EWSEWS INKINK THE BEACON HILL INSTITUTE NN LL AT SUFFOLK UNIVERSITY

Vol. 3, No. 4 IDEAS AND UPDATES ON PUBLIC POLICY Summer 1999 The real surplus story When government "saves" more, we save less

ast year, Massachusetts ran credit for whatever alchemy has turned low- a surplus of $848 million. tax Reagan-era deficits into high-tax Bush This year, the surplus will be and Clinton-era surpluses. L about $600 million, close to the average over the last six years. State A personal saving plunge and local officials point with joy and relief For evidence of the questionable at capital projects spared the budgetary basis of this euphoria, consider the axe. Others glow with pride over the nation’s plummeting personal saving rate. state’s bond rating. But we’ll say it again: With government at all levels running RAY SHAMIE government surpluses are not good news. large and growing surpluses, U.S. personal BHI remembers its founder and Government surpluses are mon- saving has declined sharply in recent years eys collected from taxpayers as a result of and is now negative (running in June at senior advisor, who died on June 8. (See page 4.)

The chart on page 6 shows that the personal saving rate has been moving in a direction opposite that of the government saving rate. The association is too strong to be dismissed as unimportant or as mere coincidence. There could be more than one reason for this phenomenon. A rising stock market could en- courage consumption at the expense of personal sav- ing. People might be letting their bulging stock port- folios do their saving for them. Yet, a comparison of the Dow Jones In- dustrial average and the personal saving rate doesn't suggest this is happening. And the gains registered revenue underestimates made at budget an annual rate of about -$63 million) for by the stock market could, as we know, prove illu- time. When those underestimates become the first time since 1933. sory. Surely, there is something worrisome about a routine and when government keeps the Could it be that when govern- consumption-driven expansion predicated on indefi- unplanned revenues, rather than returning ment saves more (runs surpluses), nitely rising stock prices. them to taxpayers, the surplus is rightly people save less? A comparison of two Suppose government had been running a seen as a way of funding projects that economic indicators proves revealing. balanced budget all along. Then one year, because wouldn’t pass muster if subject to normal The first is the personal saving rate, of unanticipated revenue inflows, government ends budgetary scrutiny. which is to say, the amount people save up running a surplus. Now the federal government has expressed as a percentage of their dis- According to what we might call the con- caught up with the state governments in posable income. The second is the gov- ventional wisdom, private saving (the sum of per- committing this budgetary legerdemain. ernment saving rate, measured as the sonal and business saving) will remain undimin Republicans and Democrats agree that the combined federal, state and local sur- U.S. surplus will come to about $3 trillion plus expressed as a percentage of gross over the next ten years. Both parties claim domestic product. continued on page 6 BEACON HILL INSTITUTE From the Executive Director

any will remember Ray in Washington, D.C. and , and testi- Shamie as a candidate for mony at both the Congressional and state lev- U.S. Senate and as the els. The Shamie Center's charismatic chairman who Now, the Beacon Hill Institute has M rebuilt the Republican established the Ray Shamie Center for Civic aim is to create a Party in Massachusetts. Enterprise. The Shamie Center’s aim is to cre- At the Beacon Hill Institute, we ate a more humane society by bringing to the more humane society remember him most as an innovator and public domain the ingenuity, drive and know- by bringing to the a humanitarian. He how that ani- thought long and hard mate a market public domain the about how best to help economy. To drive and know-how human beings suffer- that end it will ing adversity. He con- study, develop, that animate a mar- cluded that the founda- articulate and ket economy. tion to a better life was disseminate in- through personal re- formation on sponsibility and disci- how private ini- pline. But he knew that tiatives can im- people often need sup- prove society. port and guidance as The Shamie Cen- they move toward self- ter will be lo- NewsLink is published quarterly sufficiency. cated within the by the Beacon Hill Institute for Pub- Ray encour- Beacon Hill Insti- lic Policy Research at Suffolk Uni- aged us to develop al- tute. Joseph Gal- versity. The Beacon Hill Institute fo- ternatives to what he lant, former Sec- cuses on federal, state and local eco- saw as the failed wel- retary of the nomic policies as they affect citizens fare system. He believed that private or- Massachusetts Executive Office of Health and and businesses, particularly in Mas- ganizations were the cornerstones to real Human Services, has been named Director of sachusetts. The institute uses state- welfare reform. In December 1995, with the Shamie Center. of-the-art statistical, mathematical Ray’s support, BHI published Giving We hope the Shamie Center will be- and econometric methods to pro- Credit Where Credit is Due: A New Ap- come a fitting legacy to a remarkable man. vide timely and readable analyses proach to Welfare Funding, which de- that help voters, policy makers and scribed how welfare services in the A Dinner to Remember Ray Shamie opinion leaders understand today’s United States could be privatized leading public policy issues. through federal tax credits for gifts to On Thursday, October 14, the Beacon charitable organizations. We followed Hill Institute will host a dinner at Boston’s PUBLISHER that with two more major publications, Fairmont Copley Plaza Hotel to remember DAVID G. TUERCK opinion editorials, forums and seminars Ray Shamie. Edna Shamie will be our guest EXECUTIVE DIRECTOR of honor. All proceeds will help endow the Shamie Center. I hope you’ll plan on attend- PRODUCTION IN THIS ISSUE ing. (See page 5 for details.) ELLEN F. F OLEY DIRECTOR OF COMMUNICATIONS News BHI and Heritage Foundation to study state taxes BHI teams up to study taxes with EDITOR the Heritage Foundation ...... 3 We’re pleased to announce that the FRANK CONTE prestigious and influential Heritage Founda- PUBLICATIONS EDITOR Appreciation tion and the Beacon Hill Institute have (ISSN 1094-0707) Ray Shamie's legacy...... 4 formed a strategic alliance to study tax policy at the state level. Our first effort is a ©1999 Beacon Hill Institute for News reestimation of BHI’s Ohio STAMP, com- Public Policy Research, Suffolk BHI affixes STAMP to Virgina...... 6 pleted during the summer. You can down- University, 8 Ashburton Place, load the entire study from our web site at Boston, MA 02108-2770. Voice, Bookmark http://www.beaconhill.org. (617) 573-8750; fax, (617) 720-4272; Lester C. Thurow's Building e-mail, [email protected]; web Wealth reviewed ...... 7 David G. Tuerck site, http://www.beaconhill.org.

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BHI and Heritage Foundation announce strategic partnership

he Beacon Hill Institute coordinate research efforts with BHI’s and the Heritage Foun- STAMP team of economists. The Center dation have announced a for Data Analysis is a state-of-the-art re- T strategic partnership to search center designed to analyze the ef- combine BHI’s State Tax Analysis fects of public policy changes on indi- Modeling Program (STAMP) with the viduals, families and businesses at the Heritage Foundation’s federal and local, state and national levels. state tax analysis capabilities. William Beach, director of the BHI will combine resources Center for Data Analysis, said “Our stra- with Heritage to show how national tegic alliance with the Beacon Hill Insti- economic conditions and state and tute will allow us to expand greatly the federal policy changes affect state ability of both organizations to perform economies. The Heritage/BHI Model economic analysis of tax policy changes will provide: in the 50 states.” •An invaluable tool for mod- The first project undertaken as eling the effects of both federal and part of the partnership was an updating A NEW ALLIANCE - David Tuerck of state tax changes on jobs, wages, capi- of the Beacon Hill Institute’s Ohio BHI and Becky Norton Dunlop, Vice tal spending and tax revenues; STAMP conducted during the summer. President for External Relations at the •Tax revenue analysis that In performing the update, BHI found that Heritage Foundation, announce a joint accounts for the dynamic effects of Ohio could add $1.9 billion to payrolls, effort to study state tax policy during the American Legislative Exchange policy changes; create 56,000 new jobs and take 25% of Council's annual meeting in August. •An independent review of state taxpayers off the tax rolls by con- state tax programs and proposals; and solidating the existing tax schedule from Heritage and BHI expect to •An innovative way to dem- nine to three brackets. BHI ‘s Ohio model four additional states by the end onstrate the impact of tax changes on STAMP, first used in 1998, helped derail of the year. Said BHI executive director the citizens of individual states. efforts to raise Ohio’s state sales tax from David Tuerck, “Anyone who pays taxes The Heritage Foundation’s 5% to 6%. should be happy to hear about this new noted Center for Data Analysis will partnership.” Media Mentions

David Tuerck appeared on New England appeared in Mass High Tech (July 12-18). The (Attleboro, MA) and Union Leader Cable News on August 24. His topic was cited us in its editorial of July 5, (Manchester, NH). MBTA spending. “A new look at gains tax” and quoted us on June 30, “Capital gains tax chal- Our BHI Faxsheet on unemployment insur- Joseph Gallant, Director of BHI’s Shamie lenged.” ance received coverage in the Boston Globe, Center for Civic Enterprise, had letters to “Lower unemployment insurance tax rates the editor in three publications: The New David Tuerck’s editorial, “State needs gov’s seen bringing new jobs” and in the Boston Republic (“Keeping the Faith,” August 9), tax cut,” appeared in the Boston Sunday Her- Herald, “Study backs gov’s unemployment Boston Herald (“Alliance fails logic,” Au- ald (June 27). The Boston Herald cited us in its insurance plan,” (June 24). The Boston Her- gust 8) and Boston Globe (“’Work first’ pro- July 9 editorial, “Bigger tax cut possible.” ald referenced us in its editorial, “This pre- vision is essential to reform,” July 26). mium cut has large benefits,” (June 25). Announcement of the establishment of the David Tuerck discussed minimum Ray Shamie Center for Civic Enterprise re- On June 17, David Tuerck was interviewed wages on WBZ radio’s “David Brudnoy ceived coverage throughout Massachusetts on education spending on KTSA radio Show” on July 30. The Boston Globe cited and New England. A Boston Globe piece, “A (). The Boston Globe covered BHI on the same day (“Minimum pay new ‘Enterprise’ for Suffolk University,” ran us on June 16, “Study: Money not key to hike advances”). on June 22. Other newspapers covering the school success.” story included the Boston Business Journal, Bos- Our analysis of the proposed capital gains ton Herald, Cape Cod Times, Daily Evening Item tax increase in Massachusetts attracted at- (Lynn, MA), Eagle-Tribune (Lawrence, MA), tention. David Tuerck’s editorial, “Capi- Enterprise (Brockton, MA), Metrowest Daily tal gains boost could affect many of us,” News (Framingham, MA), Sun Chronicle

PAGE 3 / SUMMER 1999 BEACON HILL INSTITUTE Ray Shamie: An innovator at heart

ver the span of a lifetime,” of this year. His legacy is formidable, extend- he said. “From their hand has come material "O Ray Shamie once wrote, “I ing over the world of business, politics and progress, such as better food, clothing, hous- have observed the hard- philanthropy. ing, transportation, even more leisure time.” ships of severe economic In commerce, he relentlessly pursued Ray Shamie’s contribution to the depression, the devastation of war and the the invention of new products when others wheel of progress came in 1951 when he told inequalities of the human condition. I doubted their market appeal. In politics, tak- his employer, Indian Motorcycle Company, have marveled at the ability of the Ameri- ing on an equally Sisyphean task, he answered about a niche market he saw developing. His can people to rebound, to overcome ad- the call to fill a void when others declined; he employer was not interested, so Ray Shamie versity, and to move ahead once again.” ran twice as a Republican for U.S. Senate. His borrowed money from family and friends to Only a man who had lived a full sense of class and dignity won him the re- start his own company. Metal Bellows, lo- life as an entrepreneur, an innovator, a po- spect of both sides of the political aisle. In cated in Sharon, Massachusetts, would be- litical leader, a veteran, a philanthropist 1984, David Brudnoy, writing in the National come a world leader in the production of high and a family man could find comfort in Review, noted the “appeal, decency, and at- precision instruments. waging a battle against adversity and in- tractiveness” of this businessman-turned- Today, Ray Shamie’s metal bellows difference. Ray Shamie, the industrialist, candidate. Never one to play up his wealth are found in NASA space shuttles, jet airlin- was a self-made man because he perse- or intelligence, Ray Shamie never lost the ers, nuclear plants and pollution control vered. He be- equipment. The principle that animated lieved in the the metal bellows later led to the creation power of ideas. of another use: an implantable drug-deliv- And, most im- ery system call the “infusaid pump.” So portant, he be- profound was his impact in the develop- lieved in the en- ment of these invaluable and technically durance of time- sophisticated devices, that the Boston Globe less ideas such as has characterized Ray Shamie as, “A giant freedom and re- in the world of widgets.” sponsibility. He Beyond business could see oppor- Ray Shamie moved naturally from tunity where oth- the world of business to the world of policy. ers saw only cri- He knew that education was seminal to sis. He believed opening minds. Recognizing the need for that individuals, better understanding of the free enterprise left unimpeded, system, Ray Shamie developed the Execu- could create a bet- tive Forum at Metal Bellows. This con- ter, more inclu- sisted of monthly on-the-clock meetings sive and prosper- featuring films, speakers and panel discus- ous civil society. sions. It also included a small resource li- He maintained brary of economics texts and a bulletin that the family played the most impor- human touch; his first campaign’s political board for employees to post articles on cur- tant role in educating and molding slogan was, “You can call me, Ray!” rent events. In 1981, Industry Week magazine character and that no society could recognized Ray Shamie for his efforts to pro- flourish without it. His devotion to his A Man of Progress mote a better understanding of the private wife of 56 years, Edna, and to his fam- Born in Brooklyn in 1921, Ray enterprise system. ily testify to those values. Shamie’s early years were not easy. His father Ray Shamie entered politics reluc- As an entrepreneur, he created died in a traffic accident while he was in high tantly, but once he did, he gave it his all. Un- jobs for hundreds of people and as a phi- school. An exceptional student, young Shamie derstanding that Massachusetts voters must lanthropist, he contributed millions to put his education on hold to find a job during have legitimate choices when it came to elect- charities. Moreover, he used his resources the Great Depression. That in itself was no easy ing their leaders, he undertook the formidable in the service of his beliefs. He sowed the task. Through the help of a family friend he challenge of reinvigorating the Republican Party seeds of an intellectual revolution in Mas- found work at the Horn and Hardart automat in Massachusetts. Twice this required his run- sachusetts by establishing think tanks that mopping floors and busing tables. ning for U.S. Senate; first in 1982 against incum- would nudge the Commonwealth toward While the Great Depression soured bent Senator Edward Kennedy and again in freer markets and smaller government. many, it molded some of Ray Shamie’s deepest 1984 against John Kerry. Though he didn’t win Ray Shamie succumbed to can- beliefs. “The whole essence of progress, people, either election, he wasn’t deterred. He accepted cer at his Naples, Florida home on June 8 the human race, stems from people who strive,” continued to page 5

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of self-help, hard work and a belief that life can “Welfare Reform: The Next Generation.” Shamie be made better. Having lived through hard eco- “Ray might rail against what he used continued from page 4 nomic times, he was keenly aware of the plight to call the corrupt, liberal welfare state,” said Gov- the chairmanship of the Massachusetts Repub- of the disad- ernor A. Paul Cellucci in his eulogy. lican Party. His efforts were in large part re- vantaged in “But at the very same time, he took a sponsible for a remarkable victory in 1990: the society. And keen interest in the problems that new governor, lieutenant governor and trea- he remem- these liberal ideas were meant to ad- surer headed the list of winners with “R” af- bered the help dress. Ray Shamie obsessed about ter their names. The 1990 victories remain the he had re- finding conservative solutions that high-water mark of recent Republican poli- ceived when liberals claimed as their own, because tics in Massachusetts. he needed his he felt these problems were first job. everyone’s problems… Ray Shamie A humanitarian’s soul He was the original compassionate Ray Shamie never really retired; therefore en- conservative.” he just moved on. His agile mind and un- couraged the Through his curiosity, in- relenting commitment to conservative study of en- telligence, and generosity, Ray principles made his move into the world gaging citizens in helping the poor, whom Shamie showed his fellow citizens what the of public policy research natural if not in- he believed could be helped best through world might look like when business expe- evitable. After witnessing the births of personal, caring and disciplined intervention. rience intersects with good public policy organizations including the Pioneer Insti- He believed that local, community charitable or- ideas. tute, in 1991 he founded the Beacon Hill ganizations could rescue lives better than over- We are all better off for his having Institute at Suffolk University. He under- burdened government bureaucracy. Thus for been among us. stood the value of good ideas grounded more than seven years, he cultivated the idea of (Photographs courtesy of the Boston in rigorous analysis. empowering these organizations through giving Globe and Boston Herald. ) Ray Shamie possessed an federal and state tax credits for taxpayers’ con- engineer’s mind but a humanitarian’s soul. tributions to these organizations. He was the He was himself a living example of the power godfather of the Beacon Hill Institute’s project,

Thursday, October 14, 1999 The Life and Legacy Fairmont Copley Plaza Hotel, Boston Reception at 6:00 p.m., Dinner at 7:00 p.m. of Ray Shamie Featured Speaker, Arianna Huffington A Dinner to Remember the Syndicated columnist and author Beacon Hill Institute's Founder and Senior Advisor Master of Ceremonies, Columnist, Boston Globe

Guest of Honor, Mrs. Raymond Shamie

Special Guests The Honorable A. Paul Cellucci Governor, The Commonwealth of Massachusetts The Honorable Edward J. King Former Governor, The Commonwealth of Massachusetts

Tickets: $500 per person Proceeds from the dinner will be used to endow The Ray Shamie Center for Civic Enterprise. For reservations or information, please call Dorothea Vitrac at 617-720-1234

PAGE 5 / SUMMER 1999 BEACON HILL INSTITUTE

The question isn’t how much sac- Savings The myth of sacrifice rifice to extract from taxpayers through gov- continued from page 1 The conventional wisdom runs deep, ernment surpluses. The question is, “How high ished even as taxpayers pay however. Clinton Administration and Congres- should taxes be, given (1) whatever benefits we more in taxes. National saving will rise sional Democrats argue against a Republican tax are able to derive from the government expendi- by the amount of the government surplus. cut on the ground that it would “end the bud- tures that are financed by those taxes and (2) the By running a surplus, government can re- get surpluses that support business investment damage that taxes inevitably do to individual in- tire some of its debt. The funds thus freed and growth.” Business groups resist state tax centives to work, save and invest?” Repeated up will go to finance new business invest- cuts that would jeopardize state government large surpluses of the kind we have been experi- ment and home purchases. bond ratings. Even conservative icon Alan encing provide the answer: “Not as high as they This argu- are now.” ment is fatally flawed, Would cut- however. As we are Government Surplus vs. Personal Saving ting taxes shrink the seeing, taxpayers don’t surplus and risk a defi- cit? Yes. But better neccesarily go on sav- 8 ing even as govern- Goverment Surplus that than the bad bud- ment taxes take a big- 7 or Deficit as a % of geting and wishful GDP 6 thinking in evidence ger and bigger bite out Personal Savings of their personal and 5 as a % of DPI now. The economy business incomes. 4 can survive an occa- They don’t forgo more sional government 3 and more of their cur- deficit just as it can sur- rent consumption to % 2 vive an occasional finance government 1 government surplus. It is persistent budget surpluses extracted 0 from them in the name imbalances in either -1 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 of “sacrifice.” direction that are the Taxpayers -2 real sign of trouble. have already made a -3 sacrifice by forgoing -4 personal consump- Source: Economic Report to the President, 1999; Bureau of Economic Analysis, "Survey of Current Business," August 1999. tion in order to accu- mulate their saving accounts, 401(k) plans and stocks. The fact Greenspan heralds public debt reduction “as an that government chooses to run a surplus extraordinarily effective force for good in this doesn’t, in and of itself, make the idea of economy.” BHI to apply STAMP to making an additional sacrifice any more There is rich irony in the specter of affordable or appealing. Republicans finding themselves unable to win Virginia Taxpayers who find unaffordable public sympathy for tax cuts in the face of BHI will enhance its State Tax Analysis or unappealing the idea of forgoing more Democratic warnings against fiscal imprudence. Modeling Program for application to Vir- consumption have a convenient way out. Republicans who traditionally hawk their prow- ginia. Virginia STAMP will estimate the ef- They can reduce saving and use the money to ess as budget balancers are being hoisted on a fects of tax-law changes on selected eco- finance current consumption. Indeed, it ap- petard of their own making. nomic indicators. The model will be con- pears that that’s exactly what they have done. The trouble is that both parties are try- structed using original data specific to Vir- In this less-than-euphoric sce- ing to outdo each other in offering a sacrifice ginia. nario, there will be no rise in national sav- that taxpayers are themselves manifestly un- Virginia STAMP will permit the ing. For every dollar added to the surplus, willing to make. Yes, there is political appeal Thomas Jefferson Institute for Public Policy there will be one dollar less in private sav- in slogans that warn against tax cuts as “dan- in Springfield, VA to determine whether a ing. There will be one dollar less to finance gerous” to the economy and burdensome to fu- proposed tax-law change will create or de- business investment and home purchases. ture generations. But the same voters who buy stroy jobs, how payrolls will be affected and Personal saving (the component of private into such slogans are running up credit card how the amount of capital stock (equip- saving over which individual taxpayers debt in the face of punitively high taxes and ment, computers and other materials have the greater control) will move in the on the promise of an ever-rising Dow. Sooner needed for production) will be affected. In opposite direction of the government sur- or later, reality will puncture the myth of sacri- other words, is a proposed tax-law change plus. Government will claim but not de- fice on which slogans of this kind rest, leaving good or bad for Virginia? serve credit for strengthening the their purveyors with a great deal of explaining Virginia STAMP should be com- economy and inducing taxpayers to sac- to do. pleted and running by the end of the year. rifice for future generations. PAGE 6 / SUMMER 1999 NEWSLINK Empty pyramid building Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledged-Based Economy Lester C. Thurow, HarperCollins, 1999, 288 pages. Reviewed by Frank Conte

n his new book, Building Wealth:The and banking disasters of the early 1990s. ally seems to matter these days, far outstrips New Rules for Individuals, Companies that of France and Germany. Thurow seems and Nations in a Knowledge-Based Why American success? to have discounted individual preferences in I Economy, Lester Thurow seizes upon Some of the American success we see the marketplace in favor of a nebulous con- a tidy, simple metaphor for the New Economy that today is due to a sociological acceptance of the cept built on social organization, the building now animates American power: the pyramid. Im- freedom to fail. Acknowl- blocks to his national pressive on the outside, pyramids disappoint within, edged failure, not to men- wealth pyramid. their treasures long since carried off by robbers. tion creativity, is simply not Thurow can’t help The American economy, presently the part of Japan’s business cul- Still, a faith in government envy of the industrial and developing world, is, for ture. Morever, Thurow has himself from want- Thurow be- Thurow, much like a pyramid, elegant on the out- finally recognized the ne- ing to alter the DNA lieves that any govern- side and empty within. In spite of the enormous cessity of entrpreneurship ment endeavor such as market wealth created this decade by a dynamic and Schumpeterian cre- of capitalism. the Internet is proof that American economy, factors such as the loss of jobs ative destruction. Eight of public engagement is due to downsizing, the emergence of the Internet the nation’s 25 biggest firms didn’t exist in 1960. superior to private initiative. And since gov- and the loss of leisure time have robbed the conven- Others managed to “destroy themselves in or- ernment invented publicly-funded universal tional narrative. According to Thurow, the produc- der to save themselves.” education, similar enterprises like tool build- tivity growth that creates real wealth isn’t there. Thurow has found a role for super-en- ing (life-long learning, public education, infra- “No one denies that the last decade has trepreneurs. Bill Gates, Microsoft’s founder and structure and basic research) should be initi- produced more market wealth and generated greater mega-billionaire, is something of a national as- ated and directed by government. This phi- fortunes than any other decade in American his- set. Rather than revert to egalitarian nostrums losophy, Thurow believes, was apparent even tory,” writes Thurow. “Yet … the last decade about income inequality, Thurow contends that to the 19th century mill owners who supported has been the worst decade in the history of nurturing risk-takers or “change public education knowing that private deci- American productivity growth.” agents,” as he calls them, is nec- sion making wasn’t going to lead to the right Thurow marshals a series of dis- essary for a nation to build results for them. turbing statistics. U.S. labor productiv- wealth. Thurow’s faith in government fund- ity has grown only 1.1% in the last de- Mature companies know ing of basic research is unshaken. Hence Rule cade – far less than the 1960s and, by when to fold the tent. American Number Eight delivered in ironclad fashion: Thurow’s estimate, even less than companies are very good at “The economic payoff from more social invest- the Great Depression when pro- downsizing, a much maligned tac- ment in basic research is as clear as anything ductivity was growing by 1.6% tic that, when observed in perspective, is ever going to be in economics.” per year between 1929 and 1939. provides long-term benefits. Europe That faith is often carried away. Total factor productivity has created with its ossified aversion to both risk-tak- Rather than build wealth, Thurow advocates no real wealth. America’s almost illusory ing and discontinuity would do well to policies that would diminish it. By calling for success is marked only by the fact that Europe clone its own Gates. Japan with its superb mandatory benefit packages for part-time and Japan’s predicaments are far worse. but rigidly educated classes would be wise to employees, Thurow is willing to sacrifice flex- These dismal statistics amid peace and teach creativity. ibility and choice. His argument that Presi- prosperity are the issues any nation must address in There are other areas where Thurow’s dent Clinton’s universal health reform pack- order to thrive in the third industrial revolution that previous positions have been refreshingly re- age would have generated more full employ- rests on information technology. And the ability of aligned. Europe’s labor force must be more flex- ment by discouraging the hiring of part-time national governments to fine tune either their claims ible. Tax harmonization in a competitive global workers is hard to believe. to sovereignty or comparative advantage is next to economy is near impossible. Moreover, Europe In keeping with the spirit of the new nil. Nonetheless, Thurow attempts to fashion a post- and Japan’s fear of the future – magnified by the economy, Thurow has opted not to publish Keynesian strategy. He recognizes that government fear of biotechnology – could prove to be very the references cited in his footnotes. For those is left only to control the damage rather than pursue costly. Thurow wisely suggests that for all its interested, the full citations can be obtained policies such as restricting trade or protecting wages. talk about creating a United States of Europe, from his web site at http://web.mit.edu/ To his credit, Thurow, a liberal academic what the continent really needs is its own ver- lthurow/www. This “departure from cus- and popularizer, admits he made a critical mistake sion of NAFTA. tom,” may be his way of launching a debate. in an earlier work. In his 1991 book, Head to Head, he But for all his revisions, Thurow can’t If the inconvenience of this high-tech strategy underestimated the ability of the United States to help himself from wanting to alter the DNA of is any indication, advocates of freer markets, bounce back from the savings and loan crisis. That capitalism. Capitalism doesn’t save and invest limited government and sound money might crisis became inconsequential for the United States enough for his taste although U.S. business in- just want to take him up on the offer. while the Japanese are still mired in the stock market vestment in information technology, which re-

PAGE 7 / SUMMER 1999 A tough estate to hoe The new math, smaller class size doesn’t In Point of Fact Droughts, failed crops and out-of-state competi- add up he new e-world order tors aren’t the only things weighing on the Even as the education establishment cru- The information technology in- minds of Bay State farmers these days. Farm- sades for smaller class sizes in America’s dustry is driving U.S. economic ers and agricultural experts say an increasing public schools, evidence is surfacing that T growth, according to a report by number of farmers are grappling with hefty fed- students in such classes score only slightly the Commerce Department. Although the in- eral estate taxes, with some tax bills so high the better in math than students in larger dustry is small, only comprising 8% of the farmers’ heirs are forced to sell off all or part of classes. Interestingly, for students in ten nation’s total economic output from 1995 to the land. The federal government assesses prop- nations abroad, small class size has the op- 1998, it is responsible for more than one-third erty for the estate tax—a tax paid upon inherit- posite or no effect on math scores. The of U.S. economic growth. ance of property that ranges from about 30% to findings, by Suet-ling Pong, an associate USA Today, June 22, 1999. 55%—according to the fair market value of the of education and sociology at land. In other words, the property is assessed Pennsylvania State University, come even Want a miracle? Do like the Irish! at the higher value it has to developers rather as President Clinton is pushing a program Canadian Prime Minister Jean Chrétien wan- than its value as farmland. to cut class size by hiring 100,000 more dered unarmed into the middle of the Irish Roberta Holland, Boston Business Journal, teachers for public schools in the U.S. ‘’economic miracle’’ recently and immediately May 31, 1999. “The perception in the U.S. is that small found himself immersed in a debate over cor- classes are better,” Mr. Pong said. “While porate tax rates in Canada. After a morning High tax rates, low expectations this [finding] is tentative support for re- meeting with Prime Minister Bertie Ahern, The most immediate penalties for [failing to cut ducing class size to promote higher Chrétien listened uneasily as the Irish leader taxes] lie in the political sphere. Tax disillusion- achievement, the effect is very small. touted low corporate taxes as the tonic that has ment is a big part of voter disillusionment. It When we look at other countries, we do powered the phenomenal growth of an shows up in declining voter-turnout rates, in the not find the same results.” Class size economy that has gone from basket case to jug- fact that fewer people check the “presidential made little difference in math perfor- gernaut. . . ‘’The success of our economy is that election campaign” box on their 1040s, and in the mance in Canada, Germany, Iceland, we have improved our competitiveness,’’ polls that show declining faith in government. South Korea, and Singapore. Ahern said. Canadian corporate tax rates. . . Voters have learned that government often prom- Christian Science Monitor, August 10, 1999. average 38% compared to the Irish rate of 14%. ises serious tax relief, but rarely delivers it. Tim Harper, Toronto Star, June 15, 1999. Amity Shlaes, , August 9, 1999.

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