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The Congressional Response to Social Security Surpluses, 1935-1994

by John F. Coganvia Analysis
Saturday, August 1, 1998

Congress has before it more than two dozen proposals for reforming Social Security. Many proposals call for the creation of a large reserve fund within the federal budget. This fund is necessary, proponents argue, to keep the Social Security program solvent when the baby boom generation retires and begins to draw its benefits.

This essay presents a historical examination of the federal government's policy toward Social Security reserves. The historical review casts doubt on the viability of sustaining a large reserve policy. From time to time throughout the program's history, policy decisions, wartime economic conditions, and business-cycle expansions have created large reserves or projections thereof. Those reserves have generated pressures for greater spending. Congress has invariably responded by raising benefits or expanding eligibility.

These results contain an important implication for Social Security reform. Unless a method can be found for altering congressional behavior from its sixty-year norm, any attempt to ensure Social Security's solvency by building a large trust fund reserve will likely prove futile. A large reserve will lead to higher spending. In doing so, it will add to the burden of government borne by both current and future generations of taxpayers.

Race, Culture, and Equality

by Thomas Sowellvia Analysis
Friday, July 17, 1998

In his remarks at the Commonwealth Club of California on June 18, 1998, Thomas Sowell discussed the conclusions he reached after spending fifteen years researching the economic and social impacts of cultural differences among peoples and nations around the world. This essay, Race, Culture, and Equality, distills the results found in the trilogy that was published during these years---Race and Culture (1994), Migrations and Cultures (1996), and Conquests and Cultures (1998).

The most obvious and inescapable finding from these years of research is that huge disparities in income and wealth have been the rule, not the exception, in countries around the world and over centuries of human history. Real income consists of outputs and these outputs have been radically different because the inputs have been radically different from peoples with different cultures.

Geography alone creates profound differences among peoples. It is not simply that such natural wealth as oil and gold are very unequally distributed around the world. More fundamentally, people themselves are different because of different levels of access to other peoples and cultures. Isolated peoples have always lagged behind those with greater access to a wider world, whether isolation has been the result of mountains, jungles, widely scattered islands or other geographic barriers.

Cities have been in the vanguard of cultural, technological and economic progress in virtually every civilization. But the geographic settings in which cities flourish are by no means equally distributed around the globe. Urbanization has been correspondingly unequally developed in different geographic regions--most prevalent among the networks of navigable waterways in Western Europe and least prevalent where such waterways are most lacking in tropical Africa.

If geography is not egalitarian, neither is demography. When the median age of Jews in the United States is 20 years older than the median age of Puerto Ricans, then there is no way that these two groups could be equally represented in jobs requiring long years of experience, in retirement homes or in sports. Even if they were identical in every other way, radically different age distributions would prevent their being equal in incomes or occupations.

Discrimination is also one of the many factors operating against equality. But even if all human beings behaved like saints toward one another, the other factors would still make equality of income and wealth virtually impossible to achieve.

Neither geography nor history can be undone but we can at least avoid artificially creating cultural isolation under glittering names like "multiculturalism."

Affirmative Action in Higher Education: A Dilemma of Conflicting Principles

by John H. Bunzelvia Analysis
Wednesday, July 1, 1998

As a university president in the 1970s (San Jose State) and then as a researcher and writer, Bunzel's long involvement with affirmative action in higher education has led him to conclude that the troubling issues of race and equality cannot be reduced to the easy categories of "right" versus "wrong." He objects to such moral absolutism (also reflected in California's Proposition 209) because it denies legitimacy to the inevitable complexities and nuances inherent in what he regards as a many-sided problem. Affirmative action in college admissions, he argues, must ultimately be viewed in relation to other competing principles and in light of many practical problems.

In trying to balance different claims and interests within a "theory of limits," Bunzel believes a more useful way to think about affirmative action is in terms of a "social contribution theory of universities." Thus he asks (among other questions), "Is some degree of race consciousness never defensible?" He does not think there is only one morally correct answer. Acknowledging that race has too often been considered excessively and sub rosa, he rejects both of the ideologically pure extremes--namely, that anything that overcomes the disadvantages of race is acceptable and that taking race into account is never appropriate under any circumstances.

Hong Kong Under Chinese Rule: The First Year

by Alvin Rabushkavia Analysis
Wednesday, July 1, 1998

July 1, 1998, marks the first anniversary of Hong Kong under Chinese rule. How has Hong Kong fared during its first year as the newly created Hong Kong Special Autonomous Region of China (HKSAR)? The one positive story was the HKSAR's successful defense of the fixed link between the Hong Kong dollar and the U.S. dollar, which serves as backing for Hong Kong currency. In almost every other respect, the people of Hong Kong are worse off than they were during the last years of British colonial rule. The greatest setback was in the political arena. Nearly two million Hong Kong residents lost the right to vote in the May 24, 1998, elections for thirty of the sixty representatives of the HKSAR's legislature, who were chosen from functional constituencies. In general, the principle of one man, one vote was violated in favor of extremely complicated, three-tiered, rigged electoral arrangements to ensure that pro-China candidates would constitute a legislative majority. Several civil liberties were eliminated or reduced. Mainland Chinese cronyism was reflected in the purchase of substantial stakes in Hong Kong firms by Hong Kong branches of mainland firms at a substantial discount to market prices, until the Asian financial crisis transformed connections with mainland business and political organizations from an asset into a liability. The stock and property markets lost up to half their peak August 1997 value. English-language education was curtailed over the objections of parents and students as numerous schools that formerly taught in English were converted into Chinese-language schools.

Reengineering College Student Financial Aid

via Analysis
Wednesday, April 1, 1998

Our society continues to assign considerable value to higher education and, for the most part, desires to have it in the reach of deserving students. Differences arise, however, over the definition of deserving and who should pay for that education. When limited financial resources are available from government as well as from the private sector, student financial aid resources must be used efficiently. The congressional elections of 1994 and 1996 seem to indicate that the majority of the electorate desires to downsize big government, with its bureaucracy and red tape, and to bring decisions on policy and resource utilization closer to the affected populations and the taxpayers who must finance them.

The model presented in this essay seeks to assign to the three sources of student financial aid--the federal government, state governments, and the institutional and private sector--responsibility for helping to fund specific college costs that students and their parents cannot pay. The roles stipulated in the model for federal and state government adhere to the provisions of the United States Constitution. More than $50 billion is awarded each year in student financial aid; $35 billion of that comes from the federal treasury so federal programs receive particular attention.

Reducing the multiplicity of federal student aid programs will certainly be challenged by those who fear that their largesse from Washington will diminish. Resistance to the changes proposed in this essay can be expected, including the argument that these programs have worked well over time and simply need more funding to make them even better. This essay presents what it is hoped are compelling reasons for reengineering all student financial aid now. The changes will bring about greater effectiveness, efficiency, and equity.

India: Asia's Next Tiger?

via Analysis
Sunday, February 1, 1998

India, a rare democracy in the third world, is widely perceived to be a political success, despite its economic failures. India's poor choice of economic policies, however, has a political motivation. Getting elected has required targeting tangible spoils to an increasingly well-organized, but fractured, electorate. Political patronage was the stimulus for interventionist economic management, eventually producing massive fiscal deficits. When the danger of defaulting on foreign debt became a reality in 1991, the country's leadership began to reevaluate the flawed economic policies without considering the flawed system of governance that accompanied and sustained the policy matrix. Patronage politics spawned corruption; money, muscle, or influence propelled public services and government, making the system of public administration as incompatible with liberalism as the system of economic regulation. Political and administrative imperatives impelled the country to economic policies that failed. Economic reform will not be complete until the underlying administrative imperatives are transformed by accountable governance.

Some Thoughts on Improving Economic Statistics

by Michael J. Boskinvia Analysis
Thursday, January 1, 1998

The rapid pace of change in the American economy is straining the ability of the statistical system to measure economic performance accurately. Millions of daily private economic decisions rely on government economic statistics. Economic statistics also drive public policy. The Federal Reserve relies on economic statistics to formulate monetary policy. The formulation of the budget outlook and tax and budget policy responses to it are affected by economic statistics. Many programs and tax code features are tied explicitly to economic statistics, for example, the cost-of-living allowance (COLA) tied to the consumer price index (CPI) for Social Security, tax brackets, and so on.

Among the areas where economic statistics can and should be improved are the following: (1) the growth of hard-to-measure services; (2) the timely introduction and valuation of new products; (3) quality change in goods and services (e.g., health care); (4) technology, human capital, research and development, innovation and ideas whose measurements are incomplete, at times primitive, at best piecemeal; (5) workers and households' use of time and health status; (6) international trade and finance; (7) the formation, growth, and failure of new firms; (8) financial innovation and changing payment methods; (9) changes in the organization of production and distribution.

The essay makes eleven recommendations for improving the quality of the economic statistics, ranging from methods to deal with new products and quality change to dealing with the trade-off between timeliness and accuracy to consistency across statistics, agencies, and the private sector to organizational issues including the appropriate division between private and public collection and dissemination of data. Such changes would improve the measurement of economic statistics from national income to inflation to measures of household well-being. The returns from such improvements are likely to be substantial, ranging from better early signals for monetary policy to more accurate COLAs to more accurate economic information on which citizens depend not only for their own private decisions but for understanding and evaluating the nation's economic progress.

Inflation and Its Discontents

by Michael J. Boskinvia Analysis
Saturday, November 1, 1997

This essay discusses the inflation of the 1970s and the disinflations of the 1980s and 1990s. It provides historical and intellectual history perspectives on these events. It argues that the consensus view of economists on inflation and its costs has changed more than on any other subject in the past thirty years. As late as 1980, many economists argued that the cost of inflation was low and that the cost of disinflation so great that it was better to live with 10 or 12 percent inflation than bear the temporarily higher unemployment and lost output that would accompany a disinflation.

Fortunately, Federal Reserve Board chairmen Paul Volcker and Alan Greenspan engineered two rounds of disinflation, first from 12.0 percent to 4.5 percent and then to 2.5 percent. Although there were costs--a severe recession in 1981–82 and a not-so-soft landing in 1990–91--the low and relatively stable inflation of the 1980s and 1990s has been a major factor in a long boom in the United States, two long expansions interrupted by a short, mild recession. And economists' thinking about the costs and consequences of high inflation has shifted to the view that stable low inflation, like the lowest possible tax rates and minimum necessary regulation, is a fundamental pillar of maximizing sustained long-run growth.

Why Freedom Must Be First

by Tibor R. Machanvia Analysis
Tuesday, October 14, 1997

Despite repeated criticisms, the political ideal of individual rights--to life, liberty, and property--is very relevant in our time. Although officially affirmed only a couple of centuries ago, the idea has ancient roots and continues to deserve support. It is morally sound and makes possible the most peaceful and prosperous community life for human beings anywhere.

Yet the view that government ought first and foremost protect our right to freedom is under constant attack, belittlement, and ridicule among many intellectuals, politicians, and the even members of the general population. Despite the miserable failure of collectivist alternatives, many still cling to the vain hope that some version of collectivism--communitarianism, market socialism, economic democracy, and so on--will solve all our problems.

This essay argues against this misplaced hope and suggests that it is more promising for us to work out the implications of the individualist alternative than to stick to utopian collectivist dreams. Indeed, this is borne out by the fact that many who attack individualism seem to need to distort it first to make their attack carry some measure of plausibility. But such a tactic is duplicitous and should be resisted.

The Ten Causes of the Reagan Boom: 1982-1997

by Martin Andersonvia Analysis
Wednesday, October 1, 1997

In the United States the fifteen-year economic expansion that began in 1982, now called "the long boom" by economists, is the greatest economic boom in history--and it is still going.

Ten major factors that caused that boom are

  1. The vanished threat of nuclear war
  2. The spread of capitalism
  3. Easy taxes
  4. The computer revolution
  5. Control of government spending
  6. Deregulation
  7. Stable monetary policy
  8. Steady economic policy
  9. The U.S. capital base
  10. The superiority of the U.S. economy