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

www.hooverdigest.org

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HOOVER DIGEST

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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 Europe’s
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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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 isn’t. 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 Saddam—and 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 doesn’t
grasp where wealth actually comes from. By richard a. epstein.

42

The United States of Envy
What closes income gaps? Education and innovation—not
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 State’s 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.

Hoover Digest  N  2014 · No. 4

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 shouldn’t shock us. In countries with government health care monopolies, waiting months—
even years—represents business as usual. By scott w. atlas.

72

Bitter Pills
Higher costs, fewer choices—the 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 don’t. 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
Obama’s 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.

Hoover Digest  N  2014 · No. 4

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, antagonistic—and 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.

Hoover Digest  N  2014 · No. 4

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 you’ll wait forever. But that
doesn’t 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 censor—has only grown stronger. By timothy garton ash.

Hoover Digest  N  2014 · No. 4

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

Fouad’s Gift
Farewell to a friend, a guide, and a storyteller of the Arab world’s
disorder. By charles hill.

H I S T O R Y A N D C UL TURE
178

Who’s Number One? Does It Matter?
Country rankings are being twisted to tell all kinds of stories—but 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

Hoover Digest  N  2014 · No. 4

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.

Editor’s 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.
Ajami’s 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, Iraq’s 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 Iran’s penetration of Iraqi strategic
and political life, there was Baghdad’s 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
Hoover’s Herbert and Jane Dwight Working Group on Islamism and the International Order.

Hoover Digest  N  2014 · No. 4

9

Iraq’s 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 own—a viable military insti10

Hoover Digest  N  2014 · No. 4

US Department of Defense/Jim Gordon

Now, even as Assad clings to power in Damascus, Iraq’s 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.
Iraq’s 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 Iraq’s sectarian troubles in 2006–7,
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, it’s estimated that Iraq’s economy will grow even faster than China’s or India’s.”
But the negligence of these two men—most notably in their failure to
successfully negotiate a Status of Forces Agreement that would have maintained an adequate US military presence in Iraq—has resulted in the current descent into sectarian civil war. Iraq’s 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-Maliki’s 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 country’s 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.

Hoover Digest  N  2014 · No. 4

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 Mosul’s reality.
There was no chance that a war would rage on either side of Mosul without
it spreading next door. The Obama administration’s vanishing “red lines”
and utter abdication in Syria were bound to compound Iraq’s 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. Obama’s 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

Hoover Digest  N  2014 · No. 4

I R AQ

Best Frenemies?
As Iraq wobbles, Iran might almost look like a friend. It isn’t. By
Abbas Milani.

There’s plenty of blame to go around in Tehran, Washington, and most of
all Baghdad for the mess in Iraq—blame 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 administration’s early inaction in the face of Syrian
President Bashar al-Assad’s brutalities—Assad’s use of chemical weapons
and heavy artillery against peaceful demonstrators—of Iran’s 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 Institution’s Iran Democracy Project,
a member of Hoover’s 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.

Hoover Digest  N  2014 · No. 4

13

coordinate efforts, to save Iraq’s government. In Washington, even senators John McCain and Lindsey Graham can’t 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 conservatives—consisting of many in the Revolutionary Guard (IRGC) and clerics close to Supreme Leader Ali Khamenei—see the surging Islamic State of Iraq and al-Sham (ISIS) as merely the
concoction of the US-Israel-Turkey-Qatar–Saudi 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 country’s 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 Rafsanjani’s 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.
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Hoover Digest  N  2014 · No. 4

Yet in spite of the desire for Iran and the United States for cooperation
in Iraq, there are serious issues—other than the nuclear program—that
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 Guard’s 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 days—only after much cudgeling by conservatives—to 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 America’s Relations with
Iran, by Abbas Milani. To order, call 800.888.4741 or visit
www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

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 hardware—paid for by the American taxpayer—in 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 Hoover’s Working Group on the Role of Military History in Contemporary
Conflict.

16

Hoover Digest  N  2014 · No. 4

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. Iran’s supreme leader, Ayatollah
Ali Khamenei, must be thrilled: so little invested, so much achieved.
Here in the free world, we await the White House’s 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 Obama’s 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 wasn’t
ending. We just quit fighting it. The war continued.
Then–secretary 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

Hoover Digest  N  2014 · No. 4

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Hoover Digest  N  2014 · No. 4

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 president’s 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.
Iran’s 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 ISIS’s advance into Iraq, there is probably no time
to pull together an international coalition of forces to share the burden

Hoover Digest  N  2014 · No. 4

19

of preventing Iraq’s fall to jihadists. At best we could loosely coordinate
action among countries that fear Iran’s 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 something—the 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 wasn’t starting a third American war
in the region—he 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

Hoover Digest  N  2014 · No. 4

I R AQ

An Army of Revisionists
How quickly we forget our reasons for toppling Saddam—and 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 2007­–8 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 Hussein’s 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 Saddam’s stockpiles of
weapons of mass destruction. They drew on the same classified domestic
and foreign-intelligence reports that had led Bush to call for Saddam’s
forcible removal.
Victor Davis Hanson is the Martin and Illie Anderson Senior Fellow at the
Hoover Institution and the chair of Hoover’s Working Group on the Role of Military History in Contemporary Conflict.

Hoover Digest  N  2014 · No. 4

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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

The Bush administration, like members of Congress, underestimated the costs of the war and erred in focusing almost exclusively on Saddam’s 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 weapons—which 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 left—from George Will,
David Brooks, and William F. Buckley to Fareed Zakaria, David Ignatius,
and Thomas Friedman—supported Saddam’s forcible removal. When his
statue fell in 2003, most polls showed that more than 70 percent of Americans agreed with the war.

Hoover Digest  N  2014 · No. 4

23

What changed public opinion and caused radical about-faces among
the war’s 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 Saddam’s removal by force.

The 2007–8 surge engineered by General David Petraeus ended much
of the violence. By Obama’s 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 inherited—and 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 Saddam’s 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

Hoover Digest  N  2014 · No. 4

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 alone—or 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.

Hoover Digest  N  2014 · No. 4

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 Reserve’s 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 did—such as in much of the 1980s and
’90s—coincided with good economic performance: price stability, steady
employment, and output growth. Using a different approach based on his
research of the Fed’s hundred-year history, Carnegie Mellon University’s
Allan Meltzer concluded as well that “following a rule or quasi rule in
1923–28 and 1986–2002 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 Hoover’s Working Group on Economic Policy
and a member of Hoover’s Shultz-Stephenson Task Force on Energy Policy, and
the Mary and Robert Raymond Professor of Economics at Stanford University.

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Hoover Digest  N  2014 · No. 4

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 Fed’s discretionary policies since the financial crisis—particularly the large-scale
purchases of mortgage-based securities—have 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, housing—and homeowners at the expense of home buyers—
why not others? Cars? Farmers? Exporters?”
Digging deeper into history, Lee Ohanian of UCLA found that the
Fed’s deviations from rules that would produce low and stable inflation
during periods of large changes in regulatory policies—such as the National Industrial Recovery Act of the 1930s—often 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 Fed’s 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.

Hoover Digest  N  2014 · No. 4

27

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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

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 rule—could 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.

Hoover Digest  N  2014 · No. 4

29

In my view more is needed. The big swings between discretion and rules
that have characterized Fed history—and the damage this has led to—lead
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,
housing—and homeowners at the expense of home buyers—why 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.
Reprinted by permission of the Wall Street Journal. © 2014 Dow Jones & Co. All rights reserved.

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

30

Hoover Digest  N  2014 · No. 4

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 one’s
labor are threatened—in 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 Constitution’s “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 agency’s final order. In this situation, at least, the Supreme Court
Michael J. Boskin is a senior fellow at the Hoover Institution, a member of
Hoover’s Shultz-Stephenson Task Force on Energy Policy and Working Group on
Economic Policy, and the T. M. Friedman Professor of Economics at Stanford
University.

Hoover Digest  N  2014 · No. 4

31

recently decided 9–0 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 one’s 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 increase—on 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 higher—reducing them to minority partners in their own additional work and sundering the value of the investments in their own education.
Taxes explicitly designed for redistribution—instead of revenue—are
“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
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Hoover Digest  N  2014 · No. 4

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 time—and 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 one’s 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, and—by curtailing capital accumulation—lower
future wages and living standards. Over time, such rates would expropriate a sizable fraction of wealth.
Taxes explicitly designed for redistribution—instead of revenue—are
“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 assumptions—that the return on capital won’t
fall as more and more capital accumulates; that these returns will all be
saved and not spent; that fortunes won’t 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
doesn’t demand. But as President Reagan said in July 1987, “working peo-

Hoover Digest  N  2014 · No. 4

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.”
Reprinted by permission of the Wall Street Journal. © 2014 Dow Jones & Co. All rights reserved.

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

Hoover Digest  N  2014 · No. 4

I N E Q U AL I T Y

Rickety Piketty
Economist Thomas Piketty wants to confiscate wealth, but he doesn’t
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 Piketty’s 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 Hoover’s Working Group on Intellectual Property, Innovation, and Prosperity. He is also the
Laurence A. Tisch Professor of Law at New York University Law School and a
senior lecturer at the University of Chicago.

Hoover Digest  N  2014 · No. 4

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, Piketty’s 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

Hoover Digest  N  2014 · No. 4

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 Pitney’s 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 Pitney’s 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

Hoover Digest  N  2014 · No. 4

37

38

Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

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, Piketty’s 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 1–1.5 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

Hoover Digest  N  2014 · No. 4

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 Piketty’s dire predictions.

Moreover, one of the most persistent threats to growth occurs in Piketty’s
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

Hoover Digest  N  2014 · No. 4

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 Piketty’s
dire predictions. But so long as policy makers take Piketty’s 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 Piketty’s
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.

Hoover Digest  N  2014 · No. 4

41

I N E Q UALIT Y

The United States
of Envy
What closes income gaps? Education and innovation—not
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 Institution’s Regulation and the
Rule of Law Initiative, a distinguished visiting fellow at Hoover, and a professor
of political economy at Carnegie Mellon University.

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Hoover Digest  N  2014 · No. 4

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 Marx’s Das Kapital and John Maynard Keynes’s 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.
Hoover Digest  N  2014 · No. 4

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 didn’t 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
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Hoover Digest  N  2014 · No. 4

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 doesn’t 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. That’s 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 capital—the 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
Hoover Digest  N  2014 · No. 4

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 Taiwan—free,
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? Don’t you prefer opportunity to envy?
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.
New from the Hoover Institution Press is NAFTA at
20: The North American Free Trade Agreement’s
Achievements and Challenges, edited by Michael
J. Boskin. To order, call 800.888.4741 or visit www.
hooverpress.org.

46

Hoover Digest  N  2014 · No. 4

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 isn’t 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 government’s 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 Hoover’s Conte Initiative on Immigration
Reform, and the Jack Steele Parker Professor of Human Resources Management
and Economics at Stanford University’s Graduate School of Business.

Hoover Digest  N  2014 · No. 4

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 California’s 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 California’s 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.
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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

bad situation much worse.

Hoover Digest  N  2014 · No. 4

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.
Reprinted by permission of the Wall Street Journal. © 2014 Dow Jones & Co. All rights reserved.

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
800.888.4741 or visit www.hooverpress.org.

50

Hoover Digest  N  2014 · No. 4

CAL I F O R N I A

An End to Pension
Patches
Meaningful ways to mend the Golden State’s 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 systems—CalPERS and CalSTRS—
are massively underfunded. Based on estimates by Governor Jerry Brown’s
Department of Finance, CalSTRS has about an $80 billion unfunded
liability. Meanwhile, Stanford professor Joe Nation estimates CalPERS’s
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.

Hoover Digest  N  2014 · No. 4

51

A recent conference at the Hoover Institution, co-hosted by Hoover senior
fellow Josh Rauh and Stanford Institute for Economic Policy Research’s David
Crane and Joe Nation, explored potential solutions to California’s 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 Institution’s 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.
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Hoover Digest  N  2014 · No. 4

While operating under the rule, California and its localities can enact
only small reforms—in 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:
CalSTRS’s 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 pensions—for instance, in 2012, thirty-one thousand
state retirees collected pensions valued at $100,000 or more—most 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
Hoover Digest  N  2014 · No. 4

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 conference’s 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 (57–15 in
the lower chamber and 35–2 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
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Hoover Digest  N  2014 · No. 4

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 city’s 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.
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 Pension
Wise: Confronting Employer Pension Underfunding—And
Sparing Taxpayers the Next Bailout, by Charles Blahous.
To order, call 800.888.4741 or visit www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

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.

It’s obvious that we’re 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 administration’s 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.

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Hoover Digest  N  2014 · No. 4

President Obama’s 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 products—compared 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

Hoover Digest  N  2014 · No. 4

57

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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

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, Canada’s
oil sands will increase global warming. On the latter point, the State
Department report again is clear that net carbon emissions won’t be
much different with or without the Keystone XL—because the

Hoover Digest  N  2014 · No. 4

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, wildlife—and people—beware.
Reprinted by permission of the Wall Street Journal. © 2014 Dow Jones & Co. All rights reserved.

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

60

Hoover Digest  N  2014 · No. 4

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 practices—stimulated,
in part, by the Affordable Care Act—may 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 University’s Graduate School of Business and Law School.

Hoover Digest  N  2014 · No. 4

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
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Hoover Digest  N  2014 · No. 4

doctors lead to lower rates of admissions—suggesting 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 future—and 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
Act’s enthusiasm for changing the way that medical care is organized in
the United States—and 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 quality—precisely 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 Investor’s Business Daily. © 2014 Investor’s 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
800.888.4741 or visit www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

63

H EALT H C ARE

Waiting for Dr. Godot
Long treatment delays at VA hospitals shouldn’t shock us. In countries
with government health care monopolies, waiting months—even
years—represents business as usual. By Scott W. Atlas.

The disgraceful state of the health system for America’s 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
systems—whether 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 Hoover’s Working Group on Health
Care Policy.

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Hoover Digest  N  2014 · No. 4

ment, diagnostic scans, or cancer care—go 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, Britain’s 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 months—for 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
begin—four 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 England’s 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 government’s 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

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65

treatment to begin—the highest total for at least five years. Almost 60,000
more patients were waiting for treatment at the capital’s 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 England’s NHS for hospital
inpatients—patients sick enough to require hospital admission—was 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
2012–13, according to NHS England’s 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 8–13 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
days—two full months—to 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.
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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, England’s 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 NHS’s 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 America’s 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
Hoover Digest  N  2014 · No. 4

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.

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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

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. Sweden’s municipal governments have increased
spending on private care contracts by 50 percent in the past decade. Private
nursing facilities

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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 year—even 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
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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 America—reducing 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
innovation—requires the government to directly provide insurance or
health care itself. Let’s hope President Obama and the polarized Congress
have the courage to truly lead with creativity, by seizing the opportunity
to facilitate access to America’s private health care. Perhaps a genuine consensus can be achieved after all.
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 In Excellent
Health: Setting the Record Straight on America’s Health
Care, by Scott W. Atlas. To order, call 800.888.4741 or
visit www.hooverpress.org.

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H EALT H C ARE

Bitter Pills
Higher costs, fewer choices—the Affordable Care Act is becoming
harder and harder to swallow. By Richard A. Epstein.

An old saying in the garment business says, “You can’t 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
don’t 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 ACA’s arcane rules, and the behavior of insurers, covered firms, and
individuals under the new rules.
In addition, it is critical to keep separate the ACA’s 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 Hoover’s Working Group on Intellectual Property, Innovation, and Prosperity. He is also the
Laurence A. Tisch Professor of Law at New York University Law School and a
senior lecturer at the University of Chicago.

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conditions, without also turning the private individual and employer market upside-down.
Yet the ACA’s centerpiece—the 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.
It’s 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 ACA’s 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 people—no definitive numbers are
available—from 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
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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 plan—assuming, 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.
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Hoover Digest  N  2014 · No. 4

© 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

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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
year’s 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 president’s 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.
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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.
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 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.

Hoover Digest  N  2014 · No. 4

77

P O L IT IC S

Affirmative-Action
Foibles
The Democratic Party likes racial preferences in college admissions,
but Asian-Americans don’t. Might we see a parting of the ways? By
Lanhee J. Chen.

A recent effort to reinstitute affirmative action in admissions to California’s public colleges and universities was defeated—demonstrating 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. Pérez (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 state’s public institutions of higher learning. Pérez 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 Hoover’s Conte Initiative on Immigration Reform, and
a lecturer in public policy and law at Stanford University.

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He took this action because of strong, organized opposition to SCA 5
from the Asian-American community—or 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 state’s 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 community’s interests.
Notably, the percentage of freshmen admitted to all UC campuses
who self-identified as Latino or Chicano nearly doubled during that time,

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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 GOP’s perspectives on access to higher education
and the importance of choice, accountability, and high standards in K–12
education are right.
Although SCA 5 is dead for now, Pérez and his Democratic colleagues
called for a task force to examine whether the state’s 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.

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PO L I T I CS

They Might Be Giants
Then again, they might not. If politics were baseball, President
Obama’s 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: what’s 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 didn’t 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.

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81

In short, it became a metaphor for a young administration unable
to find its stride. So it wasn’t 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-

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Illustration by Taylor Jones for the Hoover Digest.

ing up to an NBA culture fueled by the likes of Beyoncé 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. Obama’s 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 1952’s
The Winning Team.
And Barack Obama? He didn’t grow up playing the game or watching
it. Conservatives have taken him to task for shaky knowledge and
an even shakier throwing style.

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Then there’s the second problem: though he may respect baseball’s
past, Obama may not understand how the game’s 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 Weaver’s 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 he’s left-handed. Obama easily moves to the left, but not
so to his right. Thus a lot of double-play chances—say, 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
Baseball’s 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, it’s 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.

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It’s hard to remember a hot streak other than the heady early days after
2008’s 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 it’s like to come up short on the diamond. In 2010, he was booed as he took the mound at Nationals Park.
Here’s hoping he gave Cooperstown a good look: unless he shakes up the
lineup and starts playing the game at a higher level, his presidency won’t
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.

Hoover Digest  N  2014 · No. 4

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 Greenwald’s 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 Greenwald’s 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-making—whatever
it turns out to be—should openly tilt in favor of publication with minimal delay. But ultimately you can’t 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
Hoover’s Jean Perkins Task Force on National Security and Law. He is the Henry
L. Shattuck Professor at Harvard Law School.

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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 secrets—it 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
press—or, more accurately, whoever holds the secret outside the government—decides 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 imperfect—self-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) check—an 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 it—I am always amazed that journalists who insist on the
need for a robust press to expose the folly of the self-serving institutions

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© 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 Kinsley’s conclusion is that it pushes to government
absolutism on secrets in the name of democracy, and yet the people cannot judge their government’s 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 decade—on interrogations, drones, and surveillance, for example—have 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 doesn’t
do so because the American people don’t 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 doesn’t 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 recognition—based in part on politics and in part on a powerful constitutional tradition—that 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

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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 press—or, more accurately,
whoever holds the secret outside government—decides 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.

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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.

Let’s give Edward Snowden his due: he did himself a lot of good in his
interview with NBC’s 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 see—as
he clearly does—nobility 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 Snowden’s performance.
Benjamin Wittes is a member of the Hoover Institution’s 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.

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Illustration by Taylor Jones for the Hoover Digest.

My stony indifference to his earnest self-account was not because his
interview with Williams was insubstantial. It wasn’t. 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
agency’s substantive work—whom it targets, how, and why. And it thus
goes also to the question of credibility. Is the government downplaying
Snowden’s role to diminish his credibility or is he padding his résumé to
enhance it?
Second, and more important, Snowden in this interview directly challenged the NSA’s claim that he had never raised his concerns internally.
This claim has been crucial to the government’s 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 statutes—one 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 exchange—which took
place long after Snowden was already exfiltrating documents from the
agency—is what Snowden meant by raising his concerns internally, his
effort was laughable. On the other hand, if more material were ever to

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turn up that actually supported Snowden’s claims, it would seriously
undermine the government’s 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, Snowden—earnestness and all—utterly
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.

Let’s 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 Greenwald’s book—a man whose freedom,
indeed whose very life, was as nothing compared with the public’s
need to know the government’s 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 doesn’t
allow the defense he would want to put on. So he would probably be
convicted and serve a very long prison sentence—to 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. It’s not that he fears it,
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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, Snowden’s
explanation was particularly obtuse. Ask the State Department why he’s
there, Snowden suggested. He was just trying to transit through Russia.
It wasn’t 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 Snowden’s passport before
he ever left Hong Kong. Moreover, it does not mean that he must stay in
Moscow. It’s 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 it’s 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 country’s new
blogging law.
Snowden is not a free agent but a tool of Russian intelligence—and of
Putin himself—even if he doesn’t 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

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agent but a tool of Russian intelligence—and of Putin himself—even if
he doesn’t 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 don’t 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 don’t tend to have as their
asylum lawyers Kremlin loyalists who also happen to be members of the
FSB’s oversight board.

H A R M A S A G O O D TH I NG
And then there’s Snowden’s denials that he did any damage. Show me
the evidence, he protested to Williams, that anyone was really hurt by
anything I did—and Williams did not call him on the point. But it’s a
mug’s 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 one’s 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 one’s country’s 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 Snowden’s 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 Administration’s 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 Egypt’s 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
Egypt’s revolutionary activists and their international cheerleaders.
Those who lament the failure of a revolution that captivated the world
usually blame two forces: Egypt’s 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 Egypt’s population—these 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 Egypt’s 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 Hoover’s Herbert and Jane Dwight Working
Group on Islamism and the International Order, a research fellow at the Hudson
Institute’s 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).

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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. Egypt’s 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 Egypt’s 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, Egypt’s 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 Mubarak’s 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 anyone’s 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
revolutionaries—those who had struggled for years against the regime and
then demolished the first brick in the regime’s 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?
Egypt’s 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 ended—and in the world they constructed, corruption could magically end—Egypt would become prosperous. Legends about Mubarak’s 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
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Illustration by Taylor Jones for the Hoover Digest.

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 didn’t leave the
square. The rest of the country did.”
Few Egyptians were saddened by Mubarak’s 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 anyone’s guess.

Less than forty-eight hours after Mubarak’s 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 ended—and in the world the demonstrators constructed,
corruption could magically end—Egypt 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.
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© XINHUA/Pan Chaoyue

oust Ahmed Shafik’s 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 Egypt’s 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 people’s 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 Mubarak’s authoritarian grip
on power. With the repressive hand removed, Pandora’s 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 rather—as Brotherhood members are likely to aver—because 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

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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 didn’t
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 didn’t choose the revolution’s 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.

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105

© © ©
Today, Egypt’s 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).
© 2014 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

New from the Hoover Institution Press is Reflections on
the Revolution in Egypt, by Samuel Tadros. To order, call
800.888.4741 or visit www.hooverpress.org.

106

Hoover Digest  N  2014 · No. 4

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, antagonistic—and 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-Gurion’s Israel and Shah Mohammed Reza Pahlavi’s 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 Institution’s Iran Democracy Project,
a member of Hoover’s 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.

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107

tions have imposed sanctions on Iran with the aim of halting its nuclear
program. For years, Iran’s former president Mahmoud Ahmadinejad railed
against the “Great Satan.” But even if Iran’s 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, Israel’s strongest ally. In
recent months, Israel’s defense minister, Moshe Yaalon, called Secretary of
State John Kerry “obsessive and messianic” while Naftali Bennett, Israel’s
economy minister, labeled Kerry a “mouthpiece” for anti-Semitic elements attempting to boycott Israel.
Israel’s secular democrats are growing increasingly worried that Israel’s
future may bear an uncomfortable resemblance to Iran’s recent past.

FE A R S OF A “ C U LTU R AL I NV ASI O N”
For more than three decades, Iran’s 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 Ahmadinejad’s 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 Rouhani’s rise is in reality the consequence of a critical cultural and
demographic shift in Iran—away from theocracy and confrontation, and
toward moderation and pragmatism. Recent tensions between America
and Russia have emboldened some of Iran’s 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 clerics—all men—while 64 percent of the country’s sci108

Hoover Digest  N  2014 · No. 4

ence and engineering degrees are held by women. In spite of the government’s 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. It’s 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 country’s 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 country’s security situation and prospects for peace.
Israel’s 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 Bennett’s 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 birthrate—a clear indication of growing
secularism, and the sort of thing that keeps Ayatollah Khamenei awake at
night.

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109

The long-term power of these demographic trends will, in our view,
override Iran’s current theocratic intransigence and might eclipse any
fleeting victories for liberalism in Israel.
Israel’s 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 Iran’s 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 Israel’s 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.
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Hoover Digest  N  2014 · No. 4

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 that’s left.
An opposite shift is occurring in Iran’s 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, Iran’s diaspora could one day play a
similar role for a post-theocratic Iran.
One of Israel’s 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 Iran’s moderates fail to push the country toward reform, and if secular Israelis can’t halt the country’s 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
800.888.4741 or visit www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

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 that’s a given—Clooney’s 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 fiancée belongs.
The Druze are a heterodox offshoot of Shia Islam that dates back to
the eleventh century. Most of the world’s 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
Lebanon’s 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).

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Hoover Digest  N  2014 · No. 4

“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, it’s 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 (1975–90). “Any media support on
his end making Druze look good is welcome. Instead of being on the front
page of the news section when we’re killing and dying, we’re now featured
in entertainment magazines.”
And it’s 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 he’s done
advocacy on Sudan issues, he should know he is much safer going to Lebanon than Darfur.”
Also, says Rabah, he should embrace the sect’s 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 Lebanon’s 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 maté,” says Rola AbdulLatif, a Lebanese-born Druze who lives in Washington, DC. Maté 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 won’t. Most of the Druze themselves know
nothing about their faith, so he doesn’t have to fear awkward moments

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113

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Hoover Digest  N  2014 · No. 4

Illustration by Taylor Jones for the Hoover Digest.

at holiday celebrations like Passover or Christmas, because there aren’t
any holidays.”
The downside, says Abdul-Hussain, is that some Druze don’t like nonDruze men marrying Druze women. “He has to be careful which Druze
he tells that he’s married to a Druze. He might run into people who won’t
like it, even though he’s 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-Assad’s father Hafez killed his father,
Kemal, in 1977, and he’s preparing his own son Taymur to replace him.
Given Jumblatt’s open contempt for the Syrian president, who regards
him similarly, his end may come sooner rather than later.
Jumblatts, as he likes to remark, don’t die in bed—like 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 Napoleon’s 1798 conquest of Egypt, Europe was mad for
all things Oriental and the Druze’s esoteric wisdom—seemingly bred from

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115

a mixture of Ismailism, a heterodox branch of Shiism, as well as Sufism
and Gnosticism—was appealingly exotic. Researchers and travelers visited the Druze heartland in the Lebanese mountains to uncover the sect’s
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 Gérard de Nerval relates a likely fictional interview with a
Druze sheikh who, rather than answer Nerval’s questions about the Druze
faith directly, spins out a long tale of impossible and forbidden love.
The sheikh’s 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 985–1021), 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 faith’s earliest adherents certainly did—Muhammad 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 we’re 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 da’wa, or invitation to convert. In total there are 106 letters, dealing mainly with spiritual matters, that form the Druze’s sacred
text, the Epistles of Wisdom. Perhaps because of political persecution, the
da’wa was closed in 1043, at which point the Druze would theoretically
accept no more converts—in 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,
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Balkis Press/ABACA/Newscom

and dying, we’re now featured in entertainment magazines.”

IT’S A MATCH: Laha, a Beirut-based women’s weekly, puts George Clooney
and his fiancée, Amal Alamuddin, on the cover. Alamuddin, a humanrights attorney in Britain, is wearing her profession’s 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.”

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117

according to one scholar, gives rise to the Druze saying, “We are born in
each other’s houses.”
The apparently ethereal nature of Druze spirituality—which, again, the
vast majority of Druze know little or nothing about—is 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 agility—both 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 opportunistic—a 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 region’s 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 wasn’t until after the war that Jumblatt made his peace with the
Maronites. He and Samir Geagea, head of the Christian militia that
Jumblatt’s 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 Napoleon’s 1798
conquest of Egypt, Europe was mad for all things Oriental and the Druze’s
esoteric wisdom—seemingly bred from a mixture of Ismailism, a heterodox branch of Shiism, as well as Sufism and Gnosticism—was appealingly exotic.

118

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war, became two of the cornerstones of Lebanon’s 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, Jumblatt’s turnaround—from Syrian ally to opposition leader, from a Soviet client in the 1980s to a friend of the Bush White
House a decade ago—was evidence of an almost deranged opportunism.

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119

To the Druze it all made perfect sense. They are by necessity opportunistic—a small minority that must bend with the wind or be broken by it.
Israel’s 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
state’s proudest citizens, fiercest warriors, and most active politicians. Syria’s Druze community has also subscribed to the power of the state—taking Assad’s 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 country’s 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 region’s 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 Assad’s 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 Syria’s 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 [Syria’s Sunni] majority in
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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 days—not about the
dangers facing his Druze, especially in the midst of the Syrian conflict. I
e-mailed him that Clooney’s engagement seems a golden opportunity.
Here’s 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
800.888.4741 or visit www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

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,
Russia’s 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.

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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 Europe’s 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 Putin’s tenure, the United States and
NATO have been vilified as Russia’s enemy number one. (Remember that
Mitt Romney was scorned for returning the favor.) Clearly Russia will not
assist us in the world’s trouble spots. In Syria and Iran, Russia has made
things worse rather than better.
Putin’s 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. Ukraine’s 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 Putin’s “information technologists,” and they are effective. Authoritative Levada Institute polls show a

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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 100–11 vote of the United Nations General Assembly condemning Russia’s annexation of Crimea. The UN Human Rights
Commission’s 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 communiqué of June 4 also did not mince words: “We are united in condemning the Russian federation’s continuing violation of the sovereignty and
territorial integrity of Ukraine. Russia’s 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.

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© 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

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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 “people’s 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 people’s
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 OSCE’s intense lobbying for round-table negotiations in the
vain hope of freeing themselves of their eventual obligation to pitch in on
Ukraine’s behalf. The only viable solution—a military one—cannot 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 Putin’s
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 Russia’s return to great-power

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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 let’s 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, Ukraine’s 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 Russia’s 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 Böell 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.

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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 Spence’s
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 University’s 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.

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teen former planning ministers, finance ministers, and business leaders
to join the group—but only two economists: the Nobel laureate Robert
M. Solow, who “probably knew more than anyone else about growth,” he
said, “and me, who didn’t.”
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 government’s key planning and economic officials
and conducted what those officials have called an unprecedented study of
China’s development challenge.
While Spence has come away impressed with how “curious and open”
Chinese officials are, he also doesn’t mince words about how serious China’s 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 they’ll 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 Tigers—South Korea and Taiwan and
the city-states of Singapore and Hong Kong—have 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

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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 Spence—and 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
China’s 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
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global demand deficit that Spence worries about or China’s 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 doesn’t mean they will actually adopt it. Lots of Chinese are
saying, “we’ll believe it when we see it,” Spence said with a sigh. China’s
eleventh Five Year Plan (2006–10) 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
Chinese—it’s a very inclusive concept—they 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 hasn’t 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

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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 doesn’t mean they will actually adopt it.

The traditional Chinese alternative has been “a rather small civil service surrounding the emperor,” he says. “It’s 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 Chinese—it’s a very inclusive concept—they
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.

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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. Lee’s
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: “It’s 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 Reagan’s election as Reagan’s election was from D-Day.” It’s time
to get over Ronald Reagan?
Lee: Certainly not over him. It’s 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 Reagan’s
election as Reagan’s 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 no—no 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 don’t want.
That’s 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
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dence—fourteen 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 don’t want. But we also have to
start having our Philadelphia moments too, and that’s 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: It’s important to do that, and it will continue to be important to do
that. But it’s not enough. We have to do more. In addition to protesting
against the kind of government we don’t 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 conservatism’s bedrock principles into new
and innovative policy reforms.” That’s what you’re 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 agenda—a reform agenda—and
that’s 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
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© CQ Roll Call/Bill Clark

tion and sclerosis—a crisis that comes down to a shortage of opportunities.” So, before you figure out the reforms, you define the problem, and
it’s overwhelmingly an economic problem in your view.
Lee: Yes. It’s 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 people—whenever they find that they’ve achieved a little bit of additional income, if
they’re ever able to get to that point in the first place—they find that once
they have that additional income it’s 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 problem—also created by government—in that you’ve 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, they’re willing to pull up the ladder behind them, making it
more difficult for others to get to where they’ve 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, we’re talking about conservative reform
here. Among the specific pieces of legislation you’ve 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 you’re offering reforms that you yourself consider quite modest. Here’s 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,
they’re 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 “Lee’s
proposals are more interesting and more promising than almost anything Republicans campaigned on in 2012.”

Lee: Look, if you’ve got an elephant and you want to eat that elephant,
you can’t swallow the elephant all at once. You’ve got to take a bite
at a time. We can do that in a way that still shows our bold colors as
conservatives. It doesn’t 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 that’s why it’s important to
do this.
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from the shoulders of all, and thus provide for a fair start in the race of
life, and that’s really what we’re trying to do. Here, many of these artificial weights are placed on the shoulders of Americans by the federal
government. We’re 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,
it’s a good start.
Robinson: So you’re 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 you’re 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, that’s fair to say.
Robinson: But you’re 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 today’s reform conservatism with a Reagan agenda. Here’s
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
agenda—tax cuts, rolling back legislation—that launched a quarter of
a century of economic growth. It’s 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, you’ve
got to take it bite by bite. But put all of this together and I don’t see that
it’s enough for conservatives to run on in 2016. There’s 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 what’s missing here? You’re saying: this
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is what I, as one member of the US Senate have attempted to offer; let’s
keep talking; we as conservatives need to continue the conversation. Is
that what you’re 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. It’s a good start and we’re still moving forward with a lot more,
but just as important, what we’re trying to do here is connect a consistent thread of conservative thought through all of these proposals and
the other proposals that will follow—the others that have not yet been
introduced—to 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. That’s what Reagan did so effectively, and that’s what
set in motion the sequence of events that led to the greatest economic
recovery that we’ve seen in recent memory. That’s 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 Lee’s message to conservatives is not that it’s all that
simple, but here are a few pieces of legislation—more to follow—this 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 don’t 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 one’s conscience and on the other hand winning
elections. Good policy leads to good politics, especially if you’re consistent
in the reasons for your voting pattern. So I don’t think it’s a good idea for
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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
it’s the tea party versus the establishment?
Lee: Well, we can’t take it too far. There will frequently be a gap between a
party’s 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. That’s
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 Obama’s
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
it’s a question of responding to Obama’s agenda, that divide will persist.
Is that the argument?
Lee: Yes, that’s 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; it’ll just be filled with a lot of contention within
the party that won’t necessarily be good for the party. I’m trying to fill it
with something that’s 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 it’s over 30
percent, among Hispanics more than 50 percent, and among African140

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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 it’s
causing a lot of these problems, where it’s making more severe a lot of
these societal problems—problems that relate to the family structure and
so forth—where it’s holding people in poverty, where it’s 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 it’s necessary for it to be smaller, but
that doesn’t 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 we’ve got a better than even chance of gaining at least
six seats in the US Senate this November. Obviously we’ve still got a long
time before that happens, so it’s too early to call, but we’ve got a lot of
red-state Democrats who are up for re-election. We’ve got a few other

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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 Cotton—Harvard 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, couldn’t it?
Lee: It could be. Tom Cotton is a very exciting candidate. He’s 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 I’m really
excited about, a younger American who’s running for the US Senate, and I
frankly expect that he will win and that he’ll be a great colleague.
Robinson: So you could have fun?
Lee: Absolutely.
Robinson: Mike Lee, junior senator from Utah, thank you.
Lee: Thank you.

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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 isn’t 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.” That’s 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 Institution’s Regulation and
the Rule of Law Initiative. He is the Henry Kaufman Professor of Financial Institutions at the Columbia University Graduate School of Business and a professor
at Columbia’s School of International and Public Affairs. Stephen H. Haber
is the Peter and Helen Bing Senior Fellow at the Hoover Institution; director of
Hoover’s Working Group on Intellectual Property, Innovation, and Prosperity;
and the A. A. and Jeanne Welch Milligan Professor in the School of Humanities
and Sciences at Stanford University. Kathryn Jean Lopez is editor at large of
National Review Online.

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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 parties—a game, as it were—
and those strategic interactions can produce unlikely alliances that work
against the interests of society as a whole.
Let’s 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
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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 Freddie’s 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. It’s not
that Canadian bankers are more innovative or brighter than American
bankers. The political rules of the game, defined by Canada’s constitution and under which Canadian banks operate, are and always have been

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Illustration by Taylor Jones for the Hoover Digest.

much more conducive to stability, competitiveness, and efficiency. It is
not just that Canada’s 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

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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,
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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 loss—but 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

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149

to say, they should not simply rely upon the statements of bankers and
regulators in seeking the answers.
Lopez: You’re both fathers of daughters; what’s 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 don’t 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 face—most 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 realities—which the prior generation irresponsibly ignored—that 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. Britain’s low growth and high inflation became intolerable.
Thatcher’s 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 don’t 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: What’s 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
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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 government’s 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 government’s 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 hook—but 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.

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151

VAL U ES

The “Fairness” Fallacy
Wait for perfect fairness in life and you’ll wait forever. But that
doesn’t 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 don’t
rise have been stopped by “barriers” created by “society.”
When statistics show that sons of high school dropouts don’t 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 together—people of every race, color, creed,
national origin, political ideology, and sexual preference—and 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 York’s Lower East Side.
Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public
Policy at the Hoover Institution.

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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
aspirations—unless 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 people’s
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.

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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 people’s 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
order, call 800.888.4741 or visit www.hooverpress.org.

154

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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 deficit—that is the amount being added to the national debt every
year. It’s the age-old government ploy to claim bragging rights for spending reductions when, in fact, there’s 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 when
our presidents spoke of government debt in moral terms, with Calvin
Coolidge in the 1920s referring to “carelessness” in the “expenditure of
public money” as a “condition characteristic of undeveloped people, or of
a decadent generation.” And Coolidge—nicknamed “The Great Refrainer” by recent biographer Amity Shlaes—did something about it, lowering
the postwar debt from $22.3 billion in 1923 to $16.9 billion in 1929
by meeting with his budget director almost weekly, cutting government
David Davenport is counselor to the director and a research fellow at the
Hoover Institution.

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spending wherever he could. President Herbert Hoover at first tried to
hold down spending in the late Twenties and early Thirties, finally giving
in to less austerity and more stimulus spending in the face of the Great
Depression. Still, Hoover famously said, “Blessed are the young, for they
shall inherit the national debt.”
Somehow much of our national thinking has evolved to the point
where we think of debt less as a moral or even a financial obligation and
more as a mere instrument or tool of economic policy. Debt is one more
knob we turn toward “open” as a countercyclical tool of fiscal policy when
the economy is slow, not fully appreciating its long-term consequences. As
one of my Italian colleagues pointed out in the height of the recent worldwide recession, the big difference between the Italians and Americans now
is that you can still print money, and your politicians are busy doing that,
by issuing more currency and building more debt. But we can no longer
print lira, he added; we have to wait for Germany to decide whether to
print more euros.
There was a time when our presidents spoke of government debt in
moral terms.

Is it really true that government debt should be viewed now as a mere
tool of economic policy, rather than a moral or financial obligation to
be repaid? I think not. For one thing, other countries (especially China)
own a good deal of our debt instruments and they will expect ongoing
repayment. Indeed, though our projected debt-to-GDP ratios are still well
below those of Greece and other marginal economies, that could eventually become a concern to our trading partners. As former chairman of the
Joint Chiefs of Staff Mike Mullen pointed out, “the single biggest threat
to our national security is our debt,” with former defense chief Robert
Gates adding, “at some point, financial insolvency at home will turn into
strategic insolvency abroad.”
There is also the moral question of transferring obligations from one
generation to the next. It would be a far more appropriate use of debt to
spend on long-term infrastructure projects, from which capital growth
and multigenerational benefits might arise. But in fact, the United States
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is using debt to finance short-term spending (Social Security and Medicare payments, for example) that should be covered on a pay-as-you-go
basis through taxes. Is it right to simply shift forward the year-to-year costs
of one generation to the next?
Debt is one more knob we twist open when the economy is slow.

In his book Debt: The First 5,000 Years, author David Graeber wrestles
with a woman’s simple yet profound conversational comment: “Surely one
has to pay one’s debts.” It is, as Graeber points out, not just an economic
statement, but a moral one. Or, as George Washington put it, such debts
“ungenerously throw upon posterity the burden which we ourselves ought
to bear.” Before we blithely redefine the moral and financial obligations of
government debt to become just another instrument in the economic
toolkit, one must consider all the implications of debt: financial, moral,
generational, diplomatic, and strategic.
Special to the Hoover Digest.

Forthcoming from the Hoover Institution Press is Ronald
Reagan: Decisions of Greatness, by Martin and Annelise
Anderson. To order, call 800.888.4741 or visit www.
hooverpress.org.

Hoover Digest  N  2014 · No. 4

157

VAL U ES

Who Will Speak?
Today, Salman Rushdie lives in freedom. But the spirit of the fatwa—
and the censor—has only grown stronger. By Timothy Garton Ash.

Twenty-five years ago, four big things happened that still shape our world.
The Berlin Wall came down, and with it the empire that Vladimir Putin
would love to restore. The Tiananmen Square massacre launched China
on a completely different trajectory, which has made it what it is today.
A then little-known British boffin called Tim Berners-Lee invented what
would become the World Wide Web. And Ayatollah Khomeini delivered
his fatwa on Salman Rushdie.
Last spring I sat down with Rushdie in New York, at the American
PEN World Voices festival, to discuss the consequences of those events
for freedom of expression around the world. I asked him how he had
experienced the velvet revolutions of 1989 and where he had been when
the wall came down. He could not exactly remember—some safe house,
presumably—and he confessed to having felt a tinge of envy at watching
others, including Nelson Mandela a few years later, walking to freedom
while he was still in durance vile.
There is no hint of that now. After the day’s events, we wandered out
on to the streets of New York, with a gaggle of other writers, and Salman
stood on the corner of Cooper Square, hailing a cab. Who knows where
the taxi driver hailed from—Iran, perhaps? This normality of one writer’s
Timothy Garton Ash is a senior fellow at the Hoover Institution and the
Professor of European Studies, director of the European Studies Center, and Gerd
Bucerius Senior Research Fellow in Contemporary History, all at St. Antony’s
College, Oxford University.

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life, which for so long seemed an unattainable dream, is a victory. The
larger question is whether the struggle for free speech against fanatics and
oppressors of all kinds is moving in the right or wrong direction.
In Britain, and in Europe more generally, a majority of Muslims have,
one way or another, clearly accepted the basic rules of peaceful coexistence
in a liberal pluralist society. They no longer say, as a British Muslim called
Iqbal Sacranie did in 1989, while some of his co-religionists were burning copies of The Satanic Verses, that death might be “a bit too easy” for
Rushdie. One small symptom of this improvement was the mildness of
most British Muslim reactions to the 2007 award of a knighthood to the
novelist. (Rushdie recalls that the queen, after tapping him on the shoulder with the sword of honor, asked: “Are you still writing books?”) But
then Her Majesty—or rather, Tony Blair through her—had also knighted
that same Sacranie two years earlier. A very British solution: give ’em both
a knighthood.
Salman Rushdie stood on the corner, hailing a cab. Who knows where the
taxi driver hailed from—Iran, perhaps?

The serious point stands: in Britain, as in many other European countries, the overall evolution among the great majority of Muslims has been
towards an acceptance of, and even an active support for, freedom of
expression, which necessarily includes the right (though not a duty) to
offend.
On the other hand, Rushdie argued—and some careful research supports this view—that a small minority in these European Muslim communities is still being dangerously radicalized. And self-censorship out of
fear keeps gnawing away at the edges of Western cultural life, whether in
universities, publishing, or theatre. The satirical musical The Book of Mormon continues to delight audiences. No one seems to be planning a sequel
called The Book of Muhammad.
In many majority-Muslim states, the constraints on freedom of expression remain horrendous. Saudi Arabia has issued new laws this year that
treat atheists as being on a par with terrorists. On the day of our event,
the New York Times carried a report about Alexander Aan, who served

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more than nineteen months in prison in Indonesia on a charge of inciting
religious hatred. His crime? Simply declaring himself online to be an atheist. As worrying: previously more secular swing states such as Turkey have
been moving the wrong way.
Such intimidation is by no means a Muslim monopoly. We went on
to talk about India, Rushdie’s native land, where Penguin India recently
withdrew an alternative history of the Hindus by the respected US scholar
Wendy Doniger, under pressure from a Hindu protest group led by a
former schoolmaster.
M. F. Husain, arguably the country’s greatest modern painter, died in
exile after fierce attacks on his irreverent, modernist depictions of Hindu
deities. The situation seems likely to get worse. Meanwhile, across the border in Burma it is people who call themselves Buddhists who have been
lynching Muslim Rohingya.
In many majority-Muslim states, the constraints on freedom of expression
remain horrendous. But such intimidation is by no means a Muslim
monopoly.

© ZUMAPRESS.com/Erik Lesser

In China, the post-1989 system has produced both what will soon be
the largest economy in the world and what is already the largest censorship apparatus in the world. But whereas elsewhere religious power-holders persecute atheists and people of other faiths, in China the Communist
Party-state goes after anyone who tries to organize along religious lines
without its approval, be they Christians or Falun Gong. (Privatized spirituality is fine, and sought by many party apparatchiks.)
SPEAK UP: An artistic representation of author Salman Rushdie gazes
down at one of his old computers at the Woodruff Library at Emory University in Atlanta, Georgia, where Rushdie donated his papers. Rushdie,
who spent years in hiding, now lives a normal life and many Muslims in
the West have endorsed the idea of civic tolerance. In many other parts of
the world, however, constraints on freedom of speech remain severe.

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One reason the Chinese censorship apparatus is so vast is that there is simply much more “speech” to be monitored than there was twenty-five years
ago, because of the Internet. WeChat, the Chinese equivalent of WhatsApp,
has well over 300 million users. The winner of this year’s American PEN
digital freedom award, Twitter’s CEO Dick Costolo, reminded us that it
hosts more than 500 million tweets a day. This is a huge quantitative gain
for free speech, but it brings its own dangers. It is not just authoritarian
regimes that abuse the Internet as a tool for mass surveillance.
A PEN survey of American writers found them not only worried about
the NSA surveillance revealed by Edward Snowden but also, in some cases, feeling the need to self-censor as a result. In other words, it has had a
chilling effect.
“As to the battle over The Satanic Verses,” Rushdie wrote in his memoir
Joseph Anton, published in 2012, “it was still hard to say if it was ending in
victory or defeat.” The same may be said of the consequences of those four
giant events of 1989. But that is the way with the battle for free speech—
never entirely lost, never conclusively won.
Reprinted by permission. © 2014 Guardian News and Media Ltd. All rights reserved.

New from the Hoover Institution Press is In Retreat:
America’s Withdrawal from the Middle East, by Russell
A. Berman. To order, call 800.888.4741 or visit www.
hooverpress.org.

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IN M E M O R I AM : F O U AD AJ AM I

“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.

Editor’s note: In this excerpt from his final book, In This Arab Time: The
Pursuit of Deliverance, the late Hoover senior fellow Fouad Ajami reflects on
the world he left behind and to which he felt compelled to return.
An astute student of the Arab world reviewing my most recent book, The
Syrian Rebellion, wrote that after years of “judgmental aloofness toward
the Arab world,” I had “finally managed to get into, rather than under, the
skin” of my protagonists. The reviewer was John Waterbury. He had spent
years in Egypt, he had presided over the American University of Beirut.
He had a long trail in Arab studies, coming to the Arab world through
immersion in Moroccan affairs. He learned and mastered the language,
and in a field filled with acrimonies of all kinds he had managed to stay
above the fray and the feuds. His work was always cool and cerebral; he
was the sympathetic outsider.
I could claim no such legacy. I was born in Lebanon and grew up in
Beirut in the 1950s and early 1960s. I left for the United States in my late
teens. The Arab world was no disinterested field of study for me. In truth,
I never intended to write about Arab affairs. When I quit Lebanon, I knew
I would never return.
Fouad Ajami was a senior fellow at the Hoover Institution and co-chair of Hoover’s
Herbert and Jane Dwight Working Group on Islamism and the International Order.

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We had a legend in our small country: all those who packed up and
gave up on the place swore that their sojourn abroad would be brief. The
academic degrees completed in America, or the fortune scraped together
in West Africa, the traveler would return. A house of stone would be built
in the ancestral village, a parliamentary seat would be secured, the right
bride from the proper family would be found. The time away, the foreign interlude, would be forgotten. Our country—suffocatingly small, its
people filled with dreams and ambitions the country could not sustain—
insisted on the myth of its completeness. Our elders and ancestors beheld
the foreign world with condescension and indifference.
“When I quit Lebanon, I knew I would never return.”

My grandfather, Shaykh Mohamed Ajami, a tobacco grower, a man of
our ancestral village in southern Lebanon, had once known adventure. He
had gone to South America, he had lived in Montevideo and fathered a
daughter there. It must have been in the years of the Great War. He came
back, married the woman who would be my grandmother, said very little
about his time in South America. We didn’t know where Montevideo was;
that kind of curiosity was not part of the world of our elders.
In quitting Lebanon, I was eager to be released from its hold. I was
not alone. My peers, my older brother, also scrambling for an “I-20”
form, a student visa from the American Embassy, had come into greater
awareness of things. We approached the embassy with awe. Its officials
with crew cuts, narrow ties, and white short-sleeve shirts were the emissaries of a distant, glamorous power. These men held the key to a magical world. I can’t imagine what they thought of us—eager petitioners in
pursuit of an escape from our country. We knew that our country was
small, a gossipy place where people eyed and circled one another. In
that passage to America I never thought I would become a chronicler of
Arab woes. I became an academic, and bigger subjects, I insisted, would
beckon me. I needed the distance from the Arab world, and I found it
in a field that sounded reassuringly antiseptic and large: international
relations. I found shelter in the material, and the distance from the Arab
world was healing.
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Air travel was different then, more forbidding. A dozen years after
my departure I would return for a summer in Lebanon. I had missed
so much of my family’s life: there had been marriages, new children,
and deaths aplenty. My beloved grandfather had died two or three years
earlier. He had been my solace and protector when so much around me
had given way. He had been a man stoical, unperturbed by the tumult
of our family. In his younger years, perhaps after his South American
interlude, he went to the Shia holy city of Najaf, in Iraq. His mother,
a strong-willed widow who had married a Persian who had come into
that hill country from the city of Tabriz, had wanted him to become a
religious scholar. He indulged her, but the life of the seminaries was not
for him. The students, the talabeh, were wretchedly poor, and the arid
curriculum could not hold him. My grandfather had deep reservoirs of
religious skepticism. He honored the traditional world—he built a small
mosque in his village, and a Husseiniyya, a place of religious observance,
named after Imam Hussein, the iconic figure of Shi’ism. But he knew
the old world was giving way.
“The author who wrote The Arab Predicament was, in part, writing of the
unmaking of a dream he once shared.”

With my grandfather’s death, I had no mooring in the old country. It
could make no claims on me. Yet there came a time, in the late 1970s,
when the Arab world began to tug at me. Its material became my abiding
concern. I had escaped the Shia world—its hurts and lamentations—but
I would find myself writing of the life of a celebrated Shia cleric, Imam
Musa al-Sadr, who had come to Lebanon from his birthplace in Iran,
transformed and reinterpreted Lebanese Shi’ism, and disappeared in Libya in the summer of 1978, a victim of foul play by Muammar Gadhafi.
The rich life he led, and the mystery of his disappearance, hooked me.
The book I wrote forced me into a deeper encounter with Shi’ism and its
history of grief and disinheritance.
Shi’ism had contained and anchored the life of my mother, and I
had been nearly neurotic in my determination to wash myself clean of
that heritage. That war against the past, though, failed. In the summer

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of 2006, my inquiries into Iraq took me to Najaf. I came to examine
and write about the American war in Iraq, but I had that older connection to the holy city. I could feel the presence of my grandfather, I could
understand why the place weighed on him and drove him away; he was a
restless man who loved his horses and excursions to Acre and Safad, and
the Syrian coast. It would be idle to pretend that this Iraqi world, and its
seminarians, were purely new to me.
“My grandfather had deep reservoirs of religious skepticism. He honored
the traditional world . . . but he knew the old world was giving way.”

I had written of Arab nationalism. My first book, The Arab Predicament (1981), defined me. The Arab intellectual class didn’t think much
of that book. The book had the requisite scholarly apparatus—after all,
it was my major entry into the academic guild. But Arab nationalism,
and the belief in that one Arab nation with an immortal mission—the
intellectual banner of that movement—was the sacred, unexamined
inheritance of two generation of Arabs. I had felt the pull and the call
of that idea in the mid-1950s, and had wept in the summer of 1967,
after the defeat of the Arab armies in the Six Days’ War. I can never
forget that day. I was in California, anxious to find summer work in the
canneries. I sat there, shell-shocked, with a couple of my Arab friends,
reading the papers and taking in the magnitude of the defeat that had
befallen the Arabs.
A decade earlier, as a young boy, I defied my elders and took a bus to
Damascus to catch a glimpse of the Egyptian leader Gamal Abdel Nasser. A union had been forged between Syria and Egypt, and Nasser had
cast his spell over politically conscious Arabs. The Syrians first pleaded
for the union and then plotted against it. The union was dissolved in
the end. But for one brief shining moment, the dream of Arab unity
seemed within reach. We could hardly catch a glimpse of the great man.
From a balcony he greeted the crowds, and the trip from Beirut seemed
all worthwhile. A nemesis awaited that dream, and in that catastrophic
summer of 1967—a mere nine years after that bus ride—there we were
taking in that defeat and its sorrow. The author who wrote The Arab
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Predicament was, in part, writing of the unmaking of a dream he once
shared.
For more than three decades, I would return to old memories and
associations and turn them into less-personal material. But unlike
the Arabists who honed their craft through academic preparation,
I fell through trapdoors into my own past. The reviewer who wrote
that I had been getting under the skin of the Arabs had it right. I
had broken with the orthodoxy of Arab nationalism: I had uttered,
in public and in English, truths about the Arab world that were to be
kept unnamed and unacknowledged. I no longer shared the fidelities
of the Arab intellectual class; I didn’t thrill to the passions of that
fabled “Arab street.” I did not partake of the Arab obsession with
the Palestinian question. The Arab exiles in the diaspora, in Western
Europe and North America, were passionate in their attachment to
the causes of the Arab world. Exile politics are like that, and unforgiving. In the writings of Joseph Conrad, I found this sublime reflection
on home and betrayal: “No charge of faithlessness ought to be lightly
uttered. . . . It would take too long to explain the intimate alliance
of contradictions which makes love itself wear at times the desperate
shape of betrayal.”
“The intimate alliance of contradictions . . . makes love itself wear at
times the desperate shape of betrayal.”

Over the past four decades, the world of the Arabs was laid bare. No
author could prettify it, or give away its old secrets. Violence overwhelmed
it; no ship of sorrow could take the Arabs to the verities and the world
they knew. The authors and their quarrels no longer mattered. The dictators and the strongmen who had been hailed and acclaimed wrought ruin
and grief in their wake. Arabs were the authors of their own demise.
Today in the Arab world I am (almost) a stranger. If the songs and
lyrics are old, I can recognize them. I know the writers and the poets of
the 1950s and 1960s, the bearers of a modernity that was our lodestar as
my generation came into its own. Beirut was not as brilliant, as worldly,
as the obituaries would make it after its fall. But it was our home, and

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TO THE FUTURE: Fouad Ajami plays with his granddaughter Leila. Born in
Lebanon, Ajami immigrated to the United States as a young man. “In that
passage to America I never thought I would become a chronicler of Arab
woes,” he wrote. “Yet there came a time, in the late 1970s, when the
Arab world began to tug at me. Its material became my abiding concern.”

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in its modern neighborhoods we could partake of the fragments that the
city jumbled together—pieces of America and of France, Arab nationalist
doctrines, an easy divide between the Muslim and the Christian neighborhoods. There was movement in our world: we were stepping out of the
world of our elders. They were not a forgiving lot, they insisted on obedience, and woe to those, particularly among the young women, who ran
afoul of them. The elders had to be humored, and tricked. A flamboyant
young girl who would in time go on to become a daring novelist wore her
headscarf in front of her parents, then stuffed it into her schoolbag when
she was safely outside her neighborhood.
“Over the past four decades, the world of the Arabs was laid bare.

Special to the Hoover Digest

No author could prettify it, or give away its old secrets.”

A new generation of Arab writers, Cairenes for the most part, was opening up our world, defying the old forms of expression and the worn-out
pieties.
I started The Arab Predicament with the tale of a Lebanese journalist,
Salim al-Lawzi, who had been found dead and mutilated in early March
1980 on the outskirts of Beirut. Lawzi was an outspoken critic of the Syrian regime of Hafez al-Assad, and his murder foreshadowed much greater
cruelties to come. This was still an Arab world easy to shock, and Lawzi’s
writing hand, disfigured by acid, was all that was needed to tell what this
crime was about. My account of the man’s death was something of an outline, I did not possess a fuller narrative of Lawzi’s life and the things that
led to his murder. I had what I needed then: an entry into the new culture
of dictatorship and cruelty.
In retrospect, Lawzi’s tale gave me a measure of daring. The Arab political world was coming apart—and how! A civil war that broke out in Lebanon in 1975 had grown in savagery. It was both a war among the Lebanese
and a war among the Arabs. Beirut was a garden without fences, an astute
Palestinian political operative said of the city that was, in its better days,
a center of Arab modernity. And there it was being claimed by religious
and sectarian atavisms. The atavisms were unleashed, embarrassed at first,
then with abandon. Indeed, the book I went on to write, meant to be an

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indictment of a political tradition, was outpaced by the realities descending on the Arabs. But I was justified in my sense that Lawzi’s murder was
the prelude to a new, more unforgiving time, for the Arabs.
© © ©
Salim al-Lawzi was part of my luck as an author. In the years that followed, the truths about the sectarianism of the Arab world that had been
papered over were laid bare. I held out scant hope for the Arabs’ political condition. The 1980s would make a mockery of what had been said
and taught in Arab political writings. “Arabism is love,” Michel Aflaq had
written. He said that in an infinitely more hopeful time when he and his
partner Salah al-Din al-Bitar, fresh from their years in Paris, could still
hope that the texts and ideas of modernity could overcome the sectarian
fault lines and phobias of that world.
“From one end of the Arab world to the other, old verities were undone.”

There had been violence in the Arab world before. Assassins had struck
down emirs and noted men of politics. Military seizures of power had
upended ruling regimes. One such coup, in Egypt in 1952, was a genteel
affair. A feeble monarch was sent into exile aboard his yacht, from his palace in Alexandria, and given the respect and decorum befitting a monarch.
Six years later, in Baghdad, on a summer day, the Hashemite monarchy was swept away without mercy—a boy king, Faisal II, and his family
were gunned down and the body of the regent dismembered and dragged
through the streets.
It hadn’t been pretty or safe, that Arab political condition. But it was
in the 1980s that the world of the Arabs succumbed to greater brutalities.
Politico-religious movements were not new—the Muslim Brotherhood
dates back to the late 1920s, and its secret apparatus was no stranger to
assassinations and foul play—but a new stridency came into the intersection of faith and politics. From one end of the Arab world to the other, old
verities were undone, surplus swept out of the way. Some attributed this
to a demographic explosion—newly urbanized young men jostling for a
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place in the world, their pride coming up against scarcity, clashing with
older generations who had fallen into things and acquired turf of their
own. For all our distress in the 1950s and 1960s, my generation of Arabs
could still hold on to the idea of progress and advancement. On the whole
we had a discreet and proper relation with Islam, the faith of our elders,
but secular and irreverent ideas held us and guided our lives. We paid the
men of religion scant attention; the mullahs who visited my family home
inspired no awe in me or my siblings and cousins. We had Baathists and
communists and Arab nationalists and self-avowed skeptics aplenty.
The generations to come would know no such ease or confidence. The
social peace was shattered, the cries of pain audible to all but those who
preferred to bury their heads in the sand.
I was lucky to escape. The New World gave me the opportunity to
write, and the safety. It would be my fate to return to the material of that
older world that I had quit—a world that would continue to tug at me in
my new surroundings.
Excerpted from In This Arab Time: The Pursuit of Deliverance, by Fouad Ajami (Hoover Institution Press,
2014). © 2014 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

New from the Hoover Institution Press is In this Arab
Time: The Pursuit of Deliverance, by Fouad Ajami. To
order, call 800.888.4741 or visit www.hooverpress.org.

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I N M EM ORIAM : F OUA D A JA MI

Fouad’s Gift
Farewell to a friend, a guide, and a storyteller of the Arab world’s
disorder. By Charles Hill.

Cut these words and they would bleed; they are vascular and alive; they
walk and run.
—Emerson

One dark December day I walked to the Union League on Chapel Street,
early for lunch with Fouad Ajami, who was taking the train up from Manhattan to New Haven. I settled in to look at a book while I waited for
his arrival; bright flames silently flickered in the fireplace; through the
high window Yale’s gray, stately Vanderbilt Hall loomed across the way. A
half-hour passed as other diners arrived to fill the room. Then forty-five
minutes. I craned my neck to survey the place. There was Fouad, alone at
a table on the far side, happily holding a book; he had been there all along,
coming in well ahead of me.
This is not the way we usually thought of Fouad: far more likely for
him to be standing at a lectern, or on a television panel, or in seemingly
constant travel, or animated discussions with friends and adversaries alike.
Here at the Union League I could see that he was not reading that book, he
was thinking. He possessed a perpetual energy of mind; he was, as Emerson hoped for, “man thinking,” always in the sense of thinking as acting.
Charles Hill is a research fellow at the Hoover Institution and chairman of Hoover’s
Herbert and Jane Dwight Working Group on Islamism and the International Order.
He is the Brady-Johnson Distinguished Fellow in Grand Strategy, the senior lecturer
in international studies, and the senior lecturer in humanities at Yale University.

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That is why that scene in the Union League made an impression. Fouad
resembled some erudite but intrepid Victorian-era gentleman contentedly
at ease in his club chair yet poised to be off in a trice to the hellholes of the
earth to accumulate the knowledge that civilization most needs to know.
When we first met, Fouad and I were both college teachers. But Fouad
had many more dimensions than I. Every time, and it was often, that we
talked about his role in the university and I in mine, it was clear that he
felt hemmed in by the four walls of the seminar room. One fall semester
he invited me to join him in teaching his class at the Johns Hopkins University School of Advanced International Studies in Washington. He was
a transcendent teacher, vitally exuberant, a challenging, loving mentor,
clearly adored by his students. But he always had an audience of larger
demographic magnitude on his mind, an American, Middle Eastern, and
world population. He would soon give up his professorship to take up
full time his veritable vocation. Which was what? We have no entirely apt
label for it. Like Emerson, he invented a career for himself alone.
Fouad was, in Emerson’s phrase, “man thinking,” always in the sense of
thinking as acting.

We can say that Fouad Ajami was the foremost example in our time of
the lineage of intellectual-moral, thinker-travelers who from ancient times
onward have illuminated the human condition and, as great writers and
transfixing speakers, drawn lessons from it for us to contemplate and act
upon. Yet even knowing this much about him, Fouad’s true significance
has yet to be understood.
Fouad and his philosophical-historical forebears took on the simplest yet
most perplexing challenge: what is going on, and why? The peoples of the
world have organized themselves in ways multifarious beyond number. How
are these differing systems and their cultures by which they define themselves structured, and why does it matter? Can such diversity ever interact
coherently, productively, and peacefully? Is one as good as any other? Or can
we be judgmental and conclude that some, or one, is preferable?
Fouad was naturally gifted in this role, and he educated and honed his
gifts incessantly: he was both an insider and an outsider wherever he went—

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SEER: “He could enter and express the innermost thoughts of the potentates and the impoverished alike. . . . No college ‘discipline,’ field, or
department was big enough to hold Fouad Ajami,” writes friend and
fellow Hoover scholar Charles Hill.

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except in his home village, but he knew that “you can’t go home again.” He
was an Arab with a family name that conveyed Persian-ness. He was a Shiite,
from a faith constructed on loss, relegation, and righteous victimization; as
a believer he was both reverential and skeptical. In appearance, voice, and
demeanor he seemed the epitome of all things Middle Eastern, yet he was
a non-hyphenated American patriot. He was poet, philosopher, statesman,
historian, bon vivant, and to his Jewish following a mensch.
Fouad and his forebears dared to ask whether the peoples of the world,
organized in ways multifarious beyond number, can ever interact

© ZUMAPRESS.com/Lucas Oleniuk

coherently, productively, and peacefully.

To each of his multiple roles and talents Fouad brought, again in Emersonian terms, perceptions viewed from an original angle to the universe.
As historian he exhausted himself in the collection, organization, and
interpretation of facts as numberless as the desert sands, yet he always
felt the forces of history within which facts traveled. As anthropologist he
could be at once one of the tribe studied yet a gimlet-eyed analyst of their
mores. A natural talent this was: as a reporter, dictators would welcome
him into their tents with majestic hospitality and see him on his way with
their thanks even as they knew full well he would not spare them in his
next published essay. He could enter and express the innermost thoughts
of the potentates and the impoverished alike.
In sum, no college “discipline,” field, or department was big enough
to hold Fouad Ajami; he knew that the world does not come at us in the
neatly wrapped packages of a time-slotted college syllabus; it comes all at
once, in all forms if not formless, and in a blur of time lines.
Fouad was not only an individual genius (the MacArthur Foundation
early on certified him as that) but also an organizer, manager, and editor,
professional occupations to which he brought what the military would
call “command presence” and which foundations could admire as “convening power.” Singlehandedly he invented a project to study the troubles
and possibilities of the Middle East through weaving together an unprecedented network of writers, activists, intellectuals, and former diplomats

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from across the Middle East: Sunni, Shia, Jewish, Christian, Arab, Persian,
Turk, male and female, in an amazing parade of ideas and interpretations
all made possible by the vast generosity and wise counsel of Herbert and
Jane Dwight through their working group on Islamism and the International Order centered at the Hoover Institution.
Fouad Ajami’s own voluminous corpus of writings has yet to be fully
studied, comprehended, and assessed as a whole. In it will be found not
only the novelists, terrorists, tyrants, states and revolutions, grandeurs and
grotesqueries of the globe’s Arab-Islamic swath but also a window on human
nature itself. Doctoral dissertations of the future will find philosophical,
material, and cultural profundities of lasting consequence in such masterpieces as The Arab Predicament and The Dream Palace of the Arabs.
He knew that the world does not come at us in the neatly wrapped
packages of a college syllabus. It comes all at once, in a blur.

Fouad’s unprecedented prose style, substance-packed, is not just for
Arabists or those concerned with the chaotic course of foreign policy and
world affairs. It is a lasting artistic contribution to understanding the matter, meaning, and direction of world history as a whole. And here is where
we can track his lineage:
Like Herodotus, he traveled ceaselessly to gather the stories that peoples
tell themselves about themselves, stories that give shape to politics and
cultures. Like Herodotus, Ajami’s descriptions are brilliantly quirky, as he
puts unusual words in unexpected places to convey an original perception.
As in Tacitus’s annals of Nero’s Rome, Ajami understood the power of
rumor and gossip in the courts of power (Fouad himself was a delightful
and profligate purveyor of gossip about the powerful figures of our time).
Like Tacitus, Fouad’s style was ironic, a sophisticated way of forging a bond
between writer and reader to the exclusion of others who “just don’t get it.”
With Edward Gibbon in The Decline and Fall of the Roman Empire
Ajami recognized that the intelligible field of study may have to be imperial in scale; that the ghosts of Arab empires haunt our own era. And in a
Gibbonian way, Fouad’s writing shows an awesome ability to organize and
master massive amounts of evidence and source materials.
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And like Tocqueville, Ajami knew in his bones that freedom is the force of
history of potentially monumental significance—albeit a force that could be
halted or set back by the enemies of freedom. He was, therefore, an instantaneous champion of the original Arab Spring demonstrations, the young
people who took their lives in their hands when they ventured into the city
squares encircled by the regime’s armed forces. He was anguished when this
new generation, untainted by the old military, Islamist, or autocratic bosses,
was so swiftly muscled aside, many to suffer awful consequences.
He was anguished when the Arab Spring generation, untainted by the old
military, Islamist, or autocratic bosses, was so swiftly muscled aside.

As the West has been insightfully designated “Faustian” and the Arab world
“Magian,” Fouad was the latter’s Magus, the modern embodiment of the wise
man and seer from the time of the ancient Medes and Persians to today’s notso-Fertile Crescent. He saw, with unparalleled clarity, that today’s Arab-Islamic
realm may be a case of what Spengler called “pseudomorphosis,” a set of thin
surface-level societies sitting atop not only the lower layer of seventh-century
Islam but also an even deeper stratum of suppressed geological-cultural power
that one day, and perhaps that day has just dawned, will erupt in violence to
first devastate and subsequently liberate the region to enable it to take a productive role in the history of the world to come.
What is so magical about this our Magus is that such heavy and consequential thinking has been given to us by this charmed and charming,
magisterial and merry exemplar of the gracious best in the human spirit,
Fouad Ajami.
From the Foreword of In This Arab Time: The Pursuit of Deliverance, by Fouad Ajami (Hoover Institution
Press, 2014). © 2014 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.
Available from the Hoover Institution Press is Trial
of a Thousand Years: World Order and Islamism, by
Charles Hill. To order, call 800.888.4741 or visit www.
hooverpress.org.

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H I S TORY AND C ULTURE

Who’s Number One?
Does It Matter?
Country rankings are being twisted to tell all kinds of stories—but
rarely the story of how America meets its challenges. By Victor
Davis Hanson.

There’s a pastime among liberal pundits to cry that the United States
lags its major industrial competitors in things like “Internet access”
and “ecosystem sustainability.” The subtext of these rants is that an
illiberal, reactionary United States spends too little on government
entitlements to promote parity, equality, and social justice among its
people. These pessimistic rankings increase the angst about the American condition when viewed from scowling perches in Washington or
New York.
Not surprising, the winners in these periodic gloomy assessments are
usually smaller or intermediate quasi-socialist nations, with mostly homogeneous ethnic and religious populations (for example, Switzerland, New
Zealand, Iceland, or Denmark). Americans are then scolded to tone down
their pride at being exceptional and to begin emulating such supposedly
more livable societies.
Yet I suppose that if you were to assess, say, a few million mostly well
off Californians who lived within ten miles of the coast, from San Diego
to Berkeley, they would compare quite nicely with Denmark. Or, for that
Victor Davis Hanson is the Martin and Illie Anderson Senior Fellow at the
Hoover Institution and the chair of Hoover’s Working Group on the Role of Military History in Contemporary Conflict.

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matter, should the Danish system be applied to three hundred million
people in Eastern Europe and the Balkans, I think they would sink a bit
in terms of social progress.

P A Y I N G F OR O TH E R S’ SAFE TY
The criteria by which America is judged are often biased and historically ignorant. Why not rank the United States in comparison with other
similarly huge countries that span multiple time zones and include in
their enormous populations radically different ethnic and religious
groups?
How about comparing America to countries that, like the United
States, have vast territories and diverse populations of over two hundred
million—China, India, Indonesia, and Brazil? How would such nations
stack up to the United States in terms of corruption, health care, pollution, freedom of the individual, treatment of women and gays, religious
tolerance, or other criteria of “social progress”? Is there a global assessment of coups and revolutions per nation, or contrarily, the longestsustained democracy?
If Russia goes into Estonia, it will not be the Dutch or Danish army that is
called upon to ask Putin to leave.

Most such rankings rely on statistics that rarely weigh in factors that
non-elites take for granted. How about the number of cars an average
household owns, the relative percentage of the household budget spent
on food, the price of gas that allows them mobility, the average square
footage of living space, or the number of electronic appurtenances that
make life easier and enjoyable, such as microwaves or televisions? In all
such categories, the United States ranks at or among the top nations
in the world. I suppose those in Manhattan or at Harvard would not
interpret as progress the fact that a poor Mexican illegal immigrant can
buy a used Yukon relatively cheaply and fuel it with $3.50-a-gallon gasoline. But in terms of global assessment, he still has a safer, roomier,
and cheaper vehicle than the French or Italian driver of a tiny Fiat that
requires $9-a-gallon fuel.

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179

Illustration by Taylor Jones for the Hoover Digest.

Nor do such pessimistic assessments consider intangibles such as global
politics. Globalization itself is a product of US innovation and technology
and the US military. The latter not only subsidizes the safety of the European Union and many of China’s immediate neighbors, but also generally
has kept the Western world safe and the global sea lanes and methods of
commerce and communication free from disruption. That was not cheap,
which is why the European Union, for all its advocacy, does not attempt
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it. If Russia goes into Estonia, it will not be the Dutch or Danish army
that is called upon to ask Putin to leave.
The United States created the landscape that not only allowed, for
example, a South Korea, Japan, or Germany to thrive over the past seventy
years without substantial military investments but also allows such countries—among them also Australia, Canada, Taiwan, and much of Europe
itself—not to worry about developing a nuclear deterrent and the costly
and risky politics that would entail. Should we retreat from the world
stage, in the next twenty years we might appreciate differences in the
“social progress index” of a Japan, South Korea, or Taiwan—or, for that
matter, a Germany or Iceland that would have to vastly increase defense
spending to protect itself.
The criteria by which America is judged are often biased and historically
ignorant.

Homogenous South Korean eighth-graders may test higher in math
than do Americans, but then again, Americans are not looking up to the
skies to see whether a North Korean artillery shell or gas-laden missile is
on its way down. Nor are there thousands of South Koreans posted on our
shores to protect us from belligerent neighbors. Is there a global “security
anxiety” index?

D Y N A M IC S T ATE S AR E N’T MO NO CH R O ME
Speaking of social progress, the United States lets in the largest number
of legal and illegal immigrants in the world. Currently forty-five million or more residents were not born in the United States—a number
four times as large as in any other nation. Ethnic, religious, and cultural
homogeneity promotes some of the values (such as Internet access) that
social-progress indices usually value. On the other hand, one reason the
United States is volatile, influential, dynamic, and by far the most culturally influential society in the world is the number and variety of its
legal immigrants.
No one wants to move to Russia. Switzerland does not want any new
immigrants. France and Germany don’t quite know what to do with those
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already living in their countries. China and Japan could never consider an
African, Swedish, or Mexican immigrant fully Chinese or Japanese. The
Arab world would not let in Jews and in many places is driving out Christians. Building a large new church anywhere in the Islamic world is for all
practical purposes impossible.
In short, people vote with their feet, and by huge margins prefer the
greater freedom, economic opportunity, and security of the United States,
not to mention its meritocracy that relies far less than elsewhere on class,
racial, tribal, or religious criteria. The United States, also unlike other
countries, does not put such a high value on education, capital, or skills in
assessing potential immigrants (family ties and presence on US soil are the
more influential criteria). The United States hosts between eleven million
and twenty million illegal immigrants. Naturally it has ongoing challenges
to provide near-instant parity to the millions who arrive here poor, uneducated, and without money.
To suggest that Americans are at fault because our health care or primary education system is somehow not up to Danish or Icelandic standards
is laughable when 13 percent of the US population is foreign born—probably far more, if we had accurate numbers of illegal aliens in the Southwest. The source of immigration also makes assimilation more difficult.
Switzerland became culturally and psychologically incapable of accepting
more immigrants even though would-be entrants are largely fellow Europeans. In contrast, most current immigrants to the United States arrive
from an impoverished Mexico or elsewhere in Latin America, not Canada,
and thus arrive with far greater disparities than other North American
citizens.
People vote with their feet, and by huge margins prefer the freedom,
opportunity, and security of the United States.

Assessments can be rigged any way you want if the point is to advance
preconceived ideological aims. Consider the relative price of food, fuel,
and cars, the number of air conditioners per capita, the global rankings of
universities, comparative population growth, the rate of and age at marriage, the ability to defend one’s nation without alliances and outside sub182

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sidies, the extent of religious observance, or rubrics about assimilation,
integration, and intermarriage of newcomers—all could be massaged to
make Europe look quite pathological. Then an observer could lament aristocratic bias, class impediments, ossified attitudes from defense to entrepreneurship, atheism, and the loss of freedom resulting from burdensome
regulations and high taxes.
In short, if you want to prove that the United States is not number one,
you can—but the proof will reflect the particular agenda you wish to
advance.
Reprinted from Victor Davis Hanson’s blog Works and Days (http://pajamasmedia.com/victordavishanson).

New from the Hoover Institution Press is Democracy’s
Dangers and Discontents: The Tyranny of the Majority
from the Greeks to Obama, by Bruce S. Thornton. To
order, call 800.888.4741 or visit www.hooverpress.org.

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183

H O O VER ARC HIVES

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.

The Cairo Summit was a turning point in modern China’s emergence onto
the world stage. Chiang Kai-shek and two of his wartime allies, President
Franklin D. Roosevelt and British Prime Minister Winston Churchill—
met to crystallize why they were fighting Imperial Japan and how postwar
Asia would be ruled. The Cairo Declaration of December 1, 1943, did
more than promise the return to China of all territories Japan had stolen,
notably Manchuria and Taiwan. As Chiang would write, “the whole world
treated Cairo as a huge and unprecedented victory for China.” For the
first time in more than a century, the leader of China was seen as an equal
to the leaders of the West.
It had been a signal year for the Nationalist government under Chiang.
Among the remarkable diplomatic achievements were treaties with the
United States, Britain, and many allied nations, all of which recognized
China’s contributions to the world war in progress; a speech by Madame
Chiang Kai-shek to the US House and Senate, appealing for aid in China’s struggle against Japanese aggression (she was both the first Chinese
national and the second woman to address both houses of Congress); and
finally, in October, an invitation to sign the joint Four-Nation DeclaraHsiao-ting Lin is curator of the East Asia Collection and a research fellow at
the Hoover Institution.

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tion in Moscow that pledged the continued fight against the Axis powers.
But the most impressive diplomatic achievement was the Cairo Summit.
A gap often exists between political image and reality, however. Research
into Chiang Kai-shek’s personal diaries and other personal papers, such
as those of T. V. Soong and Joseph Stilwell, all stored at the Hoover
Archives, allows us to reconsider several often-overlooked questions: What
did Chiang think about the summit and what was his initial reaction to
Roosevelt’s invitation? What was Chiang’s game plan before he arrived in
Cairo, and what topics did he want to bring to the table? What became
of Chiang’s own priorities during and after Cairo? And ultimately, what
impact did the summit have on China’s relations with the Allies—was it
in the end a triumph for Chiang or a defeat?
This article takes a closer look at these questions.

P RE L UD E T O A SU MMI T
By the middle of 1943, Roosevelt was warming to the idea of a meeting with
Chiang. There were pressing matters of morale, strategy, and cooperation.
Roosevelt and Churchill had met at Casablanca in January to discuss Allied
war strategy and issue a call for the Allies to seek an unconditional Axis
surrender. But neither Chiang nor his representative had been invited. In
the following months, both Madame Chiang and her brother T. V. Soong,
China’s foreign minister, began warning against omitting China from Allied
summits in Washington. In early June, Roosevelt asked Soong to invite
Chiang Kai-shek for a personal meeting, either in a Big Four summit (United States, Britain, China, and the Soviet Union) or a bilateral discussion.
Chiang chafed under what he perceived as unequal treatment by his
wartime allies.

Roosevelt certainly had reasons to meet with Chiang in 1943. After two
years of cooperation in war, China and the United States were involved in
disputes that needed to be resolved, including complaints from Nationalist leaders about unequal treatment by the Allies in such matters as lendlease aid and inter-Allied consultation on war plans, and friction between
Chiang and General Joseph Stilwell, Chiang’s American chief of staff.

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Poster Collection—Hoover Institution Archives

Meeting with Chiang, Roosevelt hoped, would allay tensions in SinoAmerican wartime cooperation and possibly pave the way for his meeting with Soviet leader Josef Stalin. At a more personal level, Roosevelt
felt a meeting with Chiang might bolster Chinese morale needed to keep
Chiang’s forces in the war against Japan.

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Supporting China as one of the Big Four also would serve US postwar
strategy in Asia: to oppose all forms of imperialism and favor a free, strong,
and democratic China as the predominant, stabilizing force in Asia.
In the end, was the Cairo Summit a triumph for Chiang or a defeat?

Churchill did not share Roosevelt’s vision of China’s role in postwar Asia,
nor was he interested in waging war in the China-Burma-India (CBI) theater. At the same time, the new South East Asia Command (SEAC) under
Admiral Lord Louis Mountbatten, created at the Allies’ Quebec Summit
in August (which had no Chinese representation), became a point of contention. The now British-dominated Southeast Asian theater overlapped
that of the CBI, under Chiang’s command.
According to official Chinese files, in the weeks following Quebec,
Soong and Roosevelt reached a consensus: Stilwell would be recalled from
the CBI; a new Combined Chiefs of Staff to include China would be created; and China would participate in the Burma counteroffensive. But
getting the heads of state together was not so easily settled. In early October, Roosevelt consented to meet with Chiang and the British in Cairo,
preferably with Stalin attending, too. According to Chiang’s personal diary, Roosevelt also seemed to hint that were Stalin to refuse to attend with
Chiang, he might meet the Soviet leader elsewhere beforehand. Chiang
bitterly concluded that there was no way for genuine cooperation to
emerge among America, Britain, and the Soviet Union.
Upon receiving Roosevelt’s message about a prospective meeting with
Chiang (and Churchill) in Egypt, Chiang wrote in his diary that he “really
had no intention” of accepting the invitation, but to “decline would be
disrespectful.” Chiang was equally concerned about the uncertainty over
UNITY: This poster, produced by the US government after the Cairo
Summit of 1943, emphasizes harmony among Chiang Kai-shek, Franklin
D. Roosevelt, and Winston Churchill about the aims of the war against
Japan. Behind the scenes, conflicting priorities created friction among
the Allies.

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187

Roosevelt’s meeting with Stalin. In the end, Stalin, concerned about the
reaction of both Japan (with whom the Soviets had a neutrality pact) and
the Chinese Communist Party, decided not to attend the Cairo Summit.
Therefore, two conferences were scheduled, one in Egypt attended by the
American, Chinese, and British leaders, and the other at Tehran, where
Stalin would meet with Roosevelt and Churchill.

WH A T W A S ON CH I ANG ’S MI ND ?
In the months before the summit, Chiang was ill at ease about attending.
For one thing, Chiang’s original idea had always been to meet solely with
Roosevelt to secure US military and economic assistance. For another, he
had had a change of heart over Stilwell. Chiang had decided to keep the
American, recognizing Stilwell’s solid connections with the US War Department and his new position as Mountbatten’s deputy in SEAC. Yet this
reversal deeply humiliated Soong, who had been working hard for Stilwell’s
recall in Washington. Furthermore, Chiang criticized Soong’s propensity
to make decisions without consulting Chongqing. As a result of this falling
out between the in-laws, the foreign minister was forced into seclusion in
Chongqing and was not involved in preparing Chiang for the summit.
Chiang believed he had been promised an all-out Allied effort to reopen
communications through Burma.

Despite his hesitation, on November 2 Chiang officially accepted Roosevelt’s invitation. Up to now, only a week before his departure for Cairo,
Chiang had not placed the Allied counteroffensive in Burma as a top priority at the summit—a decision that would have major consequences.
Perhaps Chiang thought the issue had been thoroughly discussed and
a consensus reached in Chongqing in mid-October among Mountbatten,
Stilwell, and many other high-ranking officers. The generalissimo and the
British admiral had worked out a sound plan to recover Burma: the British
would provide major naval and amphibious operations in Lower Burma
to ensure Allied supremacy in the Bay of Bengal (Operation Buccaneer);
and Chiang would provide some fifty thousand ground forces, which, like
the Chinese X (India) and Y (Yunnan) forces of 137,000 in total, would
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be commanded by the British to counterattack Upper Burma from Ledo,
India, and China’s Yunnan province in a campaign called Operation Tarzan. The goal of Tarzan was to reopen the route between India and China. Both sides agreed that some time between January and March 1944
would be the time to launch the campaign, whose ultimate goal would be
to recapture all of Burma.
“I will talk with Roosevelt and Churchill in accordance with a spirit of
demanding nothing and offering nothing.”

Chiang had delegated Stilwell to take care of the Burma campaign.
Chiang’s expectations were for an all-out Allied effort early in 1944 to
reopen communications to China through Burma, using land, air, and
naval forces; American equipment for ninety Chinese divisions; and ten
thousand tons of materiel per month to be delivered to China by air transport. Only after receiving the American general’s proposals did Chiang list
the Burma campaign as one of the outstanding issues to be presented at
the Cairo conference.
Chiang may not have realized that insisting on the principles and preconditions for China’s participation in the Burma counteroffensive, as laid
out in Stilwell’s plan on the eve of the summit, would cost him and his
government dearly in China’s relations with its closest allies. This apparent misstep also attests to Chiang’s inexperience in handling global warplanning conferences.

L OS T T ER R I T O R I E S
After Stilwell submitted plans for the Burma campaign, Chiang’s attention shifted from military issues to political and diplomatic ones, focusing on a clear definition of Chinese territories that had been “lost” to the
Japanese. Half a year before the Cairo conference, Chiang had published
his book China’s Destiny, in which he drew an idealized picture of postwar China’s peripheral areas, including Manchuria, Taiwan, the Ryukyu
Islands, Mongolia, Xinjiang, Tibet, and even the remote Pamir and Himalayan regions, all of which he argued were “strategically essential” for the
country’s postwar national defense.
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189

US Army Photo/Franklin D. Roosevelt Presidential Library

MISSION TO CAIRO: British leader Winston Churchill and US President
Franklin D. Roosevelt (inside car), tour the Pyramids after arriving for
the summit with Chiang Kai-shek and his generals. Churchill and Roo­
sevelt had different ideas about China’s postwar role in Asia, and at the
same time had to manage relations with Soviet leader Josef Stalin, who
declined to meet with Chiang.

Chiang’s grand statements met with mixed reactions and speculation
from abroad. While the British were apprehensive about Chiang’s professed
ambitions toward Tibet and the adjacent territories under the British Raj,
for instance, Roosevelt was more than pleased to contemplate returning the
Ryukyu Islands to postwar China, an idea he had proposed to Soong in 1942.
As the Cairo Summit drew near, however, Chiang moved pragmatic
considerations to the forefront to persuade the Allied leaders to support
China’s territorial restoration after the eventual Japanese defeat. Consider190

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ing that both Ryukyu and Korea were once imperial China’s tributaries
rather than integrated parts of the empire, Chiang decided to make Manchuria and Taiwan the main targets to reclaim.
Chiang also thought about what to do with Japan, and how Japan
would compensate China for its losses after the war. In his personal diary,
Chiang wrote:
I will talk with Roosevelt and Churchill in accordance with a spirit of
demanding nothing and offering nothing. I should exchange viewpoints
frankly with them on military, political, and economic issues, but should
not be troubled by any anxiety about gains and losses. . . . My only principle of meeting Roosevelt and Churchill ought to be one of seeking no
fame and wealth but self-sufficiency. Not expecting benevolence from the
others, I can avoid inviting humiliation. I should also avoid taking the
initiative on such issues as the disposal of Japan and Japan’s compensation
for China’s losses, and should wait for the Americans and the British to
make the first move. Thus, the United States and Britain will appreciate
and respect our selfless stance in this world war.

One could argue that on the eve of the Cairo Summit, Chiang was
struggling with how to achieve China’s objectives while impressing the
Western leaders with his sterling motives. As it turned out, China’s presence in Cairo served as a cruel goad to its wartime Allies, especially Roosevelt, who had hitherto supported Nationalist China but afterward
became disappointed by Chiang and his government.

A C L A S H OF PR I O R I TI E S
Before setting off for Cairo, Chiang and his top aides had finalized China’s
priority list of seven issues to be broached in Cairo:
1. A new international peace organization
2. The Far Eastern Commission
3. The combined chiefs of staff (CCOS) involving China, the United
States, and Britain
4. The regulation of Japanese-occupied territories

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5. The Burma campaign
6. Korea’s independence
7. China’s recovery of Manchuria and Taiwan
But on the evening of November 22, with formal proceedings due to
begin the following day, Chiang was shocked to learn from Stilwell that
the agenda for the next morning had been decided on by the Americans
and the British, with Chinese proposals largely ignored. Chiang’s aides
worried about what lay in store.
Further unpleasant surprises awaited. In the first plenary session,
Mountbatten started off presenting his goals for 1944, including a tripartite offensive in Burma that was more restricted in scope than the one
discussed in Chongqing. According to Mountbatten’s plan, as British
forces moved east into Burma, a Chinese army, trained by Stilwell in India
(the X Force), would join them; a second Chinese army (the Y Force)
would move west into Burma from Yunnan province. The boldness of the
advance, it was hoped, would take the Japanese by surprise.
Chiang was astonished by this unexpected change in the geographic
scope of the offensive. He emphasized that a major amphibious operation and naval supremacy were essential, that Mandalay in central Burma
should be the target, and that air transport should deliver ten thousand
tons of materiel a month to China. Churchill responded that British
naval operations could not be coordinated with Chinese land operations
in Burma because the main British fleet base was almost three thousand
miles away. Chiang, according to his diary, was still not too worried. He
recorded his belief that although Churchill disagreed with launching and
coordinating naval and land operations simultaneously, the other participants “tacitly consented to my opinion.”
Mountbatten, concerned about Chiang’s ostensible opposition to participating in the Burma offensive, called on him that afternoon to try to convince him. According to Mountbatten’s recollection, Chiang “approved of”
the idea of an offensive in Burma but wanted a bolder venture that would
include the capture of Rangoon and Lashio and the reopening of the land
route from Burma to China. As Mountbatten countered that such a plan was
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impossible, Chiang allegedly said to the British lord, “Never mind, we will
carry it out all the same.” Curiously, Chinese historical documents record no
such response from Chiang. Given the subsequent controversy over China’s
participation in recovering Burma, if Mountbatten’s recollection is authentic,
Chiang’s promise might have been one of the crucial factors in the intraAllies conflict over Burma the following year.
Chiang was shocked to learn that the agenda for the first morning had
been decided on by the Americans and the British, with Chinese proposals
largely ignored.

Meanwhile, US military chiefs were meeting with their Chinese counterparts. The Chinese, according to General Henry Arnold and Admiral
William Leahy, disappointingly had little to say other than being willing
to commit to an offensive proposed by the SEAC. The Chinese generals’
poor performance and lack of preparation continued to be in evidence as
they attended their first combined chiefs of staff (CCOS) meeting. Their
Allied counterparts regarded the meeting as a waste of time.
Chiang had planned to attend the CCOS session to comment on
Mountbatten’s plans but canceled at the last minute. His mind was not on
the Burma campaign, but on his meeting with Roosevelt.
In a three-hour-long dinner discussion, Chiang and Roosevelt seemed
to agree on virtually all matters. Chiang concurred with Roosevelt’s view
that Japan’s future politics should be left up to the Japanese people and
proposed that reparations be paid to China in actual properties; he also
agreed with Roosevelt’s analysis of communism, emphasizing that Moscow could not be trusted. Roosevelt endorsed the return of Manchuria
and Taiwan to China and agreed on a postwar vision that included ending
colonialism and bringing independence to Korea and Indochina. Chiang
summed up the talk as “exceedingly satisfactory” in his diary.
According to Elliott Roosevelt, the president’s son, after the meeting
his father said he was convinced that many of Chiang’s best forces were
not being committed to the war against Japan. Instead, according to the
president, they were being deployed against communist forces in north-

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193

Albert C. Wedemeyer Papers—Hoover Institution Archives

MANEUVERING: Some of Chiang Kai-shek’s troops line up for inspection in
a photo sent to General Albert Wedemeyer, the commander of US forces
in China and Chiang’s chief of staff who replaced General Joseph Stilwell.
The Yunnan forces shown here figured in the Allies’ disagreement over
operations to recover Burma.

west China. Roosevelt suggested that this might account for Chiang’s
efforts to obstruct Stilwell’s training of Chinese troops in India; Stilwell
would not tolerate hoarding those troops and their supplies for a postwar civil conflict.

TH E BR E A C H W ID E NS
General George Marshall visited Chiang on the afternoon of November
24 to hear Chiang’s opinions about Mountbatten’s proposals. Chiang
remained skeptical, saying that unless the British agreed to increase their
commitment to the proposed Burma offensive substantially, he would not
commit his forces to it. According to Chiang, Marshall said he understood
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China’s position and invited Chiang to participate in a second chiefs of
staff session that afternoon. Chiang agreed, but later decided not to attend.
This sort of indecision was repeated, and surely frustrated the Allies.
Roosevelt was convinced that many of Chiang’s best forces were not
being committed to the war against Japan.

When the afternoon session began, Marshall reported that Chiang
would approve the campaign only under certain conditions. First, the
British must commit to launching an amphibious operation, simultaneously with the Chinese land campaign in Burma. Second, British forces
must agree to the occupation of Mandalay in central Burma and later of
Rangoon, a substantive increase to the scope of Mountbatten’s original
plan but much closer to what had been discussed in October. As the Chinese generals arrived at the session, they reiterated Chiang’s opposition to
the Burma campaign and questioned the capability of the British forces,
all of which increased the British military chiefs’ fury and contempt.
That evening, Churchill hosted a dinner for the generalissimo and
Madame Chiang. According to Chiang’s diary, the two leaders discussed
Mountbatten’s planned offensive in Burma at length. Before dinner and
afterwards, Churchill led Chiang to the map room to show him the details
of the proposed deployments of units of the Royal Navy in the Bay of
Bengal, including a timetable for the buildup. In his diary, Chiang wrote
that he regarded Churchill as a “typical figure of the Anglo-Saxon nation.
. . . Narrow-minded, slippery, selfish, and stubborn.”
Although Churchill’s willingness to provide details on the deployment
of British forces was a step in the right direction for the Chinese, they still
had reservations. Perhaps Chiang did not care whether the Burma campaign
succeeded. It was thus no surprise that in the third session of the CCOS,
the impasse between Chiang and his allies could not be resolved. With no
Chinese generals attending, Mountbatten, having met with Chiang earlier, conveyed that Chiang was adamant that the Burma campaign was too
modest and timid and would veto any diversion of supplies from China to
support Burma operations. The generalissimo intimated that if the military
leaders could not guarantee his satisfaction, he would take up the matter

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195

with Roosevelt. Key CCOS members were angry. Mountbatten allegedly
accused Chiang of playing the Anglo-American allies against one another.
What Chiang really cared about was not Burma but China’s relations
with the United States. When Roosevelt hosted a tea party for the Chiangs
the evening of November 25, Chiang lobbied for Roosevelt’s support
in organizing a new Sino-American joint chiefs of staff if China’s participation in the existing military leadership group were unfeasible. He
also urged Roosevelt to set up a new Sino-American political council to
strengthen bilateral relations and provide military supplies for Chiang’s
divisions. Chiang also indicated he would try to improve relations with
the communists when he returned from Cairo.
To Chiang, Churchill was a “typical figure of the Anglo-Saxon nation.
. . . Narrow-minded, slippery, selfish, and stubborn.”

No source materials indicate there was any serious discussion of the gridlock
over the Burma campaign. Ronald Heiferman argues that this was because
Roosevelt had decided to avoid confronting the Chinese; at the same time, it
is equally likely that Chiang had never prioritized the Burma campaign on his
agenda. After the tea party with Roosevelt, Chiang began to focus on certain
points including further US loans to China. Chiang decided to send his wife
to meet with the president and try her luck the next morning.
In his diary entry for November 26, Chiang noted that Roosevelt’s attitude toward him at the tea party was more amicable than in their previous dinner meeting, and that thanks to Madame Chiang’s successful visit,
Roosevelt had agreed to provide economic assistance to China.

A CR U E L R E A L I T Y CH E CK
The Americans had a different perspective. A few hours after his tea party with the Chiangs on November 25, Roosevelt held a long talk with
Stilwell, during which they discussed the many problems the US general
faced. The president tried to console the general by sharing his own frustration with Chiang. According to Frank Dorn, one of Stilwell’s subordinates, Roosevelt advised the general that night to “get rid of him [Chiang]
once and for all” if Stilwell could not get along with him.
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More significantly, that night Roosevelt told his son Elliot that in
response to US pressure, Chiang had agreed to suspend hostilities against
the Chinese Communist Party and form a democratic government after
the war. He also mentioned that Chiang had agreed to include the communists in his government at the end of the war as long as the British were
not allowed to reclaim their privileged positions in Shanghai, Canton, and
other former treaty ports. Roosevelt apparently took his words seriously.
On the afternoon of November 26, US and British military leaders met
for their last CCOS session, during which the British suggested the Burma
campaign might have to be delayed or scrapped because the Allies lacked
the resources to carry out multiple operations simultaneously. The Americans, stressing the Burma campaign as vitally important to the Pacific war,
warned of grave political consequences. The British predicted Stalin would
press Churchill and Roosevelt for an early date for the launch of Operation
Overlord, the proposed invasion of Western Europe, when they met days
later in Tehran. If so, Britain would have to defer amphibious operations in
the Bay of Bengal to ensure enough landing craft in Europe.
While military leaders debated, Chiang held his last personal meeting
with Roosevelt. Roosevelt assured Chiang that he would obtain consent
from Churchill for the Burma campaign and an expanded naval presence
in the Bay of Bengal. A few days later, before returning to China, Chiang
wrote in his diary that he was unconvinced by Roosevelt’s assurances, yet
he saw “no harm in hearing what Roosevelt said” because the Burma campaign was never Chiang’s priority.

FINALE
The last act began at 5 p.m. on November 26, when high officials from
the three parties gathered to hammer out a final communiqué. The Allied
leaders and their entourages worked to make the communiqué innocuous
and general. The first paragraph said the Allies “have agreed upon future
military operations against Japan” and expressed their resolve to “bring
unrelenting pressure against their brutal enemies by sea, land, and air.”
The second paragraph said that “all the territories Japan has stolen from
the Chinese, such as Manchuria, Formosa, and the Pescadores, shall be
restored to the Republic of China.” It also stated that “in due course,
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US Army Photo/Franklin D. Roosevelt Presidential Library

Korea shall be free and independent.” At the end, the communiqué
expressed the Allies’ intentions that their war with Japan “will continue to
persevere in the serious and prolonged operations necessary to procure the
unconditional surrender of Japan.”
Before Chiang left for China, he issued instructions designed to boost
Chinese morale and further elevate his and his wife’s power and prestige
at home. He wanted the Cairo communiqué to advance China’s political
propaganda. It was especially important for the Chinese people to realize
that he and his wife had contributed to fulfilling Roosevelt’s policy of
sustaining the freedom and independence of all nations and had helped
transform British Far East policy. Chiang also dictated that the propaganda emphasize Madame Chiang’s contributions.
Another instruction was trickier. Chiang told his staff and Stilwell that
he had received unwritten assurances from Roosevelt that the British would
ultimately agree to Operation Buccaneer, the Burma amphibious campaign.
Chiang then ordered Stilwell to stay put until Roosevelt and Churchill, who
were leaving for Tehran to meet with Stalin, returned to Cairo. He wanted
Stilwell to press the president and the prime minister again to approve the
disputed amphibious operation. Chiang’s orders to Stilwell served two additional purposes: Chiang wanted to show the Allied leaders he was enthusiastic about the campaign, and the American general would be the scapegoat if
plans for the Burma campaign eventually came to nothing.
Stalin indeed insisted that Operation Overlord be undertaken as soon
as possible, saying Soviet Russia would join the war against Japan once
Germany had been defeated. Although Churchill fought hard for operations in the Mediterranean, Roosevelt and Stalin’s support for Overlord
prevailed. When the Americans and British returned to Cairo on December 2, US military leaders vehemently opposed abandoning Buccaneer,
fearing that canceling it would help the Japanese resist the Allied Pacific
advance and would damage Chinese morale. The British responded that
recovering Western Europe was far more urgent than recapturing Burma
and that Stalin’s commitment to fight Japan had greatly reduced the strategic importance of SEAC.
On December 5, in a laconic three-word message to Churchill, Roosevelt
wrote, “Buccaneer is off.”

IT IS DECIDED: Josef Stalin, Franklin D. Roosevelt, and Winston Churchill meet in Tehran a
week after the Cairo Summit. In the end, Stalin’s insistence that the Allies move up the date
for a planned invasion of Western Europe overruled the plan for an all-out invasion of Burma
that Chiang Kai-shek had approved. Moreover, Roosevelt rebuffed Chiang’s request for a
further loan and more military materiel.

Having made his decision, Roosevelt cabled Chiang in Chongqing
with the following message: “Conference with Stalin involves us in
combined grand operations on European continent in late spring [of
1944]. . . . These operations impose so large a requirement of heavy
landing craft as to make it impracticable to devote a sufficient number
to the amphibious operation in the Bay of Bengal simultaneously with
launching of Tarzan [the opening of a new land route to China through
northern Burma] to insure success of operation.”
Chiang accepted the reality of the decision but decided to invoke Roosevelt’s guilt over canceling Operation Buccaneer to extract as much as
possible from the United States. Three days later, he sent Roosevelt a guiltinducing cable:

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199

If it should now be known to the Chinese army and people that a radical
change of policy is being contemplated, the repercussions would be so
disheartening that I fear the consequences of China’s ability to hold out
much longer.

The only remedy, Chiang said, was to assure the Chinese people and army
of America’s concern by “assisting China to hold on with a billion-dollar
gold loan to strengthen its economic front and relieve its dire economic
needs.” Chiang also requested that supplies flown into China be doubled.
With a clearer picture of the Chiangs’ and China’s domestic situation,
Roosevelt abandoned his earlier attitude toward the Nationalists and SinoAmerican relations. He reacted to the cable politely but firmly, expressing
the impossibility of doubling the supplies to China and making no promises about a new loan except to suggest that he would take the matter up
with the Treasury. Further, Roosevelt urged Chiang not to withdraw his
forces from Operation Tarzan, intimating that doing so would weaken
China’s support in the United States.
China’s relationship with its allies was deteriorating. In March 1944,
under heavy pressure from the Allies, Chiang cabled Roosevelt in defense
of his refusal to deploy the Yunnan force into northern Burma, citing
a strong Japanese offensive in China. He received an unsympathetic
response. Meanwhile Marshall, responding to a suggestion by Stilwell,
decided to halt supplies to the Chinese in Yunnan and allocate them to
US forces unless Chiang’s troops immediately began operations.
By the summer of 1944, as a result of Japan’s Operation Ichigo in China, Allied strategy in East Asia lay in ruins. Relations between Chongqing
and Washington grew even worse. The deterioration in China and Burma
forced Marshall to warn Roosevelt that all the military power and resources
in China must now be entrusted to “one individual capable of directing
that effort in a fruitful way against the Japanese.” Therefore, on July 6,
Roosevelt pressed Chiang to appoint Stilwell commander of all Chinese
forces. Instead, after Chiang refused, Stilwell was recalled from his command in October and replaced with General Albert Wedemeyer.
Adding to the estrangement between Chiang and Roosevelt was the
US decision, around mid-1944, to urge the Nationalists to reconcile with

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the Chinese communists. The dire military conditions in the theater
convinced the Americans that Chiang must mend his rift with the communists, directing his available military strength against Japan and not
toward launching a civil war.

THE FALLOUT
For Roosevelt, the original purpose of the Cairo Summit was to give
Chiang the public recognition he needed to boost Chinese morale. As
Chiang perceived it, the purpose was to lobby the Americans for more aid
and full recognition of China as a world power. But the issues surrounding the Burma campaign dominated much of the energy and time at the
summit; worse, this supposedly marginal issue evolved into a huge controversy among Allied leaders in 1944. The fallout included US pressure
on Chiang to reconcile with the communists, a threat to stop US aid to
China, and a crumbling Sino-American alliance.
In retrospect, although the Cairo Summit marked the zenith of Chiang’s
prestige as a world leader, it also triggered his subsequent downhill slide
and that of his regime. In hindsight, whether or not the Cairo Summit
was an asset to Chiang and his government is an unanswered question.
How and why the United States was led into intervening in China’s
domestic quagmire and a battle for the control of Asia—a battle that continued from the Chinese civil war into the Cold War era—deserves further scrutiny.
Special to the Hoover Digest.

Available from the Hoover Institution Press is The
Struggle across the Taiwan Strait: The Divided China
Problem, by Ramon H. Myers and Jialin Zhang. To order,
call 800.888.4741 or visit www.hooverpress.org.

Hoover Digest  N  2014 · No. 4

201

On the Cover
In 1950, American efforts to rebuild Europe were outgrowing their original ambitions, which were ambitious enough: feed the hungry, revive
trade and currencies in allied and former enemy nations alike, resurrect
industry, restore stability. Now Soviet militancy was rising, threatening
Europe’s fragile security and posing an ideological challenge for a continent still reeling from World War II.
A poster contest that year represented one maneuver in that struggle for
Europeans’ hearts and minds. The contest yielded a rich harvest of images
promoting strength and unity under the auspices of the Marshall Plan,
formally known as the European Recovery Program (ERP), which had
commenced in 1948. Artists chose robust, lively images: a ship under full
sail, smokestacks, pulleys, girders, and factory whistles, and also doves of
peace, hopeful saplings, clasped hands. This poster, which won fifth place,
was created by British artists Leonard Roy Horton and Ronald Sandiford.
Flags of the countries participating in the Marshall Plan line the edge of
the key. The message, “You hold the key,” makes clear that the goal of a
united, prosperous Europe was no abstract slogan—it was meant to be
taken personally by those who read it.
Economic goals were front and center when the Marshall Plan was
unveiled. George C. Marshall, the secretary of state, introduced his “plan”
in a speech at Harvard on June 5, 1947. Getting the nations of Europe
back on their feet was also in Americans’ best interests, he pointed out. “It
is logical that the United States should do whatever it is able to do to assist
in the return of normal economic health in the world, without which
there can be no political stability and no assured peace,” he said.
Marshall’s plan was also frustratingly vague, at least at first. Experts
clashed over what the United States should do for Europe. Thomas
Andrew Bailey, a Stanford history professor whose papers are housed at
the Hoover Institution, has cited a confidential State Department memo
lamenting that “the Marshall Plan has been compared to a flying saucer—nobody knows what it looks like, how big it is, in what direction it
is moving, or whether it really exists.”
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A prelude to the plan was a
series of reports from Germany
and Austria by former president
Herbert Hoover. At the behest of
President Harry Truman, Hoover
was reprising his role as international humanitarian and problem
solver. Hoover urged Truman to
let Germany rebuild its industries, an idea opposed by many
in the administration who feared
German militarism. (Eventually
the Marshall Plan was to portray
West German industrial rebuilding as a benefit for Europe as a
whole.) Hoover called for billions
in aid, particularly food, fuel, and
fertilizer. “After all, our flag flies
over these people,” Hoover wrote
the president. “That flag means something besides military power.”
The Soviets accused the Marshall Plan of being “the American plan for
the enslavement of Europe.” They launched aid and propaganda efforts of
their own. Europeans were pressured to choose.
The 1950 poster contest was meant to help that choice. It drew more
than ten thousand entries. Meanwhile, ERP publicity offices turned out
movies, newsreels, press releases, and brochures extolling cooperation and
prosperity. There was even an American TV series, Strength for the Free
World, whose title was the Marshall Plan’s slogan.
Truman praised Marshall’s vision as “the dividing line between the old era
of world affairs and the new—the dividing line between the old era of national
suspicion, economic hostility, and isolationism, and the new era of mutual
cooperation to increase the prosperity of people throughout the world.”
Among its contributions was the name itself. Today, any highly ambitious rescue proposal is likely to be dubbed a “Marshall Plan.”

— Charles Lindsey

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203

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