The moral consequences of economic growth

Praise for Benjamin M Friedman’s The Moral Consequences of Economic Growth “Fascinating.… A compelling [case], backed up impressively by historical evidence.… Belongs on the required-reading list of anyone hoping to improve the world.” —The Philadelphia Inquirer “Persuasive.… Friedman urgently and convincingly describes a society that is failing in many respects but is strangely unable to understand why.… His analysis should be heeded.… His book makes clear the moral consequences of economic growth in developed and developing nations.” —The New York Review of Books “A powerful rebuttal to some of the conventional assumptions of this country’s governing elite.… Friedman is a true scholar, and he scrupulously presents all sides of an argument and all the available evidence.… His is wise counsel and a sober warning Let’s hope someone is listening.” —American Prospect “Impressive.… Sophisticated.… A subtle, wide-ranging argument.… A compelling case for why societies at all stages of development should strive to realize or sustain increases in living standards.” —The New Leader FIRST VINTAGE BOOKS EDITION, SEPTEMBER 2006 Copyright © 2005 by Benjamin M Friedman All rights reserved Published in the United States by Vintage Books, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto Originally published in hardcover in the United States by Alfred A Knopf, a division of Random House, Inc., New York, in 2005 Vintage and colophon are registered trademarks of Random House, Inc A portion of this work previously appeared in The Atlantic Monthly The Library of Congress has cataloged the Knopf edition as follows: Friedman, Benjamin M The moral consequences of economic growth / Benjamin M Friedman.—1st ed p cm Economic development—Moral and ethical aspects Income distribution Political participation Democracy I Title HD82F7168 2005 174—dc22 20045040792 eISBN: 978-0-307-77345-6 Author photograph © J D Sloan www.vintagebooks.com v3.1 For B.A.C Contents Cover Title Page Copyright Dedication Preface PART I IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS Chapter Chapter Chapter Chapter - What Growth Is, What Growth Does - Perspectives from the Enlightenment and Its Roots - Crosscurrents: The Age of Improvement and Beyond - Rising Incomes, Individual Attitudes, and the Politics of Social Change PART II DEMOCRACY IN AMERICA Chapter Chapter Chapter Chapter - From Horatio Alger to William Jennings Bryan - From TR to FDR - Great Depression, Great Exception - America in the Postwar Era PART III OTHER TIMES, OTHER PLACES: THE EUROPEAN DEMOCRACIES Chapter - Britain Chapter 10 - France Chapter 11 - Germany PART IV DEVELOPMENT, EQUALITY, GLOBALIZATION, AND THE ENVIRONMENT Chapter Chapter Chapter Chapter 12 - Economics and Politics in the Developing World 13 - Virtuous Circles, Vicious Circles 14 - Growth and Equality 15 - Growth and the Environment PART V LOOKING FORWARD Chapter 16 - Economic Policy and Economic Growth in America Notes Acknowledgments About the Author Other Books by This Author Preface Morality has many dimensions In some contexts, the actions and attitudes we recognize as moral are mostly a matter of individual behavior Personal honesty, fair dealing, family bonds, and loyalty to friends and co-workers would be on almost everyone’s list Religious belief and practice would be on many people’s Many would also add, now in a negative sense, aspects of sexual behavior, or use and abuse of drugs and alcohol This book is about how economic growth—or stagnation—a ects the moral character of a society But here as well, what constitutes a moral society is a matter of many dimensions, and a question to which different people bring different conceptions The concept of a moral society that I take as the benchmark for examining what di erence economic growth makes is the image held out by the Enlightenment thinkers whose ideas were key to the creation of America as an independent nation and have remained central to Western thinking ever since Its crucial elements include openness of opportunity, tolerance, economic and social mobility, fairness, and democracy Surely there are other valid conceptions of the moral society as well; but these are the characteristics that I keep in mind throughout, and against which I measure the progress or retreat that economic developments help bring about I make no attempt here to argue why these characteristics of a society are desirable, much less moral I take them to be so for the reasons Locke and Montesquieu, Adams and Je erson, and political thinkers both theoretical and practical ever since, have recognized This book could have been written from any of a number of familiar viewpoints, and not just because different people might conceive the moral society differently Beginning from the same benchmark, a historian, a philosopher, a psychologist—not to mention a theologian—could well treat this subject, and presumably would treat it di erently Although I have drawn on these disciplines along the way, I have nonetheless written from the perspective of an economist After more than half a lifetime of study and research into policies designed to keep output and employment as close as possible to an economy’s existing potential, and to help that potential expand over time, I wanted to be able to say why this matters for countries (like my own) where the average income is already high and most people enjoy a comfortable standard of living That is where this inquiry starts And, of course, I have written also from the perspective of my time and place One of my Harvard colleagues with whom I once discussed in some detail the hypothesis about economic growth and moral progress that I advance here, a distinguished European scholar a decade and a half older than I, commented that only an American—and at that, only an American of my generation—would write a book expressing such an optimistic perspective on economic growth from a moral point of view If this is right, I gladly accept that identification as well BENJAMIN M FRIEDMAN Cambridge, Massachusetts July 2005 PART I IDEAS, THEIR ORIGINS, AND THEIR IMPLICATIONS 15 Data on investment rates are from the Bureau of Economic Analysis 16 Data on real compensation are from the Bureau of Labor Statistics 17 Data on saving rates are from the Bureau of Economic Analysis For a discussion of the longer historical experience, see Edward Denison, “A Note on Private Saving,” Review of Economics and Statistics 40 (August 1958): 261–67, and Paul A David and John L Scadding, “Private Savings: Ultra-rationality, Aggregation, and ‘Denison’s Law,’ “ Journal of Political Economy 82 (March-April 1974): 225–49 18 Budget data are from the Office of Management and Budget 19 Congressional Budget O ce, “The Budget and Economic Outlook: Fiscal Years 2006 to 2015” (January 2005), Table F-12, p 145 20 See, for example, Martin Feldstein, “Clinton’s Revenue Mirage,” Wall Street Journal, April 6, 1993, p A14, and “Tax Rates and Human Behavior,” Wall Street Journal, May 7, 1993, p A14 21 Congressional Budget O ce, “The Budget and Economic Outlook: Fiscal Years 2002–2011” (January 2001), Table 1–1, p 2, and “The Budget and Economic Outlook: Fiscal Years 2006 to 2015,” Table 1–2, p 22 O ce of Management and Budget, Budget of the United States Government, Fiscal Year 2006 (Washington, D.C.: Government Printing O ce, 2005), Table 5–1, p 343 23 William G Gale and Peter R Orszag, “The Outlook for Fiscal Policy,” Tax Notes, February 14, 2005, pp 841–53 The underlying assumptions are that the 2001 and 2003 tax cuts become permanent, that Congress liberalizes the Alternative Minimum Tax, and that real nonentitlement spending increases in step with the U.S population 24 Data on budget shares are from the Treasury and the Congressional Budget Office 25 Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, 2004 Annual Report (“2004 Social Security Trustees Report”), Tables IV.B2 and VI.F8, pp 47 and 178 (“intermediate” projections) 26 Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2004 Annual Report (“2004 Medicare Trustees Report”), Tables 1.D1 and II.A5, pp and 31 27 See Alan J Auerbach, William G Gale, and Peter R Orszag, “Sources of the Long-Term Fiscal Gap,” Tax Notes, May 24, 2004, pp 1049–59, especially Tables and 5, pp 1053 and 1054 28 See, for example, James Poterba and Lawrence H Summers, “The Economic E ects of Dividend Taxation,” in Edward I Altman and Marti G Subrahmanyam (eds.), Recent Advances in Corporate Finance (Homewood, Ill.: R D Irwin, 1985), and Laurie Simon Bagwell and John B Shoven, “Cash Distributions to Shareholders,” Journal of Economic Perspectives (Summer 1989): 129–40 See also Alan J Auerbach, “The Theory of Excess Burden and Optimal Taxation,” in Alan J Auerbach and Martin Feldstein (eds.), Handbook of Public Economics, Vol (Amsterdam: Elsevier Science, 1985) 29 Even after allowing for increasing pension plan coverage as well as the fact that many people who owned corporate equities enjoyed sizable gains in their wealth as a result of the rising stock market (both of which reduced people’s need to save directly out of their current incomes), at most it is possible to explain away only part of the 1980s decline in private saving See David Bradford, “Market Value Versus Financial Accounting Measures of National Saving,” in B Douglas Bernheim and John B Shoven (eds.), National Saving and Economic Performance (Chicago: University of Chicago Press, 1991) 30 Additional life expectancy at age sixty- ve in the United States is now 16.4 years for men and 19.4 years for women In 1940 it was 11.9 years for men and 13.4 years for women (Data are from the National Center for Health Statistics, National Vital Statistics Reports.) 31 The current schedule for increasing the retirement age calls for a step-up of two months per year until 2009, then a pause, and then a renewed two-months-per-year increase from 2021 to 2027 The estimated reduction in spending is from the CBO’s analysis of the proposed (but not enacted) Bipartisan Retirement Security Act of 2004 (H.R 3821) 32 See, for example, the list given in Henry J Aaron, “Social Security: Tune It Up, Don’t Trade It In,” in Henry J Aaron and John B Shoven, Should the United States Privatize Social Security? (Cambridge: MIT Press, 1999), especially Table 2.2, p 90 33 Just what those conditions are is a matter of intense debate See, for example, the di erent points of view in Martin Feldstein, “Structural Reform of Social Security,” Journal of Economic Perspectives, 19 (Spring 2005): 33–55, and Peter A Diamond and Peter R Orszag, Saving Social Security: A Balanced Approach (Washington, D.C.: Brookings Institution, 2004), especially Chapter Also see again Aaron, “Social Security: Tune It Up, Don’t Trade It In.” 34 See, for example, Henry J Aaron, Serious and Unstable Condition: Financing America’s Health Care (Washington, D.C.: Brookings Institution, 1991), and David M Cutler, Your Money or Your Life: Strong Medicine for America’s Health Care System (New York: Oxford University Press, 2004) 35 Lisa Potetz and Thomas Rice provide a useful summary of such proposals in Potetz and Rice, Medicare Tomorrow: The Report of the Century Foundation Task Force on Medicare Reform (New York: Century Foundation, 2001) Also see again Cutler, Your Money or Your Life 36 At least half of the growth in American medical spending in recent decades has been the direct consequence of technological change See Aaron, Financing America’s Health Care, and Joseph P Newhouse, “Medical Care Costs: How Much Welfare Loss?,” Journal of Economic Perspectives (Summer 1992): 3–21 37 2004 Social Security Trustees Report, Table V.A2, p 78 38 Data on poverty by age groups are from the Census Bureau 39 In 2003 the poverty rate for the over-sixty- ve population was 10.2 percent For those under sixty-five it was 12.8 percent 40 J K Iglehart, “The American Health Care System: Medicare,” New England Journal of Medicine 327 (November 12, 1992): 1467 41 Angus Campbell, The Sense of Well-Being in America: Recent Patterns and Trends (New York: McGraw-Hill, 1981), p 245; see also Linda K George, “Economic Status and Subjective Well-Being,” in Neal E Cutler, Davis W Gregg, and M Powell Lawton (eds.), Aging, Money, and Life Satisfaction (New York: Springer, 1992) 42 Data on Social Security bene ts as a share of income are from the National Center for Policy Analysis 43 Auerbach et al., “Sources of the Long-Term Fiscal Gap,” Table 9, p 1056 44 Under the existing legislation, the estate tax is to be restored in 2011 Here too few people believe that this is what Congress intended to happen 45 See William G Gale and Joel Slemrod, “Rethinking Estate and Gift Taxation: Overview,” in William G Gale, James R Hines, Jr., and Joel Slemrod (eds.), Rethinking Estate and Gift Taxation (Washington, D.C.: Brookings Institution, 2001) 46 Data on estate and gift tax collections are from the Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2005 to 2014,” Table F-3, p 131 47 Brookings-Urban Institute Tax Policy Center, www.taxpolicycenter.org/commentary/agreement.cfm#agree 48 Auerbach et al., “Sources of the Long-Term Fiscal Gap.” This estimate also assumes that the 2001, 2002, and 2003 tax cuts become permanent and that Congress reforms the Alternative Minimum Tax 49 David T Ellwood, “The Sputtering Labor Force of the 21st Century: Can Social Policy Help?” in Alan B Krueger and Robert M Solow (eds.), The Roaring Nineties: Can Full Employment Be Sustained? (New York: Russell Sage Foundation, 2001) See also Dale W Jorgenson, Mun S Ho, and Kevin J Strioh, Information Technology and the American Growth Resurgence (Cambridge: MIT Press, forthcoming), Chapter 6, and J Bradford DeLong, Claudia Goldin, and Lawrence F Katz, “Sustaining U.S Economic Growth,” in Henry J Aaron, James M Lindsay, and Pietro S Nivola (eds.), Agenda for the Nation (Washington, D.C.: Brookings Institution, 2003) 50 See Eric A Hanushek, “Further Evidence on the E ects of Catholic Secondary Schooling: Comments,” Brookings-Wharton Papers on Urban A airs (2000), pp 194– 97; Francine D Blau and Lawrence M Khan, “Do Cognitive Test Scores Explain Higher US Wage Inequality?,” Review of Economics and Statistics 87 (February 2005): 184–93; and the discussion of this issue in James J Heckman and Alan B Krueger, Inequality in America: What Role for Human Capital Policies? (Cambridge: MIT Press, 2003) 51 James J Heckman and Pedro Carneiro, “Human Capital Policy,” in Heckman and Krueger, Inequality in America, p 86 52 Dirk Krueger and Krishna B Kumar, “US-Europe Di erences in TechnologyDriven Growth: Quantifying the Role of Education,” Journal of Monetary Economics 51 (January 2004): 161–90 53 Data are from the National Center for Education Statistics, 2002 Digest of Education Statistics, Tables 2, 170 54 Data are from the 2002 Digest of Education Statistics, Tables 157, 334, 335 55 Recent evidence has rmed these society-wide bene ts More education makes a person more likely to vote, more likely to read newspapers, and more likely to support free speech; see Thomas S Dee, “Are There Civic Returns to Education?,” Journal of Public Economics 88 (August 2004): 1697–1720; and Kevin Milligan, Enrico Moretti, and Philip Oreopoulos, “Does Education Improve Citizenship? Evidence from the United States and the United Kingdom,” Journal of Public Economics 88 (August 2004): 1667–95 Graduating from high school reduces a person’s likelihood of being either arrested or incarcerated, with the largest e ects for murder, assault, and motor vehicle theft; see Lance Lochner and Enrico Moretti, “The E ect of Education on Crime: Evidence from Prison Inmates, Arrests, and SelfReports,” American Economic Review 94 (March 2004): 155–89 56 Francine D Blau et al., The Economics of Women, Men and Work, 5th ed (Upper Saddle River, N.J.: Prentice Hall, forthcoming), Figure 4.10a 57 See Carneiro and Heckman, “Human Capital Policy.” 58 Philip Oreopoulis, Marianne E Page, and Ann Hu Stevens, “Does Human Capital Transfer from Parent to Child? The Intergenerational E ects of Compulsory Schooling” (National Bureau of Economic Research, Working Paper 10164, 2003) 59 See, for example, the poll results cited by Alan B Krueger, “Inequality, Too Much of a Good Thing,” in Heckman and Krueger, Inequality in America, pp 19–20 60 See, for example, Joshua D Angrist and Alan B Krueger, “Does Compulsory School Attendance A ect Schooling and Earnings?” Quarterly Journal of Economics 106 (November 1991): 979–1014, and Ashenfelter and Zimmerman, “Estimates of the Returns to Schooling from Sibling Data.” Also see again the review of this literature by Card, “The Causal Effect of Education on Earnings.” 61 Orley Ashenfelter, Colm Harmon, and Hessel Oosterbeck, “A Review of Estimates of the Schooling/Earnings Relationship, with Tests for Publication Bias,” Labour Economics (November 1999): 453–70 62 See again Card, “The Causal E ect of Education on Earnings”; also Pedro Carneiro, James Heckman, and Edward Vytlacil, “Estimating the Rate of Return to Education When It Varies Among Individuals” (unpublished paper, University of Chicago, 2001); David Card, “Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems,” Econometrica 69 (September 2001): 1127–60; and the results surveyed in Carneio and Heckman, “Human Capital Policy,” Table 2.4, p 150 63 Data on hourly wages by education of workers are from Lawrence Mishel, Jared Bernstein, and Heather Boushey, The State of Working America, 2004/2005 (Ithaca, N.Y.: ILR Press, forthcoming), Table 2.17 64 Card and Krueger, “Does School Quality Matter?” 65 Cross-country comparisons suggest, however, that students forced to stay in school end up more successful economically, and even healthier, than if they had dropped out; see Philip Oreopoulos, “Do Dropouts Drop Out Too Soon? International Evidence from Changes in School-Leaving Laws” (National Bureau of Economic Research, Working Paper 10155, 2003) Even for the United States, there is evidence that increased compulsory schooling reduces rates of teenage childbearing; see Sandra E Black, Paul J Deveraux, and Kjele Salvanes, “Fast Times at Ridgemont High? The E ect of Compulsory Schooling Laws on Teenage Births (National Bureau of Economic Research, Working Paper 10911, 2004) 66 See the reviews of the literature on this issue in Edward Zigler and Jeanette Valentine (eds.), Project Head Start: A Legacy of the War on Poverty (New York: Free Press, 1979); Ruth Hubbell McKey, A Review of Head Start Research Since 1970 (Washington, D.C.: Department of Health and Human Services, Head Start Bureau, 1983), and The Impact of Head Start on Children, Families and Communities (Washington, D.C.: Department of Health and Human Services, Head Start Bureau, 1985); Sue Bredekamp and Carol Copple (eds.), Developmentally Appropriate Practice in Early Childhood Programs (Washington, D.C.: National Association for the Education of Young Children, 1997); W Steven Barnett, “Bene ts of Compensatory Preschool Education,” Journal of Human Resources 27 (Spring 1992): 279–312; Janet Currie and Duncan Thomas, “Does Head Start Make a Di erence?,” American Economic Review 85 (June 1995): 341–64; and Eliana Garces, Duncan Thomas, and Janet Currie, “Longer-Term E ects of Head Start,” American Economic Review 92 (September 2002): 999–1012 67 For example, James J Heckman, Lance Lochner, Je rey Smith, and Christopher Taber, “The E ects of Government Policy on “Human Capital Investment and Wage Inequality,” Chicago Policy Review (Spring 1997): 1–40, quotation on p 34, and Carneiro and Heckman, “Human Capital Policy,” p 204 Learning begets learning across generations as well, even when the parents’ learning is compulsory A historical study of the e ects of changes in states’ compulsory schooling laws shows that increased education of either parent reduces the probability that a child will either repeat a grade or drop out of school; see again Oreopoulos et al., “Does Human Capital Transfer from Parent to Child?” 68 See Joseph Tierney and Jean Grossman, Making a Di erence: An Impact Study of Big Brothers/Big Sisters (Philadelphia: Public/Private Ventures, 1995), and the discussion in Carneiro and Heckman, “Human Capital Policy.” 69 See the di erent stances on this question taken by Krueger and by Carneiro and Heckman in Heckman and Krueger, Inequality in America 70 Carneiro and Heckman, “Human Capital Policy,” p 97 See also Stephen V Cameron and Christopher Taber, “Estimation of Educational Borrowing Constraints Using Returns to Schooling,” Journal of Political Economy 112 (February 2004): 132– 82 71 See Judith Ann Li, “Estimating the E ect of Federal Financial Aid on Higher Education: A Study of Pell Grants” (unpublished Ph.D dissertation, Harvard University, 1999) The current maximum grant is $4,050 per year The government’s Perkins program extends loans in a similar way 72 See Stephen Cameron and James J Heckman, “Can Tuition Policy Combat Rising Wage Inequality?,” in Marvin Kosters (ed.), Financing College Tuition (Washington, D.C.: American Enterprise Institute, 1999), and Susan Dynarski, “Does Aid Matter? Measuring the E ects of Student Aid on College Attendance and Completion,” American Economic Review 93 (March 2003): 279–88 Similarly, the government’s “529” and Coverdell tax-advantaged plans to encourage saving for education are most advantageous to the highest-income families; see Susan Dynarski, “Who Bene ts from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell,” National Tax Journal 57 (June 2004): 359–83 73 Thomas J Kane, “A Quasi-Experimental Estimate of the Impact of Financial Aid on College-Going” (National Bureau of Economic Research, Working Paper 9703, 2003) 74 See Eric A Hanushek, “The Economics of Schooling: Production and E ciency in Public Schools,” Journal of Economic Literature 24 (September 1986): 1141–77, and “Measuring Investment in Education,” Journal of Economic Perspectives 10 (Autumn 1996): 9–30; and David Card and Alan B Krueger, “School Resources and Student Outcomes: An Overview of the Literature and New Evidence from North and South Carolina,” Journal of Economic Perspectives 10 (Autumn 1996): 31–50 75 Larry Hedges, Richard Laine, and Rob Greenwald reviewed the earlier literature of such studies in Larry V Hedges, Richard D Laine, and Rob Greenwald, “An Exchange: Part I: Does Money Matter? A Meta-Analysis of the E ects of Di erential School Inputs on Student Outcomes,” Educational Researcher 23 (April 1994): 5–14 76 The teachers in these classes were also randomly assigned 77 See Frederick Mosteller, “The Tennessee Study of Class Size in the Early School Grades,” The Future of Children: Critical Issues for Children and Youth (Summer-Fall 1995): 113–27; Alan B Krueger and Diane M Whitmore, “Would Smaller Classes Help Close the Black-White Achievement Gap?” in John Chub and Jan Loveless (eds.), Bridging the Achievement Gap (Washington, D.C.: Brookings Institution, 2002), and “The E ect of Attending a Small Class in the Early Grades on CollegeTest Taking and Middle School Test Results: Evidence from Project STAR,” Economic Journal 111 (January 2001): 1–28; and Alan B Krueger, “Experimental Estimates of Education Production Functions,” Quarterly Journal of Economics 114 (May 1999): 497–532, and “Economic Considerations and Class Size,” Economic Journal 113 (February 2002): 34–63 78 Janet Currie and Matthew Neidell, “Getting Inside the ‘Black Box’ of Head Start Quality: What Matters and What Doesn’t?,” Economics of Education Review, forthcoming 79 See again the contrasting views presented in Heckman and Krueger, Inequality in America Also see Card and Krueger, “Does School Quality Matter?” and “School Resources and Sudent Outcomes,” and James Heck-man, Anne Layne-Farrar, and Petra Todd, “Human Capital Pricing Equations with an Application to Estimating the E ect of Schooling Quality on Earnings,” Review of Economics and Statistics 78 (November 1996): 562–610 80 William Sander, “Expenditures and Student Achievement in Illinois: New Evidence,” Journal of Public Economics 52 (October 1993): 403–16 81 James J Heckman, Anne Layne-Ferrar, and Petra Todd, “Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship,” in Gary Burtless (ed.), Does Money Matter? The E ect of School Resources on Student Achievement and Adult Success (Washington, D.C.: Brookings Institution, 1996) 82 There are grounds for believing that in ation in the prices of what schools have to buy (especially labor) has been greater than in ation in the economy as a whole, however, and if so the real increase in school spending has been correspondingly less than 3.4 percent per annum Not only prices in typical service industries rise faster than in industries producing physical goods, but primary and secondary education in America relies disproportionality on the labor of female workers, whose wage gains have outpaced men’s on average over this period (In addition, in recent decades much of the increase in school spending has gone into extra services for children with “special needs”; but this is a matter of allocation of resources, not overall costs.) 83 Data on school expenditures are from the 2002 Digest of Education Statistics, Table 166 84 Data on average class size are from ibid., Tables 2, 85 Eric A Hanushek and Steven G Rivkin, “Understanding the Twentieth-Century Growth in U.S School Spending,” Journal of Human Resources 32 (Winter 1997): 35– 68 86 See, for example, Eric A Hanushek and Dale W Jorgenson (eds.), Improving America’s Schools: The Role of Incentives (Washington, D.C.: National Academy Press, 1996) 87 One study, however, based on experience in the Texas public schools, suggests that teachers are not responsive to higher salaries anyway; higher pay in some schools than others did not attract teachers with superior quali cations See Eric A Hanushek, John F Kain, and Steven G Rivkin, “Do Higher Salaries Buy Better Teachers?” (National Bureau of Economic Research, Working Paper 7082, 1999) Other researchers have argued that the entire scale by which primary and secondary school teachers are paid is too low to attract quali ed people now that educated American women have far broader occupational opportunities than used to be the case; see, for example, Peter Temin, “Teacher Quality and the Future of America” (National Bureau of Economic Research, Working Paper 8898, 2002) 88 See, for example, the discussion of this issue in Charles Fried, Saying What the Law Is: The Constitution in the Supreme Court (Cambridge: Harvard University Press, 2004), Chapter 89 In addition, the evidence is mixed on whether voucher plans, as put into practice, have delivered improvements in such outcomes as participating students’ scores on standardized tests See, for example, the analysis of New York City’s school choice program (which involved a series of lotteries for private school scholarships) in Alan B Krueger and Pei Zhu, “Another Look at the New York City School Voucher Experiment,” American Behavioral Scientist 47 (January 2004): 658– 98 A broader study of voucher programs and charter schools that likewise reached a mostly negative conclusion about the bene ts of these innovations is Brian P Gill, Michael Timpane, Karen E Ross, and Dominic J Brewer, Rhetoric Versus Reality: What We Know and What We Need to Know About Vouchers and Charter Schools (Santa Monica, Calif.: Rand Corporation, 2001) 90 Because school quality a ects the demand for houses in each district, it is often a major factor in uencing house prices See Charles M Tiebout, “A Pure Theory of Local Expenditures,” Journal of Political Economy 64 (October 1956): 416–24 91 New test score results released in 2004 by the Department of Education have cast doubt on the ability of charter schools to deliver improved learning, however Even after allowance for such factors as urban location, parents’ income, and race, students attending charter schools performed less well than did comparable students at regular public schools See Diana Jean Schemo, “Charter Schools Trail in Results, U.S Data Reveals,” New York Times, August 17, 2004, p A1, and “A Second Report Shows Charter School Students Not Performing as Well as Other Students,” New York Times, December 16, 2004, p A32 92 See, for example, Diana Jean Schemo, “E ort by Bush on Education Hits Obstacles,” New York Times, August 18, 2004, p A1, and Sam Dillon, “Bad School, or Not? Conflicting Ratings Baffle the Parents,” New York Times, September 5, 2004, p A1 One recent study has even shown that, within grades, students’ progress as measured by standardized tests has slowed since the law took e ect; see Greg Winter, “Study Finds Shortcoming in New Law on Education,” New York Times, April 13, 2005, p A15 93 Caroline M Hoxby, “School Choice and School Productivity (or Could School Choice Be a Tide that Lifts All Boats?),” in Hoxby (ed.), The Economics of School Choice (Chicago: University of Chicago Press, 2003) 94 See Mark Schneider, Paul Teske, Melissa Marschall, Michael Mintrom, and Christine Roch, “Institutional Arrangements and the Creation of Social Capital: The E ects of Public School Choice,” American Political Science Review 91 (March 1997), pp 82–93; Caroline M Hoxby, “Does Competition Among Public Schools Bene t Students and Taxpayers?,” American Economic Review 90 (December 2000): 1209–38; and George M Holmes, Je De Simone, and Nicholas G Rupp, “Does School Choice Increase School Quality?,” Education Next, forthcoming 95 Caroline M Hoxby, “The E ects of School Choice on Curriculum and Atmosphere,” in Susan E Mayer and Paul E Peterson (eds.), Earning and Learning: How Schools Matter (Washington, D.C.: Brookings Institution, 1999) 96 See, for example, the evidence in Jacob Mincer, “The Production of Human Capital and the Life-Cycle of Earnings: Variations on a Theme,” Journal of Labor Economics 15 (January 1997): S26-S47 97 See James J Heckman, “Is Job Training Oversold?,” Public Interest 115 (Spring 1994): 91–115, and Heckman et al., “The E ects of Government Policy on Human Capital Investment and Wage Inequality.” Experience shows that many employers can, in e ect, make workers shoulder part of the cost of their own training by paying lower wages to new or unskilled workers, so that they can go ahead and provide training to new recruits without worrying that they are using their own resources to train their competitors’ future employees See also Jacob Mincer, “Investment in U.S Education and Training” (National Bureau of Economic Research, Working Paper 4838, 1994) 98 See Gary Burtless, “Are Targeted Wage Subsidies Harmful? Evidence from a Wage Voucher Experiment,” Industrial and Labor Relations Review 39 (October 1985): 105–14 99 See the review of these programs in Robert J LaLonde, “The Promise of Public Sector-Sponsored Training Programs,” Journal of Economic Perspectives (Spring 1995): 149–68 Under the 1982 Job Training Partnership Act, the government turned over to the states much of the training that had been carried out under the Comprehensive Employment and Training Act program, albeit still with federal financing 100 See Charles F Manski and Irwin Gar nkel, Evaluating Welfare and Training Programs (Cambridge: Harvard University Press, 1992); Lalonde, “The Promise of Public Sector-Sponsored Training Programs”; Krueger, “Inequality, Too Much of a Good Thing”; and Carneiro and Heck-man, “Human Capital Policy.” 101 John Burghardt, Peter Z Shochet, Sheena McConnell, Terry Johnson, R Mark Gritz, Steven Glazerman, John Homrighausen, and Robert Jackson, Does Job Corps Work? Summary of the National Job Corps Study (Princeton, N.J.: Mathematica Policy Research, 2001) 102 See, for example, the di erent conclusions drawn by Krueger and by Heckman and Carneiro in Heckman and Krueger, Inequality in America 103 As we have seen, this theme has gured prominently in American thinking since well before the founding of the republic For a recent discussion in a context explicitly addressing issues of economic policy, see Edmund S Phelps, Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise (Cambridge: Harvard University Press, 1997) 104 See Je rey M Perlo and Michael L Wachter, “The New Jobs Tax Credit: An Evaluation of the 1977–1978 Wage Subsidy Program,” American Economic Review 69 (May 1979): 173–79, and Lawrence F Katz, “Wage Subsidies for the Disadvantaged,” in Richard B Freeman and Peter Gottschalk (eds.), Generating Jobs: How to Increase Jobs for Less-Skilled Workers (New York: Russell Sage Foundation, 1998) See also Robert H Have-man and Barbara Wolfe, Succeeding Generations: On the Effects of Investments in Children (New York: Russell Sage Foundation, 1994) 105 Anne Case, Darren Lubotsky, and Christina Paxson, “Economic Status and Health in Childhood: The Origins of the Gradient,” American Economic Review 92 (December 2002): 1308–34 106 Time, April 14, 1941, pp 86–87; cited in Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (New York: Knopf, 1995), p 128 Acknowledgments Principal funding for the research and writing of this book came from the Calvin K Kazangian Foundation for Economics and from the Curran Foundation The Hickrill Foundation provided additional support I am grateful to these three foundations for making this work possible I am also grateful to Michael Mac-Dowell, to Willard Speakman, and to Frank and Denie Weil, for their help in securing this support and, just as important, their enthusiasm for this inquiry and their personal vote of dence in it and in me Harvard University provided two sabbaticals during which I worked on this book and also supported my research with grants from several university funds Any intellectual endeavor that self-consciously draws on di erent disciplines as this one does inevitably re ects the advice and encouragement of many individuals Living and working in a university community, I have been blessed with a rich collection of colleagues and friends to whom I could turn Many will nd re ections of their influence in these pages Two of these colleagues, neither an economist, deserve particular thanks for the help and encouragement they have given me (although, needless to say, neither bears responsibility for what I have written) Daniel Bell, of Harvard’s Sociology Department, stimulated my ideas from the very beginning of this inquiry, pointed me in directions I had not known to look, read and insightfully commented on parts of what I had written, and encouraged me throughout William Hutchison, of the Harvard Divinity School, likewise suggested ideas that were new to me and provided continual support and encouragement I have been guided by their advice, and strengthened by their friendship Similarly, my editor at Knopf, Jonathan Segal, has been helpful and encouraging throughout the writing of this book—reading successive drafts, asking the right questions, and pointing the way to improvements His e orts have made it a better book I am also grateful to Robert Barnett for handling arrangements with Knopf on my behalf Other colleagues and friends who read and commented on draft chapters of this work include Alberto Alesina, Harold Attridge, Bernard Avishai, Stephen Bergman, Peter Bernstein, Olivier Blanchard, Derek Bok, Michael Bordo, Adam Broadbent, John Campbell, Robert Carswell, Stefan Collignon, Robert Dorfman, Arthur Dubow, Michael Edelstein, Jason Epstein, Niall Ferguson, Donald Fleming, John Flemming, Robert Frank, Helmut Friedlaender, Wolfgang Gebauer, Edward Glaeser, Claudia Goldin, Neva Goodwin, Richard Grossman, Patrice Higonnet, Albert Hirschman, Stanley Ho mann, Glenn Hubbard, Richard Hunt, Otmar Issing, Toshiki Jinushi, Serene Jones, Ethan Kapstein, Carl Kaysen, Morton Keller, David Laibson, Charles Maier, Gregory Mankiw, Stephen Marglin, Richard Musgrave, Joseph Nye, Thomas Ogletree, John Olcay, Brendan O’Leary, Torsten Persson, Adam Posen, Rolf Richter, Francis Schott, Anna Schwartz, Tibor Scitovsky, Robert Shiller, Pierre Sicsic, Hamish Stewart, Peter Temin, Charles Tilly, Louis Uchitelle, and David Weil Others who often went beyond the call of ordinary duty in repeatedly answering questions and providing useful information include Robert Barro, Jared Bernstein, Thomas Senior Berry, David Cutler, Charles Donahue, Richard Easterlin, Je rey Frankel, William Gale, Robert Gall-man, Henry Gemery, Robert Gordon, Zvi Griliches, James Heckman, Caroline Hoxby, Ronald Inglehart, Howell Jackson, Dale Jorgenson, Lawrence Katz, Charles Kindleberger, Michael Kremer, Alan Krueger, Je rey Liebman, Tobias Linzert, John Londregan, Harvey Mans eld, Laurie Matthews, Dwight Perkins, James Poterba, Adam Przeworski, Michael Sandel, Juliet Schor, Amartya Sen, Robert Stavins, Stephen Thernstrom, Richard Tuck, Sidney Verba, Julian von Lan-desberger, and Je rey Williamson I appreciate their help, and I thank them all I have also bene ted enormously, during the years I have worked on this project, from the assistance of a series of Harvard students: Eric Fleisig-Greene, Benjamin Hett, Bruce Gottlieb, Jamie Horr, David Kessler, Amanda Kowalski, Matthew Maguire, Richard Mans eld, Michael Morell, Justin Muzinich, Matthew Price, Geo Rapp, Danny Shoag, Claudia Sitgraves, Stephen Weinberg, and Emma Wendt They too will recognize the results of their e orts here Working with young people of this high caliber—both intellectually and personally—is a particular joy of the research process I appreciated their help when they were students Most of them have now graduated, and they are my friends My longtime secretary, Helen Deas, did her usual excellent job in not only typing and retyping (and again retyping) the manuscript but also keeping track of multiple drafts of sixteen chapters Her faithful support has consistently underpinned both my research and my teaching Shelley Weiner also ably and cheerfully pitched in when the volume of work to be done required more than one person to it And, fortunately, there are the constants, the moral anchors, of one’s life A decade ago, asked to write an essay on my approach to “doing economics” for a collection aimed at students and young professionals in the eld, I chose to approach the subject at both the intellectual and the moral level I wrote, in part, “Have an agenda, and know why it matters.… My wife and sons come rst.” The contribution that Barbara, John, and Je have made to the e ort behind this book has been indirect, but it has been no less valuable—to me—for that I dedicate the book to Barbara BENJAMIN M FRIEDMAN Benjamin M Friedman is the William Joseph Maier Professor of Political Economy and former chairman of the Department of Economics at Harvard University, where he has taught for more than three decades His book Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After received the George S Eccles Prize, awarded annually for excellence in writing about economics He has written for The New York Times, The Wall Street Journal, and The New York Review of Books He has been the recipient of the John R Commons Award, presented in recognition of achievements in economics and service to the economics profession He and his wife, Barbara, and their two sons live in Cambridge, Massachusetts Benjamin Friedman is represented by the Random House Speakers Bureau www.rhspeakers.com ALSO BY BENJAMIN M FRIEDMAN Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After ... reform of the underpinnings of economic growth but to outright opposition What marks all these forms of resistance to the undesirable side e ects of economic expansion or of the globalization of economic. .. opposes economic growth per se Rather, a seriously credible warning of the end of economic growth would prompt real consternation, as indeed occurred in the wake of the energy price increases of the. .. By the middle of the eighteenth century the notion of progress was evident even in the titles that the intellects of the day chose for what they wrote: “A Philosophical Review of the Advances of