Refusing to learn

Dismal Science

By WILLIAM EASTERLY November 15, 2006; Page A18

Scientific American, in its November 2006 issue, reaches a "scientific judgment" that the great Nobel Prize-winning economist Friedrich Hayek "was wrong" about free markets and prosperity in his classic, "The Road to Serfdom." The natural scientists' favorite economist -- Prof. Jeffrey Sachs of Columbia University -- announces this new scientific breakthrough in a column, saying "the evidence is now in." To dispel any remaining doubts, Mr. Sachs clarifies that anyone who disagrees with him "is clouded by vested interests and by ideology."

This sounds like one of those moments in which the zeitgeist of mass confusion about national poverty, world poverty and prosperity comes together in one mad tragicomic brew.

Hayek: Sachs appeal

First, Mr. Sachs disses the great Hayek by repeating the old canard that Hayek thought any attempt at taxpayer-funded social insurance would put us all on the "Road to Serfdom." This is an especially strange charge, since Hayek (while certainly opposed to the social engineering that proponents of a full-blown welfare state usually have in mind) himself calls for some form of taxpayer-funded social insurance against severe physical deprivation on pages 133-134 of "The Road to Serfdom." Mr. Sachs, who is currently best known for his star-driven campaign to end world poverty, has apparently spent more time studying the economic thinking of Salma Hayek than that of Friedrich.

Second, if he had studied (Friedrich) Hayek, Mr. Sachs would realize what "The Road to Serfdom" is really about, and how it is of great relevance to Mr. Sachs's own current work, which has ironically little to do with what he wrote about in Scientific American. Hayek's great book is all about the dangers of large-scale state economic planning, courageously written in 1944 when Soviet central planning, technocratic socialism and administrative control of the wartime economy appealed as a peacetime model to many New Dealers, celebrity economists and policy wonks of all stripes.

The countries that are now rich subsequently listened enough to Hayek and to common sense to avoid the road to serfdom. Yet today, Mr. Sachs (in his book "The End of Poverty") is peddling his own administrative central plan -- 449 steps in all -- to end world poverty. In his plan, the U.N. secretary-general (to whom he is an adviser) would supervise and coordinate thousands of international civil servants and technocratic experts to solve the problems of every poor village and city slum everywhere. Mr. Sachs is not in favor of central planning as an economic system, but he offers it as a solution, anyway, to the multifold problems of the world's poorest people. If you want the best analysis of why the approach of Mr. Sachs and his confreres in Hollywood and the U.N. will fail to end world poverty this time (as similar efforts failed over the past six decades), you can find it in Hayek.

Third, Mr. Sachs's attempt to make the case for his best possible society, the Scandinavian welfare state, is a little shaky. If this is what passes for the scientific method in Scientific American, American science is in even worse shape than we thought. Economics is usually about the incentives that cause people to solve their own or other peoples' problems, but to Mr. Sachs, problem-solving seems always to be about raising more public money for whatever cause he is concerned with at the moment. (To give the celebrity economist his due, he does successfully raise the profile of genuinely tragic problems which compassionate people everywhere would like to see alleviated.)

Mr. Sachs's empirical analysis purports to show that Nordic welfare states are outperforming those states that follow the "English-speaking" tradition of laissez-faire, like the U.K. or the U.S. Poverty rates are indeed lower in the Nordic countries, although the skeptical reader (probably an ideologue) might wonder if the poverty outcome in, say, the U.S., with its tortured history of a black underclass and its de facto openness to impoverished but upwardly mobile immigrants, is really comparable to that of Nordic countries.

Then there is the big picture, where those laissez-faire Anglophones in, first, the U.K. and, then, the U.S., just happened to have been the leaders of the ongoing global industrial revolution that abolished far more poverty over the past two centuries than a few modest Scandinavian redistribution schemes. Mr. Sachs apparently thinks the industrial revolution was led by IKEA. Lastly, let's hear from the Nordics themselves, who have been busily moving away from the social welfare state back toward laissez-faire. According to the English-speaking ideologues that composed the Heritage Foundation/Wall Street Journal Index of Economic Freedom, Denmark, Finland and Sweden were all included in the 20 countries classified as "free" in 2006 (with Denmark actually ranked ahead of the U.S.). Only Norway missed the cut -- barely.

Mr. Sachs is wrong that Hayek was wrong. In his own global antipoverty work, he is unintentionally demonstrating why more scientists, Hollywood actors and the rest of us should go back and read "The Road to Serfdom" if we want to know what will not work to achieve "The End of Poverty." Hayek gave the best exposition ever of the unpopular ideas of economic freedom that somehow triumph anyway, alleviating far more national and global poverty than more fashionable Scandinavia-envy and grandiose plans to "make poverty history."

Mr. Easterly, professor of economics at New York University, is the author of "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good" (Penguin, 2006).

	URL for this article: http://online.wsj.com/article/SB116355956112023480.html

Copyright 2006 Dow Jones & Company, Inc. All Rights Reserved

Effective tax systems

Tax Epiphany November 13, 2006; Page A16

A bright light descended from the sky last week and shone upon the world's economic planners. It came courtesy of the World Bank, of all unlikely places; its toiling economists have discovered that simplified tax systems promote economic growth.

In a report titled "Paying Taxes -- The Global Picture," the World Bank and its co-authors at PricewaterhouseCoopers make the case for simplifying business taxes. Burdensome rules and multiple levies, they argue, promote tax evasion even when individual corporate tax rates are low. Make the system transparent and simple, and the private sector will pony up. It's an argument that could be made for personal income taxes, too.

Released as an elaboration of the Bank's broader and valuable "Doing Business Report," the survey examines the tax regimes of 175 countries between April and July this year. It looks at the administrative tax burden that a hypothetical, limited liability company with 60 employees would face.

The Bank's findings echo that of the flat-tax camp; namely, simple tax regimes promote compliance and efficiency. By "simple," the Bank doesn't just mean unifying rates; it includes making the forms easy to read, understand and file. World-wide it takes an average of 332 hours a year for businesses to comply with tax requirements, ranging from 2,600 hours in Brazil to 325 in the U.S. to 68 in Switzerland. There's no reason a tax form can't fit on a few pages, as in Hong Kong, or be filed over the Internet, as in Singapore.

Tax simplification also means trimming the tax regime itself. The Bank found that corporate income taxes compose only 36%, on average, of businesses' annual tax burden. Property, dividend, capital gains, municipal, and social security taxes, among others, make up the rest -- not to mention the various loopholes carved out for certain industries. Countries such as Egypt, which unified its corporate tax rates and eliminated about 3,000 corporate exemptions and tax holidays last year, saw tax filings double. Russia implemented a flat tax in 2004 and saw tax revenues soar.

The Bank pulls no punches for its main clientele: poor countries that have trouble raising funds. Many make the mistake of setting high tax rates. By doing so, they tacitly encourage tax evasion and create opportunities for corruption. Little wonder that the bottom 30 countries in the "Doing Business" survey "are twice as likely as those in the top 30 to report that bribery is a problem."

If only the high-tax prophets at the International Monetary Fund were paying attention. In a recent working paper, three Fund economists -- writing in a "personal" capacity -- put out an anti-flat tax screed. We don't have the space to dissect the entire paper here, but in essence they wave away the experience of Hong Kong and Russia and argue that the pro-market signals flat taxes send won't do any good for developed nations.

We never thought we'd say this, but perhaps the World Bank can lend the Fund a few economists for some re-education assistance. The IMF bias has long been to elevate balanced budgets as the highest fiscal priority, with tax levels and tax incidence as secondary matters. The Bank business tax survey implicitly exposes the error of the Fund's ways. Combined with President Paul Wolfowitz's long-needed campaign against corruption, the tax report also marks a welcome turn at the Bank in a pro-growth direction.

The Bank's report should also inspire a more thoughtful debate over the virtue of value-added taxes, or VATs. More than 130 countries have adopted VATs, with the IMF pushing hard for its implementation in places like Hong Kong. The VAT is a highly efficient tax and in that way has an advantage over a corporate income tax regime with high rates but many loopholes. But that very efficiency also makes a VAT dangerous as an engine of bigger government because its incidence tends to be hidden and politicians are tempted to raise the rate whenever they want a little more revenue. Some built-in restraint on that political impulse is needed.

The overriding goal of any tax system should be to raise the revenue that governments need for public purposes with the least amount of economic distortion and evasion. The lesson of the World Bank report is that the more transparent and simple a tax scheme, the more it will achieve that purpose.

	URL for this article: http://online.wsj.com/article/SB116337301919721029.html

Copyright 2006 Dow Jones & Company, Inc. All Rights Reserved

Failing to get it right!

See a Good Idea. See It Run Into Trouble.

By PAUL BESTON November 9, 2006; Page D6

In 1991, a New York State teacher of the year, John Taylor Gatto, wrote an op-ed for The Wall Street Journal in which he announced his departure from public school teaching after 30 years. He was no longer willing to "hurt kids" in a broken system where political pressure snuffed out worthy efforts for change. By now, he wrote, "even reformers can't imagine school much different."

Indeed, the first priority of education reformers is often not success but the preservation of methods with which they are already comfortable. As Harold Henderson writes in "Let's Kill Dick and Jane," the American educational establishment possesses "an uncanny ability to transform golden ideas for change -- from left, right, or center -- into a leaden sludge." Mr. Henderson, a longtime staff writer for the Chicago Reader, describes the fate of one textbook company -- Illinois-based Open Court -- as it tried to bring its share of golden ideas to a resistant school system.

Some teachers, complained a consultant, had 'all the spirit and excitement of baked halibut.'

The book's title refers to the basal readers that were once a mainstay in American schools: Dick and Jane, created by advocates of the "Look-Say" theory of reading instruction in which children were taught to memorize the appearance of words at the expense of phonetic understanding. The theory has since been discredited, at least in part by the publication in 1955 of Rudolf Flesch's best-selling "Why Johnny Can't Read," which urged a return to phonics instruction.

Blouke Carus and his wife, Marianne, Americans with strong German roots and a familiarity with the exacting standards of the German gymnasium, read Flesch's book and formed Open Court in 1962. Together with a small band of dedicated educational theorists and consultants, they created innovative materials with the goal of educating the American masses as rigorously as the elites of Europe. Providing both a history of this remarkable company and a withering portrait of the education culture, Mr. Henderson's book is more compelling than any lay reader could reasonably expect.

The vision of Open Court was to break down what Mr. Henderson calls "the false dichotomy between traditionalist 'skills' and progressivist 'meaning'" and focus simply on what worked. Incorporating the traditionalist emphasis on skills (particularly phonics) and the progressive insight that different children learned differently, the company managed to attract opposition from both sides.

But the most vigorous objections came from progressive advocates of Whole Language. This theory rejected specific skill instruction in favor of "meaningful contexts" for reading. Some of its practitioners believed that reading could be learned as easily as talking; others feared that a systematic focus on skills was somehow akin to cultural and economic oppression. Dismissing these chimeras, Open Court argued that depriving children of such skills was the true act of oppression in a society where the boundaries of opportunity were drawn mostly by ignorance.

A recurring theme of "Let's Kill Dick and Jane" is the anti-intellectual rigidity of the educational establishment, which continually resisted the research-based methods that Open Court employed. The effectiveness of Open Court's pedagogy, to the extent that it was measured, indicated that Blouke and Marianne Carus knew what they were doing. The overt resistance of professional educators lessened somewhat over time, only to take on more subtle forms. Even when the educational system seemed ready to respond to cries for reform, as in California in the 1980s -- where Open Court's materials were found to be the only ones that met the state's promising new standards -- bureaucracy and the status quo ultimately prevailed.

The publishing company was eventually worn down by organizational and financial difficulties. It never commanded more than a small percentage of the textbook market and was finally sold, in 1996, to McGraw-Hill, which has doubled the sales of its materials. But the question of what might have been lingers. For all of the challenges the company faced, perhaps the most insurmountable was securing the commitment of teachers: They were often too deeply attached to their established routines, which were much less demanding than what Open Court was asking of them.

Their resistance, Mr. Henderson stresses, was caused more by inertia than ideology: "They have all the spirit and excitement of baked halibut," complained one Open Court consultant on a school visit. Contrast this dull conformity with the passion of consultants and creators of Open Court, one of whom says simply: "If you teach a child to read, you never have to do another right thing in your life."

And therein lies a fundamental dilemma. In the U.S., such dedication is more typically associated with those who work in business or the more lucrative professions. Despite decades of reforms, an unanswered question hangs over the education debate: how to find enough spirited, and gifted, people to do vital work that does not pay especially well and that has none of the glamour bestowed by success in the private sector.

The American education culture, Mr. Henderson concludes, "can assume a veneer of progressivism or traditionalism as the times dictate, but its routines lie deeper than ideology." The founders of Open Court, and education reformers before and since, can testify to the truth of those words.

Mr. Beston is a writer in Beacon, N.Y.

	URL for this article: http://online.wsj.com/article/SB116303151470417925.html

Copyright 2006 Dow Jones & Company, Inc. All Rights Reserved

Vouchers and choice

Vouchers in Black and White November 8, 2006; Page A22

One frequent, and nasty, argument against school vouchers is that they will end up resegregating public schools. It's all the nastier because the truth is the opposite, as some new evidence shows.

The liberal Urban League has charged that school vouchers -- which go mostly to minority families -- would "subsidize segregation." And the theme has been picked up by no less than Senator Hillary Rodham Clinton, who according to Newsday explained her opposition to school choice this way to liberal activists in the Bronx earlier this year: "First family that comes and says 'I want to send my daughter to St. Peter's Roman Catholic School,' and you say, 'Great, wonderful school, here's your voucher.' Next parent that comes and says, 'I want to send my child to the school of the Church of the White Supremacist . . .'"

Yes, she really said that. We doubt many inner-city black and Latino families that benefit from vouchers are demanding that their kids attend white supremacy schools, even if there were such schools. Come to think of it, what specific schools is Mrs. Clinton referring to? She and her husband of course sent their daughter to one of Washington, D.C.'s most elite, and mostly white, private schools.

She can't mean the schools in Milwaukee and Cleveland, where a new study by Greg Foster of the Milton and Rose Friedman Foundation finds that vouchers have allowed students to move to more racially integrated private schools. The Friedman Foundation favors school choice, but its data here seem unassailable and the Foundation is challenging anyone to refute it. The study finds that in 2003 private voucher schools in Milwaukee were 13% more racially diverse, and the Cleveland voucher schools 18% more diverse, than their public school counterparts.

America's inner-city public schools remain highly segregated primarily because the neighborhoods and school districts are themselves divided by race or ethnicity. The public urban schools, Mr. Foster finds, tend to "reproduce the segregation that arises from housing patterns." Vouchers increase racial mixing in schools, the study concludes, because "they break down geographic barriers, drawing together students across neighborhood boundaries in a way the government school monopoly cannot match even when it tries to do so."

In the 50 years since Brown v. Board of Education, educators have thought that if they could integrate the schools, even using such detested strategies as forced busing, school quality would improve. It hasn't. School vouchers give inner-city and other kids a chance to escape failing public schools, and it's a nice bonus to know that this choice will produce classrooms that, to borrow a famous phrase, look like America.

	URL for this article: http://online.wsj.com/article/SB116294748447716417.html

Copyright 2006 Dow Jones & Company, Inc. All Rights Reserved