Book Reviews

52 BOOKS The Social Security Fraud by Abraham Ellis The Foundation for Economic Education. second revised edition, 1996 • 209 pages. $14.95 paperback Reviewed by William H. Peterson U .s. Supreme Court Justice Louis Brandeis stated his opinion in Olmstead v. United States in 1928: "The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but without understanding." Just sixyears later, with the New Deal, a zealous, presumably well-meaning President Franklin D. Roosevelt, if also presumably without much un derstanding, said in a message to Congress calling for a system of "social insurance": "Among our objectives I place the security of men, women, and children of the Nation, first. Fear and worry, based on unknown danger, contribute to social unrest and economic demoralization. If, as our Constitu tion tells us, our Federal Government was estab lished among other things 'to promote the general welfare,' it is our plain duty to provide for that security upon which welfare depends."

That's a stretch, FDR's citing the General Welfare Clause as authority to launch Social Security. Note his cited phrase specifically says "promote" and not "guarantee," and "general," not "individual," welfare. Nonetheless, Social Security began in 1935, the same year as Child-Welfare Assistance, now known as Aid to Families with Dependent Chil dren (AFDC). Social engineering was off and running, with both welfare schemes incurring the wrath of the Law of Unintended Consequences. For instance, both Social Security and AFDC, if in different ways, have contributed to the breakdown of the American family. Abraham Ellis, an English-born lawyer practic ing in Manhattan, does a solid job in demolishing the shaky case for Social Security-shaky legally, analytically, and empirically. Rightfully, he tags the scheme as a "fraud," as but one more means, through the years, of extracting heavy taxes from the already tax-squeezed American citizen. The fact is that today, for most working Americans, payroll taxes are bigger than income taxes.

Initially, though, the Social Security tax wa~ deceptively and of course politically light-one percent each on employee and employer. You needn't ponder long on why Congress magnani mously suspended payroll tax increases scheduled for 1946 and 1949. Workers, after all, vote. Yet today the combined tax is more than 15 percent, up more than sevenfold. That's bad enough, but the record of the White House and Congress in further administering So cial Security is just as bad or worse, as politics has ever reared its ugly head. For example, in 1956 women, who also happen to vote, were allowed to receive reduced benefits at age 62, unlike their male counterparts whose eligible age held at 65. In 1965 widows had their eligible age reduced to 60. Compassion is never in short supply in Congress. Abraham Ellis has a fun chapter on "Social Security Semantics." Social Security taxes are still tagged as "contributions"; the system has a ficti tious actuarial aura in its official description as "Old-Age, Survivors, and Disability Insurance."

Social Security "trust funds" imply actual invest ment set-asides for future obligations while the funds themselves are virtually sham dummy ac counts, with strictly pay-as-you-go intergenera tional transfers; fund "trustees" -not going to prison for the deception-simply accept federal IOU's and hand over the cash receipts to the U.S. Treasury for general government expenses; current workers carry ever more retired workers on their aching backs, now in the range of three workers per one retiree. In 2029 the ratio willbe two to one. So the Ponzi-pyramid scheme unravels; so the $350 billion cash cow laden with tens of millions of votes sinks into the muck of Welfare State politics. In the introduction, FEE president Hans Senn holz wonders about the applicability of the touted privatization of Chilean social security to the American situation. He says reform here has to proceed "from the high ground of goodness and morality; any other ground, no matter how rational and economical, is bound to disappoint."

The note on morality is appropriate. For in the upside-down world of Social Security, Abraham Ellis could have well come up with the crack: "There's a Fraud in Your Future." 0 Dr. Peterson, an adjunct scholar at the Heritage Foundation, is Lundy ProfessorEmeritus ofBusiness Philosophy at Campbell University in Buies Creek, North Carolina.

The Home by Richard McKenzie Basic Books. 1995 • 228 pages. $23.00 Reviewed by Karol Boudreaux A ccording to statistics, there were 442,000chil dren in foster care in the United States in 1992, nearly 50 percent more than in 1985. Critics argue that this system is grossly unfair to children, keeping them bound for years in a legal limbo where parental rights are neither terminated nor relinquished, and where social workers have dis incentives to move children out of foster care. Despite the criticisms leveled at the current foster care system, when Newt Gingrich suggested that some children might be better cared for in orphan ages his idea was decried as a draconian throwback to a crueler time. Was it really? In The Home, economist Richard McKenzie argues from personal experience that orphanages aren't such bad places after all. This coming-of-age memoir chronicles McKenzie's eight years during the 1950s in a North Carolina Presbyterian or phanage. Although not designed as a public-policy piece, the book nonetheless has a strong public policy message. For some children, life in a well run institution may be preferable to foster care or life in a dysfunctional, abusive family. The great virtue of The Home is that by telling his own story, and those of fellow orphans at The Home, McKenzie makes a compelling case for the insti tutional care of some children.

McKenzie's saddest story is of how he got to The Home. Like most other children at the or phanage he was not a full orphan-he did have one living parent, his father. But his father drank heavily and had no steady job. Mter McKenzie's mother committed suicide in 1952, his maternal aunts fought his father for legal control of him and his older brother. The aunts won the battle but decided they couldn't care for the young boys (then 10 and 12), and so sent them to The Home, where they joined some 200 other children. Is McKenzie sorry that his aunts made this decision? The answer is an unequivocal "no." Indeed, McKenzie attributes much of his later success in life to his experiences at The Home. (He is an accomplished economist who holds a chaired professorship at the University of California, Ir vine.) Far from bemoaning his life as a poor orphan, McKenzie argues that The Home was probably the best thing that could have happened to him-given the alternatives.

53 McKenzie credits The Home with giving him the "bounds" that he needed, instilling in him discipline and a desire to succeed, and providing support to start down that road to success. (The Home, for example, paid for his undergraduate education.) Of course, The Home wasnot perfect. McKenzie concedes that it could not provide him with the kind of emotional support offered by a loving family: "[i]f there is one thing we missed at The Home, it was having access to the type of person our mothers could have been." But in his eyes, it was vastlybetter than life with his father or life on the streets. Over and over again McKenzie asks readers to consider how children of broken and abusive homes are best cared for. Is a child's experience in the current system really better than life at The Home? Throughout his account, McKenzie is careful to remind his readers that for children in situations like his, life was necessarily a choice between imperfect alternatives. There was no fairy godmother waiting to carry McKenzie and his brother off to a perfect family. Instead, the choice was between a dysfunctional family and institu tionalized care. McKenzie convincinglyargues that for him and for many of his peers at The Home, the orphanage offered more and better possibilities for a satisfyingfuture than did relatives or foster care.

To his credit, McKenzie does not sugarcoat life at The Home. His days were full of hard work in fields, milking cows, working in orchards, doing school work, playing sports, and going to church. He had little free time and little in the way of material comforts: no shoes in the summer, too few blankets in the winter. When the children's work load increased one fall, McKenzie was forced to sell his favorite pet goat, a combination friend and confidante. Some of the employees at The Home were racist, and some were downright insensitive to the children. But others were wonderful people who became role models for McKenzie and his friends. McKenzie wants his readers to understand "why an orphanage can be a refuge and a source of inspiration and why the overwhelming majority of those who spent their childhoods there can look back on them with fondness and gratitude." At the end of the book readers do understand just that.

This makes the final episode of McKenzie's book all the more discouraging. He returned to The Home in 1994for an annual homecoming. No longer a residential orphanage, The Home now caters to "severely troubled children" who stay for weeks, not years. The annual cost of caring for each child now averages over $45,000, compared with less than $3,000 (in 1995 dollars) while he was in 54 THE FREEMAN • JANUARY 1997 residence. The staff-to-student ratio today is 1.5 to one. The students no longer work in the fields, or do other chores, because as one administrator said, "we can't afford to pay them." Are these children better off than McKenzie and his fellow students? It is impossible to separate the story of McKenzie's personal triumph over adversity from the story of The Home's role as a "refuge and a source of inspiration." This book demonstrates that positive alternatives to the current child welfare system do exist. How sad that a place that did so much good for so many people was ruined by social theorists. However, it is a blessing that Richard McKenzie has reopened the dialogue about orphanages and children. Let us hope that his positive message will influence the crafting of today's child-welfare policy. D Ms. Boudreaux is a research associate at Clemson University's Center for Policy & Legal Studies.

Ending Affirmative Action: The Case for Colorblind Justice by Terry Eastland Basic Books. 1996 • 219 pages. $23.00 Reviewed by Steven Yates T his book is a tour de force. Terry Eastland looks at the history of civil rights in America and sees two incompatible visions of what a civil rights movement should accomplish. One favors colorblindness and race-neutrality; the other, color-consciousness and group-based preferences. The first might eventually enable us to solve our racial problems. The second has kept them in flamed now for over a quarter century. Yet colorblind policy can only remove barriers; it cannot guarantee specific, quantifiable results. So to those who wanted such results, colorblind ness was not enough, and the struggle for a colorblind legal system was quickly reversed in favor of color-consciousness which soon spread to include other groups. This meant continuing the practice of differential treatment, i.e., discrimina tion. The entire focus of affirmative action changed from efforts to remedy discrimination to quite different ones aimed at managing "diversity,"

i.e., hiring and promoting by group-identity, and ultimately, engineering a new social order. Multi culturalism, radical feminism, and other identityideologies have kept attention focused on the differences· between groups, contrary to the in tent of the prime movers of the civil rights move ment. Eastland deftly guides us through these changes, focusing on misguided decisions by both the exec utive and judicial branches of government. The first major turning point was the shift in emphasis from disparate treatment to a disparate impact. The disparate impact doctrine broadened the defini tion of discrimination to include not merely inten tional actions against individuals but any hiring and contracting practices that resulted in polit ically unacceptable ratios. Quotas had actually been adopted as part of Richard Nixon's Phila delphia Plan. Soon thereafter, whites especially white men-began to experience re verse discrimination.

The second juncture occurred in the late 1970s when the Supreme Court missed the opportunity to repudiate reverse discrimination and informal quotas. Rather than questioning whether govern ment should be classifyingpeople by race, it sought to define the circumstances when such classifica tions were warranted and did so very ambiguously. The net result was that preferences soon got out of control, particularly in the universities and in government. In the late 1980s, we reached another turning point. Set-asides had become the norm in con struction, and "cultural diversity" was becoming the official ideology of increasingly thought controlled colleges and universities. The Johnson v. TransportationAgency decision in 1987had allowed preferences to overcome "underrepresentation" without any necessary tie to past or present dis crimination. New cases started making their way to a some what different Supreme Court with Reagan ap pointees who tended to oppose racial engineering.

By letting a lower court's 1989 decision stand in J R. Croson Co. v. City ofRichmond, and in Wards Cove v. Atonio that same year, the Court made efforts to rein in set-asides. Yet their defenders proved too strong, as these decisions were over turned bythe so-called 1991CivilRights Act, which held onto the disparate impact doctrine. Hopwood v. University of Texas School of Law was another case which let a lower court's decision stand, but threw the legal status of affirmative action pro grams in higher education into doubt without resolving the issue. Adarand Construction v. Pefia called for an application of "strict scrutiny" to racial classifications. This was a step in the right direction, if not the outright repudiation that was really needed. These cases have brought us nearer to what-dare we hope?-is the beginning of the repudiation of preferential treatment. There are important lessons to be learned from the legal trajectory of affirmative action. First and most obviously, government classification by group identity for any purpose is inviting trouble, since it provides a basis for legally acceptable discrimination. Another is that "temporary mea sures" translate into permanent entitlements. A third is familiar: social engineering is not possible, since most people resent top-down manipulations and will thwart them if they can. Terry Eastland's wide-ranging account includes more than I have been able to consider here, such as the relationship between affirmative action and immigration and the question of ·whether recent immigrants who cannot have suffered discrimination in America ought to be eligible for affirmative action as members of "underrepresented" groups.

The themes of this book are not new; what is newest here are up-to-date accounts of cases such as Hopwood and Adarand, and of actions such as the California Civil Rights Initiative. It is a com mentary on our times that the same message needs to be sent out again and again. D Dr. Yates is Adjunct Research Fellow with the Acton Institute for the Study of Religion and Liberty and the author of Civil Wrongs: What Went Wrong With Affirmative Action (ICS Press, 1994). This Land Is Our Land: How to End the War on Private Property by Congressman Richard Pombo and Joseph Farah St. Martin's Press. 1996 • 224 pages. $22.95 Reviewed by Raphael G. Kazmann T his timely book deals with an important sub ject: property rights. After two short introduc tory chapters that review the history of property rights and the place of property rights as described in the Constitution, Richard Pombo and Joseph Farah get down to business: How are property rights faring at present?

The authors enumerate the legislation that is already in place and use case histories to describe the deleterious impact on individuals. As a hydro logic engineer with 50 years of experience in the development of water resources, I was particularly BOOKS 55 interested in the Corps of Engineers and its connection with "wetlands." Ever since the virtual demise of the dam-building program in the 1980s, the Corps has been looking for another mission. This turns out to be "protection" of wetlands even though there is no authoritative definition of what a wetland is. According to the General Accounting Office, changes in wetland definition have significantly expanded the area of land under the jurisdiction of the Corps, possibly doubling it to perhaps as much as 200 million acres, 40 percent of which is privately owned. The violation of property rights by the Corps (and the EPA) is epitomized by the story of John Pozsgai of Morrisville, Pennsylvania, who bought a dump next to a small streambed. He removed tons of garbage, thousands of old tires and car parts, and replaced this eyesore with clean dirt. He was convicted of filling a wetlands without a permit.

His sentence? A prison term of 33 months. There are many more such stories, all taken from the records and involving people who opposed the bureaucracy in the courts and in congressional hearings. The entire book is devoted to showing how the bureaucracies have increased their areas of oper ations under the guise of "protecting the environ ment" from the legitimate operations of the owners of private property. In essence, environmental regulators claim that man is not a part of nature, a fundamentally flawed concept. People have been on the face of the earth for a very long time and have altered the original environment, developing mines, building roads, lakes, houses, and all sorts of buildings. People also plant trees, lawns, and crops, and prevent wild animals from endangering the lives of children. All of these legitimate activ ities depend on property rights and all are the target of the regulators and their "green" activist helpers.

This Land Is Our Land does a great service in bringing into one focus myriad examples of the attack on property rights-read, "property hold ers." We need more books like this one to provide information to people who come under attack by environmentalists, animal-rights advocates (they can discover endangered species faster than biol ogists can classify them), and assorted government bureaucracies. But most of all we need to demand that before a property owner is condemned for violating a regulation, the regulation itself has been subjected to cost-benefit analysis and that the scientific basis is not the "junk science" that is polluting our courts and legislatures. 0 ProfessorKazmann livesin Baton Rouge, Louisiana.

56 THE FREEMAN • JANUARY 1997 Against the Tide: An Intellectual History of Free Trade by Douglas A. Irwin Princeton University Press. 1996 • 275 pages. $30.00 Reviewed by Robert Batemarco T he economics of free trade has virtually noth ing to do with professional boxing. Yet this book reminded me of the late heavyweight champ Joe Louis and what some sportswriters referred to as his "Bum-of-the-Month Club": the weak field of challengers Louis fought in his prime years as champion. Who wouldn't be a "bum" by compar ison? Analogously, we see in the second half of this scholarly, well-researched book a "fallacy-of-the decade club." Improving the terms of trade, pro tecting infant industries and industries which enjoy increasing returns to scale, correcting distortions in domestic labor markets, and creating jobs are among the arguments in favor of protectionism that author Douglas Irwin scrutinizes. He makes it clear that even though one or two of these chal lengers may lay a glove on the reigning champion, free trade, none emerges from the main event a victor.

Before analyzing protectionist fallacies, Irwin takes the reader through the development of the positive case for free trade. The arguments vary from the quasi-religious "doctrine of universal economy," which "held that Providence deliber ately scattered resources and goods around the world unequally to promote commerce between different regions," to the familiar classical analysis of comparative advantage. While a proponent of free trade himself, the author disappoints somewhat in accepting the idea that the case for free trade is independent of the case for laissez faire in general. This is most evident in his discussion of the "theory of domestic divergences," which posits that interferences with free trade are not required to correct certain "market failures" because purely domestic inter ventions can correct them more efficiently. An example of what this means is that we should not use tariffs to reduce unemployment since increased government spending could do so at lower cost. I think most readers of The Freeman know what is wrong with this argument. The Austrian insight that the presence of international boundaries does not change the essence of eco nomic activities is sorely needed here. But, alas, no Austrian school economist except for Gottfried Haberler (in a context which reveals none of his "Austrianism") rates so much as a mention.

By the book's final chapter, however, the point is made that even if an argument for protection could pass analytical muster, it would never be implemented in a way to achieve its purported benefits. It seems to me that this argument applies every bit as much to domestic interventions as to restrictions on international trade. It should be noted that many of the controver sies dealt with here are of a somewhat technical nature. Thus, Against the Tide is likely to be of much greater interest to professional economists than to the general public. Still, the writing is much livelier than that found in the average economics book. Despite my reservations about some aspects of this book, I found myself in full agreement with the author's conduding statement: "Yet if the historical experiences described here continue, free trade will remain one of the most durable and robust propositions that economic analysis has to offer for the conduct of economic policy." In other words, it's free trade by a knockout. 0 Dr. Batemarco is director of analytics at a marketing researchfirm in New York City and teaches econom ics at Marymount College in Tarrytown, New York.