Viewing Economists

Book Reviews 1 153 who bring with them professional values that may well be in conflict with both the hierarchical values of the organizations in which they work and the majoritarian values expressed through more democratic political processes. And in an age in which the media and access to information are increasingly significant components of the process of governing, the conflicts between perceived obligations to “the public interest” by the individual and the conception of that interest embodied in institutions will be increasingly important. Burke discusses the desires of some public officials to engage in “leaks” or “whistle-blowing” and the impact of those actions on government. I do not find his resolution of all the questions and dilemmas raised in the book entirely satisfying, especially as he tends to place, at least to my mind, too much emphasis on the democratic resolution of issues and too little on individual moral responsibility. However, Burke has certainly addressed the right questions in an interesting and direct manner. In summary, only one of these three books really appears to break new ground in the analysis of public organizations. The Burke volume raises some enduring questions but provides them with new and somewhat provocative answers; it is a book that certainly should be read. The Hood book should also be read, if for nothing more than the clear explication of existing approaches and the development of very detailed classificatory schemes. Other than an account of the historical development of a single agency, I fear that the third volume has little to offer the serious scholar of public management. B . GUY PETERS is Maurice Falk Professor of American Government at the University of Pittsburgh. VIEWING ECONOMISTS Charles E. McLure, Jr. The Economist’s View of the World: Government, Markets, and Public Policy, by Steven E. Rhoads. New York: Cambridge University Press, 1985, 416 pp. Price: $39.50 cloth, $12.95 paper. This book describes the benefits and pitfalls of conventional economic analysis. Rhoads suggests (p. 220) that an “Americans for Democratic Action liberal” should read Parts I and 11, which explain the economic paradigm and its benefits. On the other hand, “a libertarian conservative” should read Part 111, which describes some of the defects in that way of viewing the world. Economists will find little new or exciting in Rhoads’ discussion of the “useful concepts” of opportunity cost, marginalism, and economic incentives-or in the four chapters on government and the economy, economists and equity, externalities and the government agenda, and benefit-cost analysis. Indeed, they may even be disappointed that Rhoads passes up opportunities to clarify how the concepts of opportunity costs and marginalism can improve understanding of public policy issues. For example, in saying of the positive externalities created by education that “perhaps the marginal benefits of further efforts along these lines are smaller than the marginal costs” (p. 114), Rhoads fails to note clearly that this may be true 154 1 Book Reviews precisely because the external benefits of education may be inframarginal. Moreover, one finds puzzling such statements as the following, which reflects failure to distinguish between average and marginal effects: “. . . tax credits can get us more funds for investment without reducing tax rates for the rich. But the poor save almost nothing, so the credits will be of no direct benefit to them” (p. 96). Rhoads does extremely well when dealing with issues on which he is apparently most expert, especially environmental issues. By comparison, his discussion of issues in tax policy is generally quite weak. For example, few tax specialists who had been close to the brief but heated debate on integration of the corporate and personal income taxes in the 1970’s would have agreed with him that, “There is also widespread support for integrating the corporate and personal income taxes” (p. 98). Certainly the predictive power of this statement was demonstrably weak. When the Treasury Department suggested in its 1984 report to President Reagan that a deduction should be allowed for 50 percent of dividends paid, corporate support was virtually nonexistent; that percentage was reduced to 10 percent in the President’s proposals to the Congress, the House version of the Tax Reform Act of 1986 provided a ten-year phase-in of the 10-percent deduction, and the final version of the Act contains no such provision. Economists were among those who did not support integration. Rhoads’s treatment of many complicated tax issues is so terse as to be of little value; indeed some may be counterproductive. Probably few tax experts would agree that “. . . tax changes could promote a small business objective more effectively and without the costs of a very active anti-trust policy” (p. 80). Rhoads sometimes parades arguments on both sides of important issues in tax policy without attempting to referee the debate. He cites Michael Boskin’s work on the response of saving to changes in interest rates, but he doesn’t provide any hint that these findings are quite controversial. And he devotes less than a paragraph to the possibility of shifting from income to consumption as the basis of personal taxation. Without considering the problems such a fundamental switch would pose, he simply quotes Gunnar Myrdal’s advocacy of a consumption-based tax. Rhoads’s book has far more documentation than most-841 footnote references in 222 pages. Yet, the choice of references is often puzzling. There is a systematic tendency to refer repeatedly to a relatively small group of academic economists and to certain journalists, even when they are writing outside their areas of expertise. Conversely, the book has a notable lack of references to the work of acknowledged experts in fields in which Rhoads appears to be less knowledgeable. For example, Rhoads notes that “in a recent article” Alfred Kahn (one of his favorite economists) “had proposed limiting the amount of employers’ contributions to health insurance that employees may exclude from their taxable income” (p. 97). The implication is that this proposal was original in Kahn’s 1981 article. In fact, such a proposal had long been part of the conventional wisdom among tax experts, as evidenced, for example, by its inclusion in Blueprints for Basic Tax R e f o m , issued by the U.S.Treasury Department in 1977. Rhoads’s organization of material is occasionally baffling. In Chapter 6 on “economists and equity,” a section entitled “Taxes and the incentive to work and invest” follows discussions of Pareto-optimal redistribution, evidence on the distribution of income and wealth, and the market distribution of income. Whether this discussion of incentives would fit neatly in the earlier Book Reviews 1 155 chapter on economic incentives is unclear; certainly it is out of place near the beginning of a chapter dealing with equity. No doubt those unaccustomed to rigorous application of economic analysis will benefit from the first two parts of Rhoads’s book if they approach the matter with an open mind. He notes: “Both opportunity cost and marginalism lead one to question the old maxim that anything worth doing at all is worth doing well” (p. 38). Also, “[A111 effluent standards tell a firm that it is all right, at least for now, to pollute to the legal limit, but under no circumstances may it go beyond. Effluent standards make sense only in a world in which pollution damages are trivial to the limit but devastating beyond” (p. 46). This contrasts sharply with the following quotation from Senator Muskie: “We can not give anyone the option of polluting for a fee” (p. 51). But much of what is said there .can be found elsewhere, including (and especially) undergraduate textbooks. Rhoads’s real contribution lies in Part 111, which discusses “the limits of economics.” He notes accurately that the economic man of traditional analysis is both inhumane and a caricature of real people: “When most of us read Dickens, we see Scrooge as contemptible but also pitiable. He has no close family and no friends. No one likes or respects him. He is not a happy man. But much of the economic literature reviewed here suggests that he was in fact a model maximiser” (p. 162). Among examples of the parody of economics cited by Rhoads is Gordon Tullock’s insistence that indoctrination to create a sense of conscience is appropriate only if it is “a lower cost method of reducing the crime rate than the use of policemen and prisons” (p. 160). Rhoads quotes Lester Thurow’s statement that “at the heart of the economist’s love affair with cash transfers is the doctrine of absolute consumer sovereignty” (p. 110). He quotes Steven Kelman, who notes that the advocate of cash transfers is “constantly urging people to stifle natural inclinations of sympathy for the plight of others. He urges them instead to avoid taking account of equity in the given areas where it most naturally arises in people’s minds-and instead, if they are interested, in some other time and place, to work for a cash transfer to the unfortunate. The result would be a sort of ‘I gave at the office’ mentality, where people give and then don’t think about the disadvantaged for the rest of the year” (p. 108). “Though economics has progressed in many ways through the years, it has forgotten as much as it has learned about the problem of poverty. Adam Smith could see that the problem was not fundamentally one of inadequate income. The poor had the ‘necessities of nature’ and a little more besides. But they were ashamed of how others saw them. More cash payments will not make the shame go away” (p. 112). Notably missing from Rhoads’s discussion of weakness of will, imperfect information, and other apparently irrational behavior is any mention of the concept of merit wants. Since the concept was identified nearly 30 years ago by Richard Musgrave, it has enjoyed a precarious existence on the fringe of economic analysis precisely because it does not fit well with the economist’s tool bag. Rhoads’s short book contains many troublesome propositions. “. . . freerider experiments show that economists have a different world view than the rest of us” (p. 163). “The profession now seems to attract those with a narrowly self-interested view of mankind and much economic work depends on that view” (p. 177). “Economists’ technical education leaves them 156 Book Reviews unlikely to look for intangible externalities and poorly equipped to weigh their significance if they should bump into them” (p. 214). But “A philosophy of nothing beyond preferences would allow envy and malevolence to count. It might lead to restrictions on annoying political speech. It would presumably banish from public view those people with hideous deformities who regularly draw taunts from the public. It would recognize no principle preventing others from controlling an individual’s behavior in any area of life . . . [Dlespite its individualistic surface, this pure welfare economic philosophy does not read like a philosophy of liberty” (p. 185). Among Rhoads’s policy judgments are the following. “A healthy polity . . . must promote institutions that build consensus and strengthen ethical standards. Rather than continually giving narrow self interest its head, it must sometimes seek to make narrow self interest less narrow. And it must find a way to compensate for the market’s overemphasis on the things money can buy as the route to human happiness” (p. 219). “Those who write on the largest political questions too often fail to approach their task with humility and trepidation, in full awareness of the high stakes involved. Their work rarely reflects on human nature or on the lessons of history” (p. 214). “This book’s central message is not anti-economics. I think economists should read more outside of economics, but most people should read more within it” (p. 215). “When looking for help, economists would do better to seek it in the same places the great economists of the past found it-in the humanities and social sciences” (p. 215). “Because they were both broader and deeper, the older economists were less likely to forget that economic man is not the total man” (p. 177). CHARLES E. MCLURE, JR. is Senior Fellow at the Hoover Institution, Stanford University. FEDERAL POLICY AND THE CITIES Nonna A. Noto Rebuilding America‘s Cities, by Ernest N. Morial and Marion Barry, Jr. Cambridge, MA: Ballinger, 1986, 290 pp. NPA cloth. Reagan and the Cities, edited by George E. Peterson and Carol W. Lewis. Washington: Urban Institute, 1986, 251 pp. $27.95 cloth, $14.95 paper. Metropolitan America: Urban Life and Urban Policy in the United States 1940-1980, by Kenneth Fox. Jackson, Miss: University Press of Mississippi, 1986, 274 pp. NPA cloth. In the late 1980’s when relatively little national attention is being paid to the cities and their particular problems, here are three books that address in great detail the relationship between federal policy and the actual situation in cities. They differ most notably in their evaluation and endorsement of federal involvement with the cities. Two of the books are written against the backdrop of the Reagan Adminis-