OPPORTUNITIES UNLIMITED

I have no desire to meditate or philosophize upon the past. I have only one wish; and that is to direct our eyes toward the infinite future.

    —C. F. KETTERING


  A doff of the hat to “Boss Ket,” one of the all-time geniuses. He was surely one of those few, with eyes toward the “infinite future,” who themselves evolve and thus contribute to human evolution.

  On the other hand, those who direct their eyes only toward the past give no thrust to a forward movement; for the most part they miss life’s golden opportunities that are in infinite supply. There is but one reason to look back; it is to observe errors, that they may be avoided, and to become aware of truths that help to enhance one’s creativity. So, an eye primarily to the future is the path to such genius as is potentially yours or mine or anyone else’s.

  Here is Kettering’s positive approach to life: “Nothing ever built arose to touch the skies unless some man dreamed that it should, some man believed that it could, and some man willed that it must.” This is the perfect formula for the restoration of liberty, the newest, most rewarding politico-economic blessing in history.

  Among the qualities of this creative genius was an ardent curiosity about the mysteries and wonders of Nature—of a Nature that “never went to college,” as Kettering observed. For instance, why is grass green? Find the answer to how photosynthesis works its wonders and a whole new world of wonders opens to mankind. So, that was one of the unlimited opportunities Kettering was still investigating when he died in 1958.

  Can the case be made that golden opportunities are in infinite supply? Yes, if the eye be cast aright. Last evening I was studying Professor Bertel Sparks’ remarkable article in a recent Freeman, “How Many Servants Can You Afford?” It occurred to me that opportunities and servants are much the same thing, and I reflected on some of the many servants common today but unthinkable in the time of my grandfather:


 
      I note these thoughts with a ball point pen. Countless thousands had a hand in creating this instrument—my servants all.
 

 
      A telephone at my side makes it possible to talk with individuals in this and other countries in a matter of seconds.
 

 
      In the bathroom, a plastic comb, an almost magic razor from England, shaving cream, at the press of a button, a tiled shower with hot and cold running water properly mixed at shower head, after-shave lotion, tissue papers of this and that variety, on and on.
 

 
      Corn flakes at breakfast, bacon cured and sliced, delectable tomato juice in a glass jar, lemons from across the nation, roasted coffee from Colombia, an oven and refrigerator run by electricity, the house warmed by gas from Texas.
 

 
      At the wheel of my car, a self-starter (Kettering among my servants), automatic steering, air conditioning, and the miracle of self-propulsion.
 

 
      At the office, electric typewriters, a machine that turns out sheets of copy clear as the original at the rate of 30 per minute, another machine that collates several items and inserts and stamps and seals the envelopes at 6,000 per hour.
 

 
      Off at noon from New York to San Francisco—five hours. And what a meal at seven miles above sea level! Imagine fresh salmon—broiled—flown in from the Pacific Northwest. Those fishermen and the ones who had a hand in making the broiler as well as the jet plane—all my servants!
 


  Here we have creativity at the human level by literally millions of people. As no one knows how to make a simple pencil, so no one knows how to make a ball point pen or any one of the many thousands of parts in a jet plane. The person who draws a blueprint or mines ore or operates a machine tool—each with his or her bit of unique expertise—is a part of this flowing process.

  An inventor such as Edison or Kettering is a rare genius. He sees the stars, as we say, how the bits of creativity can be brought together to result in power steering, a storage battery, a package of corn flakes, or any one of opportunities unlimited. The inventor is a synthesist. However, his synthesizing presupposes tiny bits of expertise which he does not possess. This glorious tribute we can credit to the inventor: not only is he your and my servant but he makes the countless millions our servants—unknowingly!

  As to servants, Kettering had this to say in a Commencement speech at his Alma Mater on the 25th anniversary of his graduation:


    . . . to be a good servant implies two things, willingness to work and willingness to learn, because no one of us knows very much. And if, when you pack your bag for this eventful journey, you will pack egotism and selfishness at the bottom of the bag, and if you will lay your servant’s uniform on top, the passports will not have to be opened, and they will pass you through the line.


  “No one of us knows very much.” I’ll wager that Kettering never thought of himself as my servant, any more than do the millions who wait upon you and me. Boss Ket’s goals were those of perpetual ascendancy—“toward the infinite future.” And the goals of the millions are as varied as their number—no two alike. This is the way it should be, each with eyes on his or her own aspirations, not on your or my satisfactions. When each makes the most of self-enlightened self-interest—then each becomes your and my servant—unknowingly.

  What a fascinating idea, one that greatly clarifies the case for human liberty. Opportunities can be servants, and in infinite supply. Grasp this point and we have the explanation as to why I have far more servants than any King or Queen or millionaire ever had prior to my grandfather’s time.

  What is the real advantage of this unprecedented wealth? I am relieved of the mundane chores that so preoccupied my grandfather. I am free to concentrate on what I most wish to do in life: write and lecture on the freedom philosophy. And this tiny bit—my opportunity—is all I give in exchange for my countless servants—a more pittance. The miracle of freedom!

  Among my opportunities are thoughts shared by others on the subject:


    Opportunities multiply as they are seized; they die when neglected.

    —John Wicker



    To improve the golden moment of opportunity and catch the good that is within our reach, is the great art of life.

    —Samuel Johnson



    Opportunity knocks as often as a man has an ear trained to hear her, an eye trained to see her, a hand trained to grasp her, and a head trained to utilize her.

    —B. C. Forbes



    The reason a lot of people do not recognize opportunity is because it usually goes around wearing overalls looking like hard work.

    —Thomas Alva Edison



    The office of government is not to confer happiness but to give men equal opportunity to work out happiness for themselves.

    —William Ellery Channing


  In this observation by Channing is a clue to the vital distinction between the market economy and the welfare state—rights in the sense of open opportunities rather than handouts.

  It should be obvious that the opportunities-servants correlation is a flowing action. Our goal? To see how nearly we can come to freeing the trillions of tiny creativities from all inhibitions, restrictions, blockages. The freer, the better! The enemy blocking our goal is out-of-bounds government. True, many individuals who are more or less creative demand that governments bestow special privileges upon them. But their shameful demands would little perturb us were our governments properly limited. Proper limitation means curbing all dictocratic, authoritarian action. This is a goal we approach only as more of us understand and insist that government mind its own business: invoking a common justice, keeping the peace, maintaining a fair field and no favoritism. Our goal of highest statesmanship has its origin in a highly moral citizenship, which is the personal responsibility of each of us.

  Why is grass green? Leave us free and someone with eyes toward the infinite future will find the answer, just as in the past man discovered how to harness a mysterious energy: electricity. However, let us not say, “Give us freedom and the heavens will open unto us.” Freedom is not a gift but a blessing that is earned by learning and doing. In such freedom, we serve one another—often unknowingly!

Read More

Buy it now for only US$5.00

AWAKE FOR FREEDOM’S SAKE

Awake and sing, ye that dwell in dust.

    —ISAIAH 26:19
 

  All of us “dwell in dust,” more or less, and the dust is thickest where there is an unawareness that we so dwell. To awake means nothing less than a coming to ourselves; it implies a realization of our dustiness. And to sing—according to my interpretation of this Old Testament admonition—is personally to harmonize with intellectual, moral, and spiritual progression.

  No person has the slightest idea of how many ways people occupy their time, ranging from hobbies to workaday endeavors—all sorts of occupations. Some persons have two or three, others a dozen or more. There may be 300 million for all I know, and no two precisely alike. To spot my place in the sun, to grasp what a tiny bit of human dust I am, requires no more than a realization of how infinitesimal is my know-how relative to the total know-hows, 1/300,000,000th, shall we say. The same can be said of others.

  To highlight this seldom recognized fact of life, I need only recall the numerous preoccupations of my earlier years that today are in limbo, beyond my ken. Among them: entomology, mechanical drawing, dry-picking chickens, culinary innovations, chemical productions, building wireless receivers and senders, rigging airplanes, and so on. I no longer possess the numerous know-hows that once were mine; but imagine the countless millions of know-hows experienced by others that are not even remotely mine. Indeed, I dwell in dust!

  Were others similarly to assess themselves, what a boon to progress that would be! But assessments, by and large, are just the opposite. Most individuals, once they become proficient in this or that bit of expertise, lose all awareness of their “dustiness”; notions of having arrived possess the mentality. This blinds them to how infinitesimal are their several know-hows.

  Progression or advancement never graces anyone who succumbs to the notion that he has arrived—“has it made,” as we say. This mortal moment, if seen aright, is featured by growth in awareness, perception, consciousness, day in and day out. To act otherwise is to write one’s own death sentence—life’s high purpose abandoned. It is well to remember that “tall oaks from little acorns grow,” and that emerging, evolving man spawns from “ye that dwell in dust.” Let each of us confess that this is our dwelling. To “awake and sing” is the appropriate ambition!

  The dictionary defines success as most people think of it: “. . . the gaining of wealth, fame, rank, etc.” Briefly, this is the big-shot syndrome. One of the wealthiest men known to me jumped from an airplane into the Baltic Sea. Another, atop his own tall building, did a leap and went kersplosh onto the pavement. Lord John Maynard Keynes, advocate of spending ourselves rich, gained international fame. And whoever gained more rank than Hitler or Stalin! To regard wealth, fame, rank as success is a failure in thinking.

  Let me share and comment upon several enlightening observations on success by thoughtful individuals of the past.

 
    The eminently successful man should beware of the tendency of wealth to chill and isolate.
 

  This was written by a very wealthy banker but one not so smitten by his riches as to have lost his power of thinking. Far from being chilled and isolated, he knew that wealth is never an end in itself, but only a possible means to desirable goals. The freedom way of life was respected rather than rejected by this millionaire, for material success did not go to his head. Why? His head was too full of good thoughts!

 
    The simple virtues of willingness, readiness, alertness and courtesy will carry a young man farther than mere smartness.
 

  Smartness, as here used, refers to those who are “. . . conceited and self-assertive; cocky.” No awareness of their dustiness, none whatsoever! They “have it made,” and thus lack awareness of higher goals to achieve, higher methods of getting there.

  A willingness or a yearning to learn—a passionate wanting-to-know-it-ness—is both a simple and a priceless virtue. It is the key to going uphill with ease and joy—singing all the way. Readiness and alertness are companion virtues.

  Courtesy is contagious. Practice courtesy and others will graciously share their ideas. Based on my experience, wisdom beyond one’s own will show forth from the unexpected, even “Out of the mouths of babes,” as the Psalmist phrased it. Hail to the simple virtues!

 
    Character is the real foundation of all worthwhile success.
 

  A person with character is a moral being. His or her life is distinguished by a striving for charity, intelligence, justice, love, reverence, humility and integrity. We should bear in mind that freedom is basically a moral problem—moral philosophy being the study of what’s right and wrong. Economics is a branch thereof, being the study of what’s right and wrong in overcoming scarcity. Morality is the foundation, plenitude the possibility. Among a people lacking morality, material shortages are inevitable. Strive for character!

 
    Somebody said it couldn’t be done, but he with a chuckle replied that “maybe it couldn’t,” but he would be one who wouldn’t say so till he’d tried.
 

  Here we have a verbal portrait of every true entrepreneur. The individual who sees beyond the what-is into the what-might-be is the one who converts dreams into realities.

  These are the ones who account for our high standard of living in spite of all the destructive forces presently on the rampage.

  Wrote Thomas Macaulay in his History of England:

 
    It has often been found that profuse expenditures, heavy taxation, absurd commercial restrictions, corrupt tribunals, disastrous wars, seditions, persecutions, conflagrations, inundations, have not been able to destroy capital so fast as the exertions of private citizens have been able to create it.
 

  Reflect upon the millions of goods and services which we now enjoy that we couldn’t imagine as possibilities a few decades ago, things now so commonplace that we take them for granted. Why? Thanks to those who simply have gone ahead and tried what “couldn’t be done”—the entrepreneurs!

 
    If a man write a better book, preach a better sermon, or make a better mouse-trap, though he build his house in the woods, the world will make a beaten path to his door.
 

  This is an ingenious way of phrasing the law of attraction. At any given moment there are always those out front with better mouse-traps, tastier cooking, winning golf, lovelier music, or whatever. And we do indeed beat a path to their doors.

  How do those of us who are working for a better understanding of the freedom way of life induce others to beat a path to our doors? For unless they are coming to us for ideas, we are of no value in this respect. My experience suggests that we keep these points in mind:

 
    1. The higher grade the objective, the higher grade must the method be.

    2. Human liberty correlates with wisdom and understanding—a high-grade objective.

    3. The method must be commensurately as high: achieve that excellence in understanding and exposition which will cause others to seek our tutorship.
 

  If skilled enough, even though our houses be in the woods, others will come knocking at our doors.1

 
    How shall we pass swiftly from point to point, and be present always at the focus where the greatest number of vital forces unite in their purest energy? To maintain this ecstasy is success in life.
 

  This was written by a nineteenth-century English stylist, essayist and critic. What an insight! This Englishman was doubtless thinking of all aspects of life—the road to truth in whatever field.

  “Vital forces”? Those life energies manifested as bits of expertise and pieces of know-how existing in enormous variety among millions of individuals.

  How will they unite in their “purest energy”? Leave them free to flow and these forces join and come into focus in all the goods, services, thoughts by which we “awake and sing,” live and prosper. Briefly, leave all creative activities to the free and unfettered market where the wisdom is. This is the formula for success in life—ecstasy!


Step by step, little by little, bit by bit—that is the way to wisdom. Dollars are the sons not of dollars, but of pennies.
 

  This but confirms Isaiah’s prescription for clearing the dust. Finite man never attains “the whole truth and nothing but the truth.” Man’s goal, with the help of others, past and present, is to shake loose his “dustiness” as best he can. This is the noble goal!

 
    In the realm of goods and services, the successful man is he who best serves, rather than exploits, his fellowmen. And what he receives in exchange is incomparably more than he gives.
 

  Broadly speaking, there are two types of social organization: (1) the Command Society and (2) the Free Society. While there is no perfect example of either one, Russia most nearly approximates the former. But even with wall-to-wall socialism there is an enormous leakage of creative human energy. Were there no such leakage, all Russians would perish.

  The U.S.A. most nearly approximates the Free Society. However, even here there is exploitation, and it is on the increase. Our problem is to find ways to be done with exploitation—all of it—and replace it with service.

  Here is a truism: “The science of business is the science of service and he profits most who serves best.” Read the next chapter for an explanation of how one receives benefits too numerous to count, in exchange for next to nothing. Incomparably more, indeed!

  Our problem? It is to understand and find ways to explain a false correlation which, if not corrected, will take the U.S.A. all the way into the Command Society. Here it is: Most people in their “dustiness” observe a prosperity greater than any other people have ever experienced, occurring simultaneously with increasing governmental intervention. They conclude that the intervention is the cause of their well-being. What a fallacy!

  The fact? The present prosperity is nothing more than a thrust from the past. The ways of freedom are in our bloodstream and persist even when not understood—for a time. High time to awake!

 
    Never one thing and seldom one person can make for a success. It takes a number of them merging into a perfect whole.
 

  Be alert to enlightenment from anyone regardless of occupation or fame. The above comments on success reflect an understanding of freedom on the part of a diverse group: two bankers, a mining engineer, an essayist, a poet, a stylist, an author, a mathematician and, last but not least, a motion picture actress of several decades ago. Quite a choir! So, let’s all join in the chorus: Awake and sing for freedom’s sake!

  ***

  The following chapters in this, my 22nd book, reflect a continuing aspiration over a period of 40 years to join the chorus for freedom’s sake.

  Goethe observed that “All truly wise ideas have been thought already thousands of times.” I disclaim originality, so why all this writing? It’s a response to an urge I love, namely, to uncover the truly wise ideas of great souls past and present and to share my findings with those who do—or potentially may—love freedom.

  The next question is, why the repetition in my writings, not only in this but in previous books? It’s because freedom is founded on ever so many of these truly wise ideas. As an example, “Men are endowed by their Creator . . .” is quoted over and over again. Its omission from this or that approach to an understanding of freedom would rob the theme of its very essence. Further, repetition of truly wise ideas—all more or less difficult—tends to hammer them into one’s head, as the saying goes. The more of such thoughts in the head, the more freedom for me and thee.

  There is yet another advantage to writing and forever rewriting the freedom thesis. Each new effort evokes new phrasings, word arrangements somewhat varied, now and then an improvement—the long, long road to clarity. Should you choose to do so, come along with me and join the chorus!

Read More

Buy it now for only US$5.00

The Age of Administrative Excess

The Age of Administrative Excess

by Richard A. Epstein (Peter and Kirsten Bedford Senior Fellow and member of the Property Rights, Freedom, and Prosperity Task Force)

Why is the federal government locking unwilling citizens into Medicare?

---

Earlier this month, the Supreme Court announced that it would not review the decision of the Court of Appeals for the District of Columbia Circuit in Hall v. Sebelius. The case was, however, of great importance to me as a lawyer who, along with Kent Masterson Brown, had asked the Court to review the case because of what it tells us about the unfortunate state of this nation’s Medicare program. The issues here go not only to its fiscal woes, but also to the sad state of the administrative law that governs the operation of the system.
Medicare: A Broken System
Hall is something of a quixotic lawsuit. Brought by a group of determined small government libertarians, the case raised the simple question of whether the plaintiffs could opt out of the Medicare system without having to forfeit all of their benefits, past and future, through the Social Security system. It should be instantly obvious that there will be no public groundswell to opt out of a system that gives program participants payments over their lifetime that far exceed their contributions to the plan. Indeed, the most recent report from the Medicare trustees detailed the program’s precarious long-term position given its use of general revenues to support its near open-ended entitlement system.

   
  Illustration by Barbara Kelley

In his Amicus Brief on our behalf, Peter Ferrara of the American Civil Rights Union summarized the grim statistics by noting that Medicare started running deficits in 2008. By 2011, those deficits had reached some $27.7 billion, all of which had to be made up from general revenues. Projecting the program’s future has become more uncertain because of the passage of the Patient Protection and Affordable Care Act, whose impact cannot be accurately judged until the regulations have been finalized and the program has been in operation for at least some time. But even when one sticks with the intermediate estimate of deficits of $125 billion over the next 10 years, the situation is grim. But if those deficits run on the higher end of those estimates to over $680 billion during that period, grim does not begin to capture the result.
In the face of these numbers, one might think that the Department of Health and Human Services would be thrilled that a small number of individuals do not want to take any Medicare benefits. Right now, it is clear that these people can turn down Part B of Medicare that relates chiefly to physicians fees and outpatient services for persons over 65 and for persons with disabilities.
But that same liberality of spirit is not shown toward payments under Medicare Part A that chiefly covers hospitalization and nursing and hospice care for this same population. Here, HHS has long maintained that a person can opt out of Medicare Part A only by paying pay back all past Social Security benefits and renouncing all new ones. The price of exclusion from Medicare Part A for a person who starts on Social Security at age 62 could easily run over $250,000. Yet, even if these persons could renounce benefits under Medicare Part A, they must pay their general Medicare fees on both earned and investment income, which stands at 2.9 percent on all earned income, and has moved up to 3.8 percent on the investment income of couples earning over $250,000.
Conscription by Administrative Fiat
What sane government, one might ask, would try to require individuals to take benefits from a program into which they are forced to make major contributions?
It would be comforting to think that this odd state of affairs could be attributed to some statutory glitch in the design of either the Social Security or Medicare programs. But in this instance, the statutes are not the culprits. Indeed, the operative provisions are completely clear, at least for government work. The Social Security law says that if by age 62, you have made your Social Security contributions and have filed an application for benefits, you “shall be entitled to an old-age insurance benefit for each month.” Of course, there is no reference to Medicare in a statute that was passed in 1935. The Medicare statute of 1965 says that if you reach the age of 65 and are entitled to receive Social Security benefits, then you “shall be entitled to hospital insurance benefits” under Medicare Part A.
The petitioners in Hall appear to have unconditional entitlements to both Social Security and Medicare. So why does turning down the second of these entitlements require the forfeiture of the first? HHS has never issued an authoritative regulation that explains this. Instead, it has asserted that connection through its Program Operations Manual System (POMS), taking the position that any person who is enrolled in Social Security is “automatically” enrolled in Medicare Part A. The Medicare statute, however, does not say that people are automatically enrolled in Medicare Part A at age 65. It only says that they are entitled to participate in that program, at which point it seems that they are, under any sensible meaning of that word, also entitled not to participate either. The major difference is that the Social Security statute says that people have to apply to join the program, while the Medicare statute contains no such language.
At this point, the POMS decrees that people are entitled not to take Medicare benefits, but only if they renounce Social Security as well. Structurally the point is odd because Social Security and Medicare are separately funded programs, which makes it highly unlikely that Congress wanted people to turn down one set of fully-paid benefits in order to escape another. It is easy enough to write a provision that says that people who would otherwise be enrolled in Medicare Part A may submit a brief waiver form if they want to leave it.
But the POMS regulation engrafts the forfeiture requirement onto the waiver position, without bothering to offer a single reason for that linkage. Unwisely, however, the POMS does note cryptically that some people might want to opt out of the program “because of religious or philosophical reasons or because they prefer other health insurance.”
The first clause of the POMS ruling should raise large warning flags. The religious and philosophical reasons to which the POMS refers are those held by individuals who do not think that the government should be involved in the provision of healthcare at all. There are no financial reasons to keep people in the program, so that the best explanation for the government position is not economic but political: its desire to conscript people into the program so that they will quickly figure out that the HHS is the boss when it comes to the control over their healthcare dollars. This is not quite the way to nourish self-reliance among a free people.
One might have thought that this arbitrary regulation could not have survived judicial scrutiny. But the POMS regulation was upheld, first before District Court Judge Rosemary M. Collyer (2009), and then before a conservative appellate panel consisting of Judges Brett Kavanaugh, Douglas Ginsburg, and Karen LeCraft Henderson (2012), over the pointed dissent of Judge Henderson, who repeated her objections to the POMS interpretation on a petition for rehearing that was denied. I had no involvement with the case in the lower courts.
With all due respect to Judge Kavanaugh, his opinion upholding the POMS determination did not address a single substantive objection against the government’s position. It did not explain why a statutory scheme that contains no language of forfeiture should be read that way, or why the words “automatically enrolled” should be read into a statute that does not contain these terms.  In his words, “plaintiffs want something more than just the ability to decline Medicare payments.  They seek a legal declaration that Medicare Part A benefits cannot be paid on their behalf—a declaration, in other words, that they are not legally entitled to Medicare Part A benefits. But the statute simply does not provide any mechanism to achieve that objective.” The point is absurd. Some integration between the two statutes is needed. Yet surely the statute says not a single word about massive forfeiture.  So why not let them just renounce their benefits?
The District of Columbia appellate opinion shows what I regard as a highly troublesome trend in many matters of statutory construction and administrative authority: the noticeable reluctance of appellate court judges to take on aggressive claims of administrative authority, even in those cases that seem to cry out for some correction. In drafting the petition before the Supreme Court, I stressed not only these statutory construction points, but also lodged a challenge to the constitutionality of that linkage even if it had been explicitly included in the statute.
The source of that challenge lay in the decision of Chief Justice Roberts in NFIB v. Sebelius, in which he struck down a provision of Title II of the healthcare law, which provided that any state that did not accept funds for the expansion of Medicaid benefits had to forfeit all payments from the federal government for its existing programs, even as its citizens would be required to pay massive amounts of taxes to support Medicaid in other states. Chief Justice Roberts’ stated rationale for that view is that the legislature could not put a “gun to the head” of the state by forcing it to make intolerable choices.
The government use of its monopoly power creates just those kinds of choices. The antitrust law that deals with private acts of monopolization looks at various contractual linkages by asking whether these have some efficiency efficiency or pro-competitive benefit in running the system, such as controlling fraud, or whether a contract provision is just an anti-competitive effort to extend the scope of monopoly power. The Chief Justice found that just that type of monopolization happened with the federal government’s effort to strong-arm the states into its Medicaid extension. And that same logic surely applies to the instant linkage of Medicare to Social Security, which has not a single efficiency justification to its name.
Deference and the Need for Reform
No one can criticize the Supreme Court for not taking a particular case, especially when there are so many other programs that cry out for judicial review. But it is important to stress two points that are not so easily dismissed.
The first of these is the general posture of deference that courts take to administrative agencies in the application of their own statutory authority. Right now, the Supreme Court does have on its docket the important case of City of Arlington v. FCC, which asks the question of whether the doctrine of deference that stems from the Supreme Court’s seminal 1984 decision in Chevron U.S.A. Inc. v. National Resource Defense Council should apply whenever an agency decides unilaterally to extend its own jurisdiction. It is simply inconceivable that any system that respects the rule of law would subvert the dominance of legislative over administrative authority.
Indeed, there is a profound sense in which City of Arlington case misstates the issue, because even in questions that do not deal with jurisdiction, there is absolutely no reason, in either law or precedent, why courts, which are supposed to know how to interpret statutes and rules, should cede their legal authority on these matters over to administrative agencies who often want to expand their power. Both City of Arlington and Hall fail to address the uncontrolled growth of administrative power at the expense of judicial authority.
The second issue is whether the Congress has the time or the courage to pass legislation that corrects the erroneous interpretation of the Medicare and Social Security statutes that were vindicated in Hall. It would take only a few sentences of legislation to reverse this authoritarian excess. For an age that values individual freedom of choice, that correction would take hours to make. But we live in more perilous and politicized times, so it is likely that the matter will never receive any Congressional attention at all. It is a pity how far this country has strayed from its own constitutional ideals on small as well as large issues.

---

Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago. His areas of expertise include constitutional law, intellectual property, and property rights. His most recent books are Design for Liberty: Private Property, Public Administration, and the Rule of Law (2011), The Case against the Employee Free Choice Act (Hoover Press, 2009) and Supreme Neglect: How to Revive the Constitutional Protection for Private Property (Oxford Press, 2008).

---

Letters to the editor may be sent to definingideas@stanford.edu. Editors reserve the right to reject or publish (and edit) letters.

The Coming Fiscal Tsunami

by David Koitz

As a nation, we are about to be drowned by entitlement debt.

---

The United States will soon confront a major economic problem, perhaps one unparalleled in the nation’s history. It won’t strike tomorrow, next week, or next month, but it is out there, its roots sown by the demographics of the past half-century and a body politic hesitant to tamper with aging institutions of government. When it emerges, like a tsunami, the destructive consequences of amassing unprecedented federal indebtedness will be overwhelming, and though seemingly distant, when it rears its head it will rise suddenly in our consciousness as if coming without warning.

  
  Illustration by Barbara Kelley

While a searing left-right ideological debate pervades the nation’s economic dialogue, the enormity of our hovering dilemma gets short shrift. The lack of clarity in the policy discourse, the inclination by lawmakers to procrastinate on politically difficult decisions, and the propensity to pass blame and kick the can down the road are stunning. But like the tearing down of the Twin Towers, a hurricane devastating the Louisiana coast, or an earthquake striking San Francisco, our looming fiscal problem has no political division. It is not a Democratic or Republican problem. It has no party signature. It is simply an American problem. And as it draws ever closer, the need for political convergence becomes ever more pressing.

The problem is very transparent. Unlike the miasma of derivative markets or the opaque operations of hedge funds, it’s not clouded by the vagaries of our financial institutions. It’s a pretty straightforward dilemma. As our federal budget deficits have grown, the level of debt taken on by the U.S. Treasury has risen precipitously. Some people take solace by looking at other nations, whose debts represent a considerably larger share of their economic output, making our debt seem manageable. But given the sheer magnitude of our problem, this measure may obscure how significant even a moderate increase in the debt would be and the risk it would pose if we stay on our current course.

The challenges in our path are not modest. Starting today and continuing over the next 20 years, the post–World War II baby-boom generation will nearly double the nation’s aged population, and the baby trough that followed (and has lingered since) will slow the growth of the working population. The baby boomers and the major advances in life expectancy for subsequent generations will cause a swelling number of recipients of Medicare, Medicaid, and Social Security, and the expenditures of those programs will soar, programs whose creation and inherent promises largely preceded the birth of those who now or will soon seek their benefits.

Our looming economic tsunami is simply the mountain of debt those promises portend.

The Gravity of the Situation

When someone asks to borrow money—which is what a country is doing when it puts its Treasury’s securities up for sale—the foremost question of the lender is, “If I buy these securities, what risk do I take? Is your government capable of paying me back in the period we have agreed to? Do you have a vibrant enough economy to enable your government to levy enough taxes or otherwise draw on its national resources to pay me off?”

In the growing discourse about the rising amounts of governmental debt worldwide, the common denominator of a country’s creditworthiness is its debt as a percentage of what its economy produces each year. It’s a proxy indicator, a way to gauge which nations are over-extended and which nations have their fiscal house under control. Eyebrows certainly get raised when a nation’s debt-to-economy ratio hits triple digits. A ratio of 100 or 200 percent sets off alarms. Investors get skittish, interest rates in that country rise, and at some point, the prospect of an investor revolt ignites fears of calamity in that nation’s financial markets and, potentially, those around the world.

Exactly how high does it have to go to become a concern? How much debt is too much? In 2011, Zimbabwe’s debt-to-economy ratio (debt-to-GDP, or gross domestic product) was 231 percent; Japan’s was 208 percent; Greece’s, 165 percent; Italy’s, 120 percent; Belgium’s, 100 percent. Greece has certainly caught the world’s attention with the fiscal turmoil it has experienced. With the possibility of default, investors got scared. Unprecedented changes in taxes and spending became necessary. Spain and Italy have also teetered on the brink, as have various other European nations. Britain too, recognizing its potentially precarious position, has undergone major belt tightening.

Can we in the U.S. take comfort because our debt-to-economy ratio was only 68 percent last year? With a lower ratio than that of other highly developed nations, with our Federal Reserve keeping short-term interest rates near zero, and with investors around the world flocking to U.S. Treasury securities as a safe haven, must we really worry? And while some countries for sure are having difficulty, other countries have markedly higher debt-to-economy ratios than we do, and they haven’t collapsed or sent shock waves around the world.

For many economists, the answer is far more complicated than simply observing this ratio. What’s the direction of the ratio and how rapidly is it moving (up or down)? How quickly has a high-ratio country’s economy advanced and what are its future prospects? How significant are the future commitments its government has taken on? And is the country’s political system stable?

The current level of U.S. Treasury debt and the direction it’s headed are not benign. The U.S. may be a large and powerful nation and our debt-to-economy ratio may not be as bad as others, but that’s no reason to be sanguine. Our debt will very likely go higher. The climb in our ratio from 63 percent in 2010 to 68 percent in 2011—seemingly modest—raised our Treasury debt by $1.1 trillion. That single year’s rise was larger than the economies of all but 12 of the 190 nations tracked by the World Bank. It’s equal to the economy of the state of New York. Absent changes that raise federal revenue or constrain spending, our debt-to-economy ratio could rise above 80 percent over the next three years, exceed 100 percent by 2024, and reach an unfathomable 200 percent by the mid-2030s.

Yes, our economy is advanced and diverse and can produce a lot. Today, it generates one-fourth of the goods and services produced worldwide. And our circumstances differ greatly from those of Greece. But when we look to the future, our governmental spending commitments are enormous. As other burgeoning countries such as China, India, South Korea, and Indonesia expand their economies, their net worth relative to ours will likely grow. Their propensity to generate larger growth rates has been demonstrated. As the Far East and South America continue their rapid spurts, how much more prominent will they become on the world’s economic stage? And what happens to our dollar’s strength then? As our Treasury debt continues its unrelenting rise, will the dollar and our securities still be viewed as a safe haven? Is there possibly a saturation point in the future when investors will say, “We’re looking elsewhere”?

Equally important is that nearly half of our total Treasury debt is held in foreign hands, with most of that concentrated among a relatively small group of players. Three-fourths of what is owed abroad is held by China, Japan, the major oil-exporting nations, and four other countries and banking centers; 44 percent of that amount is held by China and Japan alone.

That makes the debt an obvious national-security concern. In early 2010, a shiver ran through the financial markets after China let go of $34 billion of our debt. The Chinese could create turmoil for us by flooding the markets with their dollar holdings, but they would also hurt themselves in the process, and that in itself serves as an impediment for exploitation. But what happens when there are other countries that become increasingly attractive for international trade and development, and our consumer demand for their goods becomes less important?

Risking Our Way of Life

Ultimately, what’s at issue is our future risks: future risk to our economy, our ability to grow, our standard of living, and our national security. Today, we may be in a bubble. The dollar is king, and so are our government’s securities. But where will we be in 10 years? It’s not just the trajectory of our debt, but what causes it: our government’s propensity to spend more than we are willing to tax ourselves. The level of debt the Treasury has issued publicly could rise to more than $11 trillion by the end of this year, but if we count the debt it owes to the Medicare and Social Security trust funds, as well as to other “entitlement” programs—another $5 trillion—our debt-to-economy ratio suddenly rises above 100 percent.

Should we count those other obligations even though they are simply internal debt, IOUs from one arm of the government to another? Yes, because they represent future spending commitments already set in law. Lawmakers have the ability to change that, and they could raise taxes too. As yet, however, their steps have been no more than tepid, with little or no change to the fiscal path those commitments put us on. Moreover, even if we somehow came up with the money to pay off those debts (probably through more borrowing from the public), we still won’t have enough coming in to pay all of the future spending commitments we’ve made through those programs.

According to the most recent projections of the Medicare and Social Security trustees, even if those internal IOUs are paid off, the programs will run down their legal authority to spend in 2024 and 2033, respectively. Taking all that into account, the Congressional Budget Office (CBO) projects that the amount of federal debt held by the public could rise to 157 percent of our annual economic production by 2032 and 200 percent by 2037. In today’s dollars, it would total more than $30 trillion.

It’s inconceivable that we could run up the national debt to that level. If it existed today, it would equal nearly half of what the entire world produces in a single year. Where are we going to find the investors—at home or abroad—who will allow us to generate such debt? It’s one thing when Zimbabwe runs up a debt of 231 percent of its economy. Its annual economic output is only $7 billion. That doesn’t create economic paralysis in world markets. It’s vastly different to think of the U.S. doing so. By year-end, our $11 trillion or more in publicly held debt will account for one-fourth of the $45 trillion in outstanding debt issued by all governments worldwide.

As a nation, we have come to treat borrowing as simply another ready source of revenue, a spigot that we blithely presume will continually supplement what we tax ourselves. But it’s not, and it won’t. It’s a loan that needs repaying, and as such it’s a claim against future taxes—taxes that may someday fall short because the loan and our spending expectations have grown too large. There is no single trip-wire that signals danger. Complacency has a way of perpetuating itself—no pain, no worry.

However, like the precipitous bursting of the tech bubble in 2000, like the air coming out of the housing market in 2008, and like investor panic over the mounting debts of established European nations, inattentiveness and procrastination toward the rising debt of the world’s largest economy will someday catch up with us, likely quick and with little warning. As a policy path, the status quo won’t suffice. There’s no calamity at our front door today, but the warning signs are there.

---

---

David Koitz is a consultant involved with a variety of public policy matters. Over a long career as an analyst on Capitol Hill, he worked for numerous members of Congress and various congressional committees. Born in Springfield, Massachusetts, he attended the University of Massachusetts and the American University. This essay is excerpted from his recent Hoover Press book, Entitlement Spending: Our Coming Fiscal Tsunami.

---

Letters to the editor may be sent to definingideas@stanford.edu. Editors reserve the right to reject or publish (and edit) letters.

Wards of the State

by Bruce Thornton

With the rise of entitlements, we are not only experiencing a crisis of finances, but also a crisis of character.

---

The biggest political problem the United States faces––runaway entitlement costs on track to bankrupt the treasury––is like the weather. Everybody talks about it, but no one does anything about it. Even talking about it can be politically dangerous, as the Republicans learned in November and during the “fiscal cliff” negotiations. They chastised Mitt Romney’s post-election comments about the entitlement “gifts” President Obama promised voters. And the Republican demand that tax-hikes be linked to spending cuts to avoid the “fiscal cliff” was demonized as “holding the middle class hostage.”
Yet, as Nicholas Eberstadt documents in this brief but powerful book, if left unreformed, our metastasizing entitlements will continue to corrupt not only our economy, but also our national character itself. Eberstadt, a political economist and fellow at the American Enterprise Institute, has written extensively on economic development, foreign aid, global health, demographics, and poverty. His latest work, A Nation of Takers, combines his international experience and economic knowledge into a relentless, fact-based argument for reforming entitlement spending.

   
  Vintage food stamps. Photo credit: NCReedPlayer

A Nation of Takers documents the explosion of spending with thirty shocking charts and graphs illustrating just how quickly what Eberstadt calls the historically unprecedented “vast and colossal empire of entitlement payments that it [the state] protects, manages, and finances” has spread. This transfer of wealth primarily via income maintenance, Medicaid, Medicare, Social Security, and unemployment insurance has become the federal government’s primary objective, and it devotes more time and resources to it than all other functions combined.
As a result, by 2011, just over 49 percent of Americans received at least one government benefit, up from 30 percent in the early 1980s. This growth, moreover, has been swift. Between 1960 and 2010, entitlement spending by government at all levels skyrocketed from $24 billion in today’s dollars to almost $2.2 trillion––a yearly average growth rate of 5.5 percent when adjusted for inflation. This largess amounts to $7,200 for every man, woman, and child. Worse yet, this growth trajectory is speeding to “the day in which entitlement spending comes to exceed all other activities of all levels and branches of the U.S. government.”
When that day comes, both political parties will have to share the blame. Indeed, “from a purely statistical standpoint,” Eberstadt writes, “the growth of entitlement spending over the past half-century has in truth been distinctly greater under Republican administrations than Democratic ones.” In any given year, the growth was 8 percent higher if the president was a Republican. Eberstadt’s melancholy conclusion regarding this bipartisan fecklessness is that “both political parties have, on the whole, been working together in an often unspoken consensus to fuel the explosion of entitlement spending in modern America.” And let’s not forget the voters who demand these programs and punish politicians for trying to cut them or even slow their rate of growth.
A Crisis of Character
Even more valuable than Eberstadt’s documentation of the fiscal facts is his discussion of how radically the growth of entitlements has changed the American people. What makes Americans exceptional, as Eberstadt puts it, is a “fierce and principled independence” and “proud self-reliance.” This individualism, which has been noted by earlier commentators like Alexis de Tocqueville, extended to personal finance. Americans back then highly valued social cooperation, but they “viewed themselves as accountable for their own situation through their own achievements in an environment bursting with opportunity.”
The corollaries of this “optimistic Puritanism,” Eberstadt continues, were “an affinity for personal enterprise and industry” and a “horror of dependency and contempt for anything that smacked of a mendicant mentality.” No matter how poor Americans were––and many more were poor then than now––accepting help or handouts was considered “an affront to their dignity and independence.” Needless to say, these American ethical principles and norms are fast disappearing, and a large part of that change has been driven by the policies of a government that has engaged in “norm-changing.” As a result, the United States is on the verge of a “symbolic threshold: the point at which more than half of all American households receive, and accept, transfer benefits from the government.” These benefits are today understood as deserved legal and civil rights.
Eberstadt provides two examples of this change in character. Funds to assist households buy food used to come in the form of “food stamps” or coupons that were obviously different from cash. These coupons, the use of which communicated to others in line at the store that the person was receiving relief, were replaced with the “electronic benefit transfer” or EBT card starting in the 1990s. The card is indistinguishable from a credit or debit card. (The welfare version of the EBT, by the way, can be used to purchase anything from a participating vendor, and even to get cash back.) Under George W. Bush, the words “stamps” or “coupons” were removed from law in 2008 because they could be perceived as “stigmatizing.” Of course, in the past, that stigma would have been seen as a good thing, for it could spur people to do everything in their power to provide for themselves and avoid the humiliation of having to accept a handout.
A particularly notorious example of this destigmatizing of dependence was the “Julia” cartoon that appeared in one of President Obama’s campaign ads. “Julia” was shown enjoying government entitlements from preschool to retirement. No longer humiliating emblems of dependence, these social welfare transfers were “positively celebrated as part of the American dream,” Eberstadt writes. As Julia illustrates, Americans now are no longer deemed exceptional because of their self-reliance and fierce independence, but rather are growing more and more indistinguishable from like their European cousins. And like Europeans, the autonomy of Americans has been surrendered to what Tocqueville called an “immense, tutelary power,” which has taken “sole charge of assuring their enjoyment and of watching over their fate,” the “only agent and the sole arbiter of [their] happiness.”
The Culture of Dependency
This erosion of character has spread throughout the country. In the four decades from 1969 to 2009, the share of government benefits in personal income rose from 8 percent to 18 percent. In some counties, people were getting more than 40 percent of their income from the government. Even more indicative of the insidious spread of the entitlement mentality, dependence was greater in rural counties and red states.
According to a study of the Bureau of Economic Analysis and Census commissioned by the New York Times, “two-thirds of the one hundred most dependent counties in America voted for the Republican rather than the Democratic candidate in the 2008 presidential elections,” Eberstadt writes. The difficulty of reforming entitlements in part results from this tension among voters who claim they want government to “do less”––74 percent of Romney voters in this year’s exit poll said government “does too many things”––and yet who also want their own entitlements to continue.
Some may argue that this expansion in government transfers reflects adverse economic conditions such as unemployment or poverty. But the data Eberstadt collects dispute this rationale. As unemployment rates have risen and fallen over the past thirty years, “the proportion of Americans living in households seeking and receiving means-tested benefits has moved in an almost steady upward direction, essentially unaffected by the gravitational pull of the unemployment rate.” Nor do increases in entitlement spending correlate with the poverty rate. Indeed, by 2009, the “share of American families receiving poverty-related entitlements was almost three times as high as the official poverty rate for families,” and over three times the unemployment rate. Dependence on entitlements has now become a “Main Street phenomenon.”
Our Unsustainable Future
The consequences of this transformation of attitudes toward dependence have been baleful for private life as well as the economy. With family support increasingly derived from the government, the traditional role of men as providers has eroded. The result has been the “male flight from work” and “the proliferation of fatherless families and an epidemic of illegitimacy.” Although labor force participation rates for adults rose to 66 percent between 1948 and 2011, that increase is due to a steep rise in the number of women working. During that same period, male labor force participation sank from 89 percent to 73 percent. This drop is twice as large as the number of men who left the workforce because of the Great Recession. Even more shocking, before the 2008 financial crisis, men in their late thirties in America participated in the workforce at rates lower than the same cohort in Greece, the international emblem of feckless dependency and the bloated welfare state.
Another result of the spread of the entitlement mentality to the middle class is the abuse of Social Security disability insurance. In 1960, an average of 455,000 workers were receiving monthly disability payments. Fifty years later, 8.2 million were––four times the number of people on welfare. In 2011, the cost was $130 billion. This rise took place despite the remarkable improvements in health and longevity. And the average age of those receiving disability has lowered. In 2011 the rate of workers in their thirties and forties receiving disability was more than double that of the same cohort in 1960. A major driver of this increase was the addition of “mood disorders” and “back pain” to the diagnostic categories that made workers eligible for disability. Given that these can be subjective ailments, the existence of which doctors have no way of disproving, it is no surprise that today these conditions make up nearly half of all disability claims.
Finally, the biggest elephants in the room, when it comes to entitlements, are Social Security and Medicare. Despite the widespread belief that these benefits are earned through payroll taxes, in fact they represent a massive transfer of wealth from the young and unborn to the old. Rather than endowments funded by worker contributions, they are “accounting contrivances built upon a mountain of future IOUs,” Eberstadt notes. According to the Heritage Foundation, Social Security alone is projected to run a $344 billion deficit in 2035. No surprise, then, that the unfunded liabilities of Social Security for the next 75 years are $8.6 trillion, and those of Medicare are somewhere between $27 to $37 trillion. The monstrous deficits the government has been amassing for four decades correspond to payments for these two programs. And the growing $16 trillion debt caused by these deficits represent yet another transfer of wealth from future generations.
Needless to say, if these trends continue, there will be nothing left in the treasury to pay for the most important Constitutional function of the federal government––national security and defense. Despite America’s responsibilities as the maintainer of global order, without which a globalized economy cannot function, today the federal government spends three times as much on entitlements as on defense. And this ratio will worsen if the projected half a trillion dollars in cuts to the defense budget take place over the next ten years. At this pace, we will duplicate the mistake of England after World War I, when cuts in military spending to pay for social welfare programs facilitated the aggression of Nazi Germany.
The trends Eberstadt documents in this indispensible book are clearly unsustainable. But as Eberstadt cautions, the enormous wealth of America and the privileged global role of its currency mean this state of affairs can continue for a long time, as the destigmatization of dependence and the demonization of success insidiously eat away at both our massive wealth and our moral capital. As Adam Smith once said, “There is a lot of ruin in a nation.” But sooner or later, the bill will come due, and Americans will no longer be the people who created the richest and most powerful nation in history. They will be just another “nation of takers.”

---

Bruce S. Thornton is a research fellow at the Hoover Institution. He received his BA in Latin in 1975 and his PhD in comparative literature–Greek, Latin, and English–in 1983, both from the University of California, Los Angeles. Thornton is currently a professor of classics and humanities at California State University in Fresno, California. He is the author of nine books and numerous essays and reviews on Greek culture and civilization and their influence on Western civilization. He has also written on contemporary political and educational issues, as well as lecturing at venues such as the Smithsonian Institute, the Army War College, and the Air Force Academy and appearing on television, including the History Channel and ABC’s Politically Incorrect. His latest book, published in March 2011, is titled The Wages of Appeasement: Ancient Athens, Munich, and Obama's America.

---

Letters to the editor may be sent to definingideas@stanford.edu. Editors reserve the right to reject or publish (and edit) letters.

Better Schools, Fewer Dollars - MARCUS A. WINTERS

We can improve education without busting the budget.

Here’s what looks like a policy dilemma. To attain the economic growth that it desperately needs, the United States must improve its schools and train a workforce capable of competing in the global economy. Economists Eric Hanushek, Dean Jamison, Eliot Jamison, and Ludger Woessmann estimate that improving student achievement by half of one standard deviation—roughly the current difference between the United States and Finland—would increase U.S. GDP growth by about a full percentage point annually. Yet states and the federal government face severe budgetary constraints these days; how are policymakers supposed to improve student achievement while reducing school funding?

In reality, that task is far from impossible. The story of American education over the last three decades is one not of insufficient funds but of inefficient schools. Billions of new dollars have gone into the system, to little effect. Luckily, Americans are starting to recognize that we can improve schooling without paying an additional dime. In fact, by unleashing the power of educational choice, we might even save money while getting better results and helping the economy’s long-term prospects.

Over the last four decades, public education spending has increased rapidly in the United States. According to the Department of Education, public schools spent, on average, $12,922 per pupil in 2008, the most recent year for which data are available. Adjusting for inflation, that’s more than double the $6,402 per student that public schools spent in 1975.

Despite that doubling of funds, just about every measure of educational outcomes has remained stagnant since 1975, though some have finally begun to inch upward over the last few years. Student scores on the National Assessment of Educational Progress (NAEP)—the only consistently observed measure of student math and reading achievement over the period—have remained relatively flat since the mid-1970s. High school graduation rates haven’t budged much over the last 40 years, either.

GRAPHS BY ALBERTO MENA

For further evidence that hiking spending produces few educational outcomes, look at how private schools compare with public ones. That $12,922, remember, is a national average; spending in urban public school systems is often far higher. The Cato Institute’s Adam Schaeffer recently calculated total expenditures per pupil for public school systems in America’s five largest metropolitan areas and Washington, D.C. Washington spent the most—an average of $28,000 per public school student, which was more than the maximum tuition charged to attend such prestigious private schools as Lowell School ($25,120), Sheridan School ($24,700), and Georgetown Visitation School ($20,600), and only slightly below the maximum tuition charged at St. Albans ($31,428), National Cathedral School ($30,700), and Georgetown Day ($29,607). Does the handsome funding of urban public schools produce results? Not according to the NAEP, which shows, for instance, that more than 25 percent of public school eighth-graders are reading below the “basic” level, compared with only 8 percent of private school students.

Obviously, it’s misleading simply to compare the performance of private and public school students without adjusting for the type of student enrolled in each sector. A student whose parents can afford to pay private school tuition is likely to score higher on standardized tests than the average public school student, regardless of the quality of the school.

But there’s another way to prove that public schools don’t get as much for their dollars as private schools do: research on school voucher programs, which pay tuition for students (usually low-income) to attend private schools. The best studies use a random design similar to what’s used in medical trials and broadly accepted as a “gold standard” methodology. They take advantage of the fact that when more students apply for a program than there are vouchers available, the program awards vouchers randomly, ensuring that the only difference between the subsequent performance of those who received vouchers and those who didn’t is whether they wound up going to the private school or a public school. A researcher can thus compare the achievement of these two sets of students and determine which setting, public or private, does a better job.

The nearly uniform finding from this research is that students benefit academically when they attend private school, rather than the public school that they would otherwise have attended. Some disagreement persists about how large the private schools’ impact is and about whether it affects all students or only those from particular backgrounds—but not even the harshest critics claim that attending a private school harms students.

Of particular interest to budget-strapped state and local governments is that the cost of the vouchers in these studies—and even the total tuition charged by the private schools, if it’s greater than the cost of the voucher—is well below what the public schools would spend to educate the same child. For instance, economist Robert Costrell found that by paying tuition to send 18,500 public school kids to private schools, Milwaukee saved taxpayers $31.9 million in 2008.

The data on charter schools are more mixed, but the general lesson is similar. Charter schools are publicly funded schools that operate essentially as their own school districts, free of the rules that bind regular public schools. Like voucher programs, charter schools usually admit students by lottery when there are more applicants than available seats. Here again, studies using the random-assignment approach have found that charter schools in New York City, Boston, and Chicago produce better educational outcomes than the local public schools that students would have attended. Further, state funding for charter schools is, at most, equal to—and usually less than—the funding for traditional public schools. The bottom line: a substantial body of research shows that at worst, students perform as well in private and charter schools as they would have in regular public schools, and at a lower cost.

Public schools are inefficient for many of the same reasons that the Department of Motor Vehicles and other government bureaucracies are. In her book Educational Economics, University of Washington researcher Marguerite Roza shows that public school inefficiencies are largely the product of burdensome regulations imposed by a top-down organizational model. School districts collect money and allocate it from a central base according to a variety of bureaucratic rules, only some of which make sense. Schools themselves have little discretion over how to use their resources.

Consider the way public schools spend money on their most important asset: teachers. According to the Department of Education, teacher salaries and benefits account for about 54 percent of public school budgets, which surely suggests that they should be structured in a way that maximizes those dollars. Instead, teacher salaries depend entirely on two criteria that, the evidence shows, bear little or no connection to a teacher’s effectiveness: years of experience and number of advanced degrees. As a result, schools must pay higher salaries to teachers who may not be more effective than teachers lacking advanced degrees or with fewer years on the job. A more efficient system, of course, would direct capital to the teachers whom the school most wants in the classroom, regardless of what their résumés look like.

In most districts, public schools aren’t even allowed to decide which teachers to employ, since tenure ensures that principals can’t remove the least effective teachers. Most collective bargaining agreements also allow more senior teachers to push their way into job openings, regardless of whether the principal thinks they’re right for the job. Nor can schools make their own decisions about whom to keep when they’re laying teachers off: either by state law or by collective bargaining agreement, most school systems require that layoffs be carried out strictly according to seniority, without any consideration of teachers’ value. Thus, when budget cuts arrive, schools not only face staff reductions; they often lose their best young teachers. And since pay is based on seniority, the schools are simultaneously dismissing their least expensive teachers.

Policies designed to solve these problems often lead to more inefficiencies. New York City eliminated seniority-based transfers in an attempt to give principals more control over who taught in their schools. The new policy created a group of teachers who, having lost their jobs in one school, could no longer use their seniority to push their way into another school. In a normal system, that wouldn’t be a problem: those teachers could simply be fired. But the collective bargaining agreement prevented the school district from doing so. Instead, the teachers entered what the city calls its Absent Teacher Reserve (ATR), members of which are paid full salaries and benefits while continuing to move up the pay scale. The nonprofit New Teacher Project calculates that the ATR costs city taxpayers about $74 million annually.

Notwithstanding public schools’ high spending and poor results, state lawmakers and courts keep pushing for even more spending. Over the last decade, high courts in several states have ruled that public school spending in certain urban systems violates state constitutional requirements to spend enough on public schools to produce “adequate” results. These rulings have been influenced by so-called adequacy studies, which use statistical models to estimate the minimum expenditure that a school district with certain characteristics—for instance, a particular percentage of students who are low-income—must incur to produce a desired academic result.

As Costrell, Eric Hanushek, and Susanna Loeb have shown, however, these studies suffer from a variety of conceptual and methodological problems. The chart below, which is reproduced from an article by the three economists in the Peabody Journal of Education, illustrates a simplified version of the adequacy approach. Each dot on the chart represents a Missouri school district, with district spending per pupil plotted on the vertical axis and test-score performance on Missouri’s state exam, the Missouri Assessment Program, on the horizontal. The line running through the middle of the chart shows the average amount that a district spends to achieve a particular outcome. For example, districts with 40 percent of their students scoring in the top two categories on the test spend an average of $7,000 per student.

Advocates of the adequacy approach point to the line as their estimate of how much a district needs to spend to achieve a particular outcome; they would say, for instance, that if a district wants 40 percent of its students to score in the top two test categories, the district should spend $7,000 per student. But that approach is wrongheaded on many levels. First, the line shows us the average amount spent to achieve a particular result, which is not the same as showing the minimum amount necessary to achieve that result—the only meaningful definition of “adequacy” in this context. Notice the dot just to the right of the 40 percent marker but also well below the line. That dot represents an actual district spending just over $5,000 per student to achieve the 40 percent mark. That district must have adequate resources to produce the desired outcome; after all, it is actually producing that outcome with those resources! The chart shows, in other words, that the adequate funding necessary to achieve the desired outcome is $5,000 per pupil, not $7,000.

For that matter, what about the districts above the expenditure line? According to the models, those districts are spending more than they should to produce their results; that is, they are inefficient. Strangely, the authors of the adequacy studies don’t argue that money should be taken away from those districts.

Also, it’s obvious from the chart that there is great disparity in the achievement of various districts spending the same amount. Just look at how widely the dots are dispersed, and you’ll realize that the relationship between spending and achievement is far from straightforward. So the line necessarily includes an enormous measurement error. Using the line to determine how many dollars a district must spend to get certain test-score results is irresponsible, to say the least.

A final flaw of the adequacy approach is that it evaluates school spending under the current system, when it is precisely that system’s structure that leads to widespread inefficiency. Perhaps public schools don’t have adequate resources to succeed under the terrible rules governing their allocation of dollars. The answer to that problem isn’t to give even more money to them; it’s to change the system and find ways to allocate dollars more productively.

Schools don’t need more funds; they need the freedom to use their funds as they see best. That can happen only if the restrictions of the current system no longer bind them. A better system—one that the United States should begin moving toward—would be a taxpayer-funded one of relatively autonomous schools. Every school would become, in effect, a charter school. Districts would still have a role in this kind of system, imposing performance standards that schools would have to meet to keep their doors open. But it would be each school’s responsibility to adopt sound policies and use its resources wisely.

Such a system of autonomous schools isn’t as far-fetched as it once seemed. In some places, the charter sector is beginning to rival the traditional public school system. For instance, about a third of all public school students in Washington, D.C., attend charter schools. Though just 3 percent of New York City’s public school kids are in charters, certain neighborhoods post better numbers—Harlem, in particular, where the fraction is about 15 percent. School voucher programs have also surged, though far less rapidly. As I wrote recently in these pages, 2011 was the “Year of the Voucher,” with legislatures in 12 states either adopting new school voucher policies or meaningfully expanding existing ones.

As more students use public dollars to attend schools outside the traditional public school sector, student achievement will probably improve, and expenditures will certainly decline. That’s an outcome that should interest lawmakers in these fiscally troubled times.

Marcus A. Winters is a senior fellow at the Manhattan Institute, an assistant professor in the College of Education at the University of Colorado Colorado Springs, and the author of Teachers Matter: Rethinking How Public Schools Identify, Reward, and Retain Great Educators.

American Caste - KAY S. HYMOWITZ

Family breakdown is limiting mobility and increasing inequality.

CORBIS/BETTMANN

Single-parent families were nearly unheard-of at the start of the twentieth century. Today, 53 percent of births to women under 30 are out of wedlock.

When Charles Murray’s best-selling Coming Apart: The State of White America, 1960–2010appeared a few months ago, the book’s fictional working-class neighborhood, Fishtown, became one more battleground in America’s 50-year-old culture war. Fishtown was representative, Murray argued, of a new white underclass in America—one produced by cultural decline, especially the collapse of marriage. Critics objected that the real source of misery in the nation’s Fishtowns wasn’t a lack of marriages; it was the extinction of manufacturing jobs. The disagreement was familiar to culture-war veterans: conservatives versus liberals, family breakdown versus dearth of good jobs, culture versus economics, David Brooks versus Paul Krugman.

Murray might have done more to acknowledge that globalization, technology, and the knowledge economy have wrenchingly changed the working-class world. Still, Coming Apart is correct: you can’t grasp what’s happening at the lower end of the income scale without talking about family breakdown. In fact, the single-mother revolution, as I’ll call it, takes us a long way toward understanding the socioeconomic problems on everyone’s mind these days: poverty, inequality, and the inability of those at the bottom to move up.

The single-mother revolution shouldn’t need much introduction. It started in the 1960s, when the nation began to sever the historical connection between marriage and childbearing and to turn single motherhood and the fatherless family into a viable, even welcome, arrangement for children and for society. The reasons for the revolution were many, including the sexual revolution, a powerful strain of anti-marriage feminism, and a superbug of American individualism that hit the country in the 1960s and ’70s.

The first public sign that the single-mother revolution had arrived came in 1965, when Daniel Patrick Moynihan published his controversial report on the black family. As a young assistant secretary of labor, Moynihan had stumbled across data showing that the percentage of black mothers who were unmarried at the time of their children’s birth was rising, reaching a then-staggering 24 percent, even while black male unemployment was falling. This puzzled Moynihan: Shouldn’t more male paychecks meanfewer single mothers? Moynihan realized that he was uncovering a new cultural phenomenon—voluntary single motherhood—and concluded that it would impede blacks’ economic progress.

After 1965 came the deluge. Other minorities and then whites joined the revolution, and it found plenty of extra recruits among the rapidly increasing number of women made single through divorce. In its broad outlines, the story is familiar by now. When Moynihan was writing, 93 percent of all American births were to women with marriage licenses. Sure, lots of these women might have married just before the baby bump, as had long been the case—but they nevertheless had husbands, with whom they formed a unit responsible for the coming baby. Over the next few decades, however, the percentage of babies with no father around rose steadily. As of 1970, 11 percent of births were to unmarried mothers; by 1990, that number had risen to 28 percent. Today, 41 percent of all births are nonmarital. And for mothers under 30, the number is 53 percent.

Though other Western countries also concluded that it was okay for the unmarried to have kids, what they had in mind as the substitute for marriage was something similar to it: a stable arrangement in which two partners, cohabiting over the long term, would raise their children together. The embrace of “lone motherhood”—women bringing up kids with no dad around—has been an American specialty. “By age thirty, one-third of American women had spent time as lone mothers,” observed family scholar Andrew Cherlin in his 2009 book The Marriage-Go-Round. “In European countries such as France, Sweden, and the western part of Germany, the comparable percentages were half as large or even less.”

Defenders of the single-mother revolution often describe it as empowering for women, who can now free themselves from unhappy unions and live independent lives. That’s one way to look at it. Another is that it has been an economic catastrophe for those women. Poverty remains relatively rare among married couples with children; the U.S. Census puts only 8.8 percent of them in that category, up from 6.7 percent since the start of the Great Recession. But over 40 percent of single-mother families are poor, up from 37 percent before the downturn. In the bottom quintile of earnings, most households are single people, many of them elderly. But of the two-fifths of bottom-quintile households that are families, 83 percent are headed by single mothers. The Brookings Institute’s Isabel Sawhill calculates that virtually all the increase in child poverty in the United States since the 1970s would vanish if parents still married at 1970 rates.

Well, comes the response, maybe single mothers are hard up not because they lack husbands but because unskilled, low-earning women are likelier to become single mothers in the first place. The Urban Institute’s Robert Lerman tried to address that objection by studying low-income women who had entered “shotgun” unions—that is, getting married after getting pregnant—on the theory that they represented a population roughly similar to those who got pregnant but didn’t marry. The married women, he found, had a significantly higher standard of living than the unmarried ones. “Even among the mothers with the least qualifications and highest risks of poverty,” Lerman concluded, “marriage effects are consistently large and statistically significant.” In another study, Sawhill and Adam Thomas ran an experiment simulating marriages between poor single mothers and unattached men with similar characteristics. Even though the men might have incomes lower than the average married father’s, the researchers found, the new “marriages” would mean a 65.4 percent decline in the number of poor children among the families in the study and a 43.2 percent rise in per-capita income.

You might think that cohabiting mothers would have the same economic advantages as married mothers. You’d be wrong. About half of all unmarried mothers in the United States are living with the child’s father at the time of birth, and they do tend to be less poor than lone mothers—at first. But cohabiting relationships here, unlike those in Europe, have short shelf lives. According to the Fragile Families and Child Wellbeing Study, which examined couples in large American cities in the 1990s, about half of cohabiting couples split before their child was five—compared with just 18 percent of married couples. Cohabiters were also likelier to import instability and economic stress into new relationships. A full 60 percent of cohabiters—but only 21 percent of low-income married couples—already had children from earlier relationships.

Women and their children weren’t the only ones to suffer the economic consequences of the single-mother revolution; low-earning men have lost ground, too. Knowing that women are now expected to be able to raise children on their own, unskilled men lose much of the incentive to work, especially at the sometimes disagreeable jobs that tend to be the ones they can get. Ever since welfare reform, black women, the majority of whom will be single mothers at some point, have been joining the employment rolls while black men have been leaving them. Murray finds a similar divergence among working-class whites. In fact, scholars consistently find that unmarried men work fewer hours, make less money, and get fewer promotions than married men do.

Experts have come to believe that these are not just selection effects—that is, they don’t just reflect the fact that productive men are likelier to marry. Marriage itself, it seems, encourages male productivity. One study by Donna Ginther and Madeline Zavodny examined men who’d had “shotgun” marriages and thus probably hadn’t been planning to tie the knot. The shotgun husbands nevertheless earned more than their single peers did.

In describing what’s happened in places like Murray’s Fishtown, the conventional narrative generally doesn’t mention the single-mother revolution. Instead, it goes like this: in the past, men could drop out of high school and still earn enough to support a wife and children. Manufacturing jobs gave those men and their kids a foothold into the middle class. Today, however, low-skill factory jobs have either fled to China and Thailand or are being automated. High school dropouts—and grads, too—find themselves chopping tomatoes at Applebee’s or delivering newspapers. Men suffer, remembering how their grandfathers proudly worked the line; many give up. “The move from blue-collar to service work is brutal, and over time some employees lose the will to stick it out in a hateful job,” The New Yorker’s George Packer writes.

Meantime, women not only have joined the workforce; they have watched their earnings rise. Finding that they can “afford to go it alone,” as economist Nancy Folbre explained in a recent New York Times column, they became choosier about whom to marry, and many decide not to marry at all and to raise children on their own. But those children have been dealt a bad hand by the same forces of globalization and technology that hammered their fathers. These days, the Pew Economic Mobility Project reports, 42 percent of American children whose parents had earnings in the bottom quintile end up there as adults, a significantly higher percentage of immobility than one finds in Canada and much of Europe.

Parts of this story are indisputable. Good manufacturing jobs have indeed declined. The earnings of male high school dropouts and grads have barely budged since 1974. Jobs with health and retirement benefits aren’t so easy to find. Women are earning more and men less.

But the narrative’s omissions undermine its economic logic. For one thing, contra Folbre, many single mothers are barely getting by, as we’ve just seen. A father’s contribution to the family income, even if it was just $15,000, would dramatically improve the mother’s lot, not to mention that of her—or rather, their—children. Second, if you live the right way, it’s still possible to move up to the middle class, despite the factory closings of the last few decades. Ron Haskins of the Economic Mobility Project puts it this way: “If young people do three things—graduate from high school, get a job, and get married and wait until they’re 21 before having a baby—they have an almost 75 percent chance of making it into the middle class.” Those are pretty impressive odds.

As Haskins’s point suggests, one factor (though far from the only one) in America’s poor showing in the mobility rankings is the rise in single motherhood, which is more pronounced in the U.S. than in most developed countries. After all, the children of single mothers are twice as likely as children growing up with both parents to drop out of high school. Those who do graduate are less likely to go to college, even if you control for household income and the mother’s education. Decades of research show that kids growing up with single mothers (again, even after you allow for the obvious variables) have lower scholastic achievement from kindergarten through high school, as well as higher rates of drug and alcohol abuse, depression, behavior problems, and teen pregnancy. All these factors are likely to reduce their eventual incomes.

In sum, the single-mother revolution encouraged lower-income men and women to think that mothers could manage on their own—at the very historical moment that their children needed more education, moretraining, and more planning. The rise in single motherhood was ill adapted for the economic shifts of the late twentieth century.

On the other side of the tracks, parents in the upper income quintiles were able to accommodate both their child-rearing and marital habits to the new economic realities. College-educated mothers were never full participants in the single-mother revolution. Though many are reluctant to say it aloud, they still tend to see children and marriage as a package deal. They’re almost always married before they have children, and their divorce rate has been falling since the 1980s. Not only do college-educated mothers themselves make more money than their less educated counterparts; they generally have a joint bank account, too.

Add what social scientists call “assortative mating” to the mix, and you have greater, more intractable inequality. Assortative mating refers to marriages between men and women of similar educational status. In the past, women tended to “marry up”: nurses married doctors and secretaries their bosses. But as women increased their presence on campuses and then began to bring home more money, college-educated men decided that they were better off marrying one of their own. Think of the implications for household earnings. A lawyer was always likely to earn more than a plumber—but today, plenty of upper-income households are headed bytwo lawyers. That considerably widens the gap between a power couple and a lower-middle-class duo. Sociologist Christine Schwartz has estimated that assortative mating brought about a 25 percent to 30 percent increase in inequality among married-couple families between 1967 and 2005. Between power couples and single-mother families, the gap is far wider.

Assortative mating also affects mobility. Greg Duncan and Richard Murnane found that between 1972 and 2006, well-to-do parents more than doubled their “enrichment expenditure” on their children, paying for activities like music and art classes, books, sports, and tutoring. And money isn’t the whole story. Those children are more likely to have two parents, both actively invested in their well-being, living in the house. Beginning in the 1990s, researchers discovered, parents began spending more time with their kids even while mothers were more likely to be at the office during the day; the increases were especially high among college-educated mothers and fathers. Research by Meredith Phillips of UCLA shows that high-income parents of children up to six years old spent an average of 1,300 more hours taking their children to “novel” places (that is, other than their homes, day-care centers, or schools) than lower-income parents did.

It’s easy to poke fun at “helicopter parents,” but in today’s economy, their investments pay off. In a wittily titled article, “The Rug Rat Race,” psychologists Valerie and Garey Ramey of the University of San Diego speculate that college-educated parents are reacting to the increased competition for college admissions by relentlessly building their kids’ cognitive, social, and emotional skills even in the earliest years. The approach appears to have worked: child rearing of this sort prepares kids for college and turns them into competitive workers in a knowledge-based economy. The news from the lower end of the economic scale, of course, is quite different. Not only do poorer children have fewer “enrichment expenditures”; they also get less parental time and involvement. Their educational outcomes show it, and so do their future earnings.

So the single-mother revolution has left us with the following reality. At the top of the social order is a positive feedback loop, with kids raised in stable, high-investment, and relatively affluent homes going to college, finding similar mates, and raising their own children in stable, high-investment, and relatively affluent homes. At the bottom is a negative feedback loop, with kids raised by single mothers in unstable, low-investment homes finding themselves unable to adapt to today’s economy and going on to create more unstable, single-mother homes.

Not only do we have more poverty, inequality, and immobility; we have the makings of a caste society, with an inherited elite and an entrenched proletariat. That’s not an America that anyone finds very attractive.

Kay S. Hymowitz is a contributing editor of City Journal, the William E. Simon Fellow at the Manhattan Institute, and the author of Marriage and Caste in America.