the “force of human freedom” and the expansion of democracy: “The survival of liberty in our land increasingly depends on the success of liberty in other lands. The best hope for peace in our world is the expansion of freedom in all the world.” Hence Bush’s attempts to build democratic institutions in Iraq and Afghanistan, and President Obama’s early support for the Arab Spring revolutions: “I think it was absolutely the right thing for us to do to align ourselves with democracy [and] universal rights.” Both presidents agreed that more democracy in the region would mean less of the violence, suffering, and disorder caused by frustration and oppression at the hands of dictators and kleptocrats. Like the left-wing narrative of colonialism’s blowback in the form of terror and political dysfunction, democracy promotion suffers from the same limitations, particularly the imposition of Western political categories and goods onto a different culture. The fetishizing of democracy ignores the complex network of mores, values, and principles that undergirds political


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freedom and that took more than two millennia in the West to coalesce into liberal democracy. And it ignores the absence of those principles and mores in most Middle Eastern countries. So we focus instead on the photogenic process of voting, the ink-stained fingers and lines at polling booths that we confuse for belief in the liberal foundations of genuine democracy. More important, like the left-wing narrative, democracy promotion is ultimately based on material conditions and the goods of this world––prosperity and individual freedom–– at the expense of religious beliefs. Religion is treated as a private lifestyle choice, as it has become in the West, rather than the most fundamental and important dimension of identity both personal and political, as it is in the Muslim world.

I SL A M ’ S P O W E R U NAB ATE D Much of the conflict in the Middle East reflects the collision of these two sets of goods, the religious and the secular, which we oversimplify by emphasizing only the latter. We assume that if a liberal democracy can be created, the tolerance for differences of religious belief, respect for individual rights, and a preference for settling political conflict with legal processes rather than violence will automatically follow. We forget that in our own history, despite the long tradition of separation of church and state whose roots lie in Christian doctrine, Europe was torn apart by wars of religion that killed millions before that tolerance for sectarian differences triumphed. We focus on the photogenic process of voting, the ink-stained fingers and lines at polling booths. We confuse those images for belief in the liberal foundations of genuine democracy.

The power of Islam is the reality our various narratives ignore or rationalize away when we attempt to understand the violence and disorder of the Middle East. But as the scholar Bernard Lewis reminds us, “in most Islamic countries, religion remains a major political factor,” for “most Muslim countries are still profoundly Muslim, in a way and in a 134



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sense that most Christian countries are no longer Christian. . . . In no Christian country at the present time can religious leaders count on the degree of belief and participation that remains normal in the Muslim lands. . . . Christian clergy do not exercise or even claim the kind of public authority in most Muslim countries.” This observation provides an insight into recent events in Egypt. After Hosni Mubarak fell, many believed that the secular democrats were on their way to creating a more democratic political order. But ensuing elections brought to power the Muslim Brothers, an Islamist organization that scorns democracy and Western notions of human rights as alien impositions preventing the creation of an Islamic social and political order based on sharia law. Europe once was torn apart by wars of religion. Millions died before tolerance for sectarian differences triumphed.

When the deteriorating economy created frustration with the Muslim Brothers’ arrogance and ineptitude, mass protests sparked a military intervention that once again was interpreted as a rejection of the Brothers and sharia, and a yearning for liberal democracy. Our ideological stencil assumed that our secular goods of freedom and prosperity had trumped the religious goods of fidelity to Islam and its doctrines. Yet it is not so clear that this is the case. Impatience with the Muslim Brothers’ inability to provide basic necessities and manage the economy, or anger at its heavy-handed tactics, does not necessarily entail rejection of the ultimate goal of a political-social order more consistent with Islamic law. Polling of Egyptians suggests that the general program of the Muslim Brothers is still supported even as their tactics and governing are rejected. In a Pew survey last year, 74 percent of Egyptians said they wanted sharia to be “the official law of the land,” and 55 percent said sharia should apply to non-Muslims, which in Egypt includes fifteen million Coptic Christians. A survey from 2010 found more specific support for sharia law: 84 percent of Egyptians supported the death penalty for apostates, 82 percent supported stoning adulterers, 85 percent said Islam’s influence on politics is positive, 95 percent said that it is good that Islam plays a large role in 136


politics, 59 percent identified with Islamic fundamentalists, 54 percent favored sex segregation in the workplace, 77 percent favored whippings and cutting off the hands of thieves and robbers, and 60 percent said that laws should strictly follow the teachings of the Quran. These attitudes, consistent with the program of the Muslim Brothers, suggest that their opponents are angry not with their long-term goal of creating a more Islamized government, but with the Brothers’ abuse of power and their managerial incompetence that alienated the even more radically Islamist Nour party. As the Middle East analyst Reuel Marc Gerecht recently wrote, “Only the deluded, the naive and the politically deceitful . . . can believe that Islamism’s ‘moment’ in Egypt has passed. More likely, it’s just having an interlude.” These results will not surprise anyone who understands how profoundly religious beliefs determine Middle Eastern attitudes to politics and society. Rather than ignoring this widespread religiosity, or subordinating it to our own goods such as prosperity and personal freedom, or explaining away the patent illiberal and intolerant dimensions of this belief as the dominant narratives continue to do, we should instead recognize and acknowledge the critical role of Islam in the violence and disorder rending this geopolitically strategic region. Only then can we craft a foreign policy that protects our security and interests. Reprinted from Defining Ideas (www.hoover.org/publications/defining-ideas). © 2013 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

Available from the Hoover Press is Jihad in the Arabian Sea, by Camille Pecastaing. To order, call 800.888.4741 or visit www.hooverpress.org.


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I S L AM IS M

This Time, There Will Be No Surge There is fresh fighting in Anbar, a province once pacified by U.S. troops. In Iraq, Al-Qaeda is far from spent. By Peter R. Mansoor.

In the summer of 2006, Marine Colonel Peter Devlin wrote an intelligence assessment that all but conceded defeat in Al-Anbar province in Iraq. “The social and political situation has deteriorated to a point that [Multi-National Forces] and [Iraqi Security Forces] are no longer capable of militarily defeating the insurgency in Al-Anbar,” his report stated. The tribal system in the province had collapsed; violence and criminality ruled people’s lives. The provincial economy was in a shambles; Anbaris, except for those enriched by criminality and corruption, lived largely hand to mouth. Sunni residents on the whole detested Al-Qaeda, but viewed the organization as their defender of last resort against a campaign of sectarian cleansing by the central government in Baghdad. For the first time in its history, Al-Qaeda had taken hold of a substantial piece of ground and had implemented its brand of Islamist governance in it. The jihadist government was both ugly and ruthlessly effective. AlQaeda operatives imposed a strict and brutal interpretation of sharia law on a largely secular Sunni tribal culture. The jihadists banned tobacco use and chopped off the fingers of anyone caught smoking. Al-Qaeda operatives forced temporary marriages (presumably allowed under their Peter R. Mansoor is a member of the Hoover Institution’s Working Group on the Role of Military History in Contemporary Conflict. He is the General Raymond E. Mason Jr. Chair of Military History at the Ohio State University.

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version of sharia law) on local women to satisfy their desire for sex. Senior Al-Qaeda leaders—most of them foreigners—demanded marriages with the sisters and daughters of sheiks to cement their bonds to the tribes. Jihadists assassinated rivals and then booby-trapped their bodies to kill family members coming to collect them for burial. Headless corpses lay in the streets for days at a time, a sacrilegious occurrence for a religion that demanded burial within twenty-four hours of death. In short, what AlQaeda offered was a trip back to the Dark Ages. The jihadists wanted a return to a golden age when Islamic civilization challenged Europe and Asia for supremacy. Control of a sanctuary in Iraq was just the first step in a deliberate plan to control the wider Middle East, a strategy spelled out in a 2005 letter from Ayman al-Zawahiri, the number two man in Al-Qaeda, to Abu Musab al-Zarqawi, the leader of Al-Qaeda in Iraq. From their sanctuary in Iraq, jihadists could destabilize the neighboring states of Syria, Jordan, Turkey, and Saudi Arabia. The collapse of these regimes would enable jihadists to control tens of millions of Muslims and the oil supplies on which Europe, Japan, and China relied to fuel their economies. A jihadist victory in Egypt would complete the encirclement of Israel, which would then be destroyed. Meanwhile, the United States, the “far enemy,” would be destabilized by a campaign of terrorism and economic sabotage. The result would be the creation of a new Islamic caliphate that would rival the power of the West and restore the glory of Islam. Jihadists want to restore the glory of the Islamic golden age without understanding what made it golden in the first place.

Al-Qaeda’s vision was appealing to a certain segment of the Islamic world, but it was fundamentally ahistorical. The Islamic golden age was a time when secularism, not sectarianism, prevailed. Islamic scholars gave the world important advances in mathematics, astronomy, medicine, literature, and other disciplines. They did so through research and learning in a variety of intellectual pursuits, an educational program exactly the opposite of that of jihadist madrassas, which focus primarily on Islamic


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studies. In short, jihadists want to restore the glory of the Islamic golden age without understanding what made it golden in the first place. In Iraq, Al-Qaeda’s ideology and ruthlessness were its undoing. Anbari sheiks, tired of jihadist brutality and the interruption of the smuggling networks that were the tribal life blood, rose up to ally with American forces and destroy their tormenters. The resulting “Anbar awakening” tore the heart out of Al-Qaeda in Iraq and was a major reason for the success of the surge in 2007 and 2008. It turns out that when presented with the reality of jihadist government as opposed to the vision, Sunni Arabs did not like what they saw. Control of a sanctuary in Iraq was Al-Qaeda’s first step in a deliberate plan to control the wider Middle East.

The surge was a major strategic defeat for Al-Qaeda, one regrettably squandered by the failure of the United States to remain engaged in Iraq over the long haul. Violence has again flared in the province between government forces and insurgents linked to Al-Qaeda. Despite what they view as a temporary setback in Iraq, jihadists have not altered their goals. Indeed, the civil war in Syria has given Al-Qaeda another battleground on which to project its energies, with the objective of creating a jihadist sanctuary in the heart of the Levant. With no new surge in the offing, it remains to be seen whether the jihadists will be more successful this time around. Subscribe to the Hoover Institution’s online journal Strategika (http://www.hoover.org/taskforces/militaryhistory/strategika), where this essay first appeared. © 2013 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

New from the Hoover Press is Syria, Iran, and Hezbollah: The Unholy Alliance and Its War on Lebanon, by Marius Deeb. To order, call 800.888.4741 or visit www. hooverpress.org.

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CAL I F O R N I A

Golden Agers The Golden State’s senior politicians will eventually surf off into the sunset. What then? By Bill Whalen.

Pete Wilson, California’s thirty-sixth governor, turned eighty last summer, celebrating a milestone that’s become less of a novelty for the Golden State’s political elites. Senator Dianne Feinstein is the charter member of California’s “I-80” club (as in: “incumbents, age eighty”), having reached the landmark last June. Barbara Boxer will get there in 2020, presumably the fourth year of her fifth Senate term and eight months after Nancy Pelosi also turns eighty—though Pelosi may not stick around the House of Representatives that long unless she can get her hands on the speaker’s gavel. And then there’s Jerry Brown, at present America’s gubernatorial eminence grise, who began the year at age seventy-five (only four other governors are septuagenarians). Assuming he doesn’t overdo it on the pull-ups or lose the governorship this year, Brown will turn eighty in 2018, his sixteenth and final year as California’s governor. There are two ways to look at this recent phenomenon of golden agers dominating Golden State politics. On the one hand, California benefits from seniority. Feinstein, for example, is quite good at steering infrastructure money back to Northern California, as was Pelosi when she ran the House. And with age comes wisdom. Brown, in his second go-round as governor, is far more grounded and focused than in his previous incarnation. Bill Whalen is a research fellow at the Hoover Institution.


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Besides, consider what life would be like if, in 2010, the job had gone to Gavin Newsom. Instead of a governor who goes off the media grid for days at a time, as Brown recently has, Newsom would have been a nonstop one-man power surge: scads of idealistic rhetoric and navel-gazing, but maybe not as adept as Brown at pulling the levers. Now, the argument against seniority. In simplest terms, it’s kicking the can down the road. One reason why Brown’s re-election seems so likely is the simplicity of his message: I delivered on my promise to fix the budget (never

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mind that he broke his promise not to raise taxes and didn’t live up to his vow of eschewing budget gimmicks). It’s what incumbents do amid an improving economy: run on the record; make the campaign a referendum on the past four years. In other words, the 2014 gubernatorial race will be as much a look back as it will be forward. If so, Californians will be shortchanged on two matters vital to the Golden State’s future. The first would be the budget—not how to tame it, but how to free it from the grip of special interests.


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Arnold Schwarzenegger had an opening to go after this when he took office in November 2003 and had the legislature on the run. Two years later, Arnold was routed in a special election. So much for easing the undue influence of unions and other lobbies over the spending process. It’s not just taming the budget. The problem is freeing it from the grip of special interests.

A responsible governor understands there’s no escaping this conversation, as pension obligations aren’t going away. Maybe Brown will prove to be the ultimate contrarian and take on the very structure that nurtures the California Democratic supermajority. The other unmet challenge: closing the great California divide. It’s a topic that Hollywood has broached (Grand Canyon, Falling Down), but not Sacramento. The California of 2014—as it probably will be in 2018—is a nation-state of disparities. We have both dizzying wealth and a poverty rate that hit a sixteen-year high in 2012. The percapita income gap between the San Francisco Bay Area and the Inland Empire is double what it was forty-five years ago. Speaking of the Bay Area, there are fewer contrasts more stark than the thirty-minute drive from Fremont, which has experienced more than five annual homicides only once in the past decade, to Oakland, a town so ravaged by senseless gun violence that it has its own homicide victims’ page on Facebook. Assuming there’s a final term to be had, Brown should consider doing something that all politicians do—which is, a lot of talk—but in a different way. Instead of spinning his wheels in the sanctimonious likes of Davos and Aspen, Brown should take the conversation straight to the state’s worst-affected communities and address what Maryland governor Martin O’Malley calls a “crisis of confidence”: the public’s nagging sense that the political ruling class can’t handle society’s most vexing problems. But make it a citizen-leader dialogue with a twist: the governor bringing along at least three younger Democrats who could be in line for the job. And that would be Newsom, Attorney General Kamala Harris, and 144


Los Angeles Mayor Eric Garcetti. All three were born between 1964 and 1971, a previous age of California unrest and uncertainty. Should any reach higher office, it would represent a generational passing of the torch the likes of which California hasn’t seen since 1974, when Jerry Brown, age thirty-six, replaced Ronald Reagan, twenty-seven years his senior. Eventually, even at the top of the California pyramid, youth must be served. Let’s just hope it’s ready to serve when the golden agers finally retire. Reprinted by permission of the Sacramento Bee. © 2013 The Sacramento Bee. All rights reserved.

Available from the Hoover Press is Two-Fer: Electing a President and a Supreme Court, by Clint Bolick. To order, call 800.888.4741 or visit www.hooverpress.org.


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C A L I F ORNIA

Stuck at the Station California’s recovery, like Jerry Brown’s high-speed railroad, remains in the realm of wishful thinking. By Lanhee J. Chen.

The release of California Governor Jerry Brown’s 2014–15 budget was a cause for celebration in Sacramento. Brown triumphantly announced that his budget would invest in California’s schools, expand health care coverage for millions, and continue work on the troubled high-speed rail project. Brown and his allies have been eager to tout what they call California’s comeback as an example for other states. Missing in the budget and in Brown’s public pronouncements was any serious mention that California still faces a jobs crisis and has an economy that, while recovering, is doing so at an anemically slow pace. His only policy prescription for jobs and growth seems to be the rail project, which is already over budget and may never really get going because of legal challenges. Absent are proposals to encourage sustained job creation or long-term economic growth, despite a budget chock-full of new spending in almost every area of state government. In reality, Brown’s exuberance about the California comeback is misplaced. It appears to run counter both to what the economic statistics tell us and to how Californians feel about the state of the state. In December, my Hoover colleagues and I, together with the polling firm YouGov, conducted another in a series of public opinion polls to measure how Californians feel about the condition of their state, its econLanhee J. Chen is a research fellow at the Hoover Institution and teaches public policy at Stanford University.

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What Californians Say Last fall, the inaugural Hoover Golden State Poll asked a simple question: in a California slowly but steadily digging out of its worst economic recession since the Great Depression, are residents of the Golden State feeling any different about their fortunes? The sobering answer: twice as many Californians reported becoming worse-off financially over the previous year, compared to those who reported doing better. More than half said they weren’t confident in their ability to find another job in California within six months that pays as well as their current job. The results of the second Hoover Golden State Poll—a sampling of 1,000 Californians conducted last December—point to a disturbing trend: residents of America’s nation-state have little exuberance for its political leadership, either the governor or the legislature, despite reports claiming a California comeback.

O N T H E EC O NO MY : • 1 in 5 Californians see their family’s finances improving in the next six months, while 70% do not. • 2 out of 3 Californians predict their state tax rates will increase this year, while 1% predict a decrease. • Only 1 in 7 Californians are “very confident” they can afford both higher taxes and other pocketbook expenses.

O N P O L IC Y : Californians give top priority to strengthening the economy, improving the job situation, and balancing the state’s budget. Their bottom three priorities: dealing with global warming, strengthening gun laws, and, last, continuing the state’s high-speed rail project.

O N P O L IT I C S : • Governor Jerry Brown received a 33% job approval rating (37% disapproved, 30% had no opinion). • 1 in 4 Californians believe Brown deserves re-election this fall, while 44% would like to see a new governor. • The legislature received a 21% job approval rating (49% disapproved, 31% had no opinion). • Despite news reports of harmony under the Capitol dome, only 1 in 4 Californians see their state’s government as a model for the other states.


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FAST TIMES: California’s proposed high-speed rail system, shown here in an artist’s representation, ranks low among California voters’ priorities despite being a favorite project of Governor Jerry Brown. Only 10 percent of Californians thought the rail project should be a top priority in Sacramento. By contrast, more than 70 percent thought building a stronger economy and adding more jobs should come first.

omy, and the priorities its policy makers should be addressing. The first such poll was taken last September. Overall, Californians don’t think things are better in the state today than they were a year ago. In fact, almost 40 percent of respondents indicated that things have actually become worse in California over the past year, with an additional 29 percent concluding that things are about the same. Half of those polled disagreed with Brown’s claim that California is a model of good governance for other states to follow. This pessimism is linked, unsurprisingly, to Californians’ feelings about the state’s economy. Californians think the state’s economy is stuck in neutral and the prospects for future economic growth are dim at best. The skepticism expressed by respondents largely mirrors that found in 148


California High Speed Rail Authority

responses to the same questions asked in September. Since then, Californians haven’t gotten more optimistic in their evaluations of the economic recovery, job market, or direction that state tax rates are headed. More than 80 percent of respondents said they were either about the same or worse off financially compared to a year ago. The so-called economic recovery in California has been particularly unkind to those with the lowest incomes. In fact, almost 40 percent of Californians whose family incomes are less than $40,000 a year reported that they were financially worse off than they were a year before. And Californians aren’t exactly optimistic. Just over half of respondents thought they would be in about the same financial shape in six months, while almost one in five concluded that they would actually be worse off by this summer. Similarly, one in three Californians surveyed reported having no confidence that if they left their job today, they would be able to find a job in the next six months that paid as much as the job they had now. Finally, almost 70 percent of those surveyed believed that state tax rates would increase in the next year (with 30 percent saying rates would increase “a lot”). These assessments highlight the issues that Californians want their policy makers to address. Strengthening the economy and improving the job situation topped their list of concerns, with more than 70 percent believing that each of these should be top priorities for lawmakers. The two policy priorities that Californians find most important—growing the economy and creating jobs—are given incredibly short shrift by Brown.

But Brown’s budget took a pass on grappling with these critical issues. The two policy priorities that Californians find most important—growing the economy and creating jobs—were given incredibly short shrift in Brown’s 2014–15 budget. It did address the governor’s obsession with high-speed rail. Unfortunately for him, just 10 percent of Californians surveyed thought that construction of the rail line should be a top priority for lawmakers. Despite these undercurrents, the conventional wisdom in California is that Brown is coasting to re-election. But our poll detected a differ-


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ent trend. We found that when voters were asked whether they preferred Brown or someone new come November, just one in four said the governor should be re-elected, compared with 44 percent who wanted to replace him. Especially problematic for Brown is that 53 percent of independents in the survey want a new governor. Half of Californians disagree with Brown’s claim that California is a model of good governance.

Brown’s problem is not a lack of ideas. His problem is that none of his proposals truly addresses the jobs and economic crisis. California has persistently high unemployment. Almost 18 percent of the state’s residents are unemployed, have stopped looking for work, or have part-time jobs but want full-time employment. Of the ten American metropolitan areas with the highest unemployment rates, seven are in California. So, Brown’s sunny declarations aside, much work remains to be done to get the state’s economy back on track. And if he continues to ignore Californians’ interest in real plans to improve the jobs picture, Brown may find himself fighting for his political life later this year. Reprinted by permission of Bloomberg. © 2014 Bloomberg LP. All rights reserved.

Available from the Hoover Press is Eric Hoffer: The Longshoreman Philosopher, by Tom Bethell. To order, call 800.888.4741 or visit www.hooverpress.org.

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INTERVIEW

“Are You Part of My Tribe?” David Mamet is one of this generation’s most acclaimed playwrights—and, as of an intellectual conversion just a few years ago, also one of its freshest political thinkers. An interview with Peter Robinson.

Peter Robinson, Uncommon Knowledge: David Mamet has composed screenplays as disparate as The Postman Always Rings Twice and Wag the Dog; directed films ranging from House of Games to Phil Spector; written books ranging from The Old Religion (a novel) to The Hero Pony (a collection of poems) to Five Cities of Refuge (a Torah commentary); and composed plays that rank among the highest achievements of the American theater, including American Buffalo, Speed-the-Plow, and the Pulitzer Prize–winning Glengarry Glen Ross. In 2008, Mamet published an essay for the Village Voice explaining that he had changed his political views. The title of that essay: “Why I Am No Longer a Brain-Dead Liberal.” In 2011, Mamet expanded on his new political views in a book, The Secret Knowledge: On the Dismantling of American Culture. Mamet also has a new book called Three War Stories. David, I ordinarily thank guests for joining me, but this is your spot: Il Forno restaurant. So thanks for letting us join you here in Santa Monica. David Mamet: Thank you for joining me. Peter Robinson is the editor of the Hoover Digest, the host of Uncommon Knowledge, and a research fellow at the Hoover Institution.


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PO LI T I C A L C ON VE R SI O N Robinson: The Secret Knowledge: “My interest in politics began when I noticed that I acted differently than I spoke.” Explain that. Mamet: I’m very fortunate in my life as a Jew in having had two magnificent teachers: Larry Kushner, who was then in Sudbury and now in San Francisco, and Mordecai Finley out here at Ohr HaTorah in Venice. They talk a lot about the underpinnings of the Torah and about the Talmudic teachings about how one should behave. And they say you have to behave in such a way that you can state your opponent’s views such that he says, yes, those are my views. And he has to be able to restate your views to you such that you can say, yes, those are my views. And then when you both are conversant with each other’s views, you have to induce facts upon which you agree. And now we’re going to reason from the facts upon which we agree to arrive at a conclusion. And that’s how an argument can take place, because of course all people argue. That’s what a democracy is. When people stop arguing, what you have is a dictatorship. So I started trying to apply that to my daily life, and realized that most of what I thought was political thought was just the reiteration of recognition symbols. I don’t think it happens on the right, but when you look at the left, most of what passes for discourse is recognition symbols. Do we agree? Are you part of my tribe? There’s nothing wrong with that, but I realized it’s not the basis for a life lived according to political principles. It’s not going to get you anywhere. Robinson: So a recognition symbol, just to make sure I follow you: I drive a Prius, and what I’m doing is conveying what tribe I belong to by choosing that brand or by choosing an environmentally conscious vehicle. Is that the sort of thing you mean? Mamet: Sure, of course. But also, for example, I was talking to somebody about the movie I was going to do. I said that I was thinking of Jon

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Voight. They said, “Oh, Jon Voight, he’s crazy.” I happen to know Jon Voight. He’s a friend of mine. He’s certainly not crazy, and neither is his thought crazy. So, that’s an interrogation. Robinson: In other words, Jon Voight is conservative. That’s what they really mean. Mamet: Yes, do we agree that Jon Voight’s crazy? I was giving a lecture in New York about political thinking very early on in my conversion. One woman said, “Wait a second! Do you believe that the earth is growing warmer?” I thought, my God, that’s fascinating! What I’m looking at is not a request for information, nor the desire to engage in an exchange of views or even an argument. What I’m looking at is a cultural interrogation. Are you part of my tribe or not? Because if you’re part of my tribe, we’re fine, but if you’re not part of my tribe, we can no longer talk to each other any more. Dennis Prager said we’re in the midst of a civil war. Thank God it’s not violent, but we have split into two completely opposite camps who can no longer talk to each other. “Of course all people argue. That’s what a democracy is. When people stop arguing, what you have is a dictatorship.”

Robinson: So one aspect of your conversion is applying this discipline of fresh and critical analytical thinking to the way that you lead you life. And then, if I read The Secret Knowledge correctly, another strand of the conversion is the recognition—it’s implicit in all your work and all your life—that you actually like America. Mamet: I love America! I think that a lot of people on the left, I’m not willing to say that they don’t love America. I don’t think they’re evil; I just think they’re wrong. And so, the traditional method of political discourse where you have to come to the center seems to have gone out the window, especially in the midst of the Obama hegemony, where we take our opposing views, we get into a movement, and realize that we’re going to have to find some way to get along with each other. Because we all love America, but we love America differently.


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“DISMANTLING AMERICAN CULTURE”: “People on the left are concerned with something else in addition to justice, which is called social justice. And, as I believe Tom Sowell said (or it might have been Milton Friedman): what does that mean? It doesn’t mean anything. . . . When you start to posit an entity which is superior to the legal system, which is superior to the judiciary system, and is capable of correcting all injustice, what you end up with is tyranny.”

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© Zuma Press

Robinson: You say at one point that liberalism is a religion. You’ve just talked about coming to a conservative political point of view through the discipline of Judaism. Apart from anything else, Jews are still as a group extremely liberal. After African-Americans, they are the most reliable liberal voting bloc in the country. Actually, let me just start there. It’s not as if you set aside some aspect of your Jewishness. It’s through your Jewishness that you came to this view. It’s central to it, isn’t it? Mamet: I think so. But, it’s not that being Jewish makes one liberal or conservative. It makes one argumentative. Like the old saw has it: two Jews, three opinions. Robinson: The Secret Knowledge once again: “The Good Causes of the left may generally be compared to NASCAR; they offer the diversion of watching things go excitedly around in a circle, getting nowhere.” OK, that’s overstatement, right? Aren’t you going to say America’s a better place because we’ve got Social Security? Mamet: I don’t know that it’s a better place because we’ve got Social Security. I think that people on the right and people on the left are concerned with justice. The people on the left are concerned with something else in addition to justice, which is called social justice. And, as I believe Tom Sowell said (or it might have been Milton Friedman): what does that mean? It doesn’t mean anything. As we Jews say, where there’s law, there’s injustice. Someone’s going to get hurt, and law is going to get misapplied. But when you start to posit an entity which is superior to the legal system, which is superior to the judiciary system, and is capable of correcting all injustice, what you end up with is tyranny. Robinson: Even conservatives would grant that in the last sixty to seventy years, there has been one signal achievement that is a specifically liberal achievement, and that’s civil rights. Do you grant that? Mamet: Yes, of course. But I don’t know that civil rights were a liberal virtue. Civil rights don’t have to do with social justice. They have to do with the Constitution, where people are saying, wait a second, are you crazy, are you prepared to say that 15 percent of the country aren’t human beings? No, of course not. Robinson: OK. The Secret Knowledge: “My revelation came upon reading Friedrich Hayek’s The Road to Serfdom. It was that there is a cost to every-


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thing. He wrote that there are no solutions, only trade-offs—money spent on crossing guards cannot be spent on books. Both are necessary, but a choice must be made, and this is the tragic view of life.” Let me be slightly pedestrian and suppose that David Mamet is getting older. People’s views of life sometimes darken as they get older. You’re turning conservative because you’ve lost the hopefulness of youth. Mamet: Oh, I don’t know that I’ve lost the hopefulness of youth. I would hope that I’ve lost the naiveté of youth. Listen! I’ve got a teenage son. It’s like living with the devil on steroids. Robinson: I have three teenage sons. Mamet: Oh, I’m so sorry. But there’s no guidebook for parenting. And there’s no guidebook for civilization, with the exception of two, which are very closely linked. One of them is the Bible, and the other one derives from it, the Constitution. Liberals say, quite correctly, are you sure that you want to execute people, because what if you’re wrong? That’s a defensible position. I understand that. Well, let’s look at the facts. There’s going to be a cost for it. It may not be that deterrence is a good thing; it may not be that deterrence is a bad thing. I get it. But, it may be that there are thousands of people in jails for decades and decades clogging the courts with their appeals and using up the time of society in general. So, that’s a choice that society makes. There isn’t a good choice between the two of them. So one of the things that make a leader a good leader is the capacity to say, yes, nobody makes the choice but me. That’s what I’m elected for. And if it’s wrong, it’s my responsibility to fix it in terms of some overriding goal. If the overriding goal of the leader is to preserve, protect, and defend the Constitution of the United States, he or she, I would hope, would make choices based upon that. If the overriding goal of the leader is on the other hand to completely transform the nature of the country, and the leader’s going to make choices on that, that’s not a person I want to vote for.

A CO N S ER V A T IV E I N H O LLY WO O D Robinson: Just a few days before the presidential election in 2012, you published an essay in the Jewish Journal titled “A Note to a Stiff-Necked People.” Here is an excerpt: “To those Jews planning to vote for Obama, 156


will you explain to your children that tax-funded institutions will require them to imbibe and repeat the slogans of the left, and that, should they differ, they cannot have a career in education, medicine, or television unless they keep their mouths shut?” Mamet: Do you find something objectionable in that? Robinson: Well, what I want to know is, have you paid a price for your new politics? Mamet: I might have. I mean, a lot of people don’t talk to me anymore, but there you go. It’s like Hemingway said: call ’em like you see ’em, and the hell with it. Robinson: Have you made new friends? What have you gained? Mamet: Sure. Well, what I’ve gained is what Ruth Wisse said. Somebody said to her: I’m a professor at Harvard—what’s going to happen to me if I tell the truth about what I feel? She said: You’ll be free. “I’m not willing to say that they don’t love America. I don’t think they’re evil. I just think they’re wrong.”

Robinson: Back during the Reagan years, my buddy Rob Long wrote the following: “History shows”—this is during the 1980s—“that one out of every three conservatives in Hollywood becomes president of the United States.” Mamet: Oh, that’s great. Robinson: But in those days it was Charlton Heston, Jimmy Stewart, and Ronald Reagan, and that seemed to be about it. You are now a conservative; you are a major figure in this town. Are you getting phone calls from people saying: you’ve done it, I’m going to do it too? Do you feel that there’s a sea change, or are you one of three or four or five? Is it still single digits in this town? Mamet: It’s a liberal business. It’s always been a Jewish business, and the Jews have always been liberal because Jews believe in justice, and sometimes we get it wrong. The whole question of the Talmud is: what is justice? Is it just to give a guy money so that he never gets a job? Maybe yes, and maybe no. Who’s going to decide? Well, there are various tribunals. That used to come down to the individual conscience and to organizations dedicated to that purpose. Those organizations were, in the main,


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religious organizations. When you put the government in charge of it, the government is only interested in trading favors, and raising taxes, and getting more power. Robinson: Has your new political outlook affected your work? You’ve written this book of essays, but has it affected your dramatic work, your poetry, your nonfiction? Mamet: No, I don’t think so, because I never wrote political stuff. The theater is not the place for politics. A lot of people get a lot of people nodding at their work because it reaffirms their belief in the essential goodness of the left and the essential badness of the right, but that’s not the point of drama. Drama is about human nature; it’s not about politics.

V A LUE S Robinson: A century and a half ago in the Pale of Settlement in Eastern Europe, a Jew would say to his children: be a good Jew, take care of your family, but we are a shtetl, we are a ghetto, we are not part of the wider culture; you just stay within this world, and do the best you can. Now, what do you say to your teenage son about America? If you’re that deeply optimistic, and if you view the culture as that hostile to your own values, do you say something along the lines of “just take care of your own”? “Do the best you can”? Mamet: No. I don’t think that the culture’s hostile to my own values. I feel the culture is hostile to the continuation of America. But that’s what a democracy is. I just read this magnificent book by Yossi Halevi [Like Dreamers] about Israel, which follows seven paratroopers who freed Jerusalem in 1967. It follows their lives until they’re seventy years old. One of them becomes a leader of the settlement movement. One of them becomes a traitor and goes to Damascus. One of them becomes a leader of privatization, and one of them becomes a leader of the kibbutz movement. And all of these guys are still talking to each other. We’ve got to be still talking to each other here. We’ve swung very far towards socialism. [Charles] Krauthammer said that [the rollout of ObamaCare] is a wonderful thing because every person is going to see it just doesn’t work. The question is: who’s in charge? 158


The answer has got to be that the American people are in charge, not Obama and not Bush and not all of these people who have to raise $1 million per day and throw their coat over their shoulder and smile laughingly at the camera just as if they were a human being, but the American people. That’s what the Constitution says. If you read the Declaration of Independence—the abuses of King George—it sounds like it was written today about our government. Robinson: The taxes. Mamet: Yes. Robinson: Would you close this interview by reading a passage from your book? I’d like to have David Mamet read David Mamet. Mamet: “The rules of behavior on a movie set are largely the unwritten law: who shows deference to whom, when one should speak, when one should be silent . . . how to evaluate that which falls short of the perfect. The set is infused with a sense of commonality and dedication. This perception was the beginning of my love affair, or, let me say, my recognition of my love affair with America. We do things differently here. We were and are a country of workers and, as such, get along so well that we became the pre-eminent power in the world. This came about not through a ‘lust for power,’ not through colonialism or ‘exploitation,’ but as a result of our ethos and cohesion. It begins with the notion that all are created equal. The definition of ‘all’ has widened over time . . . and this widening was the essence of our republic; that we, in the process of devotion to the essentially religious goal, the ‘self-evident truth,’ managed to shape, through our industry and through our art, a new and better world.” Robinson: Essayist, playwright, screenwriter, poet, director, and conservative: David Mamet. Thank you. Mamet: You’re welcome, Peter.


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VAL U ES

American Dreams and Visions The American dream isn’t just about riches. Even in the twenty-first century, it’s still about freedom. By William Damon.

Americans have been subjected to a seemingly endless stream of books, articles, and commentaries on the downsizing or outright death of the American dream. A Google search for “the death of the American dream” yields more than 276 million citations. Nobel Prize–winning economist Joseph Stiglitz said recently that “the American dream is a myth” because “inequality is worse than you think.” Even President Obama speaks of “diminished levels of upward mobility.” Commentators almost always define the American dream as the expectation of rapidly increasing material wealth. But this perspective unnecessarily narrows the concept, making it easy to dismiss the American dream as a corpse or a fantasy whenever the economy slows down. The American dream has always included material aspiration, especially for those who start out with little or nothing. But as James Truslow Adams—who popularized the term in his 1931 history, The Epic of America—wrote, it was “not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumWilliam Damon is a senior fellow at the Hoover Institution. He is a professor of education at Stanford University and the director of Stanford’s Center on Adolescence.

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stances of birth or position.” It was the freedom to seek and pursue one’s own path. Most important, it was the freedom to follow one’s conscience without constraints from governmental authorities. The American dream in its full sense has been especially evocative for young people and immigrants. I have a vivid memory from my own youth of how stirring this idea can be. As a ninth-grade sports reporter for my high-school newspaper, I covered a soccer match against a team of immigrant kids from then-communist Eastern Europe. They were great players but ragged and indigent: I can still picture the green pepper and bacon-fat sandwiches that their mothers had packed for their lunches. Yet when I spoke with these boys, I heard them talk excitedly about the American dream. The American dream has always meant the freedom to seek and pursue one’s own path.

What did it mean for them? One mentioned an uncle back home who was in jail for a sign he had carried. Another said his parents had been forced to conceal their religious views. There was also talk about our wide-open American culture, the amazing prospect of being able to pursue whatever careers they wanted, and, yes, the hope of getting rich. It was a heady mix, fueled by desires that ran the gamut from the material to the spiritual. Now, decades later, I’ve had another chance to observe how young people envision the American dream, in a three-year study my research team at the Stanford Graduate School of Education will complete in June. As part of our study, we ask native-born and immigrant youth what they think about American citizenship. We’ve had a wide range of responses from hundreds of young people, with scores of them offering more elevated and broadly conceived views than can be found in today’s standard daily news feed. Here’s what one eighteen-year-old, native-born student had to say: “I think the American dream is that people can be who they are. Like freedom of religion, freedom of speech, freedom of action and stuff. I do believe in that. People can be who they want to be. They shouldn’t


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be influenced by the government, influenced by anyone else, other than themselves, to be themselves.” Our new study asks native-born and immigrant youth what they think about American citizenship. Many gave elevated and thoughtful replies.

One immigrant youth from India said he was “proud to say that I’m from that heritage and culture, but I’m proud of my American culture as well.” He told us that he saw the American dream as a chance to get “a good job, make a good living, and uphold your duties to your country in all ways possible.” His capsule summary: “I think that it comes back to freedom of speech, freedom of expression, and the fact that if you really have a dream and you work hard, you can achieve it.” If the American dream is dismissed as dead or never existing, or confined to its narrowest dimensions of material gain, it may seem that our future prospects are dim. But for those who appreciate the elevated meanings of the American dream that have triggered hope in good times and bad, it can be a self-fulfilling prophecy—a harbinger for a nation that is still rising. Reprinted by permission of the Wall Street Journal. © 2013 Dow Jones & Co. All rights reserved.

Available from the Hoover Press is Failing Liberty 101: How We Are Leaving Young Americans Unprepared for Citizenship in a Free Society, by William Damon. To order, call 800.888.4741 or visit www.hooverpress.org.

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H I ST O R Y AN D CU L T U R E

Marxist Myopia Why is Marxism still fashionable in some quarters? Because although the free market’s hard edges are easy to see, its benefits are more subtle. By Mark Harrison.

At the Tory conference in October, George Osborne, Britain’s chancellor of the exchequer, made an interesting point about the views of Ed Miliband, leader of the opposition: For him the global free market equates to a race to the bottom with the gains being shared among a smaller and smaller group of people. That is essentially the argument Karl Marx made in Das Kapital. It is what socialists have always believed.

Osborne’s point made me think about the influence of Marx on modern intellectual life. To many this is something of a puzzle. Isn’t Marxism discredited as a political philosophy? Haven’t the economic policies of Marxist regimes generally failed to provide for “an association, in which the free development of each is the condition for the free development of all”—the words by which Marx once distilled the goal of communism? How many of those who identify with the ideals of socialism today have actually read and followed even one page of the fifty volumes of the Marx-Engels collected works? My answers: yes, yes, and not many. Yet Marxism shows no sign of dying out; it lives on in a variety of political movements and branches of academic and cultural life. Mark Harrison is a research fellow at the Hoover Institution, a professor of economics at the University of Warwick, and an associate of Warwick’s Centre for Competitive Advantage in the Global Economy.


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Why? The question is puzzling only if we think of Marx as the reason why Marxist ideas exist. Of course Marx was the originator of Marxism, but I am quite sure that if Marx had never been born to invent Marxism, some other scribbler would have taken his place. The basic ideas that underlie Marxism pre-existed Marx, and would have existed without his writ-

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ings, and are continually reborn and propagated among people who know nothing of Marx for a straightforward reason: because such ideas correspond with how most people experience everyday life. Marx’s importance, therefore, was not as the discoverer of these ideas but as the writer who gave them a scholarly form. What are the experiences to which Marxist economics correspond? Behind the complicated terminology of capital and value and Marx’s elaborate philosophical and historical argumentation of them are four simple ideas that can be traced to salient experiences in everyday life: • The market is a jungle, a chaotic struggle of each against all, in which the strongest, most ruthless predator wins. Lurking behind every transaction is the chance that someone will rip you off. • Of all the possible functions of market prices—accounting, economizing, distributive—the only one that matters for everyday life is distribution. A rise in the price of food or fuel cuts the real income of workers and redistributes it in favor of the producers that employ them. • Work is hard and stressful, and the main source of pressure is the


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employers’ drive to make you work harder and longer, in order to save them money or increase their profits. • You can’t do anything about this on your own. Idealistic advocacy has no traction without numbers. Everyone should get together and intervene forcibly to bring about radical improvement. What kind of economics do these four ideas make? They make the economics of everyday lived experience for most of the world’s seven billion people. I’m not talking just about the poor and ignorant. It has nothing to do with education or position in society. My guess would be that most people in my immediate circle of family and friends who are not trained economists hold, most likely, two or three of the four ideas; I expect that all might hold at least one. Just as important, it is possible to hold these commonsense ideas without considering oneself a Marxist or having the slightest yearning for an elaborate regime of censors and secret policemen. I’m quite sure that if Marx had never been born to invent Marxism, some other scribbler would have taken his place.

Suppose you decided to give your life to elaborating these four ideas, however, and you spent years working them up into a philosophy of economics: what kind of book would you write? I think you’d end up writing something pretty much like Das Kapital. In other words, Marxism is a philosophization of the economics of lived experience, but it’s the economics of lived experience that should really demand our attention. What kind of economics would lived experience support? It would make, in the words of Frédéric Bastiat, the economics of “that which is seen.” It would take into account only the most immediate effects of things. It would leave out the other effects, those that “unfold in succession—they are not seen: it is well for us,” Bastiat went on, “if they are foreseen. Between a good and a bad economist this constitutes the whole difference—the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.” 166


What’s wrong with the economics of “that which is seen”? By analogy, think of the physics of “that which is seen”: the earth is flat and parallel lines never meet. Or the chemistry of “that which is seen”: burning is the release of phlogiston. I’m not saying that economics is a science like physics or chemistry in all respects. What I’m saying is that Euclidean geometry, the idea of a flat earth, and the theory of phlogiston are perfectly serviceable for making sense of a number of things everyone can see from day to day. It’s true, though, that these ideas miss out badly on other things and this prevents them from being useful in many contexts. For the purposes that are missing, we need more; we need the physics and chemistry of “that which is not seen,” including molecular science, gravity, and relativity. What is added by the economics of “that which is not seen”? • The market creates many opportunities for sellers to abuse buyers, yet the market is not chaos: it enables specialization and competition. The same market economy that often feels like a jungle is the mechanism that has sustained the West’s unprecedented prosperity and is also the hope for sustained progress of the Rest. But this is not seen because it has taken hundreds of years to materialize; life is too short for it to be seen. • If something that you consume is in short supply so that the price goes up, you lose in the short term, and this is seen. Beyond this, however, is an unseen process by which all gain. There is adaptation. Responding to the increased cost, we economize on uses, we search for substitutes, and we find or create new sources of supply. The adaptation is not seen because it would require the simultaneous observation of a million small responses. • Work is stressful, and a predatory employer can increase the stress for the sake of profit. But that is incomplete. In the Marxian perspective there is only one kind of surplus, called profit, one source of surplus, called labor, and one class of recipients, the capitalist class. In the competitive market economy every transaction gives rise to a surplus on both sides. Day by day, billions of small surpluses accrue to both sides,


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buyers and sellers, that are party to every transaction. In other words, there are surpluses everywhere and they accrue to everyone; they are not the monopoly of one class. But this, too, is not seen. • Everyone getting together to force change does not always make anything better, and this might be the case quite often. This is not seen for two reasons. First, in every case to establish the results of intervention requires the careful construction of a counterfactual (in other words, what would have happened without the intervention) which, to most people, seems intolerably speculative. Second, when intervention has demonstrably not brought about the benefit sought, there is a natural human tendency to shift the responsibility from our own action to the counteraction of those that disagree with us, whom we make into scapegoats. Marxism is a philosophy that takes into account only the most immediate effects of things.

Whenever things are not seen, it’s hard to know they are there. Understandably, therefore, most people stick to the economics of what they can see for themselves. Most of those don’t think of themselves as Marxists or even socialists. Still, it ensures a reservoir of instinctive sympathy in our society for ideas that are aligned with Marx’s and helps to explain his lasting influence. This reservoir is continually refilled from everyday experience. That’s why Marxist ideas live on and will often be well received by well-educated, well-intentioned people. Special to the Hoover Digest. Adapted from Mark Harrison’s blog (https://blogs.warwick.ac.uk/markharrison).

Published by the Yale-Hoover Series on Stalin, Stalinism, and the Cold War is Guns and Rubles: The Defense Industry in the Stalinist State, edited by Mark Harrison. To order, call 800.405.1619 or visit http://yalepress.yale. edu/yupbooks/order.asp.

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T H E G R E AT WAR CE N T E N N I AL

The Zeppelin Menace A century before there was the drone, there was the zeppelin. As a weapon of terror, the airship had no equal at the start of the First World War. By Bertrand M. Patenaude.

“I have just lived through a most tragic night war,” wrote Charles Sarolea, special correspondent for the London Daily Chronicle, on August 25, 1914. “For the first time in history a great civilized community has been bombarded from the sky in the darkness of night.” Sarolea, a Belgian scholar and writer, was reacting to a German airship strike on the Flemish city of Antwerp in the opening weeks of the Great War. He singled out a particular individual as the chief perpetrator of this outrage. “Count Zeppelin, whom Kaiser Wilhelm of Germany called the greatest genius of the present century, has performed the greatest exploit of his life. He may be proud of his achievement, for he has mangled and slaughtered non-belligerents, men, women, and little children. He has staggered humanity.” The evildoer in question was Count Ferdinand von Zeppelin, the man who had pioneered the development of the rigid airship that became synonymous with his name and who championed its use by the German army as a military weapon. The airship’s moment as a warship in the sky was destined to be brief, but it helped usher in the modern era of total war in which ordinary citizens, as well as soldiers, were subject to military attack. The founding collections of the Hoover Institution Archives, documenting the causes and course of the First World War, trace the emergence of Count Zeppelin and chronicle Germany’s attempt to break the stalemate Bertrand M. Patenaude is a research fellow at the Hoover Institution.


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of trench warfare by launching airship raids against cities such as London, Paris, and Warsaw.

A G E RM A N I C O N Count Zeppelin’s rise to worldwide prominence was difficult. He was born in 1838 in the southern German state of Württemberg, where he embarked on a career in the army. As a military observer for the king of Württemberg, Zeppelin accompanied the Union army during the American Civil War. It was during his sojourn in the United States that he made his first and only ascent in a tethered balloon, on August 19, 1863, at Fort Snelling, across the Mississippi River from St. Paul, Minnesota. For Germans, the zeppelin was an icon, a source of national pride, and Count Zeppelin a national hero.

Whatever effect this balloon ride may have had on him, after Brigadier General Zeppelin retired from the military in 1890 he began a quest to create giant flying “ships.” When the German army proved reluctant to sponsor his proposals for a lighter-than-air flying machine, Zeppelin established his own company and cobbled together the finances to produce his airships. Eventually, the king of Württemberg authorized him to build a floating shed at Friedrichshafen, on Lake Constance—which the Germans call the Bodensee—a lake on the Rhine River. Construction of the first zeppelin began in 1899.

TERROR ABOVE: High above the flames of Antwerp flies a German zeppelin; a cameo of Kaiser Wilhelm appears below. The postcard on the opposite page was one of many produced by Germany to showcase its military airships, which reigned over the skies in the early phase of World War I. “The Germans attacked the sleeping city like a hyena in the night, murdering helpless women and children,” an American correspondent cabled the New York Herald after the August 1914 attack on Antwerp, which killed twelve. “In the name of civilization let America protest.”

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World War I Pictorial Collection—Hoover Institution Archives

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Zeppelin was not alone in his quest. By the turn of the twentieth century, others in Europe and America were experimenting with attaching motors and propellers onto balloons in order to travel by air. But Zeppelin’s particular design, which clustered several hydrogen-filled balloons within an aluminum framework and a tough outer skin, solved the instability and unwieldiness of earlier models and put him ahead of his competitors. His first rigid, power-driven airship, the Luftschiff Zeppelin 1—four hundred and twenty feet long and powered by two sixteen-horsepower Daimler engines—made its maiden flight in July 1900. Crashes and other setbacks followed, and German officials remained skeptical, but Count Zeppelin was intrepid, and he proved to be an unmatched self-promoter, arranging spectacular endurance flights in 1908 over Switzerland and along the upper Rhine. Zeppelin was captain of his fate in more ways than one: he not only designed his airships but piloted the vessels during every test flight, starting at age sixty-two. It was only in 1909 that he saw his creation in flight from the ground for the first time. In time, Zeppelin’s name became synonymous worldwide with all such German airships, no matter which competitor had produced it. For Germans, the zeppelin became an icon, a source of national pride, and Count Zeppelin a national hero. The kaiser awarded him the Prussian Order of the Black Eagle, an honor normally bestowed on high nobility. His genial, grandfatherly countenance, with bushy white mustache and twinkling eyes, was ubiquitous in the prewar years, when lamps and toys modeled on zeppelin airships were all the rage. The year 1909 marked the beginning of zeppelin pleasure flights and, the following year, of regular commercial flights, operated by the German

TO THE FUTURE: Count Ferdinand von Zeppelin, pioneer of the rigid airship that came to bear his name, began his quest to deploy giant floating “ships” after he left the German military. His first airship was launched in 1900 and in time the zeppelins became a matter of great national pride. At the same time, the count grew impatient with the German military for its reluctance to embrace his airship as a weapon.


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ON A MISSION: This postcard, titled “In der Zeppelin-Gondel” (In the Zeppelin Gondola), shows the crew piloting the great airship and presumably looking for targets. The real work of a zeppelin crew grew increasingly perilous, not only because of attacking aircraft and artillery but because of exposure to extreme cold, high winds, and lack of oxygen. Late in the war, zeppelins were capable of flying at more than 20,000 feet, but they could still blow off course, burst into flames, or crash into the sea.

Airship Travel Corporation—DELAG, in the German initials—a subsidiary of the count’s airship construction company. It was the world’s first airline. By mid-1914, Zeppelin’s airships had carried more than 34,000 passengers (about a third of them paying customers) on more than 1,500 flights, without a single civilian loss of life, despite a variety of mishaps. This was impressive, but Count Zeppelin saw his airship as a military weapon and was impatient with the German army for its continued reluctance to fully embrace his creation. The German General Staff ’s enthusiasm for the airship warmed as the great-power rivalries heated up in the years before the outbreak of the 174


Great War. One feature of the competition was the Anglo-German naval arms race, catalyzed in 1906 by the Royal Navy’s introduction of the allbig-gun, steam-turbine-propelled dreadnought battleships. Germany, meanwhile, appeared to be winning the race for supremacy in the air, as its lead in the design and production of airships created growing unease in Britain and France. Brash German talk about an invasion of Britain by air, reported in the English newspapers, served to give the British public a form of the jitters known at the time as “zeppelinitis,” punctuated by high-flying rumors and phantom airship sightings. H. G. Wells stoked these fears in 1908 with his novel The War in the Air, which features a surprise German airship attack that reduces New York City to an inferno. The year 1909 marked the beginning of zeppelin pleasure flights. They made up the world’s first airline.

In Berlin, the generals still figured that the airplane, smaller but more easily navigable than the airship, was the better bet, even though the airship could remain in the air longer and carry a much heavier load. (The newest-model zeppelin could reach speeds of fifty miles per hour, so its relative slowness was not yet an issue.) These German doubts were unknown in Britain and France, however, where rumor had it that workers in Friedrichshafen were churning out airships at a rate of one per month. In fact by the summer of 1914 Germany had seven total operational airships, still enough to justify the fears in London and Paris of an airship gap.

E U R O P E GO E S TO WAR The German General Staff ’s strategic plan for victory in a two-front war, the Schlieffen Plan, called for the army to deliver a quick knockout blow to France and then be able to send its troops to the east before the Russians could have time to mobilize and pose a threat. The German army’s invasion route to France passed through Belgium, where the first zeppelin bombing of a city, Liège, took place on August 6, although the raid had to be aborted after artillery fire forced the airship to land. Liège fell to the Germans on August 16, followed by the Belgian capital, Brussels, on August 20, and Namur on August 24. But “little Belgium” stubbornly Hoover Digest N 2014 · No. 2

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refused to surrender, slowing the German advance into France and helping to make possible the Allied victory on the outskirts of Paris in the First Battle of the Marne in September. The Belgian government and royal family had retreated from Brussels north to Antwerp, a heavily fortified city on the Dutch border. The first zeppelin raid on Antwerp took place on the night of August 24–25. The pilot of the lone attacking airship cut its engines and let his vessel drift over the darkened city, so the sleeping residents heard none of the loud whirring and humming sounds that usually announced an airship intruder’s arrival overhead. The zeppelin dropped a total of ten small bombs—primitive devices made of thermite, tar, and benzene stuffed into a tin canister—killing twelve people, injuring dozens more, and sending many residents into a panic. Reports said it could have been much worse: one bomb fell on Saint Elizabeth Hospital, which was empty of patients at the time. At least one other bomb fell on the Palais du Roi, which inspired inflamed newspaper stories of how the zeppelin marauder had targeted the royal family, asleep in the palace. The zeppelin assault on Antwerp provoked a wave of international outrage at this act of German “barbarism,” an offense that immediately joined the list of purported German atrocities—murder, rape, and pillage—committed in Belgium. Sarolea, in his eyewitness account of the Antwerp raid, called it indisputable proof that the Germans were waging a “war against women and children. . . . They have surpassed themselves in the art of striking terror, and they have placed themselves outside the pale of humanity.”

“HORRID CRIMES OF THE BOCHE PIRATES”: This Russian poster, titled “The Barbarity of the Germans,” depicts an airship attack along the Eastern Front. Early in the war, airplanes could match neither the range, payload, nor altitude of the zeppelins. For a time, the best defense against zeppelin raids was to destroy the airships on the ground. But by 1916, British cities and ports were equipped with anti-aircraft guns and searchlights, and fighter planes had become far deadlier.

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How long, it was wondered, before the barbarians turned their zeppelin “vultures” on London and Paris? As it happened, British and French officials overestimated the threat posed by German airships at the start of the war, exaggerating both their numbers and their capabilities and mistakenly assuming that the German High Command intended from the outset to launch bombing raids on Allied cities and ports. They were unaware that the kaiser had ordered a ban on the bombing of non-military targets: London was not Antwerp, at least not yet. And in any case, Germany’s generals initially understood the primary role of the airship to be close-support bombing at the front. But airships were difficult to maneuver and vulnerable to gunfire when flying close to the ground, and the shooting down of three airships near the Western Front and one more over Poland during the first weeks of the war forced Berlin to pull them back from the fighting. The pilot of the lone attacking airship cut its engines and let his vessel drift over the darkened city of Antwerp. The sleeping residents heard nothing.

To Count Zeppelin’s great dismay, it would take Germany’s military commanders several months to overcome their misconceptions and inhibitions regarding the advantages of using airships for strategic bombing rather than as tactical support weapons. The delay proved to be costly, because the British and French for the moment had no warning or defense system in place against air attacks. Even by May 1915, when German strategic bombing finally began in earnest, British and French cities remained vulnerable to air raids, especially at night. By the time the Germans began to take full advantage of their airship superiority, Allied defenses were hardening and the airship’s window of opportunity was closing. Few would have dared to predict such an outcome at the time of the Antwerp raid on August 25, 1914, however. The physical and psychological damage inflicted on a fortified city by a lone zeppelin opened up horrifying prospects of the havoc that would result from a major airship raid on defenseless London. A second zeppelin attacked Antwerp on September 2, 178


dropping twelve bombs that injured dozens of residents, although no one was killed. It was only a matter of time, it seemed, before an entire fleet of zeppelins set sail for England.

C H U R C H I L L ’ S B O MB E R S With Antwerp on the brink of surrender to the Germans, London dispatched First Lord of the Admiralty Winston Churchill to see if the situation could be salvaged. Churchill arrived in Antwerp on October 3, accompanied by a brigade of Royal Marines. A unit of the Royal Naval Air Service had earlier been stationed in the city to defend against zeppelins, a concern that now preoccupied Churchill, who for years had been something of an airplane enthusiast. Airplanes in 1914 were precarious flying machines, no match for the airship in payload, range, or altitude. And bringing down a zeppelin was in any case not an easy feat. Hydrogen was less flammable than was commonly assumed, and incendiary ammunition would become widely available only in 1916. For the time being, the best option seemed to be to send airplanes to destroy zeppelins on the ground, in their sheds in Germany. Even an empty zeppelin shed was a valued target, because the vessels Churchill once derided as “gaseous monsters” were highly vulnerable to the wind and the weather. “The duty of these aeroplanes,” Churchill said of the Royal Naval Air Service fighters brought to defend Antwerp, “will be to attack zeppelins which approach the city, or, better still, in their homes on the Rhine.” Zeppelin raids, in the words of British military historian Basil Liddell Hart, “helped to drive home the new reality that the war of armies had become a war of peoples.”

After a failed British air raid on the zeppelin sheds in Cologne and Düsseldorf on September 22, and with Antwerp about to fall to the Germans, a final attempt was undertaken on October 8. Two planes took off that day from a makeshift airstrip outside the city, one bound for Cologne, the other for Düsseldorf, both about a hundred miles away. The planes were


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single-seat Sopwith biplanes named Tabloids on account of their small size. Each plane carried two twenty-pound bombs. The pilot flying to Cologne could not find his target, so he dropped his bombs on the main railway station before turning back to Antwerp. The plane bound for

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Düsseldorf had better luck, making a direct hit on a shed housing a newly built zeppelin about to be commissioned, destroying the airship in a fiery explosion. This British raid, a harbinger of the strategic air campaigns to come, could not prevent, or even postpone, the inevitable, however, as German soldiers entered Antwerp the following day.

Z E P P E L IN N IG H TS The Great War was the first total war in modern history, and zeppelin raids, in the words of British military historian and theorist Basil Liddell Hart, “helped to drive home the new reality that the war of armies had become a war of peoples.” Ordinary citizens of the combatant countries, no matter how far removed they were from the battlefields, could not count on escaping the war’s hardships or even its horrors. The first air attack on Britain was an airplane raid on Dover, on December 21, 1914. By then England was bracing for a massive airship assault. Newspaper articles heightened the tension. An Associated Press story published in the New York Times on December 8 reported that at Friedrichshafen a thousand men were on the job working in two shifts around the clock constructing “dreadnought” zeppelins, airships powered by three eight-hundred-horsepower engines and capable of carrying fifty “torpedo bombs.” It was said that Count Zeppelin and the General Staff believed that eighteen to twenty of these “aerial dreadnoughts” would be required for a successful raid on London, and that such a fleet was expected to be ready early in 1915. As each airship was completed, on its hull was inscribed in small letters the German equivalent of “Meant for London.”

INNOCENTS: A zeppelin prepares to bomb Lunéville, France, in 1914. Germany insisted that its zeppelin raids were aimed at munitions factories and other industrial targets, not civilians. Yet British writer Basil Liddell Hart noted a shift in how aerial bombing was justified: “Beginning with excuses, [it ends] in a frank avowal that in a war for existence the will of the enemy nation, not merely the bodies of their soldiers, is the inevitable target.”


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By the end of 1914 Germany’s reluctance to undertake strategic bombing missions had evaporated as it became clear that some dramatic course of action was needed to break the stalemate at the front and bring the war to an end. Contrary to Kaiser Wilhelm’s image in Britain and France as a brutish killer, in giving his approval for the bombing of military sites in Britain he initially excluded London from the target list, lest his royal cousins be harmed, and he stipulated that government buildings and historic locations and museums be spared as well. The vessels Churchill derided as “gaseous monsters” were highly

The first airship raid on England took place on January 19, 1915, on the East Anglian coast, where two airships dropped both high-explosive and small incendiary bombs on the port of Great Yarmouth and, further west, the town of King’s Lynn, killing four civilians and injuring sixteen. London came under a zeppelin attack for the first time on May 31, when a lone zeppelin dropped ninety incendiary bombs and thirty grenades on the northeastern suburbs of the city, resulting in seven deaths, with dozens injured. There would be twenty such raids on England in 1915, some involving multiple airships, with each vessel typically carrying five onehundred-and-ten-pound high-explosive bombs and twenty smaller incendiary bombs. Paris experienced its first zeppelin attack in the early morning hours of March 21, 1915, when two airships dropped twenty-five bombs, killing eight and setting off numerous fires. That same month, several airships bombed Warsaw, reportedly killing fifty people and igniting many fires, and a second raid on the city followed on April 21, killing a dozen people. Zeppelin raids on Britain would peak in the late summer of 1916, by which time an air-intrusion warning system had been put in place in English cities and a blackout rule was enforced, requiring streetlights to be extinguished and windows covered. On the night of October 3, five airships dropped one hundred and eighty-nine bombs on London and environs, killing seventy-one residents while thousands of others took shelter in Underground stations. By then, English cities and ports were equipped 182



vulnerable to the wind and the weather.

WEAPONS MORE DREADFUL: During the zeppelin era, airship attacks on Britain resulted in five hundred and fifty-six dead and over nineteen hundred injured—totals that barely registered when compared to the losses in a single day on the Western Front. Yet the bombs that fell on Warsaw, as shown here, as well as on London, Paris, and other major cities, prefigured the far more destructive aerial bombing of World War II. The future would indeed belong to aircraft, but not to Count Zeppelin’s creation.

with anti-aircraft guns and searchlights, and British fighter planes were becoming far more effective—although weather still offered the surest protection against an airship assault, as fog, wind, and rain could easily confound a zeppelin’s efforts at navigation and target location. The German government insisted that its zeppelin raids were aimed at munitions factories and other industrial targets, not innocent civilians. Yet as Liddell Hart observed, “The difficulty of distinguishing from the air between military and civil objectives smoothed the path for a development which, beginning with excuses, ended in a frank avowal that in a war for existence the will of the enemy nation, not merely the bodies of their soldiers, is the inevitable target.” The belligerent nations exploited the image of the zeppelin raider in propaganda campaigns, albeit toward diametrically opposed ends. Ger-


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man propaganda postcards portrayed Count Zeppelin and his airships as symbols of Germany’s technological prowess. For the Allies, on the other hand, images of the zeppelin “baby killer” in action served to rally the public to the cause of war. As Guillaume de Syon notes in his 2002 book Zeppelin!, the airship raids “played right into the hands of Allied propagandists. . . . It did not matter that the zeppelins were actually quite inefficient; when a bomb killed a child, it was seen as evil proof of the precision for which the Germans were famed.” British anger was stoked by reports that German newspapers proudly celebrated their deadly zeppelin assaults, reinforcing the popular caricature of the German as the bestial Hun. A bestselling British postcard series showing scenes of airraid destruction was titled “Horrid Crimes of the Boche Pirates.” The belligerent nations exploited the image of the zeppelin raider in propaganda campaigns. To Germans, they were technological marvels. To Britons, they were “baby killers.”

In Allied cities visited by zeppelins, meanwhile, some residents confessed that their sense of terror was mixed with fascination. When an airship raid began, it was hard to resist the urge to have a look rather than take shelter in the basement, as the government instructed. George Bernard Shaw had to admit that the sight of a zeppelin had left him so spellbound that he found himself looking forward to the next raid. D. H. Lawrence’s awestruck account, in a private letter to Lady Ottoline Morrell, of a midnight airship raid on London in 1915 captures this twinned sense of horror and fascination. London awoke to the sounds of gunfire and explosions, Lawrence wrote. Then we saw the zeppelin above us, just ahead, amid a gleaming of clouds: high up, like a bright golden finger, quite small, among a fragile incandescence of clouds. And underneath it were splashes of fire as the shells fired from earth burst. Then there were flashes near the ground—and the shaking noise. . . . I cannot get over it, that the moon is not Queen of the sky by night, and the stars the lesser lights. It seems the zeppelin is in the

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zenith of the night, golden like a moon, having taken control of the sky; and the bursting shells are the lesser lights.

There are far fewer eyewitness accounts of airships going down in flames, which happened with increasing frequency as Britain armed its fighter planes with incendiary and explosive bullets. In a raid on central England on October 19, 1917, involving eleven of the new Height Climbers—zeppelins capable of flying at altitudes above twenty thousand feet—five of these prized airships were lost on the return trip: three were shot down over France and Germany, one crashed, and one was blown off course and into the Mediterranean Sea. No wonder that in Germany the deployment of the airship as a strategic bomber was increasingly regarded as a losing proposition.

D O W N F O R T HE CO U NT Count Zeppelin could not hide his disappointment at his country’s failure to make early and effective use of its airships as strategic bombers. He was quoted as late as March 1916 urging that Germany “strike England in the heart” with attacks by air and sea. By then, however, as Britain’s air defenses tightened and the airship’s vulnerabilities as long-range bombers became increasingly obvious, the future seemed to belong to Germany’s heavy bomber aircraft. And by the end of 1916, after four zeppelins had been brought down in the Battle of Verdun, the German army finally abandoned the practice of deploying airships in an infantry support role. “It seems the zeppelin is in the zenith of the night, golden like a moon, having taken control of the sky,” wrote D. H. Lawrence.

On August 1, 1917, the German army grounded its airship fleet, leaving the field to the navy’s operations. The navy’s airships continued to be far more effective flying reconnaissance patrols over the North Sea, and were in fact used much more frequently for this purpose throughout the war. As strategic bombers, the zeppelins achieved the feat of diverting British air squadrons away from the front for use in home defense, but the cost of this achievement was enormous. Of Germany’s one hundred and fifteen wartime airships, some eighty were either shot down or lost to


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weather, mechanical failure, or crew error. Overall, airship attacks on Britain resulted in five hundred and fifty-six dead and over nineteen hundred injured—totals that barely register when compared to the losses in a single day in bloody battles on the Western Front such as Verdun, the Somme, and Passchendaele. Count Zeppelin realized that his airship had failed to live up to its promise and that the future of air warfare belonged to the airplane, although he was spared knowledge of the war’s outcome. When he died, on March 8, 1917, he was given a hero’s burial. In England, meanwhile, the obituary writers made the most of their good riddance, typically lacing their copy with a heavy dose of schadenfreude, as in the alliterative headline “Count Zeppelin, Inventor of the Dreaded Dirigible, Dies of Disappointment.” Special to the Hoover Digest.

Available from the Hoover Press is War, Revolution, and Peace in Russia: The Passages of Frank Golder, 1914–1927, edited by Terence Emmons and Bertrand M. Patenaude. To order, call 800.888.4741 or visit www. hooverpress.org.

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“The Great, Strange Thing” When the Belgians began to go hungry under German occupation in 1914, Herbert Hoover, at the time a businessman living in London, organized the Commission for Relief in Belgium (CRB). The CRB imported food to Belgium and, from 1915, to German-occupied northern France for the duration of the war, bringing life-saving sustenance to more than nine million people. That enterprise launched Herbert Hoover’s career as the “Great Humanitarian” and would serve as the source of inspiration for the founding in 1919 of the Hoover Library at Stanford. A leading American figure in the CRB was Vernon Kellogg, who had taught biology at Stanford, where Hoover was one of his students. He accepted Hoover’s invitation to serve as the CRB’s chief diplomat and administrator inside Belgium. There with him was his wife, Charlotte Hoffman Kellogg, the only female member of the CRB. They were a formidable couple. Each of them published magazine articles and books about their wartime experiences. Vernon Kellogg’s account of his conversations with German officers of the occupation forces and of the General Staff were published in the Atlantic Monthly and then collected in a little book called Headquarters Nights, with a brief but muscular foreword by former president Theodore Roosevelt. Kellogg’s book records how his exposure to the mindset of the German military transformed him from a confirmed pacifist into an ardent supporter of America’s entry into the world war. The book appeared in 1917, in time for President Woodrow Wilson to be able to invoke it in support of his decision, announced that April, to bring the United States into the war. Among the conversations Kellogg recounted in Headquarters Nights, one was with a visiting member of the German royal family, an unnamed duke said to be very close to the kaiser, who inquired, “Why is this universal hate of Germany? Why do you Americans hate us?” Kellogg’s response mentioned the notoriety of “zeppelining,” the then-fashionable term for zeppelin attacks on Allied cities. This prompted the duke to exclaim that zeppelining was “stupid” and counterproductive. “We don’t blow up munitions factories, and for every miserable woman killed, hundreds, aye, Hoover Digest N 2014 · No. 2

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Hoover Institution Archives—Louis Raemaekers Collection

thousands of Englishmen rush into the army to come over to the front and fight us. We are doing their recruiting for them.” Charlotte Kellogg’s 1917 book Women of Belgium, with an introduction by Herbert Hoover, drew on articles she also had recently published in the Atlantic Monthly. One of these describes her first encounter with a zeppelin, on a clear, late summer day in September 1916. She was walking along the road toward Verviers, in eastern Belgium, about fifty miles from the German city of Cologne. Suddenly I heard the soft whirr-whirr of a zeppelin. A farmer who had been making prune syrup left his caldron to join me in the road. We watched the great, strange thing gliding through the sunshine. It was flying so low that we could easily distinguish the fins, the gondolas, the propellers. Its blunt nose seemed shining white, the rest a soft gray. The effect of the soothing whirring and the slow gliding through the clear air was indescribable; it seemed incredible that this silvery ghost-ship could be aught but a gentle messenger of peace.

She expressed herself in this vein to the French-speaking farmer, who begged to differ. “Ah, Madame,” he instructed her, “four years ago I saw my first zeppelin. It seemed a beautiful vision from another world. . . . And today, Madame, may it be blown to atoms. With an undying hate I swear it shall be destroyed! War, Madame, is a horrible thing!” —Bertrand M. Patenaude


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T H E GREAT W AR CE NTE NNIA L

“And Then Came the War . . .” From the memoirs of Helena Paderewska, wife of the celebrated pianist, a scene of festivity and farewell in the summer of 1914. Introduced by Maciej Siekierski.

Helena Paderewska, the wife of Ignacy Jan Paderewski, who was probably the best known and most celebrated pianist of the early twentieth century, wrote a memoir of their eventful shared life. The couple were intimately involved in major political events centering on their Polish homeland. Paderewska’s unpublished memoir recently became available to scholars in the Hoover Institution Archives. In this excerpt, she writes of a last, carefree celebration in the summer of 1914—the season when “the storm broke,” shattering a way of life for their family and friends, and for people all over Europe. And then came the war. It broke on us in the midst of the festivities with which we were celebrating Mr. Paderewski’s name day, July 31. With us Poles the great day of the year is not our birthday, although we celebrate that, but our name day, the day of the saint after whom we have been named. St. Ignatius Loyola being the patron saint of my husband, for many years July 31 had been a time of high festival. As it happens, my birthday falls on August 1; therefore our celebrations usually lasted three or four days. Except during the war, when we spent four summers in America, we were rarely absent from our home in Morges at this time, and Maciej Siekierski is the curator of the Hoover Archives’ East European Collection.

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it was Mr. Paderewski’s great joy to have about him as many of his nearest and dearest friends as could come to Switzerland. Our house, Riond Bosson, was always full to the roof. . . . All of them met at our table for luncheon and dinner, and generally it was a problem how to seat so many even in our large dining room. There were rarely less than twenty and the table furnished a confusion of tongues. At least three languages were heard there, and sometimes four and five were going at the same time, with Mr. Paderewski acting as interpreter and keeping the conversation general. Newcomers were always amazed at the ease he could keep in touch with people of three or four different nationalities, some of them ignorant of languages except their own, and how he was never at a loss to translate even puns and plays on words. . . . “It was Mr. Paderewski’s great joy to have about him as many of his nearest and dearest friends as could come to Switzerland.”

It had always been the rule during this season to forget all our cares and worries and to do everything possible to make happy the hero of the hour. Gaiety and lightheartedness were the rule, and no prank was too foolish if it brought a laugh. From year to year, the program for the two days ran along much the same lines. After luncheon on the 30th, the kitchen was surrendered to the chef to make final preparations for the great day—final literally, for he had been at work for a fortnight or more preparing his sweets and his cakes, his awe-inspiring edifices of pastry. For dinner we used to take our houseguests to the little Hotel Mont Blanc in Morges. On the morning of the fete, such guests as would went with me to church where a special Mass was celebrated. At noon the master appeared and we used to keep up the pretty old-time custom of Poland: he stood in the great hall of the house and there received the congratulations of his friends, presents from his family, servants, and employees, and addresses from different societies, while there was always waiting for him a great pile of congratulatory letters and telegrams from all parts of the world. After that, luncheon. The table was spread in the orangery under the great stone balcony, which forms a terrace for the house. Never less than


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Courtesy of Polish Music Center, University of Southern California

ON THE WORLD’S STAGE: Ignacy Jan Paderewski and his wife, Helena Paderewska, were front and center when postwar history gave Poland, their homeland, a brief independent life after World War I. The pianist was the prime minister and foreign minister of Poland in 1919 and represented Poland at the Paris Peace Conference, where he signed the Treaty of Versailles. This photo, stamped “Paso Robles Collection,” alludes to the couple’s life at their vineyards in California, a property they named Rancho San Ignacio. It still produces wine today.

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forty sat down. . . . What with the many courses, the many speeches and the many toasts, the afternoon was gone by the time we rose from the table, and in the evening came the more formal festivities. So far it had been an intimate, almost family affair, but for the evening invitations had been sent by the hundred to all our friends and acquaintances who were within reach. “We determined to carry on as if everything were normal. And really, it was an extraordinarily successful day.”

For the evening there was always some particular feature planned to take Mr. Paderewski by surprise. One year we had a Polish fete. Another year it was a most absurd symphony orchestra and still another year—and this happened to be the last one—it was a most gorgeously beautiful Chinese pageant. . . . After the spectacle came dancing, which lasted far into the next morning, and, weather permitting, the celebration ended with a picnic the next afternoon on our property at Prangins, this in honor of my birthday. All who were in Europe in that last month before the war will remember how blind to reality most of us were. Not until the storm broke did we really believe that there would be war, and even then it took us days fully to realize that it had come. To the very end of the month we were talking of our projected trip to Australia in the fall, and had the war held off another week it would have found us in Austria, at a watering place we had planned to try for the first time. Mr. Paderewski was thoroughly convinced that war was inevitable. He had made up his mind to this immediately after the assassination of the Grand Duke Ferdinand and the ultimatum of Austria to Serbia served only to convince him that war was near. He knew that Germany was prepared and that France and Russia were not; but he thought it was a matter of weeks or months instead of days. Mr. Dmowski, who was one of our guests, scoffed at the idea of immediate war. Russia, he said, would not be ready for three years and until then she would not fight, for she realized that it would be suicidal for her to enter into a war with Germany under such conditions. In fact, persuaded by Mr. Dmowski’s certainty that there


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Courtesy of Central Archives of Historical Records, Warsaw

was no immediate danger of war, in the last week of July I deposited a considerable sum of money in my bank in Lausanne, so that when Saturday came and my guests, most of them penniless like almost everyone else at that time, were starting for Paris and England, I had hardly a franc in the house with which to help them, and could get none from the bank. . . . Mr. Paderewski decided that there should be no change in the program, and we determined to carry on as if everything were normal. And really, it was an extraordinarily successful day. Everybody who came seemed to have determined to forget for the moment what was in the future and to get as much pleasure as possible out of the day. Mr. Paderewski was in constant touch with Bern and Paris and knew the developments from hour to hour. Although his anxiety increased as the day went on, he did not allow his guests to see it. I remember well how the morning of the fete he made it seem that his chief worry was the non-arrival of our friend Mr. Sharpe from London, with the cigars he had promised to bring. Timothy Adamowski of Boston, who was one of our guests, had complained that morning that he was unable to get a newspaper, so Mr. Paderewski had a kiosk put up before the entrance of the house and Henryk Opienski, most marvelously disguised as a Polish Jew, sold ancient papers and magazines to all that would buy. That kiosk remained standing for months, a mournful reminder of a past that had gone forever. . . . The fete that evening was particularly beautiful. We had sent out about five hundred invitations and despite the threatening conditions we had over three hundred guests. Madame Sembrich, with her husband, William Stengel, had come from her home in Nice, which she has not seen

LOOKING BACK: A bird’s eye view (opposite page) of Riond Bosson, the villa near Lake Geneva where the Paderewskis held a memorable family celebration while war began to erupt in Europe. “Our house, Riond Bosson, was always full to the roof,” Helena Paderewska remembered. “It had always been the rule during this season to forget all our cares and worries and to do everything possible to make happy the hero of the hour. . . . None of us knew when we might see one another again. Some we have never seen since.”


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since. . . . Among the guests that the Schellings brought were Enrique Granados, the Spanish composer, and his daughter. Poor man! He was to be one of the victims aboard the Sussex when he was returning to Spain from New York, where his opera had been produced at the Metropolitan Opera House. . . . “The morning of the fete, he made it seem that his chief worry was the non-arrival of our friend Mr. Sharpe from London, with the cigars he had promised to bring.”

As usual, the weather favored our fete. It had been a beautiful bright, warm day, and in the evening, too, it was quite comfortable to be out of doors without wraps. I remember that never had the mountains on the opposite shore of Lake Geneva been more lovely than they were at dusk. From our house we have stretched before us the whole line of Savoy Alps, from the Dents du Midi to Mont Blanc and never during the whole summer had the “Alpine glow” been more exquisitely radiant. At nightfall the grounds about the house were illuminated with Chinese lanterns and hundreds of tiny electric lamps in various colors. . . . The pièce de résistance was a wonderful dragon, several meters long, with a most horrific head of papier-mâché. It had great green eyes and from its mouth and nose issued clouds of smoke and flame. Major Schelling had arranged the Chinese music and Mr. Stojowski conducted the orchestra (composed of guests), which was placed on the upper balcony of the house. And there were some charming Chinese dances done by three young girls, of whom pretty little Miss Granados was one. All this time while the gaiety was at its height, in another room, always within reach of the telephone, were a group of serious men. . . . It was a very great contrast. In one room were people dancing madly to the raging music made by four strong men at two concert-grand pianos; in the next room were these very serious men who were getting news every few minutes over the telephone, from Bern, from Geneva and Lausanne, and messages came through even from Paris. Mr. Paderewski divided his time between the two groups and as the evening wore on he became more and 196


more anxious and worried. But even then, although in constant touch with official sources of news in Switzerland, none of us really believed that war was but a few hours away. Although some of our guests left shortly after midnight, it was after five when the last one had gone. At the end the partings had been full of sorrow, for none of us knew when we might see one another again. Some we have never seen since. With many it was years before we met, not until we returned to Europe after the Armistice was signed, and others we were to see next in the United States, whither we were to go the following spring. . . . My birthday, that year, will always be memorable. I roused the people, gave them the news, and told them to pack because they all had to leave on the night train from Lausanne for Paris. . . . By putting all our resources together, we finally scraped together enough money to take to Paris those who had not their tickets. In the evening we managed to get all their luggage to the station, and saw them on their way home, leaving us utterly worn out, completely unnerved, and absolutely penniless. . . . But our trials were only beginning. “I had been preparing for the summer and autumn shows my two thousand prize chickens, but during the first three months of the war thirteen hundred of them did their bit for liberty by helping to feed our refugee guests.”

I went into Lausanne on Monday, August 2, to lay in a stock of provisions. I had no money, but fortunately our credit was excellent. When I returned I found our house full to overflowing. There were exactly fiftythree Poles there, friends and acquaintances who had been caught in Switzerland by the war where they were spending the summer holidays, who could not get home and even if the way had been open, like everyone else they were penniless and could not get money, no matter how large their letters of credit might have been. Riond Bosson became at once a great Polish refugee station, and for the next three months we never had less than fifty with us and for two years the house was full. . . . It would have


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been great fun if it had not been so serious. I had been preparing for the summer and autumn shows my two thousand prize chickens, but during the first three months of the war thirteen hundred of them did their bit for liberty by helping to feed our refugee guests. I can attest that those chickens were probably the most expensive that ever appeared on a table. . . . “Never had the mountains on the opposite shore of Lake Geneva been more lovely than they were at dusk.”

There arrived from Paris a director of the Banque des Pays Autrichiens who had barely been able to get out of the city with his daughter. He told us that he had put all of Mr. Paderewski’s securities in the Credit Lyonnais and that he was sending his own valet to us with a trunk containing property of his own, and would we please keep it for him until he could call for it in a few days? He left the key of the trunk with us. The key we still have. But neither the valet, trunk, nor owner ever appeared, and we never heard from him or of him. Special to the Hoover Digest.

New from the Hoover Press is Women of the Gulag: Portraits of Five Remarkable Lives, by Paul R. Gregory. To order, call 800.888.4741 or visit www.hooverpress.org.

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H O O V E R AR CH I V E S

The Crusade Years When Herbert Hoover left the White House, he remained intensely interested in world affairs, devoting much of the rest of his life to the struggle against collectivism. By George H. Nash.

On a cool October morning in 1964, Herbert Hoover died at the age of ninety. He had lived a phenomenally productive life, including more than half a century in one form or another of public service. It was a record that in sheer scope and duration may be without parallel in American history. His life had begun in humble circumstances in 1874 in a little Iowa farming community, as the son of the village blacksmith. Orphaned before he was ten, Hoover managed to enter Stanford University when it opened its doors in 1891. Four years later he graduated with a degree in geology and a determination to become a mining engineer. From then on, Hoover’s rise in the world was meteoric. By 1914, at the age of forty, he was an internationally acclaimed and extraordinarily successful mining engineer who had traveled around the world five times and had business interests on every continent except Antarctica. During World War I, Hoover, residing in London, rose to prominence as the founder and director of the Commission for Relief in Belgium, an institution that provided desperately needed food supplies to more than nine million Belgian and French citizens trapped between the German army of occupation and the British naval blockade. His emergency relief George H. Nash is a historian, lecturer, and authority on the life of Herbert Hoover. He is the editor of The Crusade Years, 1933–1955: Herbert Hoover’s Lost Memoir of the New Deal Era and Its Aftermath (Hoover Press, 2013) and wrote its introduction, from which this essay is adapted.


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mission in 1914 quickly evolved into a gigantic humanitarian enterprise without precedent in world history. By 1917 he was an international hero. When America declared war on Germany in 1917, Hoover returned home and became head of the United States Food Administration, a specially created wartime agency of the federal government. At the conflict’s victorious close in 1918, President Woodrow Wilson dispatched Hoover to Europe to organize food distribution to a continent careening toward disaster. There, for ten grueling months, he directed American-led efforts to combat famine and disease, establish stable postwar economies, and in the process check the advance of Bolshevik revolution from the East. Hoover saw the New Deal not as a moderate and pragmatic response to economic distress but as something more sinister: a revolutionary transformation of America’s political economy and constitutional order.

A little later, between 1921 and 1923, Hoover’s American Relief Administration administered a massive, emergency relief operation in the interior of Soviet Russia, where a catastrophic famine—Europe’s worst since the Middle Ages—had broken out. At its peak of operations, his organization fed upwards of ten million Russian citizens a day. All in all, between 1914 and 1923 the American-born engineer-turnedhumanitarian directed, financed, or assisted a multitude of international relief endeavors without parallel in the history of mankind. Tens of millions of people owed their lives to his exertions. It was later said of him that he was responsible for saving more lives than any other person in history. During the Roaring Twenties Hoover ascended still higher on the ladder of public esteem. As secretary of commerce under presidents Warren Harding and Calvin Coolidge, he quickly became one of the three or four most influential men in the US government. In 1928 the “master of emergencies” (as admirers called him) was elected president of the United States in a landslide—without ever having held an elective public office. Then came the Crash of 1929 and the most severe economic trauma this nation has ever experienced. During his tormented presidency, Hoover strained without stint to return his country to prosperity while 200


safeguarding its political moorings. His labors—even now misunderstood—seemed unavailing, and in the election of 1932 his fellow citizens’ verdict was harsh. Before his single term as chief executive, Hoover’s career trajectory had curved unbrokenly upward. Now it headed pitifully down. On March 4, 1933, he left office a virtual pariah, maligned and hated like no other American in his lifetime.

A P O L IT I C A L PU G I LI ST And then, astonishingly, like a phoenix, he slowly rose from the ashes of his political immolation. Now came the final phase of Hoover’s career: his remarkable ex-presidency. For the next thirty-one and a half years, in fair political weather and foul, the former chief executive became, in his selfimage, a crusader—a tireless and very visible castigator of the dominant political trends of his day. He behaved as an ideological warrior more persistently and more fervently than any other former president in our history. Why? Most of all, it was because Hoover perceived in the New Deal of Franklin Roosevelt not a moderate and pragmatic response to economic distress but something more sinister: a revolutionary transformation in America’s political economy and constitutional order. Having espied the unpalatable future, Hoover could not bring himself to acquiesce. Alternative philosophies, as Hoover saw it, were now boldly advocating “the idea of the servitude of the individual to the state.”

It is this eventful period in Hoover’s career—and, more specifically, his life as a political pugilist from 1933 to 1955—that is the main subject of a long-forgotten manuscript recently published for the first time. The Crusade Years, 1933–1955: Herbert Hoover’s Lost Memoir of the New Deal Era and Its Aftermath is a previously unknown memoir that Hoover composed during the 1940s and 1950s—and then, surprisingly, set aside. Placed in storage by his heirs after his death, the manuscript lay sequestered—its existence unsuspected by scholars—until 2009, when it was discovered among the files of another hitherto inaccessible Hoover manuscript being readied for posthumous publication.


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This other tome, known informally as the Magnum Opus, addressed American foreign policy in the 1930s and 1940s. Part memoir, part diplomatic history, part polemic, it was a scathing indictment of what Hoover termed Franklin Roosevelt’s “lost statesmanship” during World War II. Hoover ultimately titled the book Freedom Betrayed. It was published in 2011 by the Hoover Institution Press. The Crusade Years—a companion volume of sorts to the Magnum Opus—covers much the same time period on the American home front. It recounts Hoover’s family life after March 4, 1933, his myriad philanthropic interests, and, above all, what he termed his “crusade against collectivism” in American life. Hoover’s fight to save America from the curse of collectivism forms the centerpiece of The Crusade Years.

When Hoover left the White House in 1933, he was not yet fifty-nine years old and had no intention of receding mutely into the shadows. At the climax of the bitter election campaign of 1932, he had portrayed the decision facing the American electorate as more than a choice between two men and two parties. It was a “contest between two philosophies of government,” an election that would determine the nation’s course for “over a century to come.” The proposed New Deal, he had warned, was nothing less than a form of collectivism that would destroy the very foundations of the American system of life. In 1933 he forecast to a friend that the “impending battle in this country” would be between “a properly regulated individualism” (which he called “American Individualism”) and “sheer socialism.” He had no doubt as to which direction the New Deal was taking.

CH AL L E N GE T O L I B E R TY In September 1934 the former president published a book of political philosophy with the militant title The Challenge to Liberty. According to Hoover, the traditional American system of liberty, a system infused with the philosophy of historic liberalism, was under fundamental assault. Where liberalism championed the individual as master of the state and possessor of inalienable rights, alternative philosophies were now bold202


ly advocating “the idea of the servitude of the individual to the state.” Among these philosophies—all sharing this fundamental premise—were Nazism, fascism, socialism, communism, and “regimentation” (his term for Franklin Roosevelt’s New Deal). Anxious, in the new political environment, to clarify his own position, Hoover increasingly identified his political philosophy as “historic liberalism,” in contrast to what he scorned as the regimenting “false liberalism” of the New Deal. In 1937 he declared: “The New Deal having corrupted the label of liberalism for collectivism, coercion, [and] concentration of political power, it seems ‘Historic Liberalism’ must be conservatism in contrast.” With these words of recognition, Hoover’s political odyssey was complete. The one-time Bull Moose Republican and Wilsonian food regulator, the self-described “independent progressive” of early 1920, the assertive and reformist secretary of commerce whom Old Guard Republicans tried to block from the party’s presidential nomination in 1928: he, Herbert Hoover, had become a man of the right. The publication of The Challenge to Liberty marked Hoover’s emergence from a year and a half of political exile. More important, it announced his postpresidential debut as a crusader-prophet: a role he did not relinquish until his death. Crisscrossing the country in the mid- and late 1930s, he delivered an unceasing barrage of verbal fusillades against the New Deal and its defenders. In the process he became the Republican Party’s intellectual leader and President Roosevelt’s most formidable critic from the right. Hoover’s fight to save America from the curse of collectivism forms the centerpiece of The Crusade Years. In its pages readers will find fresh and sometimes caustic accounts of the great election contests of the New Deal era and of such upheavals as the Republican national convention of 1940. Here they will read candid appraisals of Alf Landon, Wendell Willkie, Thomas Dewey, Harry Truman, and others with whom Hoover crossed paths (and sometimes swords). But Hoover, one suspects, would be disappointed if we were to read The Crusade Years solely for its anecdotes. Although his book has the flavor of an apologia pro vita sua, plainly he intended it to be more. His chosen title provides the critical clue. “Crusade”: how he savored this word as he scribbled away at his desk in the late 1940s and early


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1950s. The stirring persona of a crusader, with its connotations of dynamism and idealism, was his cherished self-image, at a time when many of his enemies had dismissed him as a curmudgeon whom Roosevelt and history had passed by. Undaunted, Hoover fought on as a man with a mission, seeking not just the recovery of his reputation but the intellectual and spiritual rescue of a nation gone astray. In The Crusade Years he knew he was not just recording political history but waging a fateful battle of ideas.

SE E K IN G T HE T RU E NAR R ATI V E And therein lies much of the book’s significance. In the 1930s and 1940s, both Hoover and his archrival Franklin Roosevelt knew that they were engaged in a contest for the American mind and political soul. What had gone wrong since the Crash of 1929? Was the Great Depression a crisis of capitalism, a product of Hooverian mismanagement, or a catastrophe brought on by uncontrollable happenings abroad? Was the New Deal a humane and pragmatic reform movement or a muddled and meddlesome experiment in collectivism? Did the traditional “American System” of limited government, private initiative, and volunteerism apotheosized by Hoover fail disastrously in 1929–32, or did his successor in the White House launch America on a dangerous and unnecessary spiral into socialism? Did the New Deal actually save American capitalism, or did it delay economic recovery and damage the wellsprings of future prosperity? The American system of ordered liberty was precious and must be preserved from the “philosophic error” of utopian statism, Hoover stressed.

As Hoover foresaw in 1932, the answers to these questions would determine the nation’s course for generations to come. Unlike most men in politics then or since, he realized the supreme importance of constructing a compelling narrative of past events as a weapon in the ongoing war of political philosophies. Hence the fervency and persistence of his efforts in The Crusade Years to establish what he considered to be the proper narrative of the causes and course of the Great Depression. Hence his intellectual embrace of “true liberalism,” his trenchant assault on New 204


Deal nostrums, and his anger at Republican politicians who evaded the ideological issues. Unless Americans had a correct understanding of their recent past, he feared, the future would belong to the advocates of statism. Reading The Crusade Years, one is struck by how resonant Hoover’s arguments continue to be. As an unapologetic believer in American exceptionalism, he unceasingly resisted what he saw as the insidious “Europeanization” and “collectivization” of American society. To him the American system of ordered liberty was ineffably precious and must be preserved from the “gigantic poison” and “philosophic error” of utopian statism. Today one could easily take passages from The Crusade Years and convert them into blog posts, so current are the problems of political and economic philosophy that he addressed. Fifty years after his death, Hoover remains, for many, a political orphan, unwelcome in liberal and conservative pantheons alike. It has been said of him that he was “too progressive for the conservatives and too conservative for the radicals.” But in the larger sweep of the twentieth century, Hoover the unflagging anti–New Dealer contributed mightily to the critique of ever-aggrandizing statism, a critique that has become integral to American conservatism. It was among the most enduring of his legacies— and one well worth pondering today. Adapted from The Crusade Years, 1933–1955: Herbert Hoover’s Lost Memoir of the New Deal Era and Its Aftermath, edited and with an introduction by George H. Nash (Hoover Institution Press, 2013). © 2013 by George H. Nash.

New from the Hoover Press is The Crusade Years, 1933– 1955: Herbert Hoover’s Lost Memoir of the New Deal Era and Its Aftermath, edited by George H. Nash. To order, call 800.888.4741 or visit www.hooverpress.org.


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hoover institution on war, revolution and peace

Board of Overseers Marc L. Abramowitz Victoria “Tory” Agnich Frederick L. Allen Jack R. Anderson Martin Anderson Barbara Barrett Robert G. Barrett Donald R. Beall Stephen D. Bechtel Jr. Peter B. Bedford Peter S. Bing Walter E. Blessey Jr. Joanne Whittier Blokker William K. Blount James J. Bochnowski Wendy H. Borcherdt William K. Bowes Jr. Richard W. Boyce James J. Carroll III Robert H. Castellini Rod Cooper Paul L. Davies Jr. Paul Lewis “Lew” Davies III John B. De Nault Steven A. Denning* Dixon R. Doll Susanne Fitger Donnelly Joseph W. Donner Herbert M. Dwight William C. Edwards Gerald E. Egan

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Charles H. “Chuck” Esserman Jeffrey A. Farber Carly Fiorina Clayton W. Frye Jr. Stephen B. Gaddis Samuel L. Ginn Michael Gleba Cynthia Fry Gunn Paul G. Haaga Jr. Arthur E. Hall Everett J. Hauck W. Kurt Hauser John L. Hennessy* Warner W. Henry Sarah Page Herrick Heather R. Higgins Allan Hoover III Margaret Hoover Preston B. Hotchkis Philip Hudner Gail A. Jaquish Charles B. Johnson Franklin P. Johnson Jr. Mark Chapin Johnson John Jordan Steve Kahng Mary Myers Kauppila David B. Kennedy Raymond V. Knowles Jr. Donald L. Koch Richard Kovacevich


Henry N. Kuechler III Peyton M. Lake Carl V. Larson Jr. Allen J. Lauer Bill Laughlin Howard H. Leach Walter Loewenstern Jr. Robert H. Malott Frank B. Mapel Shirley Cox Matteson Richard B. Mayor Craig O. McCaw Bowen H. McCoy Burton J. McMurtry Roger S. Mertz Jeremiah Milbank III Mitchell Milias David T. Morgenthaler Sr. Charles T. Munger Jr. George E. Myers Robert G. O’Donnell Robert J. Oster Joel C. Peterson James E. Piereson Jay A. Precourt George J. Records Christopher R. Redlich Jr. Kathleen “Cab” Rogers James N. Russell

Richard M. Scaife Roderick W. Shepard Thomas M. Siebel George W. Siguler William E. Simon Jr. Boyd C. Smith James W. Smith, MD John R. Stahr William C. Steere Jr. Thomas F. Stephenson Robert J. Swain W. Clarke Swanson Jr. Curtis Sloane Tamkin Tad Taube Robert A. Teitsworth L. Sherman Telleen Peter A. Thiel Thomas J. Tierney David T. Traitel Victor S. Trione Don Tykeson Nani S. Warren Dean A. Watkins Dody Waugh Jack R. Wheatley Paul H. Wick Norman “Tad” Williamson Richard G. Wolford Marcia R. Wythes *Ex officio members of the Board


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The Hoover Institution on War, Revolution and Peace was established at Stanford University in 1919 by Herbert Hoover, a member of Stanford’s pioneer graduating class of 1895 and the thirty-first president of the United States. Since 1919 the Institution has evolved from a library and repository of documents to an active public policy research center. Simultaneously, the Institution has evolved into an internationally recognized library and archives housing tens of millions of books and archival documents relating to political, economic, and social change.

The Institution’s overarching goals are to

• Understand the causes and consequences of economic, political, and social change

• Analyze the effects of government actions relating to public policies

• Generate and disseminate ideas directed at positive public policy formation using reasoned arguments and intellectual rigor, converting conceptual insights into practical policy initiatives judged to be beneficial to society Ideas have consequences, and a free flow of competing ideas leads to an evolution of policy adoptions and associated consequences affecting the well-being of society. The Hoover Institution endeavors to be a prominent contributor of ideas having positive consequences. In the words of President Hoover, This Institution supports the Constitution of the United States, its Bill of Rights, and its method of representative government. Both our social and economic systems are based on private enterprise from which springs initiative and ingenuity. . . . The Federal Government should undertake no governmental, social, or economic action, except where local government or the people cannot undertake it for themselves. . . . The overall mission of this Institution is . . . to recall the voice of experience against the making of war, . . . to recall man’s endeavors to make and preserve peace, and to sustain for America the safeguards of the American way of life. . . . The Institution itself must constantly and dynamically point the road to peace, to personal freedom, and to the safeguards of the American system. To achieve these goals, the Institution conducts research using its library and archival assets under the auspices of three programs: Democracy and Free Markets, American Institutions and Economic Performance, and International Rivalries and Global Cooperation. These programs address, respectively, political economy abroad, political economy domestically, and political and economic relationships internationally.

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The Hoover Institution is supported by donations from individuals, foundations, corporations, and partnerships. If you are interested in supporting the research programs of the Hoover Institution or the Hoover Library and Archives, please contact the Office of Development, telephone 650.725.6715 or fax 650.723.1952. Gifts to the Hoover Institution are tax deductible under applicable rules. The Hoover Institution is part of Stanford University’s tax-exempt status as a Section 501(c)(3) “public charity.” Confirming documentation is available upon request.

The Hoover Institution gratefully acknowledges the support of its benefactors in establishing the communications and information dissemination program. Significant gifts for the support of the Hoover Digest are acknowledged from

Bertha and John Garabedian Charitable Foundation The Jordan Vineyard and Winery Joan and David Traitel ❖

The Hoover Institution gratefully acknowledges generous support from the Founders of the Program on American Institutions and Economic Performance

Tad and Dianne Taube Taube Family Foundation Koret Foundation and a Cornerstone Gift from

Sarah Scaife Foundation ❖

Professional journalists are invited to visit the Hoover Institution to share their perspectives and engage in a dialogue with the Hoover community. Leadership and significant gift support to reinvigorate and sustain the William and Barbara Edwards Media Fellows Program are acknowledged from

William K. Bowes Jr. William C. Edwards Charles B. Johnson Tad and Cici Williamson

The Hoover Institution on War, Revolution and Peace was established at Stanford University in 1919 by Herbert Hoover, a member of Stanford’s pioneer graduating class of 1895 and the thirty-first president of the United States. Since 1919 the Institution has evolved from a library and repository of documents to an active public policy research center. Simultaneously, the Institution has evolved into an internationally recognized library and archives housing tens of millions of books and archival documents relating to political, economic, and social change.

The Institution’s overarching goals are to

• Understand the causes and consequences of economic, political, and social change

• Analyze the effects of government actions relating to public policies

• Generate and disseminate ideas directed at positive public policy formation using reasoned arguments and intellectual rigor, converting conceptual insights into practical policy initiatives judged to be beneficial to society Ideas have consequences, and a free flow of competing ideas leads to an evolution of policy adoptions and associated consequences affecting the well-being of society. The Hoover Institution endeavors to be a prominent contributor of ideas having positive consequences. In the words of President Hoover, This Institution supports the Constitution of the United States, its Bill of Rights, and its method of representative government. Both our social and economic systems are based on private enterprise from which springs initiative and ingenuity. . . . The Federal Government should undertake no governmental, social, or economic action, except where local government or the people cannot undertake it for themselves. . . . The overall mission of this Institution is . . . to recall the voice of experience against the making of war, . . . to recall man’s endeavors to make and preserve peace, and to sustain for America the safeguards of the American way of life. . . . The Institution itself must constantly and dynamically point the road to peace, to personal freedom, and to the safeguards of the American system. To achieve these goals, the Institution conducts research using its library and archival assets under the auspices of three programs: Democracy and Free Markets, American Institutions and Economic Performance, and International Rivalries and Global Cooperation. These programs address, respectively, political economy abroad, political economy domestically, and political and economic relationships internationally.

❖

❖

❖

The Hoover Institution is supported by donations from individuals, foundations, corporations, and partnerships. If you are interested in supporting the research programs of the Hoover Institution or the Hoover Library and Archives, please contact the Office of Development, telephone 650.725.6715 or fax 650.723.1952. Gifts to the Hoover Institution are tax deductible under applicable rules. The Hoover Institution is part of Stanford University’s tax-exempt status as a Section 501(c)(3) “public charity.” Confirming documentation is available upon request.

The Hoover Institution gratefully acknowledges the support of its benefactors in establishing the communications and information dissemination program. Significant gifts for the support of the Hoover Digest are acknowledged from

Bertha and John Garabedian Charitable Foundation The Jordan Vineyard and Winery Joan and David Traitel ❖

The Hoover Institution gratefully acknowledges generous support from the Founders of the Program on American Institutions and Economic Performance

Tad and Dianne Taube Taube Family Foundation Koret Foundation and a Cornerstone Gift from

Sarah Scaife Foundation ❖

Professional journalists are invited to visit the Hoover Institution to share their perspectives and engage in a dialogue with the Hoover community. Leadership and significant gift support to reinvigorate and sustain the William and Barbara Edwards Media Fellows Program are acknowledged from

William K. Bowes Jr. William C. Edwards Charles B. Johnson Tad and Cici Williamson

H OOVER DIGE ST · 2014 · N O . 2 The Economy Inequality Immigration Health Care Politics Intelligence Education Mexico China Poland The Middle East Islamism California Interview: David Mamet Values History and Culture The Great War Centennial Hoover Archives

Hoover Digest, 2014, No. 3, Summer

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