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HOOVER DIGEST RESEARCH AND OPINION ON PUBLIC POLICY

H OOVER DIGE ST · 2014 · N O . 2

RESEARCH AND OPINION
O N P U B L I C P O L I C Y
2 0 1 4 • N O. 2 • S P R I N G

Islamism
California
Interview: David Mamet
Values
History and Culture
The Great War Centennial
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2014 . NO. 2
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RESEARCH AND OPINION
O N P U B L I C P O L I C Y 
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Hoover Digest

Research and Opinion on Public Policy

2014 • no. 2 • spring

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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.

13

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

16

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.

26

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

30

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

41

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.

54

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.

Hoover Digest  N  2014 · No. 2

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.

75

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.

81

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.

Hoover Digest  N  2014 · No. 2

98

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

102

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.

123

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.

Hoover Digest  N  2014 · No. 2

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.

146

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.

Hoover Digest  N  2014 · No. 2

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.

190

“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.

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

9

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

Hoover Digest  N  2014 · No. 2

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-

Hoover Digest  N  2014 · No. 2

11

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.

12

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

13

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

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

15

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.

16

Hoover Digest  N  2014 · No. 2

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

Hoover Digest  N  2014 · No. 2

17

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

Hoover Digest  N  2014 · No. 2

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,

Hoover Digest  N  2014 · No. 2

19

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.
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Hoover Digest  N  2014 · No. 2

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

Hoover Digest  N  2014 · No. 2

21

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,
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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

Hoover Digest  N  2014 · No. 2

23

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.
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Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

25

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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Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

27

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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Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

29

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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Hoover Digest  N  2014 · No. 2

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-

Hoover Digest  N  2014 · No. 2

31

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Hoover Digest  N  2014 · No. 2

© 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

33

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
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Hoover Digest  N  2014 · No. 2

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

Hoover Digest  N  2014 · No. 2

35

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.

36

Hoover Digest  N  2014 · No. 2

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).

Hoover Digest  N  2014 · No. 2

37

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

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

39

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.

40

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

41

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-

42

Hoover Digest  N  2014 · No. 2

Illustration by Taylor Jones for the Hoover Digest.

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

Hoover Digest  N  2014 · No. 2

43

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

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

45

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.

46

Hoover Digest  N  2014 · No. 2

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

Hoover Digest  N  2014 · No. 2

47

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.

48

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

49

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.

50

Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

51

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.
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Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

53

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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Hoover Digest  N  2014 · No. 2

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.

Hoover Digest  N  2014 · No. 2

55

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

56

Hoover Digest  N  2014 · No. 2

Illustration by Taylor Jones for the Hoover Digest.

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.

Hoover Digest  N  2014 · No. 2

57

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.

58

Hoover Digest  N  2014 · No. 2

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).

Hoover Digest  N  2014 · No. 2

59

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.”
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Hoover Digest  N  2014 · No. 2

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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Illustration by Taylor Jones for the Hoover Digest.

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
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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
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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

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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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Illustration by Taylor Jones for the Hoover Digest.

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
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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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83

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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85

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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87

Illustration by Taylor Jones for the Hoover Digest.

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,
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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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91

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
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93

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

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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;
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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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C H I NA

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
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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.

Hoover Digest  N  2014 · No. 2

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C H I NA

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

103

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

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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,
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105

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
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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.
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107

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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PO L AN D

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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109

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
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© 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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111

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.
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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.

Hoover Digest  N  2014 · No. 2

113

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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115

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,
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Illustration by Taylor Jones for the Hoover Digest.

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

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117

“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.
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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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T H E M I D D L E E AST

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
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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.
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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,
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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

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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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133

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
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135

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
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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.

Hoover Digest  N  2014 · No. 2

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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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139

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.

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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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141

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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Illustration by Taylor Jones for the Hoover Digest.

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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143

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
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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.

Hoover Digest  N  2014 · No. 2

145

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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147

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
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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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149

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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155

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,
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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?
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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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Illustration by Taylor Jones for the Hoover Digest.

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.”
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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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World War I Pictorial Collection—Hoover Institution Archives

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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World War I Pictorial Collection—Hoover Institution Archives

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
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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
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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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Poster Collection—Hoover Institution Archives

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,
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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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World War I Pictorial Collection—Hoover Institution Archives

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
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World War I Pictorial Collection—Hoover Institution Archives

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,
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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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189

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
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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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197

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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Hoover Digest  N  2014 · No. 2

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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199

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
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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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201

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

Hoover Digest  N  2014 · No. 2

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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203

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
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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.

Hoover Digest  N  2014 · No. 2

205

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

206

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

Hoover Digest  N  2014 · No. 2

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

Hoover Digest  N  2014 · No. 2

207

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

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
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