Hoover Digest, 2014, No. 4, Fall

RESEARCH AND OPINION
O N P U B L I C P O L I C Y
2014 NO. 4 FALL
T H E H O O V E R I N S T I T U T I O N S TA N F O R D U N I V E R S I T Y
Hoover Digest
Research and Opinion on Public Policy
2014 no. 4 fall
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On the Cover
In 1950, American efforts to rebuild Europe
were outgrowing their original ambitions:
feed the hungry, revive trade and currencies in
allied and former enemy nations alike, resurrect industry, and restore stability. Now Soviet
militancy was rising, threatening Europes
fragile security and posing an ideological
challenge. This poster was part of a Marshall
Plan contest meant to persuade Europeans
to choose democracy and open markets and
reject the Soviet appeal. It was part of a larger
war of ideas. See story, page 202.
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HOOVER INSTITUTION
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Contents
HOOVER DIGEST 2014 N O. 4 FA L L
IRAQ
9
Axis of Folly
The president of the United States proved rash, the former prime
minister of Iraq, arrogant. Why Iraq is teetering. By fouad ajami.
13
Best Frenemies?
As Iraq wobbles, Iran might almost look like a friend. It isnt. By
abbas milani.
16
The Price of Our Responsible Exit

The Iraq war never ended. We just quit fighting it. By kori n. schake.
21
An Army of Revisionists
How quickly we forget our reasons for toppling Saddamand our
politicians forget how they endorsed it. By victor davis hanson.
T H E E C O NOMY
26
Why the Fed Must Return to Rules

What does the economy need from the Fed? Less intervention, more
stability. By john b. taylor.
31
The Foundation Crumbles

Rising taxes and the unrestrained growth in entitlements are eating
away at the very foundation of our economy: property rights. By
michael j. boskin.
Hoover Digest N 2014 No. 4
I N E Q U A LI T Y
35
Rickety Piketty
Economist Thomas Piketty wants to confiscate wealth, but he doesnt
grasp where wealth actually comes from. By richard a. epstein.
42
The United States of Envy

What closes income gaps? Education and innovationnot
confiscatory taxes such as those Thomas Piketty proposes. By
allan h. meltzer.
C A LI F O R N I A
47
Economics in a Time of Drought

Let the water flow where the market, not the government, says it
should go. By edward paul lazear.
51
An End to Pension Patches

Meaningful ways to mend the Golden States pension-funding gap.
By carson bruno.
T H E E N V I R O NMENT
56
Railroading the Environment

Block the construction of pipelines and more oil gets shipped by
train. That will make spills and accidents more likely, not less. By
terry l. anderson.
H E A LT H C ARE
61
Side Effects May Include Collusion

Caution: ObamaCare might encourage hospitals and doctors to fix
prices. By daniel p. kessler.
64
Waiting for Dr. Godot

Long treatment delays at VA hospitals shouldnt shock us. In countries with government health care monopolies, waiting months
even yearsrepresents business as usual. By scott w. atlas.
72
Bitter Pills
Higher costs, fewer choicesthe Affordable Care Act is becoming
harder and harder to swallow. By richard a. epstein.
P O LI T I CS
78
Affirmative-Action Foibles
The Democratic Party likes racial preferences in college admissions,
but Asian-Americans dont. Might we see a parting of the ways? By
lanhee j. chen.
81
They Might Be Giants

Then again, they might not. If politics were baseball, President
Obamas team would have whiffed. By bill whalen.
I N T E LLI GENC E
86
The Secret Sharers

If leaks of secret information are so bad, why not plug them? Because both the public and the government consider them useful. By
jack goldsmith.
91
In Snowden We Trust? Never

Self-appointed crusaders, no matter how clever or articulate, must
never get to decide which secrets our government can keep. By
benjamin wittes.
T H E M I D D LE EAST
98
Imaginary Egypt
Egyptians told themselves a thrilling story about their revolution.
Then the fable ended where it had begun: with a pharaoh in power.
By samuel tadros.
107
Will Iran and Israel Meet in the Middle?

In Iran, hints of a secular thaw. In Israel, the increasing prominence
of religious parties. Two nations, antagonisticand unsettled. By
abbas milani and israel waismel-manor.
112
Clooney of Arabia
Movie star George Clooney found a love match among the Druze, a
sect whose members have seen their own share of drama. By lee smith.
U KR A I N E
122
Ukraine Is Fighting Our Battle

Five reasons the United States should send military aid to Ukraine.
By paul r. gregory.
CHINA
128
A Modern Mandarin
Opening itself to free markets, China has lifted several hundred million people out of poverty. That was the easy part. An interview with
Hoover fellow michael spence. By jonathan schlefer.
I N T E R V I EWS
133
Reform Conservatism and the Junior Senator from Utah

In the absence of a unifying conservative reform agenda, says Mike
Lee of Utah, there will be a lot of bickering. We need to fill the
void. An interview with peter robinson.
143
Game of Loans
Banking crises are a product of people and strategy, not mysterious forces,
say Hoover fellows charles w. calomiris and stephen h. haber.
By kathryn jean lopez.
V A LU E S
152
The Fairness Fallacy

Wait for perfect fairness in life and youll wait forever. But that
doesnt mean anybody is holding you back. By thomas sowell.
155
Moral Debts
The way we deal with our debts involves more than dollars and cents.
It reveals our very character as a people. By david davenport.
158
Who Will Speak?

Today, Salman Rushdie lives in freedom. But the spirit of the fatwa
and the censorhas only grown stronger. By timothy garton ash.
I N M E M O R I A M: FOUAD AJAMI
163
It Would Be My Fate to Return...

Rooted in the old world, the late Hoover fellow fouad ajami flourished in the new. A reflection from his final book, In This Arab Time.
172
Fouads Gift
Farewell to a friend, a guide, and a storyteller of the Arab worlds
disorder. By charles hill.
H I S T O R Y A N D C UL TURE
178
Whos Number One? Does It Matter?

Country rankings are being twisted to tell all kinds of storiesbut rarely the story of how America meets its challenges.
By victor davis hanson.
H O O V E R A R CHIVES
184
One Summit, Different Dreams

The Cairo Summit offered China a chance to present itself as an
equal on the world stage. For Chiang Kai-shek it would lead to bitter
disappointment. By hsiao-ting lin.
202
On the Cover
I R AQ
Axis of Folly
The president of the United States proved rash, the former prime
minister of Iraq, arrogant. Why Iraq is teetering. By Fouad Ajami.
Editors note: This is the last essay by Hoover senior fellow Fouad Ajami to
be published before his death in June. Turn to page 172 for reflections on Dr.
Ajamis life and work.
Two men bear direct responsibility for the mayhem engulfing Iraq: Barack
Obama and Nouri al-Maliki. The US president and the Iraqi prime minister stood shoulder to shoulder in a White House ceremony in December
2011 proclaiming victory. Obama was fulfilling a campaign pledge to end
the Iraq war. There was a utopian tone to his pronouncement, suggesting
that the conflicts that had been endemic to that region would be brought
to an end. As for Maliki, there was the heady satisfaction, in his estimation, that Iraq would be sovereign and intact under his dominion.
In truth, Iraqs new Shiite prime minister was trading American tutelage for Iranian hegemony. Thus the claim that Iraq was a fully sovereign
country was an idle boast. Around the Maliki regime swirled mightier,
more sinister players. In addition to Irans penetration of Iraqi strategic
and political life, there was Baghdads unholy alliance with the brutal
Assad regime in Syria, whose members belong to an Alawite Shiite sect
and were taking on a largely Sunni rebellion. If Bashar Assad were to fall,
Maliki feared, the Sunnis of Iraq would rise up next.
Fouad Ajami was a senior fellow at the Hoover Institution and co-chair of
Hoovers Herbert and Jane Dwight Working Group on Islamism and the International Order.
Iraqs Kurds were made to feel like beggars at the Maliki table.
There was, not so long ago, a way for Maliki to have avoided all this:
the creation of a genuine political coalition, making good on his promise
that the Kurds in the north and the Sunnis throughout the country would
be full partners in the Baghdad government. Instead, the Shiite prime
minister set out to subjugate the Sunnis and marginalize the Kurds. There
was, from the start, no chance that this would succeed. For their part, the
Sunni Arabs of Iraq were possessed of a sense of political mastery of their
own. After all, this was a community that had ruled Baghdad for a millennium. Why should a community that had known such great power accept
sudden marginality?
As for the Kurds, they had conquered a history of defeat and persecution and built a political enterprise of their owna viable military insti10
US Department of Defense/Jim Gordon
Now, even as Assad clings to power in Damascus, Iraqs Sunnis have risen
up and joined forces with the murderous, Al-Qaeda-affiliated Islamic State of
Iraq and al-Sham (ISIS), which controls much of northern Syria and the Iraqi
cities of Fallujah, Mosul, and Tikrit. ISIS marauders are marching on the Shiite holy cities of Najaf and Karbala, and Baghdad itself has become a target.
Iraqs leading Shiite cleric, Ayatollah Ali al-Sistani, has called on his
followers to take up arms against ISIS and other Sunni insurgents in
defense of the Baghdad government. This is no ordinary cleric playing
with fire. For a decade, Ayatollah Sistani stayed on the side of order and
social peace. Indeed, at the height of Iraqs sectarian troubles in 20067,
President George W. Bush gave the ayatollah credit for keeping the lid on
that volcano. Now even that barrier to sectarian violence has been lifted.
This sad state of affairs was in no way preordained. In December 2011,
Obama stood with Maliki and boasted that in the coming years, its estimated that Iraqs economy will grow even faster than Chinas or Indias.
But the negligence of these two menmost notably in their failure to
successfully negotiate a Status of Forces Agreement that would have maintained an adequate US military presence in Iraqhas resulted in the current descent into sectarian civil war. Iraqs Kurds were made to feel like
beggars at the Maliki table.
TOPPLED: Thirty-foot-tall bronze busts of former Iraqi strongman Saddam Hussein once
towered over the grounds of the Republican Palace in Baghdad. A decade after the fall of
Saddam, Iraq is convulsed in sectarian violence, in part because of Nouri al-Malikis refusal
to set up a genuine political coalition to govern his country.
tution, a thriving economy, and a sense of genuine national pride. The

Kurds were willing to accept the federalism promised them in the new
Iraq. But that promise rested, above all else, on the willingness on the
part of Baghdad to honor a revenue-sharing system that had decreed a fair
allocation of the countrys oil income. This, Baghdad would not do. The
Kurds were made to feel like beggars at the Maliki table.
Sadly, the Obama administration accepted this false federalism and its
facade. Instead of aiding the cause of a reasonable Kurdistan, the administration sided with Baghdad at every turn. In the oil game involving Baghdad, Irbil, the Turks, and the international oil companies, the Obama
White House and State Department could always be found standing with
the Maliki government.
11
With ISIS now reigning triumphant in Fallujah, in the oil-refinery

town of Baiji, and, catastrophically, in Mosul, the Obama administration
cannot plead innocence. Mosul is particularly explosive. It sits astride the
world between Syria and Iraq and is economically and culturally intertwined with the Syrian territories. This has always been Mosuls reality.
There was no chance that a war would rage on either side of Mosul without
it spreading next door. The Obama administrations vanishing red lines
and utter abdication in Syria were bound to compound Iraqs troubles.
Why should a Sunni community that had known great power accept
sudden marginality?
Grant Maliki the harvest of his sectarian bigotry. He rode that sectarianism to nearly a decade in power. Obamas follies are of a different kind.
They are sins born of ignorance. He was eager to give up the gains the US
military and the Bush administration had secured in Iraq. Nor did he possess the generosity of spirit to give his predecessors the credit they deserved
for what they had done in that treacherous landscape.
As he headed for the exits in December 2011, Obama described Maliki
as the elected leader of a sovereign, self-reliant, and democratic Iraq.
One suspects that Obama knew better. The Iraqi prime minister had
already shown marked authoritarian tendencies, and there were many
anxieties about him among the Sunnis and Kurds. Those communities
knew their man, while Obama chose to look the other way.
Reprinted by permission of the Wall Street Journal. 2014 Dow Jones & Co. All rights reserved.
New from the Hoover Institution Press is The Struggle

for Mastery in the Fertile Crescent, by Fouad Ajami. To
order, call 800.888.4741 or visit www.hooverpress.org.
12
I R AQ
Best Frenemies?
As Iraq wobbles, Iran might almost look like a friend. It isnt. By
Abbas Milani.
Theres plenty of blame to go around in Tehran, Washington, and most of

all Baghdad for the mess in Iraqblame for strategic blunders and tactical
bullying. In all three capitals, the chickens of past follies have come home
to roost, giving rise to dangerous conditions, a virtually balkanized Iraq, a
politicized blame game, and drastically different narratives about what is
happening and how to find a way out of the morass.
A murderous, ragtag army of Salafists from around the world, on an
apparent rampage against any Muslim who is not a Salafi Sunni, has succeeded in laying bare the fissures in the facade of security in Iraq and Syria.
It has also begun to expose the potential long-term devastating consequences of the Obama administrations early inaction in the face of Syrian
President Bashar al-Assads brutalitiesAssads use of chemical weapons
and heavy artillery against peaceful demonstratorsof Irans intervention
in Syria, and of Sunni states support for radical Salafism as an antidote to
Shiite power in Iran, Lebanon, and Iraq.
As in virtually every domain, Tehran and Washington are domestically
riven by different views about the sources of the crisis in Iraq and potential
solutions, and whether Iran and the United States should cooperate, if not
Abbas Milani is co-director of the Hoover Institutions Iran Democracy Project,
a member of Hoovers Herbert and Jane Dwight Working Group on Islamism
and the International Order, and a Hoover research fellow. He is also the Hamid
and Christina Moghadam Director of Iranian Studies at Stanford University,
where he is a visiting professor of political science.
13
coordinate efforts, to save Iraqs government. In Washington, even senators John McCain and Lindsey Graham cant agree on how to criticize the
Obama administration.
Competing, if not conflicting, interests hinder any tactical alliance
between countries in dealing with Iraq.
In Tehran, the radical conservativesconsisting of many in the Revolutionary Guard (IRGC) and clerics close to Supreme Leader Ali Khameneisee the surging Islamic State of Iraq and al-Sham (ISIS) as merely the
concoction of the US-Israel-Turkey-QatarSaudi Arabia alliance that, in
this scenario, is using Salafis to weaken the Islamic Republic of Iran (and
its allies in Syria and Lebanon). Their recommended policy is a repeat of
their past bombast: defeat the Salafists by strengthening the Assad-Maliki
Shiite axis, and help Maliki organize and mobilize Shiite militias to fight
the Sunni insurgency. The radical conservatives chastise Iranian President
Hassan Rouhani and his allies for using the pretext of the ISIS threat
to normalize relations with the United States. One website claims that
ISIS leaders live in Turkey and are protected by the countrys intelligence
agencies.
Tehran and Washington are riven by different views about the sources of
the Iraq crisis and potential solutions.
A different narrative in Tehran is offered by Rouhani and former president Akbar Hashemi Rafsanjanis increasingly assertive camp. They are
trying to distance themselves from the policies of the Ahmadinejad era by
arriving at a long-term agreement with the six world powers negotiating
with Tehran on its nuclear program (Iran insists work has begun on drafting a final agreement) and by normalizing relations with the West. Britain
has announced it will reopen its embassy in Tehran; Iran and the United
States held direct talks this past summer (not long ago publicly declared as
a taboo); and there are hints about a coordinated effort against ISIS Salafists. More than once, the Rouhani-Rafsanjani camp has declared the Salafi
threat to be rooted in extremism and a threat to all Muslims.
14
Yet in spite of the desire for Iran and the United States for cooperation
in Iraq, there are serious issuesother than the nuclear programthat
render it hard to realize. There are competing, if not conflicting, interests that limit the nature of a tactical alliance between the two countries
in dealing with Iraq. In both Iran and the United States, as well as the
Middle East region, powerful forces would feel threatened by any IranAmerican rapprochement.
Iran wants to keep Iraq together, keep Shiites in power (if not Nouri
al-Maliki), and keep the Revolutionary Guards extensive network of militia and economic presence in Iraq intact. The United States clearly has no
love lost for Maliki and his sectarian politics, is gingerly moving toward
favoring a loosely federated Iraq, and certainly does not want to encourage, or enable, increased Iranian power in Iraq. Moreover, the two countries find themselves on opposing sides of the war in Syria, from which
ISIS has overflowed.
While Rouhani took four daysonly after much cudgeling by conservativesto congratulate Assad on his recent election victory, radical
conservatives in Iran keep insisting that keeping Assad in power is a key
strategic goal of the Islamic regime. In spite of these tensions, the specter
of ISIS haunting the Levant is strong enough to bring the old foes together, if only briefly, to try to put the genie of Salafi extremism back in the
bottle.
Reprinted by permission of the New Republic. 2014 New Republic (www.tnr.com). All rights reserved.
Available from the Hoover Institution Press is The Myth of

the Great Satan: A New Look at Americas Relations with
Iran, by Abbas Milani. To order, call 800.888.4741 or visit
www.hooverpress.org.
15
I R AQ
The Price of Our

Responsible Exit
The Iraq war never ended. We just quit fighting it. By Kori N. Schake.
So this is what a responsible withdrawal from Iraq looks like?

Mosul overrun by terrorists more virulently dangerous than Al-Qaeda.
Iraqi security forces throwing off their uniforms and fleeing, leaving their
high-end hardwarepaid for by the American taxpayerin the hands of
our enemies. Iranian Revolutionary Guard forces streaming into Najaf and
Karbala to protect Shiite Muslim holy sites. The former Iraqi leader still
incapable of building cross-sectarian cooperation even when the aggressive Islamist group known as ISIS is sixty miles from Baghdad. Kurdish
paramilitary forces stepping in to protect only Kurdish areas, setting the
boundaries for a secession bid. Militias forming to protect communities
where the state has failed. Ayatollah Ali al-Sistani issuing a call to arms.
Jihadists poised to achieve control of a country, a sanctuary in which to
train more jihadists and plot attacks against the far enemy.
That would be us. The narrative of jihad will cement into a Sunni-Shiite conflict instead of a struggle by moderates of all faiths against barbaric
violence in the name of religion, creating the circumstances for the next
round of warfare in the Middle East.
Soon, either Iraq will be the caliphate Osama bin Laden yearned for
or the Iraqi government will be beholden to Iran for its own preservaKori N. Schake is a research fellow at the Hoover Institution and a member
of Hoovers Working Group on the Role of Military History in Contemporary
Conflict.
16
tion. Iran will have achieved a stunning victory: dramatically expanding

and consolidating its regional influence while getting the United States to
ignore its domestic repression and lethal influence in Lebanon, Syria, and
Iraq in hopes of a nuclear weapons deal. Irans supreme leader, Ayatollah
Ali Khamenei, must be thrilled: so little invested, so much achieved.
Here in the free world, we await the White Houses explanation that
the collapse of our influence in the Middle East is really the fault of the
George W. Bush administration. House Minority Leader Nancy Pelosi has
already rolled out that ludicrous defense. Back in 2008, when it signed
the Status of Forces Agreement, the Bush administration anticipated
remaining militarily and politically engaged in Iraq to stabilize security
and consolidate democracy, working to integrate Iraq among our allies in
the region and building a bilateral partnership of the kind we have with
Germany, Japan, and South Korea.
President Obamas supporters insist he has always been clear about his
objective to end the war in Iraq. But neither the president nor his supporters have ever been straightforward about the fact that the war wasnt
ending. We just quit fighting it. The war continued.
Thensecretary of state Hillary Clinton grandiosely claimed in 2011
that our responsible withdrawal of military forces from Iraq would be
supplanted by the largest US diplomatic program since the Marshall Plan.
That never materialized either.
The Obama White House is once again telling our enemies all that we will
not do.
The Obama administration declined to use what leverage it had left to

broker a stabilizing political bargain after the 2010 parliamentary elections, standing in silence as Maliki politicized the electoral commission
(it invalidated numerous winning candidates), violated the Iraqi constitution, replaced effective military commanders with cronies, and used the
justice system to persecute sectarian foes (including the former vice president, Tariq al-Hashimi).
The Obama administration complained ineffectually for over a year
about multiple Iranian weapons shipments transiting a country that had
17
18
Illustration by Taylor Jones for the Hoover Digest.
no air force to patrol its own airspace; we declined to police that airspace
ourselves. We allowed Syria to go up in flames without even helping to
shield neighboring countries like Iraq from the migration of jihadists into
their territory.
The politicians who serve as the presidents national security aides might
even have indulged in some smug satisfaction to see the Maliki government
begging for the military assistance we offered, and which Iraq declined,
under the Status of Forces Agreement in 2011. Those White House politicians might consider that the Iraqis publicly advised the Karzai government
in Afghanistan not to make the same mistake. But that would require less
swagger and more compassion for the difficulties of democratic transitions
in war-torn countries than this White House team has evidenced.
Irans supreme leader, Ayatollah Ali Khamenei, must be thrilled: so little
invested, so much achieved.
While answering questions about the Bowe Bergdahl prisoner

exchange, the president lectured us that this is how wars end in the
twenty-first century: not through signing ceremonies but through decisive blows against our adversaries, transitions to elected governments,
security forces who are trained to take the lead and ultimately full
responsibility. Yet he ended our participation in the Iraq war without
achieving any of those things.
Obama is now looking at the destructive consequences of his responsible withdrawal from Iraq. The president implied that Iraq would need
military assistance in the near term. He gravely intoned that all options
are on the table. His White House team rushed out to clarify that all
options do not include the option of sending American soldiers to bolster
the Iraqis fight. Denying the Iraqi government assistance in a counterterror fight will finally and completely discredit Obama administration
claims of support for our partners around the world. We have already
convinced our friends in the Middle East that we no longer care about
governments killing their people.
Given the speed of ISISs advance into Iraq, there is probably no time
to pull together an international coalition of forces to share the burden
19
of preventing Iraqs fall to jihadists. At best we could loosely coordinate

action among countries that fear Irans spreading influence. More likely,
any assistance we now offer will be too late. Still, the White House is likely
to conclude it needs to do somethingthe very worst way to get involved
in a national security crisis. But the administration is certain not to identify a preferred end state or allow the military to figure out plans for the
use of force to achieve it.
The Obama administration declined to use what leverage it had left to
broker a stabilizing political bargain.
The Obama White House is once again telling our enemies all that we
will not do, and failing to convince our allies that we will do much of
anything. The president is so spooked by the prospect of a third American war in the region that he has compromised our security to prevent it.
He ought to have understood that he wasnt starting a third American war
in the regionhe needed to finish the first one.
Reprinted by permission of Foreign Policy (www.foreignpolicy.com). 2014 Foreign Policy Group LLC. All
rights reserved.
Available from the Hoover Institution Press is State

of Disrepair: Fixing the Culture and Practices of the
State Department, by Kori N. Schake. To order, call
800.888.4741 or visit www.hooverpress.org.
20
I R AQ
An Army of Revisionists
How quickly we forget our reasons for toppling Saddamand our
politicians forget how they endorsed it. By Victor Davis Hanson.
Who lost Iraq?

The blame game mostly fingers incompetent former prime minister
Nouri al-Maliki. Or is Barack Obama culpable for pulling out all American troops monitoring the success of the 20078 surge? Some still blame
George W. Bush for going into Iraq in 2003 in the first place to remove
Saddam Hussein.
One can blame almost anyone, but one must not invent facts to support an argument.
Do we remember that Bill Clinton signed into law the Iraq Liberation
Act of 1998 that supported regime change in Iraq? He gave an eloquent
speech on the dangers of Saddam Husseins weapons of mass destruction. In
2002, both houses of Congress voted overwhelmingly to pass a resolution
authorizing the removal of Saddam by force. Senators such as Joe Biden,
Hillary Clinton, John Kerry, and Harry Reid offered moving arguments
on the Senate floor why we should depose Saddam in a post-9/11 climate.
Democratic stalwarts such as Senator Jay Rockefeller and Representative Nancy Pelosi lectured us about the dangers of Saddams stockpiles of
weapons of mass destruction. They drew on the same classified domestic
and foreign-intelligence reports that had led Bush to call for Saddams
forcible removal.
Victor Davis Hanson is the Martin and Illie Anderson Senior Fellow at the
Hoover Institution and the chair of Hoovers Working Group on the Role of Military History in Contemporary Conflict.
21
22
The Bush administration, like members of Congress, underestimated the costs of the war and erred in focusing almost exclusively on Saddams supposed stockpiles of weapons. But otherwise, the war was legally
authorized on twenty-three writs. Most of them had nothing to do with
weapons of mass destruction and were unaffected by the later mysterious
absence of such weaponswhich is all the more mysterious given that
troves of WMD have turned up in nearby Syria and more recently in Iraqi
bunkers overrun by Islamist militants.
Legally, the United States went to war against Saddam because he had
done things such as commit genocide against the Kurds, Shiites, and marsh
Arabs and attacked four of his neighbors. He had tried to arrange the
assassination of a former US president, George H. W. Bush. He had paid
bounties for suicide bombers on the
West Bank and was
harboring the worst of global terrorists. Saddam also offered refuge to at

least one of the architects of the first World Trade Center bombing in
1993 and violated UN-authorized no-fly zones.
A number of prominent columnists, right and leftfrom George Will,
David Brooks, and William F. Buckley to Fareed Zakaria, David Ignatius,
and Thomas Friedmansupported Saddams forcible removal. When his
statue fell in 2003, most polls showed that more than 70 percent of Americans agreed with the war.
23
What changed public opinion and caused radical about-faces among

the wars most ardent supporters were the subsequent postwar violence
and insurgency between 2004 and 2007, and the concurrent domestic
elections and rising antiwar movement. Thousands of American troops
were killed or wounded in mostly failed efforts to stem the Sunni-Shiite
savagery.
In 2002, both houses of Congress voted overwhelmingly to pass a
resolution authorizing Saddams removal by force.
The 20078 surge engineered by General David Petraeus ended much

of the violence. By Obamas second year in office, American fatalities had
been reduced to far less than the monthly accident rate in the US military.
An extraordinary achievement, Obama said of the stable and selfreliant Iraq that he inheritedand left.
Before our invasion, the Kurds were a persecuted people who had been
gassed, slaughtered, and robbed of all rights by Saddam. In contrast, today
a semiautonomous Iraqi Kurdistan is a free-market, consensual society of
tolerance that, along with Israel, is one of the few humane places in the
Middle East.
In 2003, the New York Times estimated that Saddam Hussein had killed
perhaps 1 million of his own people. That translated into about forty
thousand deaths for each year he led Iraq. A Saddam-led Iraq over the past
decade would not have been a peaceable place. We can also imagine that
Saddam would not have sat idly by as Pakistan and North Korea openly
sold their nuclear expertise, and as rival Iran pressed ahead with its nuclear
enrichment program.
When Saddams statue fell in 2003, most polls showed that more than 70
percent of Americans agreed with the war.
Nor should we forget that the US military decimated Al-Qaeda in Iraq.

Tens of thousands of foreign terrorists flocked to Anbar province and
there met their deaths. When Obama later declared that Al-Qaeda was
on the run, it was largely because it had been nearly obliterated in Iraq.
24
Launching a costly campaign to remove Saddam may or may not have

been a wise move. But it is historically inaccurate to suggest that the Iraq
War was cooked up by George W. Bush aloneor that it did not do enormous damage to Al-Qaeda, bring salvation for the Kurds, and by 2009
provide a rare chance for the now-bickering Iraqis to make something out
of what Saddam had tried to destroy.
Reprinted by permission of Tribune Content Agency. 2014 Tribune Content Agency, Inc. All rights
reserved.
New from the Hoover Institution Press is Iraq after

America: Strongmen, Sectarians, Resistance, by Joel
Rayburn. To order, call 800.888.4741 or visit www.
hooverpress.org.
25
T H E EC ONOM Y
Why the Fed Must

Return to Rules
What does the economy need from the Fed? Less intervention, more
stability. By John B. Taylor.
As the Federal Reserves large-scale bond purchases wind down, financial

markets and policy makers focus on when the Fed will move to increase interest rates. There is a more fundamental question that needs to be answered:
will the central bank continue its highly interventionist and discretionary
monetary policies, or will it move to a more rules-based approach?
A conference last spring at the Hoover Institution brought top Fed
policy makers and staff together with monetary experts and financial journalists to discuss this crucial question.
David Papell of the University of Houston used statistical analysis to determine objectively when the central bank followed rules-based
policies. The periods when it didsuch as in much of the 1980s and
90scoincided with good economic performance: price stability, steady
employment, and output growth. Using a different approach based on his
research of the Feds hundred-year history, Carnegie Mellon Universitys
Allan Meltzer concluded as well that following a rule or quasi rule in
192328 and 19862002 produced two of the best periods in Federal
Reserve history.
John B. Taylor is the George P. Shultz Senior Fellow in Economics at the
Hoover Institution, the chair of Hoovers Working Group on Economic Policy
and a member of Hoovers Shultz-Stephenson Task Force on Energy Policy, and
the Mary and Robert Raymond Professor of Economics at Stanford University.
26
From 2003 to 2005, however, the Fed kept interest rates lower than
such a rules-based approach would imply. This contributed mightily to
the housing bubble and the risk-taking search for yield. The Feds discretionary policies since the financial crisisparticularly the large-scale
purchases of mortgage-based securitieshave continued and have also set
a dangerous precedent, according to John Cochrane of the University of
Chicago. Once the central bank is in the business of supporting particular sectors, housingand homeowners at the expense of home buyers
why not others? Cars? Farmers? Exporters?
Digging deeper into history, Lee Ohanian of UCLA found that the
Feds deviations from rules that would produce low and stable inflation
during periods of large changes in regulatory policiessuch as the National Industrial Recovery Act of the 1930soften harmed the economy. He
concluded that economic growth would have been higher had the Fed
stuck to policy rules.
When the central bank followed rules-based policies there was good economic
performance: price stability, steady employment, and output growth.
Michael Bordo of Rutgers noted another central-banking responsibility that the Fed has discharged in an ad hoc and discretionary manner:
to act as a lender of last resort. This, he wrote, has led to instability
throughout the Feds history, most recently in 2008 when it bailed out
Bear Stearns and AIG but let Lehman Brothers go under. Bordo recommends that the central bank adopt a rule to govern when it will make
loans of last resort, and make it publicly known. This could mitigate or
even prevent future crises of the sort precipitated by the ad hoc policies
of 2008.
Marvin Goodfriend of Carnegie Mellon University also noted that
uncertainty about which creditors would be bailed out by the Fed created confusion among policy makers and led to a botched rollout of
the Troubled Asset Relief Program in 2008. He recommends a new
Fed-Treasury Credit Accord which would require a Treasurys only
asset-acquisition policy with exceptions in specific emergency situations.
27
28
There were dissenting views. Andrew Levin, a former special adviser

to the Federal Reserve now on leave at the International Monetary Fund,
emphasized that the parameters of policy rules shift over time making them
less reliable. Indeed, the long-run average level of the federal-funds rate
central to any Fed interest-rate policy rulecould change. Levin did not
recommend throwing out rules-based policy altogether, however. Rather, if a key interest-rate rule must change the Fed
should communicate the reasons clearly.
The clear implication of the
monetary ideas pre-
sented at the conference is that the Fed should transition to a more

rules-based policy. Richard Clarida of Columbia University showed that
these same ideas apply globally and would have beneficial effects for
the entire international monetary system. A start, suggested by Charles
Plosser, president of the Federal Reserve Bank of Philadelphia, would
be for the Fed to report publicly the estimated impacts of the reference
policy rules that it uses internally. An open discussion, in press conferences and congressional testimony, would lead to questions and answers
about why the Fed deviates from such rules and thereby create more
accountability.
29
In my view more is needed. The big swings between discretion and rules
that have characterized Fed historyand the damage this has led tolead
me to favor legislation requiring the Fed to adopt rules for setting policy
on the interest rate or the money supply. The Fed, not Congress, would
choose the rule. But the rule would be public. If the Fed deviated from it,
the Fed chair would be obligated to explain why, in writing and congressional testimony.
Once the central bank is in the business of supporting particular sectors,
housingand homeowners at the expense of home buyerswhy not
others? Cars? Farmers? Exporters?
Although it is likely to resist such legislation, the Fed could make it

work to a good end. The Fed has already adopted a 2 percent inflation
target, which is the value embedded in the rule-like policy advocated by
many at the conference at Stanford. In addition, the forecasts for the terminal or equilibrium federal-funds rate by the members of the Federal
Open Market Committee now average about 4 percent, which was also
built into the rule-like policies discussed by many at the conference.
Fed Chair Janet Yellen has expressed agreement that the Fed should eventually adopt such a rule as a guidepost to policy, though she adds that the
time is not yet ripe because the economy is not yet back to normal. So the
main debate now is about when, not whether, a rules-based policy should be
adopted. Based on recent research, the sooner the better.
Forthcoming from the Hoover Institution Press is Across

the Great Divide: New Perspectives on the Financial
Crisis, edited by Martin Neil Baily and John B. Taylor. To
30
T H E E CO N O M Y
The Foundation
Crumbles
Rising taxes and the unrestrained growth in entitlements are eating
away at the very foundation of our economy: property rights. By
Michael J. Boskin.
Property rights and the rule of law are essential foundations for a vibrant
economy. When they are threatened, or uncertain, the result is inefficiency, rent-seeking, a larger underground economy, and capital flight.
Unfortunately, individual rights to capital, land, and the fruits of ones
labor are threatenedin many cases redistributed from creditors to debtors, from those out of political power to those in power, and especially
from young to old. And a much larger battle is looming.
Nine years ago the Supreme Court gutted the Constitutions public
use restriction on eminent domain (Kelo v. City of New London, 2005),
allowing local governments to take the property of some individuals for
the benefit of others, especially private developers.
In 2009 President Obama trampled the legal rights of secured Chrysler
bondholders and transferred billions of dollars to unions. The Environmental Protection Agency issues 1,500 wetlands compliance orders annually to halt land use. The owner can be stuck in limbo for years pending the agencys final order. In this situation, at least, the Supreme Court
Michael J. Boskin is a senior fellow at the Hoover Institution, a member of
Hoovers Shultz-Stephenson Task Force on Energy Policy and Working Group on
Economic Policy, and the T. M. Friedman Professor of Economics at Stanford
University.
31
recently decided 90 that land owners can sue to block the EPA from
strong-arming regulated parties into voluntary compliance, with fines
of up to $75,000 a day (Sackett v. EPA, 2012).
The biggest future threat will be to the fruits of ones labor. The
unfunded liabilities of Social Security and Medicare are now several times
the national debt; the unfunded liabilities of state and local governments
for pensions and other benefits are in the trillions of dollars and mounting. The panoply of other government programs nonetheless continues to
expand. The result, according to Congressional Budget Office projections,
is that federal spending will reach 36 percent of GDP in a generation. This
implies that taxes will have to double from the current, near-historic average, 18 percent of GDP. All federal taxes will increaseon income, capital
gains, dividends, corporate earnings, employer and employee payrolls.
Left unchecked, many middle-income earners eventually will face marginal tax rates of 70 percent or higherreducing them to minority partners in their own additional work and sundering the value of the investments in their own education.
Taxes explicitly designed for redistributioninstead of revenueare
justified by the fanciful conjecture of writers such as Thomas Piketty.
Either the next generation will be saddled with steeply higher taxes
on their work and savings or the growth in entitlement spending will be
slowed. The political battles over this fundamental question will be waged
between generations, income groups, high- and low-tax states, taxpayers
and retirees, public employees, and recipients of every government service.
The math is unavoidable. The biggest safety-net programs, including
Social Security and Medicare, began under far different economic and
demographic conditions. But as economic growth has slowed and the
population has aged, the ratio of people receiving government benefits
to those paying taxes has been rising rapidly. Spending on these two and
other entitlement programs will gobble up bigger and bigger chunks of
the federal budget. They are already crowding out defense.
Against this unavoidable math is the widespread belief, as the Social
Security Administration notes on its website, among many Americans
32
that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. Politicians feed this belief but it is false. As far back as
1960 the Supreme Court (Flemming v. Nestor) ruled that benefits can be
changed by Congress at any timeand they have been. The growth of
retirement benefits will have to be slowed. The notion that people not yet
born own much larger Social Security benefits in the future is a legal and
practical fairy tale.
The biggest future threat will be to the fruits of ones labor.
Most responsible people agree that reducing the growth of benefits

should be gradual and protect current non-wealthy seniors. Benefits
for the more affluent are the logical place to begin. It makes no sense to
destroy their work and investment incentives with high taxes in their most
productive years, only to subsidize them heavily a few years later.
Despite the recent increases in taxes on income, dividends, and capital gains, many on the left are clamoring for more: an 80 percent top
income-tax rate and even a progressive global wealth tax with rates as high
as 10 percent. This is exactly the wrong road to take. Such taxes will only
discourage production, encourage black markets, raise far less revenue
than proponents claim, andby curtailing capital accumulationlower
future wages and living standards. Over time, such rates would expropriate a sizable fraction of wealth.
Taxes explicitly designed for redistributioninstead of revenueare
justified by the fanciful conjecture of writers such as Thomas Piketty,
who claim that wealth inevitably will become more concentrated, since
the return to capital exceeds the income growth rate. This conjecture rests
on a series of implausible assumptionsthat the return on capital wont
fall as more and more capital accumulates; that these returns will all be
saved and not spent; that fortunes wont dissipate by repeated division
across generations nor given to charity; and that capital will become far
more substitutable for labor.
Ultimately, behind this and other attacks on property rights is the
notion that the government owns all income, leaving to you only what it
doesnt demand. But as President Reagan said in July 1987, working peo-
33
ple need to know their jobs, take-home pay, homes, and pensions are not
vulnerable to the threat of a grandiose, inefficient, and overbearing government. In particular, taxation beyond a certain level becomes servitude. And in America, it is the government that works for the people and
not the other way around.
Available from the Hoover Institution 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.
34
I N E Q U AL I T Y
Rickety Piketty
Economist Thomas Piketty wants to confiscate wealth, but he doesnt
grasp where wealth actually comes from. By Richard A. Epstein.
The relationship between inequality, whether of income or wealth, and

economic growth is perhaps the defining issue of our age. But I have urged
readers to take a critical view of Thomas Pikettys new book, Capital in the
Twenty-First Century, the bestseller that predicts a vast, inevitable concentration of wealth in the hands of a few. Consider these two points:
We should welcome any increase in wealth to the rich or the poor
that does not leave other people worse off, whether that change increases
or narrows the gaps in wealth between rich and poor. Any such Pareto
improvement meets the gold standard of economic welfare. The extra
wealth increases the scope of human possibilities no matter where it is
lodged. Over time, market and charitable transactions will spread that
wealth across society.
This contention about welcoming an increase of wealth is borne out by
looking, ironically, not directly at wealth but at individual utility, happiness, or satisfaction. These outcomes are notoriously difficult to measure,
which is why all systems of taxation and regulation are keyed to wealth
rather than utility. But wealth is just one of several imperfect proxies for
Richard A. Epstein is the Peter and Kirsten Bedford Senior Fellow at the
Hoover Institution and a member of the steering committee for Hoovers 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.
35
personal utility. A far better proxy is overall life expectancy. In the United
States that figure has increased by over thirty years per person since 1900,
and by over forty years for African-Americans. A black/white longevity
disparity of fifteen years in 1900 has shrunk to four years today.
Thomas Piketty asserts that overall growth rates are constrained by some
invisible Malthusian hand.
Much of that gain comes from overall improvements in public goods,

such as better sewage management and vaccinations. Wealth, not utility,
funds these advances, so most of their costs are necessarily borne by the
wealthy, but the resulting gains are not concentrated in the top 1 percent.
Sadly, Pikettys lengthy book is silent about the massive advances in basic
science, public health, and medicine that fueled this revolution, creating
widespread benefits for the population at large. This massive benevolent and
uncontroversial redistribution has no place in his calculations of inequality.
PI TN E Y V. P I K E T TY
Piketty misunderstands the sources of social-wealth creation. Thinking that
capital accumulation drives social inequality, Piketty favors progressive taxes, including a progressive annual tax on capital. This will make it possible
to avoid an endless inegalitarian spiral while preserving competition and
incentives for new instances of primitive accumulation, he writes.
Yet he is oddly indifferent to the virtues of competitive markets and the
damage that monopolies and cartels can inflict on social welfare.
Perhaps Piketty would not have made this fatal mistake if he had read
the opinion of a great, if unappreciated, Supreme Court justice, Mahlon
Pitney, who addressed this issue in the 1915 Supreme Court case of Coppage v. Kansas. At issue in Coppage was whether an employer had a constitutional right to insist by contract that his workers not join a union so
long as they remain in his employ. Pitney held for the employer:
A little reflection will show that wherever the right of private property
and the right of free contract coexist, each party when contracting is
inevitably more or less influenced by the question whether he has much
36
property, or little, or none, for the contract is made to the very end that
each may gain something that he needs or desires more urgently than
that which he proposes to give in exchange. And since it is self-evident
that, unless all things are held in common, some persons must have more
property than others, it is from the nature of things impossible to uphold
freedom of contract and the right of private property without at the same
time recognizing as legitimate those inequalities of fortune that are the
necessary result of the exercise of those rights.
The gist of Pitneys argument is that any contract between an employer

and employee is one for mutual gain: why else would the worker make
it? Indeed, the right to contract is, as Pitney stresses, as essential to the
laborer as to the capitalist, to the poor as to the rich, for the vast majority
of persons have no other honest way to begin to acquire property save by
working for money. To argue in this case that some level of inequality of
bargaining power between the parties is reason enough to block their contract misses the point altogether, for it imposes limitations on the employees freedom of choice.
Unionization, of course, will benefit the position of those workers
who voluntarily join the union. Yet unionization dims the prospects of
excluded workers, and of the suppliers and customers who are put at
the mercy of a monopoly union, armed with extra political powers and
able to engage in well-timed strikes, to the massive inconvenience of
everyone else.
For better or worse, capital and labor are intertwined.
Piketty does not address the nitty-gritty of labor market regulation and
thus misses Pitneys point that gains from trade are necessarily blocked
by taxation and regulation. Even if these fall nominally on the employer,
both sides are hurt from the contraction of the labor market.
The National Labor Relations Act of 1935 is similarly blockheaded
on this point. It contains the outlandish claim that (t)he inequality of
bargaining power between employees...and employers...tends to
aggravate recurrent business depressions, by depressing wage rates and the
37
38
purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and
between industries.
The inequality of bargaining power has little role in well-defined competitive markets, where employers have to meet the going wage. The purchasing power of wage earners in industry includes the loss in wages
from workers who are excluded
from union activities. Business
depressions are more likely
to arise in rigid labor markets where firms and
workers cannot incrementally adjust to changed conditions. Stabilization

of wages is an oblique way of referring to how labor cartels force outsiders to bear all the costs of uncertainty from any exogenous shock to labor
markets.
P I K E T T Y S F ATALI SM
Unfortunately, Pikettys preoccupation with inequality blinds him to the
huge hit to growth that comes from union organization and, more generally, from regulations across the labor, product, and real estate markets
that artificially set wages, prices, or the terms of trade. Ignoring these
midlevel institutions leads Piketty to assert that overall growth rates are
constrained by some invisible Malthusian hand so that there
is ample reason to believe that the growth rate will
not exceed 11.5 percent in the long run, no
matter what economic policies are adopted.
What economic nihilism! Countless
systems of direct taxation and regulation
reduce gains from trade in countless
economic areas. One key way
39
to spark growth is to reduce the repressive income and growth taxes Piketty favors because, ironically, he thinks overall growth is not sustainable.
It would also do him a world of good to look more closely at current
schemes of industry-specific direct regulation that result in the inefficient
deployment of capital.
He might, for example, consider the adverse impact on pharmaceutical
innovation that arises from the unduly risk-averse attitude of the Food
and Drug Administration, or the perverse distortions of energy markets
from the equally misguided efforts to subsidize wind and solar energy in
ways that make it harder to take advantage of the enormous advances in
traditional fossil-fuel technologies.
Simplifying the tax code and cutting regulations could easily bump the
growth rate above Pikettys dire predictions.
Moreover, one of the most persistent threats to growth occurs in Pikettys

home court, the misguided regulation of capital markets. As Tyler Cowen
points out, Piketty writes as if all capital falls within a single undifferentiated
lump. But in practice, the efficiency of capital markets depends critically
on recognizing the distinction between venture capitalists, coupon clippers,
and everyone else in between. Capital of course never runs without management and investor expertise; it is essential to match entrepreneurs and investors with the right holdings. It does no good to have retirees take large stakes
in risky new ventures while industry experts hold Treasury bills.
Hence, capital must be mobile over the life cycle of new innovation.
Most high-risk start-ups fail, but the extraordinary returns from successful ventures more than compensate for the dry holes. Yet those successful ventures need to find cheap, effective ways to go public so that
high-risk players can start new ventures and risk-averse investors can
reap solid returns.
Standing athwart this enterprise lies the Securities and Exchange Commission and the multiple agencies under the Dodd-Frank Act whose disclosure and regulatory policies can add unreasonably to the cost of going
public. A reliable exit option will increase initial investment levels, which
will in turn drive up the demand for labor and with it overall wages.
40
For better or worse, capital and labor are intertwined. It is wrong to

think that the infinite array of intermediate institutions and practices do
not have a huge impact on overall levels of growth.
In my academic career, I have devoted much time to examining the rise
of the regulatory state and the havoc it wreaks on economic growth. The
poor growth rates of the past decade are not the unavoidable consequence
of natural events or huge impersonal forces. Many of them stem from our
boneheaded choices on regulation and taxation. Simplifying the tax code
and cutting regulations could easily bump that growth rate above Pikettys
dire predictions. But so long as policy makers take Pikettys lead, preoccupying themselves with inequality, our prospects for growth are grim. We
will continue to pay a high social price if we place our faith in Pikettys
rickety economic theories.
Reprinted from Defining Ideas (www.hoover.org/publications/defining-ideas), a Hoover Institution journal.
2014 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.
Available from the Hoover Institution 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.
41
I N E Q UALIT Y
The United States

of Envy
What closes income gaps? Education and innovationnot
confiscatory taxes such as those Thomas Piketty proposes. By Allan
H. Meltzer.
The Obama administration continues to tout the idea of income redistribution, openly encouraging envy of the top 1 percent of earners. Reducing the share received by the highest earners to pay for larger transfers to
the lowest earners has long been a main objective of the administration.
We can expect this theme to be loudly taken up by the mainstream press as
the midterm election approaches: some of us can have more, the argument
goes, if we force others to have less.
Support for the alleged social benefits of setting much higher marginal
tax rates on the highest incomes has now been endorsed by the International Monetary Fund, based heavily on research by two French economists named Thomas Piketty and Emmanuel Saez. The two worked
together on the faculty at MIT, where the current research director of the
IMF, Olivier Blanchard, was a professor. Like Piketty and Saez, he is also
French. France has, for many years, implemented destructive policies of
income redistribution.
Professor Piketty collected data on income distribution from approximately twenty countries over different periods. He concluded that raising
Allan H. Meltzer is a co-chair of the Hoover Institutions Regulation and the
Rule of Law Initiative, a distinguished visiting fellow at Hoover, and a professor
of political economy at Carnegie Mellon University.
42
the tax rate to 60 percent on the highest incomes and redistributing the
receipts to the poor would increase spending and economic growth. The
New York Times declared his book, Capital in the Twenty-First Century, one
of the great achievements of modern economics. It put it in a class with
Karl Marxs Das Kapital and John Maynard Keyness General Theory.
This lavish praise seems both wrong and extreme. I agree that in the
past there was a notable positive association between economic growth
and the spread between the shares of income going to the top 1, 5, or 10
percent of the earners and the share going to the remainder. The mistake
is to conclude that narrowing the distribution contributes to growth. The
far more plausible explanation is that economic growth in capitalist countries over the past two centuries contributed to a steep decline in the share
of the top earners.
Simply put, Piketty, President Obama, and the IMF have the causality running the wrong way. Taxing the rich to redistribute did not
produce growth. On the contrary, growth reduced the share earned by
the highest earners.
T HE RE W A RD S O F H U MAN CAPI TAL

In my 2012 book Why Capitalism? I used some data on the share of income
received by the top 1 percent that two Swedish economists gathered. Piketty uses some of the same data. The seven countries in the Swedish dataset are the United States, the United Kingdom, Sweden, Australia, France,
Canada, and the Netherlands. Of course, data on income distribution are
never precise, but broad trends can be informative.
The data show a remarkable degree of uniformity. The share of income
received by the top 1 percent declined persistently from about 1910 to
1980. The share fell from an initial 20 to 25 percent of total income to
about 5 to 8 percent. Then the share rose in several of the countries, notably the United States, the United Kingdom, Canada, and Sweden. By the
end of the sample data, about 2005, the share in several of these countries
was back to about 10 percent. The share of the top 1 percent in the United
States reached 15 percent, more than halfway back to where it was early in
the twentieth century. It is this rise that initiated the loud outcries about
the failure of modern capitalism to benefit the middle class.
43
It is impossible for anyone to show that the decline in all seven countries resulted from higher taxes on the highest incomes and redistribution
to the poor. The reason is that the welfare state did not exist in several of
the countries and was relatively small in the others. In the United States,
federal government spending was rarely more than 3 or 4 percent of total
spending in non-war years until after 1930. Old-age pensions didnt start
until the late 1930s, and health care spending did not expand until the
late 1960s.
The mistake is thinking that narrowing income distribution contributes to
economic growth. Far more plausible: growth contributes to a decline in
the share of the top earners.
The timing in other countries differed. Sweden undertook welfare-state

spending in the 1930s, but substantial growth waited for the end of World
War II. The same is true for most other countries. Higher tax rates and
increased social spending rose long after the share of the top 1 percent had
declined from the early peak to the trough in 1980. In 1980, the share of
income earned by the 1 percent ranged from 5 percent in Sweden, with its
larger welfare state, to 8 percent in the United States.
Two major forces explain most of the decline. At the start of the series,
private capital receives a relatively high return because it is rather scarce.
As investment and the capital stock rose during the twentieth century, the
share of total income going to capital declined. The total income from
capital increased but more slowly than total income. Since the highest
income earners receive a disproportionate share of their income as earning
on capital, their share fell.
That alone does not explain the steep decline in the share received by
the top 1 percent. During the early twentieth century, the United States
absorbed millions of immigrants, many unskilled. Many began work at
low-wage jobs. Minimum-wage laws did not come until the 1930s. By
working, the immigrants learned new skills; their productivity increased
and with it their wages. That narrowed the gap between the incomes of
the top and the bottom earners. But many did something else. They sent
44
their children to colleges and universities where they learned professional

skills that earned middle-class incomes.
This process continued in recent decades for immigrants from Korea,
China, Mexico, and Latin America. That history sends an important message. The growth of the middle class and the narrowing of the income distribution was largely a result of working to acquire new skills and higher
productivity.
Current policy works against this process. It doesnt reward work. It
gives the unemployed and underemployed food stamps, health care, housing allowances, and income. Instead of working, many learn to live on
the government benefits, supplementing them occasionally by working
in the underground economy. Instead of acquiring productive skills, they
learn how to live without working at regular jobs. Thats one way that the
welfare state worked to increase the share of the highest paid 1 percent
after 1980.
The welfare state also contributes by weakening and even destroying
family structure. Single women who head families are often on the bottom
rung of the income distribution.
The clamor about the 1 percent pays no attention to the importance of
education, skill, and innovation.
A different process is at work now. The capital that is most highly

rewarded is now human capitalthe education and skill that produce
innovations like the Internet, social media, popular apps, energy innovations, and three-dimensional manufacturing. The top 1 percent of the
earners in any year include people like Steve Jobs and Bill Gates who made
the Internet into a commercially successful, widely used means of communicating. But the top 1 percent also includes sports stars with unique
skills and rock musicians with enormous popular appeal.
O P P O R T U N IT Y O R E NV Y ?
The clamor about the rise in the share going to the top 1 percent pays
no attention to the importance of education, skill, and innovation. It is
no accident that most new products and much new music originate in
45
the United States. Countries like Canada, Sweden, and Britain contribute
also, welcoming foreign innovation and rewarding those who bring new
ideas to market successfully.
What has worked in the United States for several centuries has worked
well for many other countries in the past fifty years. Once China adopted
capitalist methods, it moved millions out of low-productivity agriculture,
taught them new skills, and raised their wages. Korea sends its young to
learn new skills in the United States. That enabled it to move successfully
from a low-wage provider of unskilled labor to a technically advanced
country with a skilled labor force. And it increased freedom along with
wealth. Other examples are Hong Kong, Singapore, and Taiwanfree,
capitalist democracies. Add Chile, Peru, and Mexico, and many others.
The growth of the middle class and the narrowing of the income
distribution was largely a result of new skills and higher productivity.
France is at the opposite pole. Mired in its hatred of capitalism and

demands for redistribution, it has maintained its low share of income
going to the top 1 percent. But the cost is high. The young and innovative
leave France for Britain and other shores. The French get massive redistribution and unemployment for many who remain behind.
Voters who will hear the Obama call for envy and redistribution should
ask themselves and others: would you prefer to live in an America where
the market is dynamic and opportunity abounds or in France, where
unemployment is high and tax rates are crushing? Dont you prefer opportunity to envy?
New from the Hoover Institution Press is NAFTA at
20: The North American Free Trade Agreements
Achievements and Challenges, edited by Michael
J. Boskin. To order, call 800.888.4741 or visit www.
hooverpress.org.
46
CAL I F O R N I A
Economics in a Time
of Drought
Let the water flow where the market, not the government, says it
should go. By Edward Paul Lazear.
Many parts of the country, notably California and Texas, are experiencing
intense drought. Voluntary or mandatory cutbacks in residential water
usage are common.
Yet weather isnt the only problem: government-dictated prices, coupled with restrictions on the transfer of water, have made a bad situation
much worse.
Shortages are generally caused when governments place ceilings on
prices or when they prevent markets from operating freely in some other
way, like restricting trade. Gasoline is a case in point. Thanks to the 1970s
oil shocks, gas became less abundant and prices rose. The US governments response was to put ceilings on gasoline prices, which caused shortages and long lines at gas stations.
The current water situation resembles oil in the mid-1970s. Prices are
determined in large part by state and federal government dictates rather
than by the market. When drought hits, the price to some users, most notably agriculture, is too low to clear the market and shortages result. Ironically,
in addition to eliminating shortages, allowing the market to work would
Edward Paul Lazear is the Morris Arnold and Nona Jean Cox Senior Fellow
at the Hoover Institution, co-chair of Hoovers Conte Initiative on Immigration
Reform, and the Jack Steele Parker Professor of Human Resources Management
and Economics at Stanford Universitys Graduate School of Business.
47
result in prices that are lower than those currently paid by most residential
users. Markets would encourage farmers to sell water to urban users, thereby
increasing residential supply and driving residential water prices down, as
the University of Californias Howard Chong and David Sunding showed in
a 2006 study published by the Annual Review of Environment and Resources.
Government-dictated prices and restrictions on transfers have made a
The price farmers pay for water differs from that paid by urban users,
sometimes dramatically. For example, San Francisco Bay Area residents
obtain much of their water from the Hetch Hetchy reservoir. The pipes
from Hetch Hetchy to the Bay Area intersect the California Aqueduct,
which supplies water both to agriculture and urban areas. Residential
users of aqueduct water in San Diego pay rates that can be more than five
times as high as those paid by the farmers in Kern County.
So if some people, businesses, or localities have rights to water and others would be willing to pay more for those rights, why not trade? Answer:
government controls and lawsuits.
In 2012, the Public Policy Institute of California reported on the morass
of regulations that continue to restrict the exporting of local water to other
communities. Permits are required, which necessitate environmental studies and a lengthy assessment procedure. Statewide water transfers require
approval by the State Water Resources Control Board, which also requires
proof of compliance with the California Environmental Quality Act and
additional proof that the transfer will not injure another legal user.
Finally, even approved transfers are subject to reversal by courts.
Recently the Ninth Circuit Court of Appeals ruled that the US Bureau of
Reclamation violated the Endangered Species Act when it failed to inform
the US Fish and Wildlife Service of plans to renew forty-one long-term
contracts with California agricultural irrigation districts that could harm
the delta smelt, a fish.
To solve Californias water problem, the first step is to let all owners of
water sell their rights with minimal government limitations. This would
ensure that water goes to its highest valued use.
48
bad situation much worse.
49
Second, federal and state agencies that redirect water to environmental use should pay the market price for it. Although there may be good
reasons to ensure that some fish and wildlife be protected, we should
not pretend that this protection is costless. Agencies that divert water
for environmental purposes should be required to budget explicitly for
the lost revenue associated with the decision to divert it for this purpose,
rather than allowing it to be sold at the market price for urban or agricultural use.
The price farmers pay for water differs from that paid by urban users,
sometimes dramatically.
Third, farmers who now receive water at below-market prices should

be compensated for having to pay higher prices by giving them the rights
during a transition period to use or sell the water they typically use. This
would honor existing property rights and help ensure that agricultural
lobbies and lawsuits do not block the transfer of water.
Rather than praying for rain, we should get the government out of the
water-allocation business.
New from the Hoover Institution Press is Game

Changers: Energy on the Move, edited by George
P. Shultz and Robert C. Armstrong. To order, call
50
CAL I F O R N I A
An End to Pension
Patches
Meaningful ways to mend the Golden States pension-funding gap.
By Carson Bruno.
The problems in public pension funding point decisively toward reform.

But the public employee unions have a strong influence on local and state
politics and consistently resist change, so reform is controversial. The longer it takes to enact reform, however, the bigger the problem becomes.
In June 2012, voters in San Diego and San Jose sent a clear message to
elected officials and public employee unions statewide: they are eager to
accept bold public pension reforms. In each city, by margins greater than
30 points, voters endorsed a new 401(k)-style reform in San Diego and a
new, low-cost defined benefit plan in San Jose. Although both reforms are
still in litigation, their passage has ushered in a new era of reform discussion in a state long dominated by the unions.
Statewide, the two main pension systemsCalPERS and CalSTRS
are massively underfunded. Based on estimates by Governor Jerry Browns
Department of Finance, CalSTRS has about an $80 billion unfunded
liability. Meanwhile, Stanford professor Joe Nation estimates CalPERSs
unfunded liability at $170 billion. Localities also experience daunting
challenges. For instance, before reform, San Jose had a $3 billion unfunded liability and roughly 20 percent of its general fund budget went to
paying pensions.
Carson Bruno is a research fellow at the Hoover Institution.
51
A recent conference at the Hoover Institution, co-hosted by Hoover senior

fellow Josh Rauh and Stanford Institute for Economic Policy Researchs David
Crane and Joe Nation, explored potential solutions to Californias public pension problems. The participants included Hoover fellows such as Michael
McConnell and Jonathan Rodden, pension scholars including Robert NovyMarx and Amy Monahan, current and former California and out-of-state
policy leaders like Mayor Chuck Reed of San Jose and Rhode Island Deputy
Treasurer Mark Dingley, and other pension reform specialists.
The conference yielded substantial agreement. The post conference
report (available on the Hoover Institutions website, www.hoover.org)
that emerged is a primer for reform in California.
Overall, the conference yielded three important overarching themes:
1. The California rule needs to be amended.
2. Reform needs to be holistic.
3. Leadership, with public support, is essential.
TH E C A L IF O R N IA R U LE
Meaningful reform cannot occur in California until the California
rule is changed. Courts have long determined that state retirement statutes create a contract between the state and its employees. The California rule takes this one step further by creating the contract on the first
day of employment. As California-rule expert and University of Minnesota School of Law scholar Amy Monahan notes in her 2011 paper
on the topic, the California rule makes it so pension benefits for current employees cannot be detrimentally changed, even if the changes are
purely prospective.
This, in effect, means localities or a state operating under the rule cannot adjust pensions for current employees even if only for future hours,
while not touching already accrued benefits. Monahan concludes that this
rule inappropriately curtails the power of the legislature and runs counter
to both legal and economic theory. Roughly 75 percent of attendees at the
Hoover conference strongly agreed that amending the California rule is
necessary to enable meaningful reform.
52
While operating under the rule, California and its localities can enact
only small reformsin a sense, nibbling around the edges. Common
reforms include adjusting or freezing cost-of-living adjustments, eliminating the ability to spike pensionable pay or double-dip salaries, changing
the definition of pensionable pay, and changing benefits for new or future
hires (which just delays solvency for decades).
However, as 80 percent of conference participants indicated, these
alone are not sufficient to address the mounting unfunded liabilities.
For instance, based on estimates from Rauh and University of Rochester economist Robert Novy-Marx, a 1 percent cost-of-living-adjustment
reduction would lower unfunded liabilities by just 9 to 11 percent. And
with each day that passes without meaningful reform, the problem grows:
CalSTRSs unfunded liability grows each day by $22 million.
B E T T E R UN DE R PI NNI NG S
As such, California and its localities need to examine the issue holistically: addressing the current unfunded liability, which itself is daunting as
well as fixing the reasons why the unfunded liability has occurred, that is,
structurally reforming pension systems. While much of the focus has been
on the generosity of pensionsfor instance, in 2012, thirty-one thousand
state retirees collected pensions valued at $100,000 or moremost of the
pension problems in California stem from elected officials and/or pension
boards overpromising and underfunding. Requiring those responsible to
fully honor promises would also help make the generosity of plans more
reasonable.
Another way to establish better financial health of public pension systems is to insist that 100 percent of the actuarially required contributions
(ARC) be made and that a risk-free rate of return be used. The ARC is the
amount necessary to ensure pension systems can meet their annual benefits. As such, not contributing 100 percent (CalSTRS received only 44
percent of ARC in 2013) means the employer is inherently underfunding
the plan.
Currently, pension boards use a rate of return based on the expected
return for their invested assets. For instance, CalPERS assumes a rate of
return of 7.5 percent. Since 2000, however, the actual average annual rate
53
of return for the fund has been only 4.5 percent. Moreover, if pensions
are indeed considered guaranteed (that is, riskless), then a risk-free rate of
return is logical. Conference attendees, by a ratio of almost nine to one,
agreed that these two simple steps would be prudent for fiscally stabilizing
pension funds.
However, the main focus for structural reform has been on switching public pensions from defined benefit to defined contribution. In a
defined-contribution plan, the employer and/or the employee contributes
a certain amount to an individual, transferrable investment account. Neither the employer nor the investment fund guarantees a benefit.
A defined-benefit plan, on the other hand, guarantees a previously specified benefit based on a host of criteria. Employers (and to some extent
employees) contribute a certain, but not set, amount to an investment
fund that is structured to ensure sufficient funds to match the promised
benefit amount.
If employers set reasonable parameters when establishing the benefit
formula, use a risk-free rate of return to discount investment cash flows,
and maintain full contributions, defined-benefit plans can be fiscally
sound. Yet the attractiveness of defined-contribution plans is that they, for
the most part, structurally prevent the type of overpromising and underfunding to which defined-benefit systems are vulnerable.
L E A D IN G A N D L E AR NI NG
Even so, 61 percent of the conferences participants did not think that
moving from defined benefit to defined contribution is the only solution.
Conference participants believe that leadership, with public support,
is the key to meaningful reform. In Rhode Island, the Democratic state
treasurer, Gina Raimondo, spent eight months negotiating and discussing
the issue with stakeholders before submitting a reform bill. While these
actions did not create a completely smooth legislative process, the heavily
Democratic legislature overwhelmingly passed the reform bill (5715 in
the lower chamber and 352 in the upper house).
In San Jose, city councilmembers and Mayor Chuck Reed publicly discussed with city residents the fiscal effects of inaction, pointing to closed
libraries or parks and laid-off police officers. Although negotiations with
54
employee unions did not produce an agreement, Reed and the city council
did incorporate some of their concerns into a ballot proposition, Measure
B. Their efforts resulted in 69 percent of voters passing the reform.
In San Diego, a reform proposal that moved the citys non-public-safety
employees from a defined-benefit plan to a defined-contribution system
enjoyed 66 percent support among voters.
The lesson from all these reform efforts is simple: strong leadership
is necessary. Without Treasurer Raimondo, Mayor Reed of San Jose, or
Mayor Sanders of San Diego, reform probably would not have occurred.
Educating the public about the implications of inaction and garnering
public support are just as important.
At a certain point, California and its cities will reach insolvency and
reform will have to occur. It is more a matter of when than whether.
Available from the Hoover Institution Press is Pension

Wise: Confronting Employer Pension UnderfundingAnd
Sparing Taxpayers the Next Bailout, by Charles Blahous.
To order, call 800.888.4741 or visit www.hooverpress.org.
55
T H E ENVIRONM EN T
Railroading the
Environment
Block the construction of pipelines and more oil gets shipped by
train. That will make spills and accidents more likely, not less. By
Terry L. Anderson.
Its obvious that were going to continue moving crude oil and petroleum products from where they are extracted to where they are needed.
When considering whether to approve pipelines such as the proposed
Keystone XL, therefore, the question has to be: which are safer, pipes or
rail tank cars?
The Keystone XL lingers near death, thanks to the Obama administrations decision to ignore the evidence of a definitive government study and
instead keep listening to environmentalists dubious claims. The consequence will be more political fires in Washington sparked by train derailments in the absence of a pipeline to transport oil more safely.
After a derailment in downtown Lynchburg, Virginia, on April 30,
approximately 30,000 gallons of Bakken crude oil burned or spilled into
the James River. On May 9, a derailment north of Denver spilled an additional 6,500 gallons of oil, which was contained in a ditch before reaching
the South Platte River. Fortunately, unlike in the 2013 derailment in Quebec where a 1.3-million-gallon spill killed forty-seven people and incinerated thirty buildings, no one was injured in Lynchburg or Colorado.
Terry L. Anderson is the John and Jean De Nault Senior Fellow at the Hoover
Institution and the William A. Dunn Distinguished Senior Fellow and former
president and executive director of PERC in Bozeman, Montana.
56
President Obamas own State Department answered the comparison

question plainly in February. According to the report, pipelines larger
than twelve inches in diameter in 2013 spilled more than 910,000 gallons
of crude oil and petroleum productscompared with 1.15 million gallons for tank cars, the worst in decades. Comparing total oil spilled makes
it appear, at first glance, that pipeline and rail safety records are similar.
But pipelines carry nearly twenty-five times as much crude oil and petroleum products.
The State Department report estimates that if the Keystone XL carried
830,000 barrels a day, 0.46 accidents would likely result annually, spilling 518 barrels a year. Under the most optimistic rail-transport scenario
for a similar amount of oil, 383 annual spills would occur, spilling 1,335
barrels a year.
Pipeline spills are more easily controlled and cleaned up than tank-car
derailments.
The report is even harsher on railroads when it comes to human

injuries and fatalities. It estimates that tank cars will generate an estimated forty-nine additional injuries and six additional fatalities every
year, compared with one additional injury and no fatalities annually
for the pipeline.
Consider the safety record of the Trans-Alaska Pipeline System,
which includes the huge forty-eight-inch-diameter mainline pipe carrying crude from Prudhoe Bay, eleven pumping stations, several hundred
miles of feeder pipelines, and the Valdez Marine Terminal. The largest oil spill in the system occurred in 1978, when an unknown person
blasted a one-inch hole into a pipeline. It leaked 16,000 barrels and had
no disastrous effects.
The debate over the Keystone XL versus railcar transport can be likened to the safety of offshore versus onshore oil production. By putting
nearly 60 percent of potentially oil-rich onshore lands off limits, we have
forced exploration and production offshore. Oil production onshore is
safer than offshore, just as pipelines are safer than tank cars. While the
Deepwater Horizon oil spill gushed nearly five million barrels into the
57
58
Gulf of Mexico over an eighty-seven-day period beginning on

April 20, 2010, a blowout in western Pennsylvania in June
(while Deepwater Horizon was spilling) was capped in
sixteen hours and spilled only a few thousand gallons.
Similarly, pipeline spills are more easily
controlled and cleaned up than tank-car
derailments. With so many railroads
running along waterways and wetlands, seventeen-mile-long oil slicks,
like the one from the Lynchburg
derailment, will be more common. In contrast, the State
Department reports that
the Keystone XL would
drill under rivers to avoid
direct disturbance to the riverbed, fish, aquatic animals and plants, and
river banks. Moreover, between 1992 and 2011, 40 percent of the liquid
spilled from pipelines was recovered.
Putting the debate over the Keystone XL in this context shows the
absurdity of killing the pipeline project. But the Obama administration appears determined to accept environmental arguments that the
pipeline could leak (even though the likelihood is less than with rail)
and that with the extraction and use of oil from Alberta, Canadas
oil sands will increase global warming. On the latter point, the State
Department report again is clear that net carbon emissions wont be
much different with or without the Keystone XLbecause the
59
Canadian tar sands will likely be developed regardless of how the oil
is transported and because trains emit more carbon dioxide than pipelines.
Pipelines carry nearly twenty-five times as much crude oil and petroleum
products as trains do.
Whether the president and other politicians or environmentalists like

it or not, oil and gas will be moved from remote areas in the north to
refineries in the south, east, and west or to overseas terminals. Opponents
may take smug satisfaction in raising the cost of energy and discouraging
consumption, but their actions are hypocritical when it comes to saving
the environment.
Fish, birds, wildlifeand peoplebeware.
Available from the Hoover Institution Press is Reacting

to the Spending Spree: Policy Changes We Can Afford,
edited by Terry L. Anderson and Richard Sousa. To
60
H E AL T H CAR E
Side Effects May

Include Collusion
Caution: ObamaCare might encourage hospitals and doctors to fix
prices. By Daniel P. Kessler.
Liberals and conservatives agree that promoting vigorous competition

among doctors and hospitals is essential to reducing spending and improving quality in markets for health care. New research, however, suggests
that increases in hospitals ownership of physician practicesstimulated,
in part, by the Affordable Care Actmay be more of a threat to this goal
than has been previously thought.
Hospitals have been aggressively buying physician practices over the
past decade. Analysis by Robert Kocher and Nikhil Sahni published in
2011 in the New England Journal of Medicine showed a nearly 75 percent increase in practicing doctors employed by hospitals from 2000
2008, and more recent hospital announcements suggest this trend is
accelerating.
In theory, this could have two opposing effects. On one hand, closer
ties between doctors and hospitals can improve communication across
care settings and reduce wasteful duplication of diagnostic tests. On the
other, such ties can hurt consumers by letting doctors and hospitals raise
prices. For example, by employing physicians, a hospital may increase its
market power by depriving its rivals of a source of referrals. In addition,
closer ties can enable hospitals to give physicians the incentive to supply
Daniel P. Kessler is a senior fellow at the Hoover Institution and a professor at
Stanford Universitys Graduate School of Business and Law School.
61
unnecessary treatments, especially if hospitals use these ties to pay hidden

kickbacks for inappropriate admissions.
Health policy analysts understand this.
The Affordable Care Act gives doctors and hospitals incentives to
integrate by rewarding them financially for joining together and participating in the Medicare Shared Savings Program. At the same time, the
Federal Trade Commission and Department of Justice have set enforcement guidelines designed to prevent doctors and hospitals from using the
Shared Savings Program as a pretext to harm competition.
The question is whether the incentives in the Affordable Care Act and
the antitrust agencies guidelines strike the right balance between promoting integration that enhances efficiency while discouraging that which is
not in patients best interests.
H I G H E R P RI C E S
New work by Laurence Baker, Kate Bundorf, and me published in
Health Affairs suggests there are reasons to be concerned with the current
approach. We analyzed data on the health care provided to 3.5 million
people with private health insurance between 2001 and 2007. The data
included the price paid to the hospital each time one of the people was
hospitalized. We could also compute the total number of hospitalizations
per person and the total spent on hospitalizations from the data.
We used this information to construct measures of prices, hospital use,
and spending on hospital care for 639 counties covering about two-thirds
of the US population. We also measured the market share of hospitals that
owned physician practices or were contractually integrated with physicians in each county, and other characteristics of the areas.
We found that increases in the market share of hospitals that own physicians lead to higher hospital prices and spending. We show that the effect
on spending is essentially due to the effect on prices: there was no evidence
that hospital ownership of physician practices leads to higher rates of hospital use.
Thus, our evidence did not show that hospitals integrate simply to pay
doctors to admit more patients. We also found that increases in the market share of hospitals that have looser, contractual relationships with their
62
doctors lead to lower rates of admissionssuggesting that integration can

have both harmful and beneficial effects. (This reduction in admission
rates, however, is too small to translate into statistically significant or economically meaningful declines in hospital spending.)
C A UT I O N A R Y NO TE
There are reasons why our results may not accurately predict the consequences of hospital/physician integration going into the futureand so
may not represent an important criticism of the Affordable Care Act.
First, our analysis is based on historical data. Market conditions may be
different today, as may be the forces driving integration. At least in theory,
the Affordable Care Act seeks to encourage pro-competitive integration in
ways that were not present in our study period.
Second, we may not have controlled for factors that are correlated with
integration but not caused by it; if these factors also lead to higher prices and
spending, we would be blaming integration when something else was at work.
Even so, our study adds a new cautionary note to the Affordable Care
Acts enthusiasm for changing the way that medical care is organized in
the United Statesand a new challenge for health policy.
As J. Thomas Rosch, a former member of the Federal Trade Commission, points out, the Shared Savings Program might end up enhancing
market power over the privately insured so much that it leads to higher
costs and lower qualityprecisely the opposite of its goal.
If this comes to pass, it will be another example of how even health care
reforms with the best of intentions are subject to the law of unintended
consequences.
Reprinted by permission of Investors Business Daily. 2014 Investors Business Daily Inc. All rights
reserved.
Available from the Hoover Institution 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
63
H EALT H C ARE
Waiting for Dr. Godot

Long treatment delays at VA hospitals shouldnt shock us. In countries
with government health care monopolies, waiting monthseven
yearsrepresents business as usual. By Scott W. Atlas.
The disgraceful state of the health system for Americas military veterans
is finally being exposed. In our Veterans Affairs (VA) hospitals, veterans
suffer because of shamefully long waits before receiving important medical care. Relying on an internal audit ordered by the White House, the
Associated Press reported that more than fifty-seven thousand patients
are still waiting for their appointments ninety days after requesting them.
Bureaucrats apparently covered up the facts, and some staff members even
falsified records to earn personal bonuses.
Americans should recognize the importance of these revelations. Such
scandals serve to vividly remind everyone of the personal consequences
of allowing the government to fully control health care. But the circumstances should not have been a surprise. While such waits are otherwise
unheard of in the health care system of the United States, they in fact
typify the very systems held up as models for US reforms by supporters of
ObamaCare.
Even though the facts have been thoroughly documented by governments running nationalized health systems and in renowned scientific and
medical journals, it is puzzling that the shocking waits for care in those
systemswhether for specialist appointments, heart surgery, stroke treatScott W. Atlas, MD, is the David and Joan Traitel Senior Fellow at the
Hoover Institution and a member of Hoovers Working Group on Health
Care Policy.
64
ment, diagnostic scans, or cancer carego virtually unreported by the

mainstream US media.
OU T R A GE O U S D E LAY S I N B R I TAI N
Last year, Britains National Health Service (NHS), the paradigm of government-controlled health care, turned sixty-five and officially entered senior
citizenship. As opposed to the celebration that might have been expected,
headlines in the British press documented scandalous patient care, shameful
waiting lists, catastrophic hospital practices, and financial debacles.
Access to medical care has been so poor for so long in the NHS that
the government was compelled to issue an NHS Constitution in 2010
wherein it declared that no patient should wait beyond eighteen weeks
four monthsfor treatment after a referral from a general practitioner.
While NHS England officially states that the laughably long wait of eighteen weeks to initiate treatment is being met, as of February 2014 more
than fifty thousand patients had waited more than those eighteen weeks
after referral. In Scotland, as reported last May, more than 10 percent of
patients were still waiting more than eighteen weeks for their treatment to
beginfour months after being referred by their doctors.
Long delays for treatment typify the very systems held up as models by
ObamaCare supporters.
Even more shocking is the recent decree from the comptroller and auditor general of Englands Department of Health: NHS England introduced zero tolerance of any patient waiting more than fifty-two weeks (for
treatment after doctor referral), for which trusts face a mandatory fine of
5,000 for each patient doing so. Yes, waiting more than one full year for
treatment is apparently a possibility in the NHS.
Despite the UK governments repeated laws and decrees, more patients
than ever are now on waiting lists, and the NHS is failing to deliver on
its most basic promises to the taxpayers. In April 2014, hospital waiting
lists soared to their highest point since 2006, with 2,993,108 patients in
England on waiting lists for treatment. Figures for July 2013 showed that
508,555 people in London alone were waiting for operations or other
65
treatment to beginthe highest total for at least five years. Almost 60,000
more patients were waiting for treatment at the capitals thirty-four NHS
hospitals than one year before.
Paradoxically, America has been doubling down on government authority
over health care just as more and more European governments have been
forced to address their unconscionable waits.
In October 2013, the median wait time in Englands NHS for hospital
inpatientspatients sick enough to require hospital admissionwas a
staggering nine weeks to begin treatment, a full two months after doctor
diagnosis and referral. For outpatients, median waits were also markedly
higher in October 2013 than a year earlier. Paul Smith, a senior research
analyst at the Nuffield Trust health think tank, said to the Guardian that
this is hardly surprising. Waiting times are a good barometer of the general health of the NHS.
In its characteristic mode to allow itself significant latitude to meet its
own targets, the NHS years ago cynically set a goal specifically for cancer
patients. They specified that 85 percent of patients should wait no more
than sixty-two days to begin their first definitive treatment after an urgent
referral for suspected cancer from their GP. Yet, in the fourth quarter of
201213, according to NHS Englands National Statistics, 19.4 percent
of lung cancer patients, 22.2 percent of colon cancer patients, and 17.4
percent of urological cancer patients were not treated within two months
after urgent referral. The Welsh government also reported their NHS is
still failing to treat 813 percent of the most urgent cancer cases within
sixty-two days. Indeed, in data from England released last spring, for those
referred for urgent treatment after being diagnosed with suspected cancer, that low expectation target time was breached by assessing all cancer
patients. More than 15 percent of patients waited more than sixty-two
daystwo full monthsto begin their first definitive treatment after an
urgent referral for suspected cancer from their GP.
Perhaps it should be no surprise that the United Kingdom has far worse
cancer survival rates than the United States.
66
Foreshadowing what we now know about our own VA system, the BBC
uncovered scandalous news last year: many patients initially assessed as
needing surgery were subsequently recategorized by the hospital so that
they could be removed from waiting lists to hide the already unconscionable delays. Royal College of Surgeons President Norman Williams, calling
this outrageous, publicly charged that hospitals are cutting their waiting lists by artificially raising thresholds. Meanwhile, Englands National
Audit Office reported in January 2014 that records of waiting times are
riddled with inconsistencies and errors, raising significant doubts about
published data for the NHSs performance on the eighteen-week target.
According to a recent House of Commons report, nearly one-third of
NHS patients had no recorded wait times whatsoever, and an additional
26 percent were frankly inaccurate.
Perhaps it should be no surprise that the United Kingdom has far worse
cancer survival rates than the United States.
Adding to those indefensible facts is a long list of scandals in NHS hospitals that were epitomized in 2013 by the Mid Staffordshire Trust debacle,
in which 400 to 1,200 neglected and abused patients died in squalid and
degrading circumstances. Although virtually unreported by US media, the
2013 Francis report, consisting of more than a million pages and sixtyfour thousand documents and costing British taxpayers about $20 million,
caused widespread outrage in Britain. While forcing the resignation of the
NHS chief, the report officially called out the insidious, negative culture in
the NHS, characterized by a tolerance of unacceptably poor standards and
patient neglect along with a preoccupation with cost-cutting, targets, and
processes, all the while losing sight of its fundamental responsibility to provide safe patient care. The parallels to Americas VA system are undeniable.
P RI V A T E C OV E R AG E I N SWE D E N
Paradoxically, America has been doubling down on government authority over health care with the Affordable Care Act just as more and more
European governments, including Denmark, Britain, Finland, Ireland,
Italy, the Netherlands, Norway, Spain, and Sweden, have been forced by
67
public outcry to address the unconscionable waits for care by introducing new laws. But it is even more essential for American voters to realize,
and for our government leaders to acknowledge, what other countries
are beginning to recognize all over the world. These governments have
started to understand that the cure for their failed nationalized health
systems is a shift to privatization. And citizens under government-dominated health systems are increasingly circumventing their own systems,
pursuing private health care to solve the uniformly poor access to care
and limited choices.
68
Consider Sweden, often heralded as the paradigm of a successful welfare

state. The facts tell a different story. Having failed its citizens in health care
access, the Swedish government has aggressively introduced private market
forces into health care to improve access, quality, and choices. Although
once entirely public, over a quarter of Swedish primary care clinics are now
run by the private sector. Swedens municipal governments have increased
spending on private care contracts by 50 percent in the past decade. Private
nursing facilities
69
now receive substantial public funding to care for patients. Widespread

private sector competition has also been introduced into pharmacies to
tear down the pre-2009 monopoly over all prescription and nonprescription drugs. Since the Swedish government sold over half its pharmacies to
private firms in 2009, twenty private firms entered the market and over
three hundred new pharmacies opened, not only improving accessibility
but providing the first pharmacies ever to many small towns.
Moreover, despite the fact that an average Swedish family already pays
nearly $20,000 annually in taxes toward health care, according to Swedish
economist Per Bylund, about 12 percent of working adults bought private
insurance in 2013, a number that has increased 67 percent over the past
five years. Half a million Swedes now use private insurance, up from a
hundred thousand a decade ago, even though they are already guaranteed public health care.
B E TT ER C HO I C E S AND ACCE SS
In England, the overwhelming majority of financially successful people now
avoid the NHS, the system still naively cited by many as the model for US
health reform. About six million Britons now buy private health insurance,
including almost two-thirds of those earning more than $78,700. More than
50,000 Brits travel out of the country per year, spending $250 million to
receive medical care, because of lack of access. According to the Telegraph, the
number of people paying for their own private care is up 20 percent since the
previous year, with about 250,000 now choosing to pay for private treatment
out of pocket each yeareven though they already pay for NHS insurance.
None of the key goals for health reform in America requires the
government to directly provide insurance or health care itself.
In the wake of the current VA scandal, President Obama has the opportunity to reach a grand consensus on health care reform, despite the sharp divisions on the issue in the nation. Just as in every country with a nationalized
health system, the truth is becoming obvious for all Americans who bother
to look. Whether you are a veteran with VA care, a poor person under Medicaid, a senior relying on Medicare, or a member of the middle class under
70
ObamaCare, being insured is not the same as having access to medical care.
The president offered a ray of hope when his administration recently backed
away from a plan to reduce affordable private coverage options inside Medicare, options that all Medicare beneficiaries enjoyed before the law.
The bottom line: being insured is not the same as having access to
medical care.
Allowing our veterans to use private care with government funding was a
more direct action to improve choices and timely access to medical care by
expanding private care choice. The next step for the president is to do the same
for the most vulnerable, the low-income Americans and their families. Rather
than expanding traditional Medicaid at a cost of nearly a trillion dollars over
the decade, our elected officials should consider something far bolder: add a
premium support option for beneficiaries, offering financial assistance instead
of traditional Medicaid insurance for people to choose among private plans.
But there is an even more fundamental point that should be appreciated. Frankly, none of the key goals for health reform in Americareducing health care spending, expanding access to affordable coverage, preserving personal choice and portability of coverage, promoting competition in
insurance markets, and maintaining the excellence of medical care and
innovationrequires the government to directly provide insurance or
health care itself. Lets hope President Obama and the polarized Congress
have the courage to truly lead with creativity, by seizing the opportunity
to facilitate access to Americas private health care. Perhaps a genuine consensus can be achieved after all.
Available from the Hoover Institution Press is In Excellent
Health: Setting the Record Straight on Americas Health
Care, by Scott W. Atlas. To order, call 800.888.4741 or
visit www.hooverpress.org.
71
H EALT H C ARE
Bitter Pills
Higher costs, fewer choicesthe Affordable Care Act is becoming
harder and harder to swallow. By Richard A. Epstein.
An old saying in the garment business says, You cant make up in volume what you lose in money on each piece. We could say the same
thing about the Patient Protection and Affordable Care Act (ACA).
President Obama thinks that the sudden surge in enrollments to about
eight million people means the repeal debate is and should be over. I
dont think so.
The ACA has just begun its maiden voyage. Enrollment is only the first
step. A sound evaluation of the program must explain how, over its entire
life cycle, it can overcome all the theoretical objections about its design.
That will at a minimum require solid knowledge of how this program is
going to work, year in and year out. With sustainability as the key test,
any such judgment depends on the implementation of the basic structure,
the ACAs arcane rules, and the behavior of insurers, covered firms, and
individuals under the new rules.
In addition, it is critical to keep separate the ACAs distinct components. There are all sorts of ways to keep young adults on their parents
policies until they are twenty-six, to improve Medicare reimbursement
systems, to extend (wisely or not) Medicaid, and to deal with pre-existing
Richard A. Epstein is the Peter and Kirsten Bedford Senior Fellow at the
Hoover Institution and a member of the steering committee for Hoovers 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.
72
conditions, without also turning the private individual and employer market upside-down.
Yet the ACAs centerpiecethe individual and employer mandates
disrupts the market in major ways. Both of these do (or at least did)
impose a play-or-pay requirement on the provision of health care. Under
the original ACA approach, either you obtained minimum essential coverage, as defined by the ACA, or you had to pay a tax or a penalty to the
government for failing to meet that requirement.
Its odd for the president to insist on the sustainability of a plan whose
key provisions have been temporarily shelved because they threatened to
destabilize the market.
The individual mandate, which generated an epic constitutional battle,

was at one time thought strictly required to counter massive consumer
opportunism. Under the ACAs open-enrollment policies, people can sign
up in the individual program even on the eve of a medical crisis, no questions asked, only to walk away when the emergency has passed. The mandate was the antidote to this moral hazard. The teeth were pulled from that
mandate by two key decisions the Obama administration took unilaterally
in March 2014. The first allowed individuals to avoid the mandate tax in
cases of self-determined hardship. The second let employees keep their
current noncompliant health care coverage until 2017, in order to prevent
as many as eight million to ten million peopleno definitive numbers are
availablefrom abandoning what the president airily dismissed as substandard policies. That decision was combined with the postponement
of the employer mandate for midsize employers (with fifty to ninety-nine
employees) until 2016, and a relaxation in the required number of covered
employees (from 95 to 70 percent) until 2015.
T HE M E A S UR E O F SU CCE SS
It is odd for the president to insist on the sustainability of a plan whose
key provisions have been temporarily shelved because they threatened to
destabilize the overall market. Indeed, the current information indicates
73
that these built-in difficulties are far from being solved even as the president takes his premature victory lap.
If we judge ObamaCare by the social gains and losses it generates, the
enrollment figure of eight million tells us nothing. We must know the full
set of benefits and costs before making any judgment as to the desirability
of the plan.
The centerpiece of minimum essential benefits will be a constant thorn
It is not enough, therefore, to claim victory by saying individual signatories are better off from taking the planassuming, as is still unclear,
that these signatories will fork over the required premiums. It is also
necessary to add back in the handsome federal subsidies they received
on joining the plan. These subsidies introduce market distortions, so
the total cost (both payment and subsidy) of joining the plan exceeds
the private benefit to the plan member. Extended over a broad population, these subsidies add up to tens of billions of dollars now and into
the future. Given that a large, if undefined, fraction of these new public
enrollees were evicted from their private health care plans, the net effect
is that taxpaying for-profit programs are out, and tax-subsidized government bureaucracy is in.
Throw on top of this the huge government cost of setting up exchanges
and churning out and enforcing endless public regulations, and the old
joke from the garment industry takes on new life. The social losses could
well increase with each new member who signs up.
WH O W IL L S IG N U P?
That anxiety only becomes greater when adverse selection is put on the
table: on average, will the sick population sign up more? Everyone stresses
the need to recruit and retain high numbers of young people, between
eighteen and thirty-four years old, to subsidize the older plan members.
Right now, the estimates are that about 28 percent of health care subscribers are in that young group, but the ideal number for plan balance is
estimated at 40 percent.
74
MCT/Andre Chung
in the long-term operation of the system.
TAKING THE PLUNGE: Tania Ruiz helps Jose Morales, 23, of Washington, DC, as he considers signing up for health care. The long-term success of the Affordable Care Act is highly
dependent on recruiting and retaining high numbers of young people to subsidize older plan
members. Currently, about 28 percent of health care subscribers are between eighteen and
thirty-four, but the ideal number for plan balance is about 40 percent.
The shortfall is not our sole source of worry. On average, people in

the younger age group are healthier than their elders. But the unresolved
question is whether the young sign-ups who pay are a random sample
from that age cohort. Given that these enrollees may use private information that they can keep from the insurers, the odds are that this group is
on average more expensive to service than the random sample. In addition, the looming risk is that many of the people of all ages who have not
signed up early will jump in, as feared, just in time to receive expensive
coverage later on. In short, the plan could prove too expensive to many,
who then drop out with the next round of premium increases.
As part of his premature victory statement, the president trumpeted
the decline in the rate of increase in health care costs from about 8 percent to 4 percent per annum. That number is phony because it assumes
75
declines are all attributable to the ACA, whose key provisions on individual and employer plans have yet to take effect. Some long-overdue
Medicare reforms, an overall decline in employment during the recession,
and modifications of standard insurance policies offer more likely explanations for the change.
But now that the act is taking hold, reports speak of a recent surge
in health care expenditures, some of which are attributed to the expanded
ACA coverage. These increased expenses will work themselves into next
years premiums, which could lead to the adverse-selection death spiral. If
it does, we can expect yet another round of belated and ad hoc government interventions.
LE SS C ON S UM ER -FR I E ND LY
The flap over the enrollment rates should not, moreover, obscure the
many structural flaws in the ACA. Its centerpiece of minimum essential benefits will be a constant thorn in the long-term operation of the
system. That comprehensive list contains benefits not currently found on
even the most expensive voluntary plans, a strong indication that they are
worth less to consumers than they cost.
Higher costs and fewer choices are not a recipe for long-term success.
The money to fund these benefits has to come from somewhere. But
where? One early casualty of the overall system is the presidents nowforgotten pledge that if you like your current health care plan, you can
keep it. But the choice of physicians and hospitals is an expensive perk,
albeit one highly valued by consumers. However, because legislation sets
out a comprehensive list of required services, insurers will have to scramble to identify other ways to economize. Typically, that requires limiting
physician choice and the number of secondary and tertiary care centers
to which patients can go. The upshot is that the new plans will be less
consumer-friendly than earlier ones that gave greater choice in the overall
mix of benefits provided. Still, the government plans will get high levels of
new enrollment in part because they cut out by law the private plans that
people would prefer to buy with their health care dollars.
76
The president constantly derides his critics for their unwillingness and
inability to come up with any viable alternative to the ACA. But this
is false. The ACA designers ignored efforts to reduce regulations that
could have increased competition in the health care market. They took
no steps to permit interstate sales of private insurance or to relax licensing
requirements to allow large retailers to provide general health care services.
Instead, they opted for compulsion backed by a bevy of special taxes and
fee regulations. Higher costs and fewer choices are not the recipe for longterm success.
The president may not understand these fundamentals right now, but
he will when the system comes crashing down around him in the months
and years to come.
Available from the Hoover Press is Free Markets under

Siege: Cartels, Politics, and Social Welfare, by Richard
A. Epstein. To order, call 800.888.4741 or visit www.
hooverpress.org.
77
P O L IT IC S
Affirmative-Action
Foibles
The Democratic Party likes racial preferences in college admissions,
but Asian-Americans dont. Might we see a parting of the ways? By
Lanhee J. Chen.
A recent effort to reinstitute affirmative action in admissions to Californias public colleges and universities was defeateddemonstrating the
political power of Asian-American voters and challenging the conventional wisdom about their partisan loyalties.
The defeat is a reminder that Asian-Americans can have a decisive impact
on political and policy-making processes. Perhaps more important, it suggests that if education is a key issue that drives Asian-American voters, the
Democratic Party may not be able to rely on their support in the future.
In 1996, California voters passed Proposition 209, which banned the
consideration of race, ethnicity, or gender in state public employment and
higher education. Last spring, Assembly Speaker John A. Prez (D-Los
Angeles) tabled a proposed constitutional amendment, known as SCA
5, that would have restored the use of affirmative action in admissions to
the states public institutions of higher learning. Prez went against the
vast majority of Democratic legislators, as well as many ethnic-identity
groups traditionally supportive of Democrats, when he effectively killed
the amendment.
Lanhee J. Chen is the David and Diane Steffy Research Fellow at the Hoover
Institution, a member of Hoovers Conte Initiative on Immigration Reform, and
a lecturer in public policy and law at Stanford University.
78
He took this action because of strong, organized opposition to SCA 5

from the Asian-American communityor at least its most vocal leaders
and others active in politics.
This ability to force such action supports the notion that the Asian-American community is at a tipping point in California politics. Its numbers
are high enough (about 15 percent of the states population) to be a decisive
constituency, particularly in statewide races and in close, contested elections.
And community members interest in education issues suggests that the affirmative-action debate may have political repercussions for Democrats.
A majority of Asian-Americans have consistently affiliated with Democrats since the early 1990s. But before that, they regularly supported
Republicans. In fact, George H. W. Bush won 54 percent of the AsianAmerican vote for the presidency in 1988.
Survey data suggest that the parties positions on education may have
something to do with this turn toward the Democratic Party. In a 2012
post-election survey of Asian-American/Pacific Islander voters, 81 percent of those responding said education issues were very important to
their vote, second only to the economy and jobs at 86 percent. President
Obama had a 42-point advantage among those citing education issues as
being very important to their vote.
A majority of Asian-Americans have affiliated with Democrats since the
early 1990s. Before that, they regularly supported Republicans.
This debate over affirmative action highlights an area within education

policy where the interests of Asian-Americans are at odds with the Democratic Party. It also creates opportunities for the GOP to gain support.
Democrats have made it clear that they want to reinstate racial preferences in admissions, while Asian-Americans do not, as illustrated in their
efforts to defeat SCA 5. Given that the percentage of freshmen admitted to
all University of California campuses who were Asian-American increased
between 1996 and 2013, Democrats do not appear to be accounting for
the Asian-American communitys interests.
Notably, the percentage of freshmen admitted to all UC campuses
who self-identified as Latino or Chicano nearly doubled during that time,
79
while the African-American percentage stayed the same. This suggests

that affirmative action need not be an issue that divides racial and ethnic
minorities.
Affirmative action need not be an issue that divides racial and ethnic
minorities.
Will the Republican Party be able to capitalize on the debate? It depends

in large part on whether its leaders are able to articulate principled arguments both about why the restoration of racial preferences in admissions
is wrong and why the GOPs perspectives on access to higher education
and the importance of choice, accountability, and high standards in K12
education are right.
Although SCA 5 is dead for now, Prez and his Democratic colleagues
called for a task force to examine whether the states public institutions
should change the way they admit students. Continuing efforts by California Democrats to reinstitute affirmative action have the potential,
therefore, to alienate segments of the very electoral coalition they rely on
for success in the state and beyond.
Reprinted by permission of the Los Angeles Times. 2014 Los Angeles Times. All rights reserved.
Available from the Hoover Institution Press is Beyond

the Color Line: New Perspectives on Race and Ethnicity
in America, edited by Abigail Thernstrom and Stephan
Thernstrom. To order, call 800.888.4741 or visit www.
hooverpress.org.
80
PO L I T I CS
They Might Be Giants

Then again, they might not. If politics were baseball, President
Obamas team would have whiffed. By Bill Whalen.
At some point in a second term, presidents run out of steam and journalists run out of news. For Barack Obama and the White House press corps,
that moment might have come last spring when CNN ran the breathless
headline Obama Goes for a Walk.
Actually, President Obama did more than head out for a surprise stroll
on the National Mall. He also flew up to Cooperstown, New York, to
become the first sitting president to take in the National Baseball Hall of
Fame and Museum. And that was three days after he surprised a group of
Washington-area Little Leaguers with an impromptu visit (actually, more
premeditated than it appeared) at an afternoon practice.
You may ask: when did our chief executive fall in love with the
national pastime? This is a president more closely associated with basketball and golf. It could be as innocent as it appears: Obama was in
Cooperstown, White House officials said, simply to pitch international
tourism. As for the Little League stop: whats not to like about a photo
op with ten-year-olds?
Then again, there might be more at play.
Early in his first term, Bill Clinton had an image problem. In 1993, the
newly elected president (Clinton was forty-six years old at the beginning
of his first term; Obama was forty-seven) liked to go for jogs around town.
But the camera didnt like what it saw: Clinton huffed and puffed. His
clothes were hardly flattering. His gait was neither confident nor athletic.
Bill Whalen is a research fellow at the Hoover Institution.
81
In short, it became a metaphor for a young administration unable

to find its stride. So it wasnt long before the presidential jogs were
traded in for a more leisurely and dignified eighteen holes at Andrews
Air Force Base.
So perhaps Obama has come to recognize that during a midterm election in which his party finds itself in deep trouble in red-state senatorial
races, a new embrace of baseball plays better in the heartland than cozy-
82
ing up to an NBA culture fueled by the likes of Beyonc and Jay-Z and
seen as overly hip-hop.
P L A Y I N G F OR TI ME
Unfortunately, there are two problems with Obama championing baseball. The first is that among modern presidents he has the least connection
to the game. Obamas predecessor, George W. Bush, was a junior-varsity
relief pitcher at Yale who went on to own a share of the Texas Rangers.
The highlight of the Bush 43 presidency? It might be taking the mound
at Yankee Stadium before Game 3 of the 2001 World Series and throwing
a letter-high strike.
As for Bill Clinton, to this day he can wax eloquent about growing up
in Arkansas and listening to the exploits of Stan Musial on the Cardinals broadcasts, courtesy of KMOX radio, the voice of St. Louis. His
predecessor, George H. W. Bush, was the starting first-baseman on the
Yale varsity squad that participated in the 1947 College World Series
(the 2014 Yale squad dedicated its season to the forty-first president).
Ronald Reagan re-created Chicago Cubs games for his Midwestern
audiences and, of course, played Grover Cleveland Alexander in 1952s
The Winning Team.
And Barack Obama? He didnt grow up playing the game or watching
it. Conservatives have taken him to task for shaky knowledge and
an even shakier throwing style.
83
Then theres the second problem: though he may respect baseballs

past, Obama may not understand how the games tenets apply to his
presidency.
Consider this recent comment by him about his foreign policy agenda:
That may not always be sexy. That may not always attract a lot of attention...but it avoids errors. You hit singles, you hit doubles; every once
in a while we may be able to hit a home run.
Fair enough. But other than the Osama bin Laden raid, name a foreignpolicy moment that comes anywhere close to the late Earl Weavers formula for on-field success (the key to winning baseball games is pitching,
fundamentals, and three-run homers).
As for the other areas of the game, the same president who twice ran
impressive national campaigns has trouble pitching the everyday details of
his administration (ObamaCare, economics, government transparency).
To the extent that a high-caliber baseball team is built around a solid, if
not stellar, five-man rotation, can you name five Obama cabinet secretaries who are all-star caliber?
The president who twice ran impressive national campaigns has trouble
pitching the everyday details of his administration.
On the field and in the White House Press Room, the defense has
its holes. Then again, the president plays a lousy shortstop, and not
just because hes left-handed. Obama easily moves to the left, but not
so to his right. Thus a lot of double-play chancessay, an energy deal
that gives Republicans their pipeline in return for more renewables
go unturned.
H O T S T R E A K N O MO R E
Baseballs grueling 162-game schedule may be the toughest test in professional sports. Likewise, eight years in the White House is a test of physical
and mental endurance. In baseball, its not complicated: a team gets hot
for forty or fifty games and avoids long losing streaks the rest of the way.
But not so this White House.
84
Its hard to remember a hot streak other than the heady early days after
2008s victory, when Congress was on the same page. The past four years?
On the mound, too many balks (the Syrian red line), wild pitches (forever blaming Fox News), and free passes (Vladimir Putin). At the plate,
too many swings and misses (Middle East peace overtures).
This president is really more of a basketball and golf guy.
President Obama knows what its like to come up short on the diamond. In 2010, he was booed as he took the mound at Nationals Park.
Heres hoping he gave Cooperstown a good look: unless he shakes up the
lineup and starts playing the game at a higher level, his presidency wont
be remembered as Hall of Fame material.
Reprinted by permission of Real Clear Politics. 2014 RealClearPolitics. All rights reserved.
Available from the Hoover Institution Press is The

Unbearable Heaviness of Governing: The Obama
Administration in Historical Perspective, by Morton
Keller. To order, call 800.888.4741 or visit www.
hooverpress.org.
85
I N TELLIGENC E
The Secret Sharers

If leaks of secret information are so bad, why not plug them? Because
both the public and the government consider them useful. By Jack
Goldsmith.
Michael Kinsley, in his New York Times review of Glenn Greenwalds book,
No Place to Hide: Edward Snowden, the NSA, and the U.S. Surveillance
State, made the following claims about leaks of national security secrets:
The question is who decides. It seems clear, at least to me, that the private
companies that own newspapers, and their employees, should not have
the final say over the release of government secrets, and a free pass to make
them public with no legal consequences. In a democracy (which, contrary
to Greenwalds opinion, we still are), that decision must ultimately be
made by the government. No doubt the government will usually be overprotective of its secrets, and so the process of decision-makingwhatever
it turns out to beshould openly tilt in favor of publication with minimal delay. But ultimately you cant square this circle. Someone gets to
decide, and that someone cannot be Glenn Greenwald.
I disagree with Kinsley, as both a descriptive matter and a normative

matter.
As a descriptive matter, the press does effectively have the final say over
the publication of US national security secrets. The only constraints are
the weak ones of marketplace (the New York Times was widely criticized
Jack Goldsmith is a senior fellow at the Hoover Institution and a member of
Hoovers Jean Perkins Task Force on National Security and Law. He is the Henry
L. Shattuck Professor at Harvard Law School.
86
for publication of the SWIFT story in 2006) and even weaker (and weakening) legal constraints in practice. We have been moving toward this
system of journalistic hegemony for a while, and the trend has been exacerbated by digital technology and the globalization of media.
The government has enormous control over its secretsit creates them,
it stores them, it decides how widely they are disseminated behind walls of
secrecy, it can punish its employees for mishandling secrets, it can create
secrecy defenses, and the like. But once a secret is out, the fact is that the
pressor, more accurately, whoever holds the secret outside the governmentdecides whether to publish.
I think Kinsley is also wrong about the normative question of who
should decide. The government should not have the final say about which
of its secrets is published. Government action undisclosable to the American public is presumptively illegitimate. We tolerate secrecy to some degree
because it is necessary for national security. But such secrecy runs the risk
of getting out of control, and of fostering illegal or illegitimate action, or
simply action that the American people do not approve of. The government, like all institutions, is imperfectself-interested, myopic, underinformed, biased, prone to mistakes, motivated by glory and power, and so
on. If the government had the final say on its secrets, it could define the
world of secrecy as broadly as it wanted, in a self-serving way, and shield
its actions from a democratic (and judicial) checkan especially dangerous prospect during endless war where the claims of secrecy are greater.
The people have effectively decided that some degree of leaks is
necessary to the proper operation of secret government.
But if the government cannot have the final say, who does? The essential problem is that journalists (like all individuals and institutions) are
biased too. They are self-interested, myopic, underinformed, nonexpert
about national security, biased, prone to mistakes, and often motivated in
their publication decisions by fame and profit. Kinsley makes this point
(and to my astonishment, many journalists, including, apparently, Greenwald, do not see itI am always amazed that journalists who insist on the
need for a robust press to expose the folly of the self-serving institutions
87
88
DPA/Soeren Stache
are blind to their own self-serving interests). Kinsley thinks that between
the self-serving government and self-serving journalists, the government,
supported by the people, should have the final say.
One problem with Kinsleys conclusion is that it pushes to government
absolutism on secrets in the name of democracy, and yet the people cannot judge their governments secret actions. Yes, the people have approved
through law a system of checks and balances behind the wall of secrecy,
but that does not suffice. Many leaks over the past decadeon interrogations, drones, and surveillance, for examplehave led the people to alter
the course of government action. If the government had the final say, these
and dozens of other reforms and corrections never could have occurred.
Especially in an era of endless war, the government should not decide as a
final matter what the people know.
So leaks of secrets will occur, and they are sometimes normatively
appropriate. But of course this necessary check on government leads to all
sorts of problems. For secrecy too is sometimes necessary and appropriate,
and journalists sometimes, perhaps often, publish secrets that cause enormous harms that outweigh any conceivable benefit from the perspective
of democratic governance.
How to resolve this paradox? The answer, I think, lies in two simple
propositions: (1) The government could do much, much more to protect
secrets, including cracking down harder on journalists, but (2) it doesnt
do so because the American people dont want it to.
As noted, the government still has enormous control over how secrets are
made and protected. It could create many fewer secrets, and it could protect
them better. It doesnt do so in part because it sometimes benefits from
the porous secrecy system. But even while it benefits from the system, the
government could in theory crack down much harder, not just on leakers
but also on the press. First Amendment precedents permit punishment of
journalists for publication of national security secrets and allow the government great leeway in forcing journalists, on penalty of contempt, to reveal
their sources.
So much is true in theory. But in practice, legal and political norms are
making it harder and harder for the government to punish journalists in
these ways for disclosing secrets. Congress has done nothing to make it
SCRUTINY: German artist Oliver Bienkowski projects the words NSA in da House on the
facade of the US Embassy in Berlin in July. Arguably the public has decided that some
degree of leaks is necessary to the proper operation of secret government in endless war,
even though the toleration of the leaks itself produces many harms.
easier for the executive branch to pursue the press, and has been threatening a shield law for a while.
In short, the government, despite its huffing and puffing about leaks,
has done very little, especially against journalists, to stop them. To the contrary, it has largely tolerated the massive leaks of the past decade, including
the extensive Snowden leaks. As I wrote in Power and Constraint:
Underlying this persistent restraint is a recognitionbased in part on politics and in part on a powerful constitutional traditionthat press coverage
of secret executive branch action serves a vital function in American democracy, even though the press often miscalculates the harm of publishing secrets
and thus often harms national security. Some degree of abuse is inseparable
from the proper use of every thing; and in no instance is this more true than
89
in that of the press, said Madison. It has accordingly been decided...that

it is better to leave a few of its noxious branches to their luxuriant growth,
than, by pruning them away, to injure the vigor of those yielding the proper fruits. Madison did not have publication of national security secrets in
mind, but his reasoning applies to the issue. It is no accident that, as [former
Washington Post editor Marcus] Brauchli notes, the nation with the largest
and most powerful military and intelligence services in the world is also the
nation that, by a large margin, gives its media the freest reins in discovering
and publishing classified secrets. There is in theory room to tighten these
reins. But the United States has basically decided that a self-serving and institutionally biased media which pursues and publishes government secrets that
sometimes harm national security achieves important accountability benefits
that on balance outweigh the harms to national security.
Once a secret is out, the fact is that the pressor, more accurately,
whoever holds the secret outside governmentdecides whether to publish.
Contra Kinsley, the demos has effectively decided that some degree of
leaks is necessary to the proper operation of secret government in endless
war, even though the toleration of the leaks itself produces many harms. The
government could change the system, it could do more against journalists,
but right now all the evidence is that the government does not think it has
political support for such a crackdown. Kinsley might not accept this. He
might be arguing that the equilibrium should be changed. But it is he who
is out of step with the people on that question, at least right now.
Reprinted by permission of Lawfare, a project of the Harvard Law School/Brookings Project on Law and
Security. 2014. All rights reserved.
Available from the Hoover Institution Press is Perjury:

The Hiss-Chambers Case, third edition, by Allen
Weinstein. To order, call 800.888.4741 or visit www.
hooverpress.org.
90
I N T E L L I G E N CE
In Snowden We Trust?
Never
Self-appointed crusaders, no matter how clever or articulate, must
never get to decide which secrets our government can keep. By
Benjamin Wittes.
Lets give Edward Snowden his due: he did himself a lot of good in his
interview with NBCs Brian Williams last May. He presents well, coming across as earnest, thoughtful, and intelligent. There is no manic
gleam in his eye, no evident hatred of his country. He is well-spoken
and articulate. He presents his own case more compellingly than does
Glenn Greenwald, who speaks with a barely suppressed rage much
of the time and an altogether unsuppressed hostility all of the time.
Snowden, by contrast, is cool and measured, his affect cerebral. Where
Greenwald and Julian Assange talk about the NSA as an evil monolith, Snowden talks about how he misses his former colleagues, whom
he regards as good people. He gamely objects to their vilification. I
have no doubt that his performances move many viewers, who seeas
he clearly doesnobility in his sacrifices, purity in his motives, and
honor in his decision to defy the law in some larger defense of morality
as he sees it.
Yet I was unmoved by Snowdens performance.
Benjamin Wittes is a member of the Hoover Institutions Jean Perkins Task
Force on National Security and Law, a senior fellow at the Brookings Institution, and co-director of the Harvard Law School/Brookings Project on Law and
Security.
91
92
My stony indifference to his earnest self-account was not because his

interview with Williams was insubstantial. It wasnt. Indeed, Snowden
raised at least two important factual matters that warranted clarification
by his former agency. The first was that the NSA had repeatedly described
Snowden as a former systems administrator, a kind of tech-support guy
who helped manage computers for the agency. Snowden, by contrast,
describes himself as a cyberspy, a claim Greenwald also advances in his
recent book. The disparity is at least a little important, as it goes to the
question of exactly what sort of person did this. Was the problem one of a
disaffected support staffer who took matters into his own hands or was it
that the NSA was betrayed by one of its own operatives? It also goes to the
question of how much Snowden can reasonably claim to know about the
agencys substantive workwhom it targets, how, and why. And it thus
goes also to the question of credibility. Is the government downplaying
Snowdens role to diminish his credibility or is he padding his rsum to
enhance it?
Second, and more important, Snowden in this interview directly challenged the NSAs claim that he had never raised his concerns internally.
This claim has been crucial to the governments dismissal of Snowden as
a legitimate whistleblower. Yet Snowden says he raised his concerns by
e-mail more than once. The government announced that it had found
only one such e-mail, which it released and which did not remotely
suggest whistleblowing.
The exchange, rather,
reflected a routine
inquiry about the
relationship between executive orders and statutesone to which a

lawyer responded appropriately. Again, one side or the other is going to
emerge with egg on its face. If this brief e-mail exchangewhich took
place long after Snowden was already exfiltrating documents from the
agencyis what Snowden meant by raising his concerns internally, his
effort was laughable. On the other hand, if more material were ever to
93
turn up that actually supported Snowdens claims, it would seriously

undermine the governments credibility concerning his internal behavior before he left Hawaii.
A G U ES T OF T HE KR E MLI N
However important these questions are, they are not ultimately the
matters that will determine what we should think of Snowden. And
on the more important issues, Snowdenearnestness and allutterly
failed to explain certain stubborn, inconvenient facts that make it hard
to accept him as the figure he claims to be. Some of these facts he did
not challenge at all, as they are too clearly true. Some he challenged
only weakly. And some Williams did not bother to ask him about at
all. The result is a haze over the noble portrait the fugitive paints of
himself.
Snowden talks about how much he misses his former colleagues, whom
he regards as good people. He gamely objects to their vilification.
Lets start with the fact that Snowden ran. Greenwald spends a good
deal of space in his book describing how deeply at peace Snowden was
with the likelihood of spending a very long time in prison. The early
church martyrs were not more blissfully resigned to their suffering
than was the Snowden of Greenwalds booka man whose freedom,
indeed whose very life, was as nothing compared with the publics
need to know the governments interpretation of Section 215 and its
compromise of Angry Birds. Yet Snowden did not, after all, return to
face the consequences of his stand. He has evaded law enforcement for
more than a year. And his explanation of that evasion is hardly that of
a brave man.
You see, Snowden explained in the interview, the law he violated doesnt
allow the defense he would want to put on. So he would probably be
convicted and serve a very long prison sentenceto which we learn he
is not quite so eager to subject himself as Greenwald once admiringly
thought. Snowden, of course, explained that he had an entirely selfless
reason for not wanting to spend decades in prison. Its not that he fears it,
94
you understand. But it might scare other whistleblowers out of following

his example. Whatever the reason, when push came to shove, Snowden
chose not to martyr himself but to flee.
And where did he flee? He ran to Moscow. On this point, Snowdens
explanation was particularly obtuse. Ask the State Department why hes
there, Snowden suggested. He was just trying to transit through Russia.
It wasnt his fault that he got stuck in Moscow; this happened because the
US government revoked his passport.
The passport revocation is not, in fact, why Snowden is stuck in Moscow. For one thing, the government revoked Snowdens passport before
he ever left Hong Kong. Moreover, it does not mean that he must stay in
Moscow. Its at most the reason why he has a choice between remaining in
Moscow and coming back to the United States and facing arrest and lacks
the option of finding non-Russian safe haven. He chooses, in other words,
to remain in Moscow because he prefers the protection of the dictator
there to trial at the hands of his own government.
We should add that he treats this dictator with remarkable kid gloves
for a foe of tyranny and surveillance. The words Ukraine and Crimea
did not pass his lips during the Williams interview. Nor did the words
Pussy Riot or the names of any dissidents who face real repression at
the hands of his hosts. Nor, for that matter, did he dwell on Russian surveillance practices, though he noted the professionalism of the Russian
intelligence services. He acknowledged that its a little uncomfortable
to be in Russia at this particular time, but his only specific criticism of
his host government is a relatively bland one about the countrys new
blogging law.
Snowden is not a free agent but a tool of Russian intelligenceand of
Putin himselfeven if he doesnt know it.
Snowden, to be sure, denies that he has any kind of relationship with

Russian intelligence. He did not bring any documents to Russia, he insists,
and he has no access to his stash remotely. He is not paid by Russian intelligence, he says, and he has never been interviewed by the FSB. Even if
all of this is true, his larger point is not. He is, at this stage, not a free
95
agent but a tool of Russian intelligenceand of Putin himselfeven if

he doesnt know it. He is in the country because his presence embarrasses
the United States and because his disclosures serve Russian interests. He is
doing things there that help Russia and he is refraining from doing things
that offend his hosts.
People without some kind of relationship with the security services
simply dont find themselves calling in and throwing softball questions
to Vladimir Putin on Russian television. And people without some kind
of relationship with the security services also dont tend to have as their
asylum lawyers Kremlin loyalists who also happen to be members of the
FSBs oversight board.
H A R M A S A G O O D TH I NG
And then theres Snowdens denials that he did any damage. Show me
the evidence, he protested to Williams, that anyone was really hurt by
anything I didand Williams did not call him on the point. But its a
mugs game to acquit oneself of doing harm by simply defining all of the
harms one does as goods. If one calls it democratic debate and sunshine
when one exposes sensitive intelligence programs in which ones country
has invested enormous resources and on which it relies for all sorts of
intelligence collection, the exposure is of course harmless. If one regards
as salutary the exposure of ones countrys offensive intelligence operations and capabilities to the intelligence services of adversary nations,
then of course that exposure does no harm. And if one regards the many
billions of dollars American industry has lost as merely a fair tax on its
sins for having cooperated with NSA, then sure, no harm there either.
Snowden chooses to remain in Moscow because he prefers the protection
of the dictator there to trial at the hands of his own government.
Snowden is too smart to actually believe that he did no harm to the

United States. What he means, rather, is that he regards harms to US
intelligence interests as good things much of the time and that he reserves
for himself the right to define which harms are goods and which harms
are real harms.
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And this brings us to Snowdens ultimate arrogance, the thing that

makes his calm certainty more infuriating than anything else: he believes
he is above the law. He believes he should get to decide what stays secret
and what does not. He believes he should get to decide what laws he
can and cannot be tried under. He believes he gets to decide what rules
should govern spying. And not only does he believe he should get credit
for civil disobedience without being willing to face the legal consequences,
he believes he should get credit for courage as though he had done so.
As I say, I am unmoved.
Reprinted by permission of Lawfare, a project of the Harvard Law School/Brookings Project on Law and
Security. 2014. All rights reserved.
Available from the Hoover Institution Press is Speaking

the Law: The Obama Administrations Addresses
on National Security Law, by Kenneth Anderson and
Benjamin Wittes. To read this special online publication,
go to http://www.hoover.org/taskforces/nationalsecurity/speaking-the-law.
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T H E M IDDLE EAS T
Imaginary Egypt
Egyptians told themselves a thrilling story about their revolution.
Then the fable ended where it had begun: with a pharaoh in power.
By Samuel Tadros.
That Egypts revolution has failed is hardly disputable. The excitement of

those magical eighteen days in Tahrir Square and the hopes of a dawn of
democracy are long gone. Replacing them is widespread despair among
Egypts revolutionary activists and their international cheerleaders.
Those who lament the failure of a revolution that captivated the world
usually blame two forces: Egypts military and the Muslim Brotherhood.
A military that never accepted the notion of civilian control and that
aimed to protect its exclusive domination of the state and its economy,
and a Brotherhood that ruled in a noninclusive manner and alienated
many segments of Egypts populationthese form the basis of analysts
explanations of why Egypt reached the state it is in today.
Remarkably little attention has been given to the actions and choices
of Egypts non-Islamist revolutionaries. Besides the usual criticism of their
organizational weakness and the more recent critical look at those among
them who supported the military coup, they have largely escaped any critical examination and hence blame.
Samuel Tadros is a contributor to Hoovers Herbert and Jane Dwight Working
Group on Islamism and the International Order, a research fellow at the Hudson
Institutes Center for Religious Freedom, and a Professional Lecturer at the Paul
H. Nitze School of Advanced International Studies (SAIS) at Johns Hopkins
University. He is the author of Reflections on the Revolution in Egypt (Hoover
Institution Press, 2014).
98
This is all the more surprising given the fact that three years earlier,
when the crowds occupied Tahrir Square, both the media and Western
analysts fixed their gazes on those young men and women, often described
as liberals, democrats, moderates, and secular, to the extent of seeing nothing but them. Egypts revolutionaries were hailed as the heroic force that
ended what seemed like an eternal dichotomy between repressive authoritarian regimes and totalitarian Islamists.
Who won Egypt? The army? The Islamists? The revolutionaries?
The lack of scrutiny of Egypts revolutionaries creates a serious gap in

our understanding of the events that unfolded in the past three years. From
their decision to call for mass demonstrations on January 25, 2011, their
rejection of participation in politics, their calls for an end to the Supreme
Council of the Armed Forces (SCAF) rule, their continuous demonstrations
and violent clashes with the police, and the choices they made in the parliamentary and presidential elections, Egypts revolutionaries were not helpless
victims but actors who affected and shaped the direction of the country.
T HE EN VI S I O NE D E G Y PT O F TH E R E V O L UTION
The feeling of jubilation in Tahrir Square on February 11, 2011, as Omar
Suleiman read Hosni Mubaraks resignation was indescribable. That
night, hardly anyone slept as hundreds of thousands celebrated in the
streets. The next day, they woke up to a question: what happens next? In
reality, no one knew. No one had ever given that question much thought,
let alone prepared for that day. The people had united in their demand for
Mubarak to step down; what would come after was anyones guess.
The accidental coalition that led to the fall of Mubarak was bound to
collapse. The core of the conflict centered on the question of who had
achieved that task: was it the army with its decision to side with the people, the Muslim Brotherhood for providing the troops necessary to turn
a demonstration into a revolution, the ordinary men and women who
suddenly rose after having been apathetic for decades, or the core of the
revolutionariesthose who had struggled for years against the regime and
then demolished the first brick in the regimes wall of oppression?
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The claim of ownership of the revolution was not an abstract question,

and it would have profound ramifications. Ownership meant entitlement,
entitlement to set the future course of the country, maybe even entitlement to rule. No group faced a harder dilemma over the question of the
future than the revolutionaries. Young and old alike, veteran activists had
devoted their lives to the fight against Mubarak. Now that the object of
their hatred was gone, what were they to do with their lives?
Egypts revolutionaries once were hailed as a heroic force that ended
the perennial dichotomy between repressive authoritarian regimes and
totalitarian Islamists.
The eighteen magical days in Tahrir were not only the culmination of
years of struggle but also their most glorious moment. The world was captivated by their struggle, journalists were flocking to interview them, and
their faces were on the cover of magazines. There was life before Tahrir, and
then there was life in Tahrir. There was the life of failure, frustrations, and
depression, and then there was the life of success, glory, and pride. Many of
them would later speak of those eighteen days in mythological terms: poor
and rich standing side by side, Christian and Muslim, men and women, no
hatreds or differences, millions of Egyptians, all united by love of country.
Soon the square became Egypt, and they became the revolution. The
Egypt of their imagination was a simple one. Egypt was a rich country, yet
its people were poor. The reason for their poverty was Mubarak and his
corrupt regime. Once corruption was endedand in the world they constructed, corruption could magically endEgypt would become prosperous. Legends about Mubaraks wealth were proclaimed. The man had stolen anywhere from $70 billion to $5 trillion. That money, once returned,
would transform Egypt.
Reality was, of course, quite different. There never were the imagined
millions of people in Tahrir Square. The square with all its surrounding
streets could barely hold four hundred thousand to begin with. Most
of the country had not participated in the revolution; they watched the
events on television and had little attachment to the fairy tale. While the
100
revolutionaries would later lament their fate, arguing that their greatest mistake was leaving the square, as Harvard political scientist Tarek
Masoud observed, the truth was strikingly different: You didnt leave the
square. The rest of the country did.
Few Egyptians were saddened by Mubaraks resignation. For most
Egyptians, however, the revolution had achieved its demand. Mubarak
had resigned, and now we can all go back to finding food for our families.
The economy was in trouble, tourists had disappeared, and the security
situation was frightening. The military certainly agreed with that. For the
revolutionaries, however, the revolution was not an event. It was a journey,
and soon one without any identified destination.
The people united in their demand for Mubarak to step down. What would
come after was anyones guess.
Less than forty-eight hours after Mubaraks resignation, a new million-member demonstration was announced, scheduled for February 18,
to celebrate victory and continue the revolution until it achieved all its
demands. Those demands were ever-growing. Some were at least clear:
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Once corruption was endedand in the world the demonstrators constructed,

corruption could magically endEgypt would become prosperous.
Authority as a concept became scorned. The revolution became a revolution against everything old: tradition, respect, even decency. With their
language becoming more and more abusive and their graffiti more vulgar,
the revolutionaries words soon turned into action. Violence would only
be a matter of time.
The revolution had not been peaceful in the first place, but the cycle
was deteriorating by the day. It became common for the revolutionaries to
publicize the home addresses of those they hated on social media, thereby
endorsing mob action against them. There had been torture in Tahrir during the revolution. Those suspected of being thugs or secret police were
held and beaten. A confinement tent for suspected thugs became a common sight at the center of the revolutionary camp in Tahrir.
102
XINHUA/Pan Chaoyue
oust Ahmed Shafiks government, arrest Mubarak and former regime figures, end the state of emergency, fire the attorney general. Others were
nothing more than slogans: social justice, an end to corruption, independence of the judiciary.
One Friday to the next, the demonstrations never stopped. For a while
their methods seemed to be working, as every week brought new development, more arrests of former Mubarak ministers, or news of the government resigning. Beneath the surface, the revolutionaries isolation from
the rest of the country was growing.
While the rest of the country was searching for a return to normalcy, normalcy was the last thing the revolutionaries wanted. Change was no longer
the goal; the revolution itself became the goal. A Trotskyite motto, the permanent revolution, became theirs. The list of individuals and institutions that
belonged to the old order and thus in need of purging continued to grow.
The remnants of the old regime became an all-encompassing designation. Everyone had a place on the list: the bureaucracy, judiciary, police, military, religious institutions, anyone who belonged to the previous ruling party,
the media, businessmen. Little did the revolutionaries ponder the wisdom of
their actions, little did they contemplate the hostility that would result.
HAIL TO THE CHIEF: An Egyptian man salutes during a rally in support of former military
leader Abdel Fattah al-Sisi, now Egypts president. Three years ago, when the Arab Spring
erupted in Egypt, the news media and Western analysts were enthralled with the young revolutionaries who seemingly ended an eternal dichotomy between repressive authoritarian
regimes and totalitarian Islamists. Ultimately, the revolutionaries failed to create a program
of elections and governance. Egypt again finds itself in a world it knows all too well: faith in
the deliverance offered by one man.
The contradictions were glaring. The revolutionaries who claimed the

mantle of human rights were practicing torture. Men who called for the
rule of law came to think of themselves as above the law. People who
argued for the freedom of the press demanded the silencing of all who
criticized them. Champions of democracy rejected peoples choices and
proclaimed revolutionary legitimacy. Those who stood against military
trials were calling for revolutionary trials for their opponents. They had
no patience for justice. Instead, revolutionary justice became the motto.
W HO BE T R A YE D TH E R E V O LU TI O N?
Egypt could not be expected to wait in limbo until the revolutionaries
finished their vendetta against the state. The revolution had unleashed
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forces long contained and suppressed by Mubaraks authoritarian grip

on power. With the repressive hand removed, Pandoras Box suddenly
opened. Workers were demanding higher wages, Copts an end to their
discrimination, Islamists an Islamic state, women equality, retirees higher
benefits. The demands were endless. Even police officers were striking for
better pay. The revolution had unleashed a colossal euphoria of expectations, and delivery on all fronts was eagerly awaited.
The revolutionaries who claimed the mantle of human rights were
practicing torture. Men who called for the rule of law thought of
themselves as above the law.
Upon assuming power, the military had promised a swift transition

to democracy and power transfer in six months. Mubarak had initiated
the process of amending the constitution in his last days in power, but
it was now more urgent than ever. Who would write the constitution
became the first battle that split those who had united in toppling
Mubarak. The Muslim Brotherhood, the best-organized and most
popular movement in the country, was naturally in favor of a fast-track
transition. Non-Islamists, on the other hand, were frightened. A swift
transition would mean a Brotherhood victory. They needed more time
to organize. Like the Brotherhood and other Islamists, the military
favored a yes vote.
The March 19 referendum became a test of size and appeal. Results
were not even close. A whopping 77 percent of the electorate voted against
non-Islamists. In a repeated phenomenon, whenever they were faced with
failure, non-Islamists would join their revolutionary brethren in blaming
anyone but themselves. Mubarak, they insisted, had allowed the Islamists
to grow. In reality, as Tarek Masoud wrote, If the movement had a head
start over liberals, it is not because it had an easier time under Mubarak,
but ratheras Brotherhood members are likely to averbecause they
have worked harder. No delay in elections will change that.
The revolutionaries and the larger non-Islamist camp were growing
more isolated from the rest of the country. Isolation gave birth to delu104
sions, and when delusions ultimately met reality, they either grew more
delusional or developed into bitterness and disdain. As the months went
by and it became obvious that the majority of Egyptians did not share
the revolutionaries euphoria, the condescension began. Instead of being a
heroic people, Egyptians were now called a slave people, accustomed to
submission to the extent of developing Stockholm syndrome, who didnt
deserve the revolutionaries sacrifices.
In the following months, a Jacobin discourse dominated the revolutionaries worldview. Anyone who did not share their quest for the continuous
revolution was a traitor and thus no true revolutionary. Even old comrades
of the square who advocated caution and compromise were showered with
contempt. Politicians were frightened. If they dared suggest that perhaps
it was time to put an end to the demonstrations game and start playing
politics, they risked being painted as enemies of the revolution.
Politics was not only a game the revolutionaries refused to play; it was
also one they completely disdained. Looking back, that was hardly surprising. The cause of their success in toppling Mubarak was the reason
for their failure thereafter. The appeal to abstract principles and empty
slogans was instrumental in uniting people against a dictator but meaningless as a program of elections and governance.
In time, the revolutionaries came to believe that anyone who did not
share their quest for the continuous revolution was a traitor.
But the revolutionaries worst offense was their complete ignorance of

the country they sought to transform. Their imaginary Egypt had no relationship to the actual Egypt. When Salafis began demanding an Islamic
state, many a revolutionary expressed surprise and admitted not knowing
Salafis existed in Egypt. When attacks on Christians intensified, many a
revolutionary was astonished by the level of sectarianism in the country.
When Egyptians elected Islamists to parliament, the revolutionaries could
not understand why voters didnt choose the revolutions party. When
Mohammed Morsi and Ahmed Shafik received the highest number of
votes in the first round of the presidential election, there was genuine
shock among the revolutionaries.
105

Today, Egypts former revolutionaries are split between the submissive and
the delusional, between those who have become no more than cheerleaders for a military coup and those who continue to dream of an endless
revolution.
After the revolution and its hopes and disappointments, Egypt finds
itself in a world it knows all too well: faith in the deliverance offered by
one man. The hope is now invested in a former military commander,
Abdel Fattah al-Sisi. It is dictatorship by demand, as it were. The country
has been here before. For two decades, from 1954 to 1970, Gamal Abdel
Nasser gave Egypt its moment of enthusiasm and then led it to defeat and
heartbreak.
It would take a leap of faith, and luck beyond what history offers, to
believe that this faith in a redeemer will yield a better harvest than the one
before it.
Excerpted from Reflections on the Revolution in Egypt, by Samuel Tadros (Hoover Institution Press, 2014).
New from the Hoover Institution Press is Reflections on

the Revolution in Egypt, by Samuel Tadros. To order, call
106
T H E M I D D L E E AST
Will Iran and Israel

Meet in the Middle?
In Iran, hints of a secular thaw. In Israel, the increasing prominence
of religious parties. Two nations, antagonisticand unsettled. By
Abbas Milani and Israel Waismel-Manor.
Although the Israeli and Iranian governments have been virtually at war
with each other for decades, the two countries have much in common.
Both are home to some of the oldest civilizations on earth, and both are
primarily non-Arab states in a mostly Arab region. In the 1950s, David
Ben-Gurions Israel and Shah Mohammed Reza Pahlavis Iran were bastions of secular nationalism; the shah pushed authoritarian modernization
while Ben-Gurion advanced a form of nonreligious Zionism. Only after
the 1979 Islamic Revolution in Iran did radical Islam all but eclipse this
secular brand of politics. It held on for much longer in Israel but is now
under threat.
Both Iran and Israel are entering potentially challenging new stages in
their relations with the outside world, and particularly with the United
States. Over the past seven years, United Nations Security Council resoluAbbas Milani is co-director of the Hoover Institutions Iran Democracy Project,
a member of Hoovers Herbert and Jane Dwight Working Group on Islamism
and the International Order, and a Hoover research fellow. He is also the Hamid
and Christina Moghadam Director of Iranian Studies at Stanford University,
where he is a visiting professor of political science. Israel Waismel-Manor is
a senior lecturer at the University of Haifa and a visiting associate professor of
political science at Stanford.
107
tions have imposed sanctions on Iran with the aim of halting its nuclear
program. For years, Irans former president Mahmoud Ahmadinejad railed
against the Great Satan. But even if Irans supreme leader, Ayatollah Ali
Khamenei, is still opposed to reforms, it appears that some officials inside
Iran have finally realized that continued intransigence and bellicosity will
beget only more sanctions and catastrophic economic consequences.
More than 60 percent of Iranians are under age thirty, and they
overwhelmingly believe in individual liberty.
As the winds of change blow across Iran, secular democrats in Israel

have been losing ground to religious and right-wing extremists who feel
comfortable openly attacking the United States, Israels strongest ally. In
recent months, Israels defense minister, Moshe Yaalon, called Secretary of
State John Kerry obsessive and messianic while Naftali Bennett, Israels
economy minister, labeled Kerry a mouthpiece for anti-Semitic elements attempting to boycott Israel.
Israels secular democrats are growing increasingly worried that Israels
future may bear an uncomfortable resemblance to Irans recent past.
FE A R S OF A C U LTU R AL I NV ASI O N
For more than three decades, Irans oil wealth has allowed its religious
leaders to stay in power. But sanctions have taken a serious economic toll,
with devastating effects on the Iranian people. The public, tired of Ahmadinejads bombastic and costly rhetoric, has replaced him with Hassan
Rouhani, a pragmatist who has promised to fix the economy and restore
relations with the West.
But Rouhanis rise is in reality the consequence of a critical cultural and
demographic shift in Iranaway from theocracy and confrontation, and
toward moderation and pragmatism. Recent tensions between America
and Russia have emboldened some of Irans radicals, but the government
on the whole seems still intent on continuing the nuclear negotiations
with the West.
Iran is a land of many paradoxes. The ruling elite is disproportionately
made up of aged clericsall menwhile 64 percent of the countrys sci108
ence and engineering degrees are held by women. In spite of the governments concentrated efforts to create what some have called gender
apartheid in Iran, more and more women are asserting themselves in fields
from cinema to publishing to entrepreneurship.
Many prominent intellectuals and artists who three decades ago advocated some form of religious government in Iran are today arguing for
popular sovereignty and openly challenging the antiquated arguments of
regime stalwarts who claim that concepts of human rights and religious
tolerance are Western concoctions and inimical to Islam. More than 60
percent of Iranians are under age thirty, and they overwhelmingly believe
in individual liberty. Its no wonder that recently Ayatollah Khamenei told
the clerical leadership that what worried him most was a non-Islamic cultural invasion of the country.
T H E P OW E R OF D E MO G R APH Y
As moderate Iranians and some of the countrys leaders cautiously shift
toward pragmatism and the West, it seems that many Israelis are moving
away from these attitudes. In its sixty-six years, Israel has seen its share of
ideological shifts from dovish to hawkish. These were natural fluctuations
driven mainly by the countrys security situation and prospects for peace.
Israels defense minister called Secretary of State John Kerry obsessive
and messianic.
But the current shift is being accelerated by religion and demography,

and is therefore qualitatively different. While the Orthodox Jewish parties
are currently not part of the government, together with Bennetts Jewish
Home, a right-wing religious party, they hold about 25 percent of seats
in the Knesset. The Orthodox parties aspire to transform Israel into a
theocracy. And with an average birthrate of 6.5 children per family among
Orthodox Jews (compared with 2.6 for the rest of the Jewish population),
their dream might not be too far away.
By contrast, Iran has a falling birthratea clear indication of growing
secularism, and the sort of thing that keeps Ayatollah Khamenei awake at
night.
109
The long-term power of these demographic trends will, in our view,

override Irans current theocratic intransigence and might eclipse any
fleeting victories for liberalism in Israel.
Israels shift toward orthodoxy is not merely a religious one. Since the vast
majority of Orthodox Jews are also against any agreement with the Palestinians, with each passing day the chances of a peace deal diminish. Nor is time
on the side of those who want to keep seeing a democratic Israel.
In Israel, Orthodox parties aspire to transform the country into a theocracy.
If Israel continues the expansion of settlements, and peace talks serve

no purpose but the extension of the status quo, the real existential threat
to Israel will not be Irans nuclear program but rather a surging tide of
economic sanctions.
What began a few years ago with individual efforts to get supermarket
shoppers in Western countries to boycott Israeli oranges and hummus has
turned into an orchestrated international campaign, calling for boycotts,
divestment, and sanctions (BDS) against Israeli companies and institutions.
From academic boycotts to calls for divestment on American university campuses to the unwillingness of more and more European financial
institutions to invest in or partner with Israeli companies and banks that
operate in the West Bank, the BDS movement is gaining momentum.
Prime Minister Benjamin Netanyahu recently called BDS advocates classical anti-Semites in modern garb.
FR I EN DS H I P S GR O W LU KE WAR M
In the past, Israel could rely on Western nations and especially the United States to halt such initiatives, but as the fabric of Israels population
changes, and Jewish populations in the West become less religious and less
uncritically pro-Israel, the reflex to stand by the Jewish state, regardless of
its policies, is weakening.
Moreover, as Western countries shift toward greater respect for human
rights, the West Bank occupation is perceived as a violation of Western
liberal norms. A new generation of American Jews see a fundamental tension between their own liberal values and many Israeli policies.
110
This, coupled with the passing of the older generation and a high rate
of interfaith marriage among American Jews, means the pro-Israel lobby
will no longer be as large or as united as it used to be. While American
presidents from Lyndon B. Johnson to Barack Obama have declared that
the United States commitment to Israel flows from strategic interests and
shared values, in a generation or two, interests may be all thats left.
An opposite shift is occurring in Irans diaspora. An estimated five million to seven million Iranians live in exile. Their economic, scientific,
scholarly, and cultural achievements are now well known in the United States, thanks to people such as eBay founder Pierre Omidyar. They
are increasingly establishing themselves as a powerful force advocating a
more democratic Iran and better relations with the United States. Just as
a united Jewish diaspora once helped the new state of Israel join the ranks
of prosperous, industrialized states, Irans diaspora could one day play a
similar role for a post-theocratic Iran.
One of Israels most popular singers, the Iranian-born Rita Jahanforuz,
laments on her recent album, In this world, I am alone and abandoned,
like wild grass in the middle of the desert.
If Irans moderates fail to push the country toward reform, and if secular Israelis cant halt the countrys drift from democracy to theocracy, both
Iranians and Israelis will increasingly find themselves fulfilling her sad
prophecy.
Reprinted by permission of the New York Times. 2014 The New York Times Co. All rights reserved.
New from the Hoover Institution Press is Israel and

the Arab Turmoil, by Itamar Rabinovich. To order, call
111
T H E M IDDLE EAS T
Clooney of Arabia
Movie star George Clooney found a love match amung the Druze, a
sect whose members have seen their own share of drama. By Lee
Smith.
The tabloids and gossip sheets were delighted when Hollywood heartthrob
George Clooney popped the question to his girlfriend, Amal Alamuddin. The thirty-six-year-old Beirut-born and London-based human rights
lawyer (who speaks French, English, and Arabic) is said to be a good
match for the screen star, but thats a givenClooneys past paramours
have included cocktail waitresses, models, and a professional wrestler. The
more interesting question is whether Clooney is good for the Druze, the
small confessional sect to which his fiance belongs.
The Druze are a heterodox offshoot of Shia Islam that dates back to
the eleventh century. Most of the worlds fewer than a million-and-ahalf Druze live in the Levant. There are roughly 20,000 Druze in Jordan,
125,000 in Israel, 700,000 in Syria, and a quarter of a million in Lebanon,
home to what is perhaps the most influential Druze community, led by
Walid Jumblatt. An opponent of the Syrian regime and onetime pillar of
Lebanons pro-democracy movement who now sees his sect caught in the
middle of a Shiite-Sunni regional war, Jumblatt welcomes the ClooneyAlamuddin announcement as rare good news. He is eager, he wrote me
in an e-mail, to throw a party for the actor at his ancestral home in the
Chouf Mountains.
Lee Smith is a senior editor at the Weekly Standard and the author of The
Consequences of Syria (Hoover Institution Press, 2014).
112
Tell me when George Clooney will be coming to Lebanon so I can

greet him in Moukhtara. I will bring a delegation of Druze sheikhs, Jumblatt gushed. As for Amal Alamuddin, well, she is lucky.
Sure, its good for us, says Makram Rabah, a doctoral candidate in
history at Georgetown whose research is on the role of his own Druze
community in the Lebanese civil war (197590). Any media support on
his end making Druze look good is welcome. Instead of being on the front
page of the news section when were killing and dying, were now featured
in entertainment magazines.
And its good for the future groom, too, says Rabah. My advice to
Clooney is to take advantage of his association with the Druze. Her village, Baakline, is a nice place to spend a vacation. And since hes done
advocacy on Sudan issues, he should know he is much safer going to Lebanon than Darfur.
Also, says Rabah, he should embrace the sects customs. The essence
of Druze tradition is tribal, he explains. So visiting with the Druze at
weddings and funerals are duties. And then he should also drink arak,
the anise-flavored liqueur that is Lebanons national drink, and which the
Druze, in spite of their Muslim identity, drink in abundance. It would be
good, adds Rabah, if Clooney learned how to dance the dabke.
There are roughly 20,000 Druze in Jordan, 125,000 in Israel, 700,000 in
Syria, and a quarter of a million in Lebanon.
Clooney better acquire a taste for yerba mat, says Rola AbdulLatif, a Lebanese-born Druze who lives in Washington, DC. Mat is
the tea-like beverage that Druze immigrants to Latin America brought
back home with them. But the really big thing is food, says AbdulLatif. Being passionate about food is a way to get close to the hearts
of the Druze.
Abdul-Latif s husband, the non-Druze journalist Hussain AbdulHussain, also has some advice for Clooney. The upside of marrying
a Druze, jokes Abdul-Hussain, is that if he is worried about having
to learn a new religion, he wont. Most of the Druze themselves know
nothing about their faith, so he doesnt have to fear awkward moments
113
114
at holiday celebrations like Passover or Christmas, because there arent

any holidays.
The downside, says Abdul-Hussain, is that some Druze dont like nonDruze men marrying Druze women. He has to be careful which Druze
he tells that hes married to a Druze. He might run into people who wont
like it, even though hes George Clooney.
M ES M ER I Z I NG TO TH E WE ST
The Druze have been known to take their tribal solidarity to violent
extremes. In an incident widely reported in the Lebanese press last
year, a gang of Druze men beat and mutilated a Sunni man who had
eloped with a family member. Afterwards, Jumblatt excoriated his
people. It would be useful after the occurrence of the barbaric act,
he wrote, for the Druze community to hold an internal dialogue over
the future of the sect....Where will the culture of rejecting the other
that breeds intolerance and hate lead? Does that not create a threat to
the future?
Walid Jumblatt often thinks about the future. Where will the Druze find a
place in it?
Perhaps because of the Syrian war now engulfing the region, Jumblatt is
often thinking about the future and where the Druze will find a place in it.
He inherited his role after Bashar al-Assads father Hafez killed his father,
Kemal, in 1977, and hes preparing his own son Taymur to replace him.
Given Jumblatts open contempt for the Syrian president, who regards
him similarly, his end may come sooner rather than later.
Jumblatts, as he likes to remark, dont die in bedlike his father, his
grandfather was assassinated. Even when joking, Jumblatt seems to see
dark clouds ahead for himself and the Druze. You can tell Clooney to
do a movie about the Druze, and he could say that they are the last of the
Mohicans, Jumblatt wrote me. I could be Geronimo.
For such a tiny sect, the Druze have been an object of fascination for
centuries. After Napoleons 1798 conquest of Egypt, Europe was mad for
all things Oriental and the Druzes esoteric wisdomseemingly bred from
115
a mixture of Ismailism, a heterodox branch of Shiism, as well as Sufism

and Gnosticismwas appealingly exotic. Researchers and travelers visited the Druze heartland in the Lebanese mountains to uncover the sects
mysteries. They came away with only wisps of smoke, albeit very colorful ones. In his travel book Journey to the Orient, the nineteenth-century
French poet Grard de Nerval relates a likely fictional interview with a
Druze sheikh who, rather than answer Nervals questions about the Druze
faith directly, spins out a long tale of impossible and forbidden love.
The sheikhs story, which Nerval called The Tale of the Caliph
Hakim, purports to chronicle the events leading to the mysterious disappearance, or death, of one of the Druze founding figures, Al-Hakim
bi-Amr Allah (AD 9851021), the sixth caliph of the Fatimid dynasty, an
Ismaili empire encompassing much of North Africa and the Levant with
its capital in Cairo. Al-Hakim, often disparagingly referred to as the Mad
Caliph, may have believed he was God incarnate. One of the faiths earliest adherents certainly didMuhammad bin Ismail Nashtakin al-Darazi,
a renegade Ismaili preacher from whom it seems the Druze derive their
name and whom other early adherents, including the Druze imam, Hamza ibn Ali, quickly came to consider a heretic.
Instead of being on the front page of the news section when were killing
Al-Hakim and Hamza ibn Ali dispatched letters to various communities in regions where the Druze are now concentrated, encouraging them
to accept the key Druze doctrine, tawhid, the knowledge of the oneness
of God. The first letter is from 1017, when Al-Hakim announced the
opening of the dawa, or invitation to convert. In total there are 106 letters, dealing mainly with spiritual matters, that form the Druzes sacred
text, the Epistles of Wisdom. Perhaps because of political persecution, the
dawa was closed in 1043, at which point the Druze would theoretically
accept no more convertsin practice it appears that there were many
subsequent conversions. In any case, timelines are somewhat beside the
point when it comes to the Druze. They believe that their souls never
die but are reincarnated in the body of another Druze, a conviction that,
116
Balkis Press/ABACA/Newscom
and dying, were now featured in entertainment magazines.
ITS A MATCH: Laha, a Beirut-based womens weekly, puts George Clooney

and his fiance, Amal Alamuddin, on the cover. Alamuddin, a humanrights attorney in Britain, is wearing her professions traditional robe and
wig. Tell me when George Clooney will be coming to Lebanon so I can
greet him in Moukhtara, said Druze leader Walid Jumblatt. I will bring
a delegation of Druze sheikhs. As for Amal Alamuddin, well, she is lucky.
117
according to one scholar, gives rise to the Druze saying, We are born in
each others houses.
The apparently ethereal nature of Druze spiritualitywhich, again, the
vast majority of Druze know little or nothing aboutis in sharp contrast
to their worldly reputation. The Druze are stout, hard-minded mountain
men, farmers, and laborers, best known for their fighting skills and political agilityboth of which talents are evidenced by the fact that this tiny
group has survived the violent furies of the Middle East for nearly a millennium.
The Druze are by necessity opportunistica small minority that must
bend with the wind or be broken by it.
The Druze fought the Crusaders for nearly two hundred years and then
resisted the Ottomans. In the mid-nineteenth century, the Druze were in
conflict with their mountain neighbors, the Maronites, which in 1860
culminated in one of the regions bloodiest episodes of sectarian warfare.
The Druze and the Maronites were again on opposing sides when the
Lebanese civil war erupted in 1975. Kemal Jumblatt, an Arab nationalist, leftist, and avowed Buddhist who saw similarities between Buddhism
and Druze belief, cast his lot with the Palestinians, as did Walid when his
father was murdered in 1977.
It wasnt until after the war that Jumblatt made his peace with the
Maronites. He and Samir Geagea, head of the Christian militia that
Jumblatts Druze fought in the mountains in a bitter reprise of the 1860
FASCINATING: A Druze man, center, is among the models for a series of

1873 photographs of subjects of the Ottoman empire. The Druze were
an object of fascination to the West for centuries. After Napoleons 1798
conquest of Egypt, Europe was mad for all things Oriental and the Druzes
esoteric wisdomseemingly bred from a mixture of Ismailism, a heterodox branch of Shiism, as well as Sufism and Gnosticismwas appealingly exotic.
118
war, became two of the cornerstones of Lebanons pro-democracy March

14 movement.
Library of Congress/Pascal Sebah
O P P O R T U N IS TI C O R PR ACTI CAL?
For many observers, Jumblatts turnaroundfrom Syrian ally to opposition leader, from a Soviet client in the 1980s to a friend of the Bush White
House a decade agowas evidence of an almost deranged opportunism.
119
To the Druze it all made perfect sense. They are by necessity opportunistica small minority that must bend with the wind or be broken by it.
Israels Druze community, for instance, discerned very early during the
1948 war for independence that the Zionists were going to defeat the
Arabs, and cast their fate with the former. They are among the Jewish
states proudest citizens, fiercest warriors, and most active politicians. Syrias Druze community has also subscribed to the power of the statetaking Assads side in the ongoing civil war.
The Druze of Lebanon are different insofar as they stand on the sidelines of a political system designed to balance the countrys three largest
communities: Christians, Sunnis, and Shiites. This affords Jumblatt what
is effectively a permanent swing vote, and thus more room to maneuver
and win concessions for himself and the Druze. Jumblatt is often called a
weathervane, as he is acutely sensitive to the regions political winds. When
he saw the United States unleash its military might in Iraq, he seized the
chance and turned against his former Syrian overlords and jumped on the
freedom-agenda bandwagon.
When Jumblatt saw the United States unleash its military might in Iraq,
he seized the chance and turned against his former Syrian overlords.
However, even after it was clear that neither the White House nor the
international community was going to protect him, his Druze, or his
country from Assads depredations, he continued to call out Assad and
Iran and, closer to home, Hezbollah, which laid siege to the Chouf Mountains fastness of the Druze in May 2008. Thus, at a critical moment for
the Druze, Jumblatt let fall the mask of the opportunist. He stuck his neck
out in the knowledge that his enemies, Assad among others, have long
memories and longer knives.
The leaders of minority communities throughout the Middle East,
including Christian clerics, like some Western officials and analysts, say
they prefer Assad to the Sunni-majority opposition because he protects
minorities. Not Jumblatt. Two years ago he urged Syrias Druze soldiers to
stay at home and refrain from participating in the war to prop up Assad.
We must avoid being part of an axis against [Syrias Sunni] majority in
120
order to avoid future political repercussions, he said, adding, popular

memory has no mercy. His warnings were ignored.
It seems that no one is listening to Jumblatt these daysnot about the
dangers facing his Druze, especially in the midst of the Syrian conflict. I
e-mailed him that Clooneys engagement seems a golden opportunity.
Heres a man who advocates on behalf of Darfur and other foreign policy
issues and plays basketball with the American president, a close personal
friend, Clooney claims. With Clooney marrying a Druze, maybe he could
advocate on behalf of the Druze. Maybe after more than 150,000 dead in
Syria, he could finally get through to Obama. Maybe Clooney could persuade Obama to bring down Assad once and for all. Please let me be far
from the empathy of Obama, Jumblatt wrote back, and the butcher
Bashar.
Reprinted by permission of the Weekly Standard (www.weeklystandard.com). 2014 The Weekly Standard
LLC. All rights reserved.
New from the Hoover Institution Press is The

Consequences of Syria, by Lee Smith. To order, call
121
U K R A INE
Ukraine Is Fighting
Our Battle
Five reasons the United States should send military aid to Ukraine.
By Paul R. Gregory.
US presidents must be able to deal with more than one emergency at a

time. Whereas the Middle East is a boiling cauldron that defies solution,
Russias subversion of Ukraine can be dealt with effectively at low cost:
the United States and Europe can simply give Ukraine the military means
to defend itself and its territorial integrity. No boots on the ground
are required, just a few billion dollars worth of real weapons. Thereafter,
Ukraine will do the heavy lifting itself. Russia must pay its mercenaries;
young Ukrainians are fighting and dying for a cause.
So far, President Obama has denied Ukraine meaningful military assistance, for reasons I find difficult to fathom. After months of stalling,
Obama announced on June 4 a $5 million (not billion) package of nonlethal military aid to Ukraine to supplement his earlier grant of military
box lunches. Better nothing than such an insulting token amount.
In contrast, analysts from Forbes Ukrainian site placed a $250 million price tag on the two-month Donbass separatist operation paid for by
shadowy Russian sponsors. The fifteen thousand $300-per-day mercenaries streaming across the border with their lethal weaponry accounted
for most of this cost.
Paul R. Gregory is a research fellow at the Hoover Institution. He is the Cullen
Distinguished Professor of Economics at the University of Houston and a research
professor at the German Institute for Economic Research in Berlin.
122
Russia has outspent the United States fifty times over on military assistance
in the Ukrainian theater and by an infinite amount on lethal assistance.
Whenever the topic of Ukrainian military assistance is broached, European and American opponents immediately revert to anxiety about boots
on the ground. Ukraine is requesting training, advice, and military equipment, not a third world war as naysayers prophesy.
There are compelling reasons why the United States and NATO should
supply embattled Ukraine with military equipment.
First, Ukraine is fighting the United States and Europes battle against a
wealthy petro state whose rogue leader, Vladimir Putin, has broken international treaties and norms and must be reined in before he expands his horizons. Ukraine has fought this battle so far on its own paltry resources, with
little assistance from a civilized world too timid to confront a bully state.
In military engagements in Vietnam, Iraq, and Afghanistan, the United
States has provided military assistance to local allies unwilling to defend themselves. Ukraine, with its increasing loss of life and spilled blood, is fighting on
its own behalf, as the United States and Europe spur it on with vague promises
of sanctions and expressions of concern delivered safely from the sidelines.
Second, the United States need not fear that military assistance to
Ukraine will turn Putin or the Russian people against America. This
has already happened. Throughout Putins tenure, the United States and
NATO have been vilified as Russias enemy number one. (Remember that
Mitt Romney was scorned for returning the favor.) Clearly Russia will not
assist us in the worlds trouble spots. In Syria and Iran, Russia has made
things worse rather than better.
Putins nonstop propaganda blames the United States and Europe for
the Ukraine conflict. It claims that the US State Department paid for the
protests that began in Ukraine last fall, backed the neo-Nazi extremists
who took control of Kiev, and remarkably has its agents in east Ukraine to
protect shale oil deposits for energy conglomerates. Ukraines new president and his government are mindless puppets of Washington, the Russian media trumpets day and night.
There are no limits to the imagination of Putins information technologists, and they are effective. Authoritative Levada Institute polls show a
123
dramatic worsening of Russian public opinion towards the United States

and Europe. Russians believe the mantra, as routinely enunciated by Foreign Minister Sergei Lavrov: You cannot avoid the impression that they
(the Americans) are running the show very much, very much.
Third, in the case of Ukraine, the Obama administration has a rare
international consensus on its side. Russia is the aggressor; Ukraine is the
aggrieved party. What more could Obama want?
Ukraine has the 10011 vote of the United Nations General Assembly condemning Russias annexation of Crimea. The UN Human Rights
Commissions May 15 report chronicled abuses by the pro-Russian forces in both Crimea and east Ukraine. The Organization for Security and
Cooperation in Europe (OSCE) blasted the illegal actions of armed separatists as an attempt to prevent the election, deny citizens the fundamental right to freely participate and elect their chosen representative in its
report on the May 25 Ukrainian presidential election. The G7 communiqu of June 4 also did not mince words: We are united in condemning the Russian federations continuing violation of the sovereignty and
territorial integrity of Ukraine. Russias illegal annexation of Crimea and
actions to destabilize eastern Ukraine are unacceptable and must stop.
These actions violate fundamental principles of international law and
should be a concern for all nations.
In granting military assistance to Ukraine, Obama can cite the support
of the international community, which he, as a presidential candidate,
promised as a condition for action in international disputes.
FRONT LINES: Ukrainian soldiers guard a checkpoint near the eastern

city of Debaltsevo, where government forces battle pro-Russia separa
tists. Russia has outspent the United States fifty times over on military
assistance in the Ukrainian theater and by an infinite amount on lethal
assistance.
124
AFP/Anatolii Stepanov
Fourth, Putin takes great pains to describe the battle for east Ukraine as
a civil war between oppressed Russian speakers in the east and rabid antiRussian extremists in the west. This is anything but a spontaneous civil
125
war. Rather, it is a contrived diversionary campaign planned and executed

by outside forces from Russia.
The pro-Russian forces tried to look local, at least in the early phases
of the campaign. While shady locals appointed themselves mayors or governors of self-proclaimed nonexistent peoples republics, Russian military officers controlled them from the shadows.
After reputable polls showed that even the east Ukrainians wanted to
remain part of a unitary Ukrainian state and the Donbass independence
referenda bombed, the veil was lifted. The Russian military commanders
openly boasted of their credentials from wars in Chechnya, Georgia, and
Transnistria. (They even posted heroic Russian men of steel billboards
of themselves on Ukrainian city streets.) The new civil head of the peoples
republic arrived from Moscow, claiming no local ties. Mercenaries from
Russia, Chechnya, and Ossetia openly admitted in interviews with the
Financial Times that they had been told to come by their regional boss.
They do not hide that they are paid generously.
Gone is the all-important civil war narrative that Putin attempted to
peddle. Ukraine is fighting against Russian mercenaries who have no
attachment to the cause other than their daily wages. Obama can rest
assured: military aid is not going to fight fellow Ukrainians but to drive
out Russian mercenaries.
Fifth, no lasting diplomatic solution is possible, despite the European
Union and OSCEs intense lobbying for round-table negotiations in the
vain hope of freeing themselves of their eventual obligation to pitch in on
Ukraines behalf. The only viable solutiona military onecannot be
achieved amid the status quo of a weak Ukrainian army fighting professional mercenaries from Russia.
Putin will accept nothing less than a neutered federalized Ukraine
that he controls either directly or indirectly. Ukraine cannot accept Putins
terms for peace, which mean complete capitulation. The United States
and Europe must understand that Putin will not and cannot back down.
There will be no political solution because Putin does not want one. He
is the main beneficiary of violence in Ukraine: consider his soaring popularity ratings as the Russian people celebrate Russias return to great-power
126
status. Putin pulling out and allowing a free and independent Ukraine
would be as unlikely as Winston Churchill announcing in 1942 that Herr
Hitler is really a decent chap, so lets let him have what he wants.
Violence will end only if Russian mercenaries are driven out by the
Ukrainian army. With real American military equipment, Ukraines army
could put down the mercenaries, unless Putin wanted to risk a full-scale
invasion with all its consequences.
There also can be no diplomatic solution when one party to a settlement cannot be trusted. Putin has performed his man of peace theatrics
too often. The US State Department dispenses with diplomatic language in
listing Russias false claims about Ukraine. NATO officials complain that
Russian officials have been repeatedly misleading and evasive regarding
their roles in both Crimea and eastern Ukraine. Even the cautious defense
minister of Germany said in an interview with Der Spiegel that Russia has
destroyed a massive amount of trust....Currently, Russia is not a partner.
Partners adhere to joint agreements. Deutsche Welle reports even franker
talk from the German representative of the Heinrich Bell Foundation in
Ukraine, who said Russia should just stop with the lies and speak plainly:
this is a war, and Russia is a party in this military conflict.
Obama can hold off on biting sanctions on the grounds that he must
persuade a reluctant Europe to come on board. He has no such excuse
with respect to military assistance. Obama today can order the lethal military equipment delivered that will make the difference between defeat
and victory. And it will be brave Ukrainians, not Americans, who spill
their blood for a cause that the world community has judged as just. How
about some leadership rather than following from behind?
Special to the Hoover Digest.
Available from the Hoover Institution 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.
127
C H I NA
A Modern Mandarin
Opening itself to free markets, China has lifted several hundred
million people out of poverty. That was the easy part. An interview
with Hoover fellow Michael Spence. By Jonathan Schlefer.
Michael Spence won the Nobel Memorial Prize in Economic Sciences in

2001 for esoteric research on how people make decisions when critical
information is hard to obtain. But by that time, after more than a decade
and a half as an academic dean at Harvard and Stanford, many of Spences
colleagues had begun referring to him as a former economist.
Spence begs to differ: he learned to become a better, older economist,
he counters.
With his background in studying information, he began thinking about
how the Internet, compressing time and distance, would strengthen supply chains around the world. In 2005, the World Bank asked him to give
the keynote talk at its annual conference on poverty reduction. Worried
that he had little useful to contribute, he balked. Why would you want
me? he recalled asking.
As it turned out, that talk, which seemed not to bomb, led his career
in a new direction, prompting the World Bank to name him chairman of
its Commission on Growth and Development in 2006. He chose nine-
Michael Spence is a senior fellow at the Hoover Institution, a professor of economics at New York Universitys Stern School of Business, and the Philip H. Knight
Professor Emeritus of Management in the Graduate School of Business at Stanford
University. He was awarded the Nobel Memorial Prize in Economic Sciences in
2001. Jonathan Schlefer wrote this article for the New York Times.
128
teen former planning ministers, finance ministers, and business leaders

to join the groupbut only two economists: the Nobel laureate Robert
M. Solow, who probably knew more than anyone else about growth, he
said, and me, who didnt.
He seems to have learned fast. In recent years, Spence has become
something of an expert on the Chinese economy after being invited by
Beijing, along with Edwin Lim, a former chief World Bank representative
in China, to put together an unaffiliated advisory group, supported by
the Cairncross Economic Research Foundation. The group has met intensively with the Chinese governments key planning and economic officials
and conducted what those officials have called an unprecedented study of
Chinas development challenge.
While Spence has come away impressed with how curious and open
Chinese officials are, he also doesnt mince words about how serious Chinas problems are.
With the global economy increasingly dependent on China, the danger
is that the nation is on a collision course with its own growth model, he
said in an interview. The Chinese must move beyond low-wage exports
and generate a fair amount of demand domestically, or theyll fail.
China faces a daunting challenge called the middle-income transition,
where developing nations have repeatedly stumbled. Since Japan rebuilt
after World War II, only the Asian TigersSouth Korea and Taiwan and
the city-states of Singapore and Hong Konghave made it from middleincome status.
In the modern era, poor nations have often found that the most effective strategy to jump-start their economies is to specialize in low-wage
exports, tapping vast global demand. But the middle-income transition,
Spence argues, requires a much more sophisticated economic policy,
with nations gradually moving up the ladder of producing more complex
industrial goods, and, importantly, strengthening domestic demand for
consumer goods.
Moreover, an export-led strategy no longer can rely on nearly insatiable
demand from the United States, as the Asian Tigers could through the end
of the twentieth century. Stagnant economies in Europe and Japan limit
global demand even more. China therefore faces unusually harsh pressures
129
to increase the buying power of its own consumers if it wants to make the
leap to a truly prosperous nation.
This is a fairly conventional Western view of the Chinese economy.
But what was surprising is that it was a central theme of the no-nonsense
2011 report prepared under Lim and Spenceand that Beijing published
it not just in English but in Chinese for domestic consumption. Further
discussions in 2013 helped Liu He, a top economic adviser to President Xi
Jinping, and his colleagues formulate major reforms approved at a Communist Party plenum in November.
Poor nations often try to specialize in low-wage exports, but the
middle-income transition, Spence argues, requires a much more
sophisticated economic policy.
Barry J. Naughton, professor of Chinese economy at the University of

California, San Diego, says Spence deserves some credit as he has encouraged top Chinese advisers, and maybe even helped them think up these
ideas.
The 2011 report (another based on the 2013 discussions will be published) details a host of problems: steadily worsening income inequality
and a reduction in the amount of economic activity going to wages from
two-thirds of GDP in 1980 to barely half today. It laments an enormous
three-to-one disparity between urban and rural wages, and worse disparities in health care provision, a fragmented school system, and poor social
services.
The report calls for reversing these troubling trends, thus both strengthening domestic demand and pressuring firms into more innovative, productive sectors. It also calls for exposing huge public sector banks and
often-inefficient state-owned companies, controlling more than half of
Chinas fixed investment, to more market pressure.
Though the Lim-Spence group includes many economists, its recommendations step outside well-known economic models. Those models
say plenty about exposing firms to market pressure and something about
supporting short-run demand. But they say nothing about the long-term
130
global demand deficit that Spence worries about or Chinas need to deliberately shift the composition of demand.
Nonetheless, these are coherent ideas based on experience, Spence
argues. The need to tap long-run demand can be seen at work in poor
countries that export into the global economy, and they surely apply in
different ways to advanced nations. But clarifying such ideas in formal
models belongs very much on economists to do list, he says.
But just because top officials in China have endorsed an economic
reform agenda doesnt mean they will actually adopt it. Lots of Chinese are
saying, well believe it when we see it, Spence said with a sigh. Chinas
eleventh Five Year Plan (200610) also called for strengthening domestic
demand, but it weakened instead. In 2000, private consumption accounted for 46 percent of GDP, but by 2012 it had fallen to a mere 36 percent
of GDP.
The November party plenum called for some 20 percent of the Chinese
population to migrate from rural to urban areas, where wages and social
services are far better. But cities are starved for taxes, so they increasingly
turn to real estate ventures and borrowing via financial vehicles, notes
Anthony J. Saich, a China expert at the Harvard Kennedy School. Cities
will not even provide schooling for children of millions of rural migrants
who lack official residency permits, and they resist issuing more permits.
If the party does not deliver real progress to the vast majority of
Chineseits a very inclusive conceptthey will fail.
The profits of state-owned firms, today almost wholly reinvested,

would seem to be a natural revenue source. The November plenum called
for channeling 30 percent of profits into government coffers. But the
managers of those firms are fiercely resistant to any incursions on their
independence.
The mountains are high, and the emperor is far away, Saich said,
echoing an ancient proverb that suggests that China hasnt changed as
much since the Communist Revolution as it might seem.
For all the fears elsewhere of the emergence of a powerful China, the
whole world has a stake in its ability to develop into a successful advanced
131
economy, according to Charles Kenny, who has published a new book,

The Upside of Down: Why the Rise of the Rest Is Good for the West.
But it is still not clear whether China can negotiate the treacherous
path from middle-income to high-income status. Beyond the economic
challenge, political obstacles abound. A rising middle class inevitably seeks
a larger role in decision making. Spence doubts that officials think China
immune to such pressure, but they do not yet deem the time right for
moves toward democratization.
Just because top officials in China have endorsed an economic reform
agenda doesnt mean they will actually adopt it.
The traditional Chinese alternative has been a rather small civil service surrounding the emperor, he says. Its a meritocracy, selected by
examination. These are the talented, Western-educated officials the LimSpence group has come to know.
With its thousands of years of centralized decision making, China may
never resemble a Western democracy. But the elite recognizes it must sustain popular support, Spence says. If the party does not deliver real progress to the vast majority of Chineseits a very inclusive conceptthey
will fail.
Reprinted by permission of the New York Times. 2014 The New York Times Co. All rights reserved.
Available from the Hoover Institution Press is

Constitutional Conservatism: Liberty, Self-Government,
and Political Moderation, by Peter Berkowitz. To order,
call 800.888.4741 or visit www.hooverpress.org.
132
INTERVIEW
Reform Conservatism
and the Junior Senator
from Utah
In the absence of a unifying conservative reform agenda, says
Mike Lee of Utah, there will be a lot of bickering. We need to fill the
void. An interview with Peter Robinson.
Peter Robinson, Uncommon Knowledge: Mike Lee grew up in

Utah, received his undergraduate degree from Brigham Young University in 1994, and graduated from the BYU Law School in 1997. Lee has
clerked for Supreme Court Justice Samuel Alito, served as an assistant
US attorney in Salt Lake City, and practiced law with large firms in Salt
Lake City and Washington, DC. In the tea party year of 2010, Lee was
elected to the US Senate on the Republican ticket, defeating his Democratic opponent by a ratio of almost two to one. In recent months, to
quote New York Times columnist Ross Douthat, The junior senator
from Utah has pivoted from leading the defund ObamaCare movement
to basically becoming a one-stop shop for provocative reform ideas. Lees
proposals are more interesting and more promising than almost anything Republicans campaigned on in 2012. Senator Lee, welcome.
Senator Mike Lee: Thank you.
Mike Lee is the junior US senator from Utah. 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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TH E N EE D F OR C O NSE R V ATI V E R E FO R M
Robinson: Its hard to believe, you said in a speech at the Heritage
Foundation late last year, but by Election Day 2016 we will be about as
far from Reagans election as Reagans election was from D-Day. Its time
to get over Ronald Reagan?
Lee: Certainly not over him. Its time to move forward with an agenda that
meets our needs, the needs of today. These needs are always changing. When
we think about the fact that 2016 will be about as far away from Reagans
election as Reagans election was from D-Day, it reminds us of the fact that
we have to constantly be looking for ways to retool our agenda.
Robinson: All right. Ramesh Ponnuru in the National Review wrote that,
after the election of Barack Obama, the GOP was consumed by a bitter
debate over the legacy of George W. Bush. Conservatives came to regard
the fight against federal overspending,
ObamaCare, and
big government as
nearly the entirety
of the conservative
program. You were
elected in 2010. Does that feel accurate to you that the Republican Party
as it was represented in the Senate and the House was the party of essentially nono to Obama?
Lee: In many respects, yes, and with good reason. We always have to
be mindful of the need to resist the kind of government we dont want.
Thats been something that has marked American history from the very
beginning, going all the way back to 1773, when some American patriots boarded a ship in Boston Harbor and tossed crates of English tea
into the water in symbolic protest against the kind of national government they did not want: a London-based national government that was
taxing them too much; that was regulating them quite oppressively; that
was so far from the people that it was slow to respond to their needs. It
took us fourteen years to get from that moment to Philadelphia.
So Boston was where we started protesting against the government
we didnt want andhaving declared, fought for, and won our indepen134
dencefourteen years later in Philadelphia we embraced the kind of government we did want. So my point is we will continue to have our Boston
moments. We will always have those, as needs arise where we need to push
back against the kind of government we dont want. But we also have to
start having our Philadelphia moments too, and thats what this conservative reform agenda is all about.
Robinson: I want to make sure that point stands out very clearly. So there
are times when saying no is necessary and valuable in itself. It was important to stand up during those first Obama years?
Lee: Its important to do that, and it will continue to be important to do
that. But its not enough. We have to do more. In addition to protesting
against the kind of government we dont want, we have to embrace the
kind of government we do want.
Robinson: One more reference to the Heritage Foundation speech you gave
last year. You drew a comparison between the present day and the late 70s and
early 80s. In 1976 the conservative candidate, Ronald Reagan, tried to wrest
the Republican presidential nomination from the establishment candidate,
Gerald Ford. Reagan lost, but four years later he grasped the nomination and
the presidency itself. You said, The difference between 1976 and 1980: the
hard, heroic work of translating conservatisms bedrock principles into new
and innovative policy reforms. Thats what youre about now.
Lee: Yes, exactly. In 1976 the conservative movement in America found
a conservative leader for the ages in Ronald Reagan. But we still failed to
win an election in that year. We still failed to get that conservative leader
for the ages in office in 1976. What really changed between 1976 and
1980, when we finally got that conservative leader for the ages elected, was
that we developed an affirmative policy agendaa reform agendaand
thats what we need now.
Robinson: Margaret Thatcher said, first you win the argument, then
you win the vote.
Lee: Yes.
O N E BI T E A T A TI ME
Robinson: Once again, your Heritage Foundation speech: I submit that
the great challenge of our generation is Americas growing crisis of stagnaHoover Digest N 2014 No. 4
135
136
CQ Roll Call/Bill Clark
tion and sclerosisa crisis that comes down to a shortage of opportunities. So, before you figure out the reforms, you define the problem, and
its overwhelmingly an economic problem in your view.
Lee: Yes. Its an economic problem, and it manifests itself at every level on
the economic ladder. Among the poor it shows up as immobility. These
people very often are trapped in poverty by government policies. I blame
not those who are in poverty but the government policies that are trapping
them there.
In the middle class you see a degree of insecurity where peoplewhenever they find that theyve achieved a little bit of additional income, if
theyre ever able to get to that point in the first placethey find that once
they have that additional income its been swallowed up by taxes and by
higher prices brought about by inflation, some of it resulting from our
monetary policy and some of it resulting from overregulation, costing the
American economy $2 trillion a year, and that of course gets passed downstream to the end consumer.
And then at the top of the economic ladder, you see a different kind
of problemalso created by governmentin that youve got people
who are held in place at the top of the economic ladder by cronyist
privilege. Having climbed to the top of the economic ladder themselves, theyre willing to pull up the ladder behind them, making it
more difficult for others to get to where theyve gone. Some of these
same people are held in place artificially by the government through
a combination of subsidies and the kinds of regulations that create
natural barriers to entry.
Robinson: All right. Senator, were talking about conservative reform
here. Among the specific pieces of legislation youve proposed are the
Transportation Empowerment Act, the Family Fairness and Opportunity Tax Reform Act, and the Working Families Flexibility Act. From
the conservative point of view, it almost seems as though youre offering reforms that you yourself consider quite modest. Heres the federal
Leviathan and here we have Mike Lee, who in his first two years got a
reputation as a tea party, vehemently antigovernment senator, and when
it comes to the legislation and reforms Mike Lee is actually introducing,
theyre not so big. How come?
ONE STEP AT A TIME: Mike Lee, the junior US senator from Utah, arrives at the Capitol for
a vote last year. Lee was elected in the tea party year of 2010. One pundit says that Lees
proposals are more interesting and more promising than almost anything Republicans campaigned on in 2012.
Lee: Look, if youve got an elephant and you want to eat that elephant,
you cant swallow the elephant all at once. Youve got to take a bite
at a time. We can do that in a way that still shows our bold colors as
conservatives. It doesnt require us to put on pastels and blur the difference between conservatives and people who are not conservative. But
we need to do it a step at a time, and these are very digestible pieces of
legislation, very digestible reforms, that could move forward sometime
in the next few years and could gain the support of a majority of the
members of both houses of Congress. So thats why its important to
do this.
Abraham Lincoln said that the most important function of government was to clear the paths of laudable pursuit, to lift artificial weights
137
from the shoulders of all, and thus provide for a fair start in the race of
life, and thats really what were trying to do. Here, many of these artificial weights are placed on the shoulders of Americans by the federal
government. Were looking for ways that we can start removing some of
those weights. We might not be able to remove all of them, and maybe
not all at once, but if we can remove one or two of them here or there,
its a good start.
Robinson: So youre also making decisions about your career as a member of the US Senate. I think they still say that the choice a senator has to
make is whether to be a workhorse or a showhorse. In office just over two
years and youre not just railing against the federal government, you have
said: I want to get things done in this chamber; I want to move legislation.
Is that correct?
Lee: Yes, thats fair to say.
Robinson: But youre still not comfortable with it?
Lee: Well, I would say that I reject the premise that you have to choose
necessarily between painting in bold strokes that show where you want to
go long-term and painting with smaller, more-detailed strokes that show
where you want to go right now. I think you can do both at the same
time. I think you can walk and chew gum simultaneously. And this is an
attempt to do that.
Robinson: Back to your Heritage Foundation speech. You talked about
comparing todays reform conservatism with a Reagan agenda. Heres
what occurs to me, particularly as we think about 2016 and a Republican candidate running for president, that the Reagan agenda, by the time
he came into office was just sweeping and he set into place a domestic
agendatax cuts, rolling back legislationthat launched a quarter of
a century of economic growth. Its that Reagan recovery that makes the
current recovery look so weak, so tepid. I grant you your argument that
if you are serious about getting things done in the US Congress, youve
got to take it bite by bite. But put all of this together and I dont see that
its enough for conservatives to run on in 2016. Theres not an embrace
of new growth, a new opportunity for the American economy. I know
that you believe that free markets can do far more for the poor than the
federal government ever can. So whats missing here? Youre saying: this
138
is what I, as one member of the US Senate have attempted to offer; lets

keep talking; we as conservatives need to continue the conversation. Is
that what youre saying?
Lee: Yes. This is nowhere near complete. I never intended to suggest that what I proposed so far is a complete package of conservative
reform proposals that can cure all the ailments of the federal government. Its a good start and were still moving forward with a lot more,
but just as important, what were trying to do here is connect a consistent thread of conservative thought through all of these proposals and
the other proposals that will followthe others that have not yet been
introducedto connect them together and help do what Reagan did,
which is to help the average voter out there understand why it is that
conservative principles will be good for them, why it is that conservative principles will help the poor, and why it is that they will help the
middle class. Thats what Reagan did so effectively, and thats what
set in motion the sequence of events that led to the greatest economic
recovery that weve seen in recent memory. Thats what we need again
today, but the common thread is conservative principles connecting
up the middle class and the poor and helping them understand how
this benefits them.
Robinson: So Mike Lees message to conservatives is not that its all that
simple, but here are a few pieces of legislationmore to followthis is
how it can be done.
Lee: Yes.
T H E S HA P E OF TH I NG S TO CO ME
Robinson: Let me ask you, if I may, to comment on divisions among
conservatives, among the GOP, that if the GOP is to have a serious chance
of capturing the Senate and moving on to capture the White House, need
to be dealt with. By the way, if you dont think these divisions are as deep
as the press tends to suggest, say that too if you would.
Lee: I again reject the premise that one must choose between on the one
hand voting according to ones conscience and on the other hand winning
elections. Good policy leads to good politics, especially if youre consistent
in the reasons for your voting pattern. So I dont think its a good idea for
139
us as Republicans or as conservatives to water down our message or to

change the way we vote just to make it look like there is less contrast. I
think what we need is more contrast rather than less. We need bold colors,
not pastels. I think when we paint with pastels the distinction becomes
hazy and we lose elections.
Robinson: So what about this notion that within the Republican Party
its the tea party versus the establishment?
Lee: Well, we cant take it too far. There will frequently be a gap between a
partys base and its elected political leaders, and right now I think that gulf
is exactly the size and the shape of a conservative reform agenda. Thats
why we need the conservative reform agenda. This can help bridge that
gap and fill that hole so that we can move forward on a somewhat united
front in pursuing this agenda.
Robinson: Because the entire divide between the establishment and the
tea party comes down to one question: how to respond to Barack Obamas
agenda. The tea party says, vote it down. The establishment, broadly
speaking, says we may have to compromise here and there. But as long as
its a question of responding to Obamas agenda, that divide will persist.
Is that the argument?
Lee: Yes, thats right, and in the absence of a strategy and the absence of
a unifying conservative reform agenda, there will be a lot of bickering.
That void will be filled; itll just be filled with a lot of contention within
the party that wont necessarily be good for the party. Im trying to fill it
with something thats positive, that can unite us as a party, and help us
win elections.
Robinson: This question is based on your comparison between the
Reagan years and the present. The country has changed to some extent,
in some ways deeply. Daniel Patrick Moynihan, in a 1965 report titled
The Negro Family: The Case for National Action, wrote: The fundamental problem is that of family structure. The Negro family in the
urban ghettos is crumbling. So long as this situation persists, the cycle
of poverty and disadvantage will continue to repeat itself. When
Moynihan wrote those words in 1965, the illegitimacy rate among
African-Americans was 25 percent. Today among whites its over 30
percent, among Hispanics more than 50 percent, and among African140
Americans over 70 percent. You could come up with reform conservatism on issue after issue, but what does it matter if the American
family continues to collapse?
Lee: This is what reform conservatism is all about. The entire focus of
my conservative reform agenda is to help strengthen and bolster the twin
pillars of our civilization: free market economies and voluntary institutions of civil society, including families, churches, synagogues, and other
voluntary associations. The bigger government gets, the more muscle it
flexes, and the more the muscle of free markets and civil society will tend
inevitably to atrophy. So reform conservatism focuses on how we can get
the federal government to pull back, especially in those areas where its
causing a lot of these problems, where its making more severe a lot of
these societal problemsproblems that relate to the family structure and
so forthwhere its holding people in poverty, where its creating undue
disincentives for people to work, and to get married and stay married. If
we stop creating those disincentives, if we get the federal government in
the right place
Robinson: Not necessarily smaller, but in the right place. Different programs. Are you saying that past a certain size the federal government tends
to crowd out family?
Lee: It tends almost inevitability to crowd other things out as it gets bigger and bigger. So, yes, I am saying its necessary for it to be smaller, but
that doesnt necessarily mean that you simultaneously shrink everything in
the federal government at an equal rate because there are some things that
only the federal government can do and there are other things that the
federal government perhaps ought to allow someone else to do, whether
that someone else is a state or local government or a voluntary institution
of civil society.
Robinson: This November, fifteen Republican and twenty-one Democratic seats in the US Senate will be up for re-election. To capture control
of the Senate, Republicans need a net gain of six. Care to call it?
Lee: Yes, I think weve got a better than even chance of gaining at least
six seats in the US Senate this November. Obviously weve still got a long
time before that happens, so its too early to call, but weve got a lot of
red-state Democrats who are up for re-election. Weve got a few other
141
Democratic senators who are retiring in states where we appear quite wellpositioned to be able to recapture the seats.
Robinson: When the next Congress is sworn in in January, you could be
joined by Congressman Tom CottonHarvard Law School, two tours of
duty, and now running for the Senate from Arkansas. You think of your
generation of members in the Senate now: you, Ted Cruz, John Barrasso,
Marco Rubio. The US Senate has not for a couple of decades been the
place where the action was, but it could be, couldnt it?
Lee: It could be. Tom Cotton is a very exciting candidate. Hes done great
work in the House, and his background and expertise will make him a
very effective senator, and I look forward to working with him. There are
others out there that will be joining us; many of them are younger Americans much like Tom Cotton. Ben Sasse in Nebraska is somebody Im really
excited about, a younger American whos running for the US Senate, and I
frankly expect that he will win and that hell be a great colleague.
Robinson: So you could have fun?
Lee: Absolutely.
Robinson: Mike Lee, junior senator from Utah, thank you.
Lee: Thank you.
142
INTERVIEW
Game of Loans
Banking crises are a product of people and strategy, not mysterious
forces, say Hoover fellows Charles W. Calomiris and Stephen H.
Haber. By Kathryn Jean Lopez.
Everyone knows that life isnt fair, that politics matters, Charles W.
Calomiris and Stephen H. Haber write in their new book, Fragile by
Design: The Political Origins of Banking Crises and Scarce Credit (Princeton
University Press, 2014). We recognize that politics is everywhere, they
continue, but somehow we believe that banking crises are apolitical, the
result of unforeseen and extraordinary circumstances, like earthquakes and
hailstorms. Thats simply not true, Calomiris and Haber argue: The politics we see operating everywhere else around us also determines whether
societies suffer repeated banking crises ...or never suffer banking crises.
Fragile by Design will make you skeptical of the version of events
told time and again by central bankers and treasury officials, and critical when that version is repeated by business journalists and television
talking heads.
Charles W. Calomiris is a co-chair of the Hoover Institutions 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 Columbias School of International and Public Affairs. Stephen H. Haber
is the Peter and Helen Bing Senior Fellow at the Hoover Institution; director of
Hoovers 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. Kathryn Jean Lopez is editor at large of
National Review Online.
143
Kathryn Jean Lopez, National Review Online: Is the Game of

Bank Bargains anything like Game of Thrones? Why do you set things up
this way?
Stephen W. Haber: Well, there are a lot fewer beheadings in the Game
of Bank Bargains than in Game of Thrones, and none of the protagonists
in our book are fifteen-year-old monarchs with antisocial personality disorder. More seriously, the point of explaining bank regulation as a game
in Fragile by Design is to get across the idea that laws and rules are not
produced by robots programmed to maximize social welfare. They are the
outcome of strategic actions of interested partiesa game, as it were
and those strategic interactions can produce unlikely alliances that work
against the interests of society as a whole.
Lets take the United States in the 1990s as an example. There was a
strategic alliance that consisted of banks that were in the process of merging and activist groups. The activists supported bank-merger applications,
and in exchange the banks directed hundreds of billions of dollars in
mortgage credit through the activist groups. In order to make this alliance
stable, the megabanks and the activists had to draw the housing GSEs
[government-sponsored enterprises], Fannie Mae and Freddie Mac, into
the partnership. Fannie and Freddie agreed to purchase the loans that the
megabanks had made to satisfy their activist allies, and in return received
the right to back their portfolios with paper-thin levels of capital. Each of
the three players in this game had a strategic objective: to further its own
interests. The one group that did not have a seat at the table as the game
was being played was taxpayers, who were presented with the bill when
the game was over.
Housing subsidies turned out to be a very expensive lunch.
Lopez: Is there a danger you downplay morality in banking?

Charles W. Calomiris: Policy in banking, as in all things, should
be morally defensible. As James Madison recognized, however, moral
achievements of government are largely the consequence of the quality of
rules that govern a society, not the inherent virtues of its citizens. Laws,
he reminded us, are not fashioned for angels, but rather to govern the
144
affairs of flawed human beings. Most important perhaps, good laws and
regulations predictably occur more in societies whose rules of political
engagement make it harder for groups of citizens to use the government
as a means of taking advantage of other citizens.
Laws and rules are not produced by robots programmed to maximize
social welfare.
Lopez: Do taxpayers have any control over this, a real role to play in
banking and financial reform beyond praying the money is real?
Haber: They absolutely do! The laws that govern the banking system
are passed by our elected representatives. Obviously, the average taxpayer
is not going to become an expert on the arcane details of bank regulation. But taxpayers can apply a simple heuristic: there are no free lunches.
When a government official promises a subsidy, taxpayers should ask, who
is ultimately going to bear the cost of that subsidy? When a government
official promises a subsidy and implies that no one is going to bear the
cost, taxpayers should grab hold of their wallets.
Taxpayers might keep the following example in mind: Americans were
told that the mortgage giants Fannie Mae and Freddie Mac should receive
a range of special privileges that subsidized their operations, because those
subsidies were passed on in the form of reduced costs of home ownership.
Everyone was getting a free lunch. This turned out to be false on two
counts. First, a large body of research has shown that the majority of the
subsidy was captured by Fannie and Freddies stockholders and managers,
not home owners. Second, when Fannie and Freddie failed in 2008, they
had to be bailed out at enormous taxpayer expense. Housing subsidies
turned out to be a very expensive lunch.
Lopez: Is Canada better at banking than we are?
Calomiris: In Fragile by Design, we show that banking instability and
credit scarcity are not inevitable outcomes dictated by the nature of banks,
per se, but rather are outcomes of a political bargaining process. Its not
that Canadian bankers are more innovative or brighter than American
bankers. The political rules of the game, defined by Canadas constitution and under which Canadian banks operate, are and always have been
145
146
much more conducive to stability, competitiveness, and efficiency. It is

not just that Canadas banks have operated nationwide branching banks
(after all, our recent crisis illustrates that nationwide branching banks
can be very unstable, too). The key difference throughout the past two
centuries has been that in the United States, government banking policies have been designed to reward the particular political alliance that
controls banking regulation. The nature of that alliance has changed
over time, but the common feature has been the ability of particular
groups to use the democratic political process to seize control of the US
banking system to pursue their self-interest at the expense of the broader
society. In Canada, in contrast, the design of the constitution limited
the ability of special interests to control government banking policies,
which has allowed those policies to be designed to promote efficiency
and stability.
Lopez: How much does the future of American prosperity and security have to do with banking?
Haber: Banking has everything to do with the future of American
prosperity and security. When small businesses want to expand, they
borrow from the banking system. If they cannot do so, the cost is felt
in slower rates of new small-business formation, and hence slower job
growth. When families want to purchase a home, they borrow from the
banking system. If they cannot do so, they forgo the opportunity to build
equity in a house, as well as forgo the security that comes with homeownership. When young people want to invest in their own human capital
through higher education, they borrow from the banking system. If they
cannot do so, they are sidelined in an economy that increasingly demands
high levels of skill and preparation. A banking system that either provides
too little credit, such as that of Mexico or Brazil, or provides credit in a
volatile fashion, lurching from crisis to crisis, such as that of the United
States, is not consistent with the creation of a robust economy that allows
for social mobility.
Lopez: If it were the fall of 2008 again, how might politicians act differently? Should they?
Calomiris: If policy makers had been willing to recognize problems as
they became increasingly clear in 2007 and 2008, then they would have
147
been able to react faster, and could have averted the severe systemic collapse in the fall of 2008 and the types of bailouts that ultimately were
relied upon. But that would have required recognizing how bad the regulatory policies had been in the decade leading up to the crisis, which was
something no one in authority wanted to do. Instead, for one and a half
years, policy makers kept pretending that the crisis was merely a liquidity problem rather than a deep insolvency problem. That made the
crisis much worse.
The one group that did not have a seat at the table as the game was
being played was taxpayers, who were presented with the bill when the
game was over.
The first signs of looming insolvency risks were in the spring of 2007,
and the signs became clearer in August 2007, January 2008, and March
2008, when the Fed bailed out Bear Stearns. In fairness to regulators, the
extent of subprime-related losses was hard to estimate at first, and loss projections grew over time as it became increasingly apparent that the scale
of risky mortgage lending was greater than had been believed. But the
purpose of maintaining sufficient levels of bank equity is precisely to deal
with such unforeseen circumstances. Amazingly, the Fed and the Treasury
still did virtually nothing between March 2008 and September 2008 to
counter the continuing decline in bank equity ratios (in market value)
by forcing banks to shore up their financial positions by issuing stock (to
raise their equity ratios). The markets were open and equity issues were
possible, but policy makers at the Fed, the Treasury, the Federal Deposit
Insurance Corporation, and the Securities and Exchange Commission did
not use their authority to force banks and other financial institutions at
risk to raise equity capital. Because of the steady and visible deterioration
of so many large financial institutions from 2006 to September 2008,
when Lehman failed, it was a match in a tinderbox.
In September 2008, in the wake of the Lehman failure, it still would
have been possible for the Treasury to initiate a program of preferred stock
assistance (like that of the Reconstruction Finance Corporation in 1933,
148
in which government assistance took the form of loans that encouraged

recapitalization of weak banks), which would have avoided taxpayer stock
ownership in distressed banks. But instead, the secretary of the treasury
pursued a flawed vision of a program of assistance based on the purchase
of distressed bank assets, which never made sense and which never tran
spired. This wasted months of precious time. By the time the government
had found the political will to do something meaningful, and was willing
to recognize the depth of the problem, the months of wasted time had
made the amount of assistance needed even greater, hence the need for
government recapitalization of financial institutions like Citigroup.
Lopez: How can the media cover financial reform better?
Haber: It is not reasonable to expect that journalists are going to become
experts in the arcane details of banking regulations and the features of
complex financial derivatives. But journalists can keep a simple heuristic
in mind: banking crises are not the product of random, difficult-to-predict events, like hailstorms and mountain lion attacks. They occur when
banking systems are vulnerable by construction. Two conditions have to
be met in combination: there must be sufficient risk in the loans and
other investments the banks are making, and there must be inadequate
capital on bank balance sheets to absorb the losses associated with those
risky loans and investments. If a bank makes only solid loans to solid
borrowers, there is little chance that its loan portfolio will all of a sudden
become nonperforming. If a bank makes riskier loans to less-solid borrowers, but sets aside extra shareholder capital to cover the possibility that
those loans will not be repaid, its shareholders will suffer a lossbut it will
not become insolvent.
Banking has everything to do with the future of American prosperity and
security.
The implication is that journalists should always be asking three questions about the banking system: Are bank balance sheets becoming stuffed
full of risky assets? Are regulators failing to increase capital requirements
sufficiently in response to the increase in asset risk? And what are the
implications for the public if the answer to both questions is yes? Needless
149
to say, they should not simply rely upon the statements of bankers and
regulators in seeking the answers.
Lopez: Youre both fathers of daughters; whats your realistic hope for
their economic lives?
Calomiris: I think the important parts of my daughters ability to realize
their dreams will depend primarily on their own persistence, imagination,
and integrity, and knowing them as I do, I dont worry much about their
ability to make their dreams come true. I do recognize, however, that they
will face some strong headwinds from the looming economic problems
that everyone in their generation must facemost obviously, the unsustainable debt burdens of entitlement programs, and also the continuing
pandemic of global financial instability. But I am an optimist about the
next generation. Paradoxically, I believe that it is precisely because they
will have to confront some very harsh realitieswhich the prior generation irresponsibly ignoredthat they will do so well.
Banking crises are not the product of random, difficult-to-predict events,
like hailstorms and mountain lion attacks. They occur when banking
systems are vulnerable by construction.
History gives us cause for such optimism. If we look at the rise of Margaret Thatcher in Britain, we see an example of what happens when people in a democracy are forced to confront their predecessors economicpolicy errors. Britains low growth and high inflation became intolerable.
Thatchers reforms ending high inflation and restoring economic growth
were welcomed by a citizenry that had previously supported nationalization of industry and extremely high tax rates. Democracies dont always
get it right, and they can be very slow to respond, but when confronted
by the high costs of major policy errors, they are capable of responding
quite effectively.
Lopez: Whats the future of banking in America?
Haber: I am extremely doubtful that Dodd-Frank is going to make the
American banking system more stable. In fact, by institutionalizing toobig-to-fail protection, I fear that it will encourage bankers in systemically
150
important financial institutions to take even bigger risks. This is what

economists call moral hazard: if I know that there is a mechanism in place
to bail me out, I am more likely to make wild bets; if the bets pay off, I
win big; if the bets fail, you cover my wager.
I also worry about the incentives that politicians have to address issues
of income inequality through the banking system, rather than through the
fiscal system. Taxation and spending policies to effect redistribution tend
to be politically difficult because they appear on the governments budget,
where taxpayers can see them. Incentivizing banks to lend to targeted
groups for redistributive purposes is politically easier, because they do not
appear in the governments budget. The problem is that bankers are not
sheep to be fleeced; they tend only to agree to targeted lending programs
if there are government guarantees backing those loans, or if they can
extract some other valuable concession, such as the right to back those
loans with low levels of prudential capital. Those guarantees and concessions mean that, ultimately, taxpayers are on the hookbut they do not
realize it until the bill comes due in the form of a bank bailout.
Reprinted by permission of National Review Online. 2014 National Review, Inc. All rights reserved.
Available from the Hoover Institution 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.
151
VAL U ES
The Fairness Fallacy

Wait for perfect fairness in life and youll wait forever. But that
doesnt mean anybody is holding you back. By Thomas Sowell.
Everywhere you turn, it seems, are studies claiming to show that America
has lost its upward mobility for people born in the lower socioeconomic
levels. But there is a sharp difference between upward mobility, defined as
an opportunity to rise, and mobility defined as actually having risen.
That distinction is seldom even mentioned in most of the studies. It is
as if everybody is champing at the bit to get ahead, and the ones that dont
rise have been stopped by barriers created by society.
When statistics show that sons of high school dropouts dont become
doctors or scientists nearly as often as the sons of PhDs, that is taken as a
sign that American society is not fair.
If equal probabilities of achieving some goal is your definition of fairness, then we should all get togetherpeople of every race, color, creed,
national origin, political ideology, and sexual preferenceand stipulate
that life has never been fair, anywhere or at any time in all the millennia
of recorded history.
Then we can begin at last to talk sense.
I know that I never had an equal chance to become a great ballet dancer
like Rudolf Nureyev. The thought of becoming a ballet dancer never once
crossed my mind in all the years when I was growing up in Harlem. I
suspect that the same thought never crossed the minds of most of the guys
growing up on New Yorks Lower East Side.
Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public
Policy at the Hoover Institution.
152
Does that mean that there were unfair barriers keeping us from following in the footsteps of Rudolf Nureyev?
A very distinguished scholar once mentioned at a social gathering that
as a young man, he did not think of going to college until someone who
recognized his ability urged him to do so.
Life has never been fair, anywhere or at any time.
Another very distinguished scholar told me that although his parents

were anti-Semitic, his attending school with many Jewish children got
him interested in intellectual matters and led him into an academic career.
Groups, families, and cultures are not even trying to do the same things,
so the fact that they do not all end up equally represented everywhere can
hardly be automatically attributed to barriers created by society.
Barriers are external obstacles, as distinguished from internal values and
aspirationsunless you are going to play the kind of word games that
redefine achievements as privileges and treat an absence of evidence of
discrimination as only proof of how diabolically clever and covert the discrimination is.
The front page of a local newspaper in Northern California featured
the headline The Promise Denied, lamenting the underrepresentation
of women in computer engineering.
The continuation of this long article on an inside page had the headline Who is to blame for this?
What will satisfy those who think they should be making other peoples
choices for them?
In other words, the fact that reality does not match the preconceptions
of the intelligentsia shows that there is something wrong with reality, for
which somebody must be blamed. Apparently their preconceptions cannot be wrong.
Women, like so many other groups, seem not to be dedicated to fulfilling the prevailing fetish among the intelligentsia that every demographic
group should be equally represented in all sorts of places.
153
Women have their own agendas, and if these agendas do not usually
include computer engineering, what is to be done? Draft women into
engineering schools to satisfy the preconceptions of our self-anointed saviors? Or will a propaganda campaign be sufficient to satisfy those who
think they should be making other peoples choices for them?
That kind of thinking is how we got ObamaCare.
At least one of the recent celebrated statistical studies of social mobility leaves out Asian-Americans. Immigrants from Asia are among a number of groups, including American-born Mormons, whose achievements
totally undermine the notion that upward mobility can seldom be realized
in America.
Those who preach this counterproductive message will probably never think that the envy, resentment, and hopelessness they preach, and
the welfare state they promote, are among the factors keeping people
down.
Reprinted by permission of Creators Syndicate (www.creators.com). 2014 Creators Syndicate Inc. All
rights reserved.
Available from the Hoover Institution Press is Is Reality

Optional? And Other Essays, by Thomas Sowell. To
154
V AL U E S
Moral Debts
The way we deal with our debts involves more than dollars and cents.
It reveals our very character as a people. By David Davenport.
President Obama and the independent Congressional Budget Office

(CBO) recently released their dueling views of the federal budget over
the next ten years. The president was quick to celebrate a reduction in the
federal deficitthat is the amount being added to the national debt every
year. Its the age-old government ploy to claim bragging rights for spending reductions when, in fact, theres only a reduction in the rate of increase.
But as the CBO pointed out, even this reduction is only short-term, with
annual deficits again increasing in 2018, while the overall national debt
itself has risen at a shocking rate, from $10.6 trillion when Obama took
office in 2009 to $17.5 trillion today, and still growing strong. An independent Harvard study indicates that it would take a bonus payment of
$106,000 from each American to pay the debt.
But here are surprising contemporary questions about public debt:
Does it really matter? Does anyone really care? There was a time w

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RESEARCH AND OPINION

Research and Opinion on Public Policy

2014 no. 4 fall

The Hoover Digest offers informative writing on politics, economics, and

The Hoover Digest (ISSN 1088-5161) is published quarterly by the Hoover

Acting Managing Editor,

2014 by the Board of Trustees of the Leland Stanford Junior University

Tad and Dianne Taube

Senior Associate Director

Counselor to the Director

Malott Director of Library &

HOOVER DIGEST 2014 N O. 4 FA L L

The Price of Our Responsible Exit

Why the Fed Must Return to Rules

The Foundation Crumbles

Hoover Digest N 2014 No. 4

The United States of Envy

Economics in a Time of Drought

An End to Pension Patches

Railroading the Environment

Hoover Digest N 2014 No. 4

Side Effects May Include Collusion

Waiting for Dr. Godot

They Might Be Giants

The Secret Sharers

Hoover Digest N 2014 No. 4

In Snowden We Trust? Never

Will Iran and Israel Meet in the Middle?

Ukraine Is Fighting Our Battle

Hoover Digest N 2014 No. 4

Reform Conservatism and the Junior Senator from Utah

The Fairness Fallacy

Who Will Speak?

Hoover Digest N 2014 No. 4

It Would Be My Fate to Return...

Whos Number One? Does It Matter?

One Summit, Different Dreams

Hoover Digest N 2014 No. 4

Hoover Digest N 2014 No. 4

Hoover Digest N 2014 No. 4

US Department of Defense/Jim Gordon

tution, a thriving economy, and a sense of genuine national pride. The

Hoover Digest N 2014 No. 4

With ISIS now reigning triumphant in Fallujah, in the oil-refinery

New from the Hoover Institution Press is The Struggle

Hoover Digest N 2014 No. 4

Theres plenty of blame to go around in Tehran, Washington, and most of

Hoover Digest N 2014 No. 4

Hoover Digest N 2014 No. 4

Available from the Hoover Institution Press is The Myth of

Hoover Digest N 2014 No. 4

The Price of Our

So this is what a responsible withdrawal from Iraq looks like?

Hoover Digest N 2014 No. 4

tion. Iran will have achieved a stunning victory: dramatically expanding

The Obama administration declined to use what leverage it had left to

Hoover Digest N 2014 No. 4

Hoover Digest N 2014 No. 4

Illustration by Taylor Jones for the Hoover Digest.

While answering questions about the Bowe Bergdahl prisoner

Hoover Digest N 2014 No. 4

of preventing Iraqs fall to jihadists. At best we could loosely coordinate

Available from the Hoover Institution Press is State