The American Spectator

THE PUBLISHING TREND IN THINK TANKS is brevity. This makes sense, for thin books are both less expensive to publish and more likely to be read. If the recent economic crisis has tightened up the scholarly prose, it’s a discipline that could spread their ideas more widely and reduce their cost. Win-win, as they say.

The Hoover Institution illustrates the trend. Paul R. Gregory’s Lenin’s Brain and Other Tales from the Secret Soviet Archives (162 pages) is one of the best of a new batch from the Stanford think tank. Outside of Moscow, Hoover’s archives maintain the best collection of Soviet material anywhere. A professor of economics at the University of Houston and a Hoover research fellow, Gregory has published a very readable volume of stories from the Hoover archives.

The title essay tells the nearcomedy of Lenin’s brain. Postmortem, it was preserved with a view to proving his genius. The plan was to send the pickled tissue to Berlin, where a compliant expert would study it. But Stalin worried that the German, who was beyond Soviet control, might render the wrong verdict. So in 1936 a report suitably worshipful of Lenin was prepared in Moscow. But even that was suppressed. Why? At a time when Stalin was “executing his most prominent political rivals,” Gregory speculates, he didn’t want “to remind the party of a ‘genius’ Lenin, who might have treated his rivals more humanely.” Lenin’s brain is already the subject of a novel. Now we hear the story from the official Soviet archives.

Other essays are more somber, and convey the horror of life under Stalin. Hardly anyone dared to tell the truth. One piece, “The Ship of Philosophers,” tells of a German steamer that sailed from Petrograd in September 1922 with 186 passengers on board. They were “the cream of Russian intellectual life- writers, poets, journalists, scientists and philosophers.” Among them was Nikolai Berdiaev, the philosopher of mystic non-orthodox Christianity. An OGPU detachment knocked on his Moscow door and he was hauled off to the Lubianka, but he refused to sign any confession. So Berdiaev was released from prison and forced into exile. He died in Paris in 1948.

What the passengers on the Ship of Philosophers didn’t realize (until later) was how lucky they had been. Under Stalin, non-conformists were sent to Siberia, or killed outright.

A FEW WORDS ABOUT John B. Taylor’s Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis. His book is itself one of few words, covering 92 pages, and rather small ones, with lots of charts and tables. A Hoover senior fellow, Taylor is also an economics professor at Stanford University.

Taylor argues that the recent financial crisis originated in an error by the Federal Reserve, In 2002-04 it held short-term interest rates too low for too long. The housing bubble ensued, then burst. Proving that this is not just hindsight, Taylor includes a chart published in the Economist in 2007, showing that he made the argument before the trouble was apparent.

Stimulus packages have not helped, Taylor argues. In more technical terms, “counterparty risk” was misdiagnosed as a liquidity shortage. Meaning: When banks were reluctant to lend to one another the financial system seized up, but this was misconstrued as a shortage of money. The real reason for the dearth of lending was uncertainty about the solvency of borrowers. After the collapse of the housing market, no one knew how to price the toxic assets on the banks’ books.

In a recent article in the Wall Street Journal, Taylor and Stanford professor Kenneth Scott explain why this problem has been so intractable. Thousands of mortgage-backed securities were gathered into pools, many of them obscured by confidentiality agreements. Then they were sliced into so many “tranches” that the number of ways they could be recombined literally ran into the millions.

Today’s crisis seems to have been the opposite of the one experienced in the Great Depression.
Then there was a liquidity shortage, but “the Fed did not provide liquidity,” Taylor writes. This time it did, but what was needed was transparency about the banks’ alleged assets. We are inclined to overcompensate for errors of the previous era. We can be sure that when a comparable crisis emerges, decades from now (not before that, we hope), the one problem no one will have to be warned against is that of opaque debt obligations which no one knows how to value.

NOW FOR HEALTH CARE REFORM—lately we have been hearing of little else. It arouses much concern because it looks to be the great Trojan Horse for government expansion. Once in place, it would be set in legislative concrete. Healthy, Wealthy and Wise: Five Steps to a Better Health Care System, by John F. Cogan, R. Glenn Hubbard, and Daniel P. Kessler, is published by the American Enterprise Institute and the Hoover Institution jointly. In civilized fashion, its conclusion begins on page 81. Appendices in algebra follow but we can ignore them.

A major defect of the present system, say the authors, is the tax loophole for compensation paid to employees in the form of health insurance. Direct out-of-pocket medical spending, meanwhile, comes from after-tax income. It all began in 1942 as a wartime measure, when wage increases were forbidden by law but employers could offer workers health care instead. This government subsidy disguises from workers the true cost of health care to society and is one reason why health care costs per capita are much higher here than in European countries.

Eliminating or reducing this tax preference would therefore bend the cost curve down (in the fashionable jargon). It is a reform that was advocated by President Bush, by some Republicans on Capitol Hill today, and by the Washington Post. Nonetheless, Obama has been adamantly opposed. It’s the rare case of a tax increase largely supported by Republicans and opposed by Democrats.

The authors also point out that state laws add to health care costs by mandating coverage for marginal procedures (such as chiropractic services). It’s as though old automobiles must be ensured against every engine defect.

FINALLY, Better Parties, Better Government: A Realistic Program for Campaign Finance Reform, by Peter J. Wallison and Joel Gora, is hot off the presses from the American Enterprise Institute. I’ll bet you weren’t planning to read a 170- page book on the reform of campaign finance reform, and the think tank title doesn’t help. But the fact is it is extremely well written, almost qualifying as a page-turner.