July

IDEAS ON LIBERTY 252 Crimeand Consequences RobertJames Bidinotto In the firstof his three-part series,Mr. Bidinottolooksat criminalresponsibili ty-the crimeexplosion,the "criminaljustice"system,and the excuse-making industrywhichendeavorsto explainaway criminalbehavior. 263 Section89: Tax Code LimitsWorkers'Choices Roy E. Cordato How a controversialpart of the Tax Reform Act of 1986threatens freedom of choicein the workplace. 265 Deposit Insurance Deja Vu Kurt Schuler Depositinsurancecrisesare almostas old as government·depositinsurance itself. 270 PrivatizeDeposit Insurance JeffreyRogersHummel The onlysolutionthat can overcomemoral hazardsin the bankingand thrift industries. 272 Personal Responsibility:A BriefSurvey David C. Huff Monitoringthe dangerouscourseawayfrom personalaccountability. 274 ThomasErskine:Advocateof Freedom Sean Gabb A seldom-remembereddefender of freedom and the rule of law.

279 RacialTensions:The Market Is the Solution DavidBernstein Putting asideprejudicein pursuitof self-interest. 281 Readers' Forum 283 Book Reviews: John ChamberlainreviewsNickEberstadt's The Povertyof Communism. Other books: The Theoryof MarketFailure,edited by TylerCowen, Monopoly Mail by DouglasK. Adie, and The AmericanJob Machine by Richard B. McKenzie. CONTENTS JULY 1989 VOL. 39 NO.7 THEFREEMAN IDEAS ON LIBERTY Published by The Foundation for Economic Education Irvington-on-Hudson, NY 10533 President of The Board: Bruce M. Evans Vice-President: Robert G. Anderson Senior Editors: Beth A. Hoffman Brian Summers Contributing Editors: Bettina Bien Greaves Carl O. Helstrom, III Edmund A. Opitz Paul L. Poirot The Freeman is the monthly publication of The Foundation for Economic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, found ed in 1946 by Leonard E. Read, is a nonpoliti cal educational champion of private property, the free market, and limited government. FEE is classified as a 26 USC 501 (c) (3) tax-exempt organization. Other officers of FEE's Board of Trustees are: Thomas C. Stevens, chairman; Ridgway K. Foley, Jr., vice-chairman; Paul L.

Poirot, secretary; H.E Langenberg, treasurer. The costs of Foundation projects and services are met through donations. Donations are in vited in any amount. Subscriptions to The Freeman are available to any interested person in the United States for the asking. Additional single copies $1.00; 10 or more, 50 cents each. For foreign delivery, a donation of $)5.00 a year is required to cover direct mailing costs. Copyright © 1989 by the Foundation for Eco nomic Education, Inc. Printed in the U.S.A. Permission is granted to reprint any article in this issue, except "Crime and Consequences," provided appropriate credit is given and two copies of the reprinted material are sent to The Foundation. Bound volumes of The Freeman are available from The Foundation for calendar years 1969 to date. Earlier volumes as well as current is sues are available on microfilm from Universi ty Microfilms, 300 North Zeeb Road, Ann Ar bor, MI 48106.

The Freeman considers unsolicited editorial submissions, but they must be accompanied by a stamped, self-addressed envelope. Our au thor's guide is available on request. Phone: (914) 591-7230 FAX: (914) 591-8910 PERSPECTIVE Why the Soviet Economy Is Still in Trouble Recent reports from the Soviet Union indicate that the Soviet economy has faltered under Mikhail Gorbachev's perestroika, or restructur ing. The news is puzzling to Western journalists, as it must be to the Soviet governors themselves. After all, the regime has promoted more efficient management of the economy and waged a major campaign against the corruption that affects ev ery level of Russian life. But instead of the ex pected flowering of production, distribution, and consumption, things have gone from bad to worse. Today, even in privileged Moscow, such basic items as beef, sugar, tea, coffee, toilet paper, and gasoline are usually scarce and often nonex istent, at least in the stores open to ordinary peo ple.

Such a development, however-or rather, such a lack of development-will not surprise the eco nomically alert. It is the essence of perestroika to be a restructuring of the Soviet managerial econ omy, an assertion of power from the top down. Indeed, perhaps to facilitate his task, Gorbachev has been increasing the already tremendous pow ers granted to him under the system inherited from his predecessors. The Soviet leaders and their legions of West ern admirers do not see, however, that they are taking precisely the wrong actions to achieve prosperity. The fundamental problem of the Sovi et economy is that it is too heavily centralized, too thoroughly managed. The spontaneity need ed to meet consumer demand, introduce new products, and adjust prices to each other simply cannot happen under these circumstances. In fact, one of the few things that keeps the Soviet economy running at all is corruption, for, in a so ciety where nearly all economic activity has been made criminal, corruption is almost the only way in which goods and services can be freely ex changed. So, by cracking down on corruption, perestroika has chilled the only area of Soviet life in which genuine economic behavior is possible.

At the same time, the few "market-oriented" reforms tried have been half-hearted and en meshed in threats against those who seek to "profiteer." In a nutshell, people are terrified to start businesses, for they never know when even the slight incentives offered might be revoked, and those who have taken advantage of them persecuted as criminals. Gorbachev mayor may not be a good man who sincerely desires to improve the lot of the peoples of the Soviet Union. What is certain is that Gorbachev is wholly on the wrong track with the policy of perestroika both as stated and as im plemented. What the Soviet economy needs is not "restructuring" but destructuring; not more government control over the economy, but less.If Gorbachev and his henchmen could bring them selves to simply leave the Soviet people alone to grow, to produce, to invent, to buy, and to sell, they would soon find themselves sitting on top of an economic colossus, and it wouldn't take a pen ny of Western aid.

-NICHOLASDAVIDSON Why the Russians Didn'tMarch There is a joke in which an American and a Russian argue about who has more freedom. The American says, "I can come up to the White House and yell, 'Down with the President of the United States!'" The Russian says, "Well, I can come up to the Kremlin and yell, 'Down with the President of the United States!' too!" This joke is a completely inaccurate reflection of Soviet realities: Soviet citizens do not even have that kind of freedom. Here is a typical episode. In the year of the fiftieth anniversary of the founding of the USSR, the Party organizer at one of the departments of Moscow State University declared at a meeting that Communist enthusi asm was waning in our society: no one had even thought of organizing a parade to mark an event of such importance. The Party organizer called on the department to fan the dying flames by holding a march, on their own initiative, in honor of the anniversary of the Soviet state. Signs and posters had already been prepared, and the time PERSPECTIVE was set for the march to begin. But the proces sion did not take place. When the dean's office found out about the proposed unauthorized event, they were horrified. The march was banned, the posters confiscated, and the Party or ganizer reprimanded.

Why were the authorities so horrified? The hapless Party organizer had unwittingly violated one of the chief principles of Communist rule: a doctrine that contains absolute truth cannot give the individual any freedom at all, not even the freedom to support the doctrine on his own free will. -GLEB ANISHCHENKO, writing in Glasnost, a dissident publication found ed in Moscow in 1987. Translation provided by the Center for Democracy in the U.S.S.R., 358 W. 30th Street, Suite I-A, New York, NY 10001. SocialSecurity Today's workers should keep in mind that the payroll taxes they pay will not finance their social security benefits. Rather, tomorrow's workers will pay. for these benefits through payroll, or other taxes. Furthermore, in order to pay cur rently promised benefits, tax rates will have to rise. Depending upon future economic and de mographic conditions, payroll tax rates may well have to double or triple to cover social security benefit payments.

Future workers, however, may object to ever rising taxes. Faced with opposition, politicians will alter the structure of social security, as they did in 1983 when social security benefits were taxed for the first time and the retirement age was raised. Because social security is neither an annuity nor a legal guarantee, today's workers may well find that the social security benefits they actually receive will be less than what is cur rently promised. Moreover, because of the detri mental economic effects of higher tax rates, to day's workers will face a lower standard of living all along the way. -ALDONA E. ROBBINS, writing in The ABCs of Social Security,published by the Institute for Research on the Economics of Taxation.