Haldore Hanson: a Danger

Who was Haldore Hanson? His name is largely forgotten, but he posed a direct threat to lives, not only of United States citizens, but also of people around the globe. As historian Stan Evans notes, “Hanson was a full-time State Department employee.”

Hanson started out as a journalist, reporting on China in the late 1930s. But his writing was propaganda for the Chinese Communist Party, and its leader, Mao Tse-Tung. In his advocacy for Mao, whose name is also transliterated as Zedong, he broke no U.S. laws, but he did contribute to what would ultimately become the mass murder of millions of Chinese.

Later in his career, Hanson “served on the staff of Assistant Secretary of State William Benton.” Hanson also joined the CPUSA, the American Communist Party.

In the context of the Cold War, joining the CPUSA was not merely an expression of a political view, but rather it was supporting an organization which declared in its written materials the “inevitability of and necessity for violent revolution.” To join the CPUSA was to endorse, support, and prepare for the violent overthrow of the United States government - including the killing of innocent civilians.

Working in William Benton’s office, Hanson was “one of the numerous group of” communist “suspects once employed in that office.” By 1950, “Hanson headed a division at State that dealt with matters of foreign aid. Most to the present point, he had in the latter 1930s gone on record with some revealing comments about the Communist cause in China.”

Hanson was, therefore, separately, both a criminal and a danger. He was a criminal because he was working for the violent destruction of the American government, including the deaths of innocent civilians. He was a danger because he work to support Mao’s regime and its eventual slaughter of millions of Chinese.

Korea: Caught by Surprise

In the years immediately after WW2, the world was adjusting to the new alignments which would shape, and be shaped by, the Cold War which would last for the next several decades. There were the “Western” nations, roughly coalesced around Japan, the United States, England, and Germany - the NATO powers plus the friendly Pacific powers.

On the other side were the Communist powers, centered around the USSR and mainland China.

There were also ‘unaligned’ nations, who either in reality or in mere words sought to remain neutral or independent of the two groups which opposed each other in the broad framework of Cold War conceptualization.

There were many points of geographical contact between the two sides of the Cold War: the boundary between East German and West Germany, extending into the whole ‘Iron Curtain’ which ran up and down Europe from the Arctic Circle to the Mediterranean; the uneasy and unclear borders through southern and southeastern Asia; and the Pacific coast along eastern Asia, where sometimes narrow stretches of water separated Communist and nonCommunist nations by only a few miles.

While the NATO Allies were making efforts to be prepared should the Soviets launch a surprise attack across central Europe, they were surprised when North Korea attacked South Korea in June 1950. The North Korean People’s Army (NKPA) succeeded in overrunning almost all of South Korea, as historians Allan Millett and Peter Maslowski note:

Korea had been a backwater of American postwar diplomacy, and it did not loom large as a military concern. Divided in 1945 by an arbitrary line at the 38th Parallel so that occupying Russian and American forces could disarm the Japanese and establish temporary military administrations, Korea had by 1950 became part of the Cold War’s military frontier. In North Korea the Russians had turned political control over to the Communist regime of Kim Il Sung and helped him create an eleven-division army of 135,000 seasoned by service in the Soviet and Chinese communist armies. The NKPA was a pocket model of its Soviet counterpart, armed with T-34 tanks, heavy artillery, and attack aircraft.

Although the North Koreans experienced sweeping success in the first phase of the war, due to the element of surprise, to the unreadiness of the U.S. forces in South Korea, and to the small numbers of those U.S. forces, the South Koreans, aided both by the United States and by the United Nations, would turn the tide. The South would be freed of the NKPA invaders, the North would be largely in the hand of the U.S. and U.N. forces.

While the North Korean war planners were correct in their estimation that they could quickly advance through the South, they were wrong in believing that they could hold that ground for long. The United States had resources very close by, as Russell Weigley writes:

The authors of the North Korean invasion of South Korea had also miscalculated the American response. Despite the weaknesses of the American armed forces, hardly another place on the boundary between the Communist and non-Communist worlds could have been so well selected as a setting for the frustration of a Communist military venture by the military resources of the United States. Korea is a peninsula which at the narrowest point of the Strait of Tsushima is little more than a hundred miles from Japan. Therefore Korea lay within ready reach of the largest concentration of American troops outside the United States, the four divisions of General Douglas MacArthur’s army of occupation in Japan, and within ready reach also of American sea power.

Only two months before the NKPA invaded the south, a famous document known as NSC-68 hinted at the possibility of unilateral and unprovoked action by the Soviets or one of their proxy states, like North Korea. This document arrived too late, and even if it appeared earlier, it is not clear that the Truman administration would have taken significant actions to put South Korea on a more defensible footing.

To arrange U.S. and NATO forces to respond the dangers listed in NSC-68 would have required a reallocation of the resources inside the defense budget. Much of the thought in the Truman administration centered on deterring, defending against, or fighting in a global strategic nuclear conflict, or at least a massive conventional invasion through central Europe. A smaller regional war was not fully anticipated, as William Donnelly reports:

North Korea’s invasion of South Korea in June 1950 occurred as senior U.S. civilian and military officials were considering what to do about recommendations in an April 1950 State Department paper submitted to President Truman. This paper, NSC 68, had argued that there was an increasingly dangerous imbalance of power between the Soviet Union and the United States, an imbalance that favored the former and would lead the Soviets to take greater risks in advancing their interests. The United States, NSC 68 urged, should undertake a major military buildup to reassure its allies and deter the Soviet Union. Although the Joint Chiefs of Staff (JCS) had not provided by June 1950 a final estimate of the forces required by NSC 68, there was no doubt that its implementation would involve a major increase in defense spending. But before June 1950, President Truman was not convinced such a step was necessary.

Domestic policy, foreign policy, and military policy should ideally harmonize to serve the national interest. Periodic reallocations within the defense budget are a necessary part of keeping policy both on task and congruent to current global realities.

The Korean conflict would serve to alert American policy makers to unanticipated dangers coming from the communist powers, as Mark Levin writes:

The moral imperative of all public policy must be the preservation and improvement of American society. Similarly, the object of American foreign policy must be no different.

The ‘improvement’ which is the goal of proper policy is the increase of personal freedom and individual political liberty. In domestic policy, this takes the forms of deregulation, tax cuts, and the defense of property rights. In foreign policy, and in military action, it takes the form of acting always to protect the lives, liberties, and properties of United States citizens.

South Korea survived the North’s attack, despite initial unpreparedness on the part of the United States, because major U.S. forces were able to be quickly redeployed from nearby Japan, and because those forces were large, well-equipped, and well-trained, relative to the NKPA and their Soviet supporters.

The American Economy, Circa 1960

Taxes are a perennial problem for citizens. They are, in the words of Thomas Paine, a “necessary evil.” Taxes are truly necessary: if a government is to have the resources to protect the lives, properties, and liberties of its citizens, it will need the resources to carry out that responsibility.

Yet taxes are truly evil: the are the confiscation of a citizen’s property. To the extent that property is attained by work, taxes are the appropriation of a citizen’s labor, and thereby constitute involuntary servitude: slavery.

This was true in ancient Egypt, Babylon, Rome, and Greece. It is also the case in modern history. Reviewing economic statistics sometime around 1959, Senator Goldwater wrote:

Here is an indication of how taxation currently infringes on our freedom. A family man earning $4,500 a year works on the average, twenty-two days a month. Taxes, visible and invisible, take approximately 32% of his earnings. This means that one-third, or seven whole days, of his monthly labor goes for taxes. The average American is therefore working one-third of the time for government: a third of what he produces is not available for his own use but is confiscated and used by others who have not earned it. Let us note that by this measure the United States is already one-third ‘socialized.’” The late Senator Taft made the point often. “You can socialize,” he said “just as well by a steady increase in the burden of taxation beyond the 30% we have already reached as you can by government seizure. The very imposition of heavy taxes is a limit on a man’s freedom.

That citizens tolerated, in the early 1960s, the government’s seizure of a third of their annual income is due to the disguised nature of that seizure. Had the government presented, all at once, a bill for that sum, a revolution would have been likely.

Instead, taxes were divided into various segments: income taxes, capital gains taxes, tariffs, etc. Some taxes are hidden in the cost of consumer goods: the price on a loaf of bread or a bottle of ketchup, for example, includes the taxes paid by the manufacturer and shipper of the goods.

The political process regularly features candidates who express sympathy for the citizens and the burden of taxation which they bear. Yet the uniformity with which those candidates, regardless of their party affiliation, fail to significantly alleviate that burden is a uniformity which engenders a cynicism on the part of the voters.

While eager to elect leaders who will address the excessive size of taxes, voters have ceased truly to expect meaningful relief in this regard. Senator Goldwater wrote: “I suspect that this vicious circle of cynicism and failure to perform is primarily the result of” the habit, found among the news media and the politicians, of addressing taxation as a technical economic inconvenience, instead of considering taxation as an ethical question.

When a government uses the brute force of regulation to confiscate property from citizens, then surely a moment of ethical consideration is in order. The old slogan of ‘no taxation without representation’ alerts us to the fact that ‘administrative rulings’ and ‘user fees’ constitute a path around proper legislative processes.

Yet, as Goldwater notes, the political class and the media have fueled cynicism because of their “success in reading out of the discussion the moral principles with which the subject of taxation is so intimately connected.”

Competing Economic Doctrines: ‘Creative Destruction’ vs. ‘Too Big To Fail’

In 1942, the economist Joseph Schumpeter earned a permanent place in history when he developed the phrase ‘creative destruction’ to describe how economic growth and innovation arise from the debris of failed enterprises.

On average, businesses which fail or go bankrupt are replaced by more successful companies. On average, a worker who is laid off eventually finds not only another job, but a better-paying one.

To secure the full benefits of Schumpeter’s principle, however, those who are in a position to intervene in the economy must exercise restraint. The sometimes counterintuitive implications of “creative destruction” may require regulators to stand back and allow the financial collapse of a business, or an entire industry, to play out.

The humanitarian impulse, of course, nudges the government to intervene on the behalf of failing companies for the sake of workers who might lose their jobs, or for the sake of investors who depend on dividends for their daily bread.

Yet the best outcome for workers and investors alike, over the long run, is to allow creative destruction to take its course. Bitter lessons of history show that, e.g., the 1979 bailout of the Chrysler Corporation did indeed keep the company alive, but only barely, and long-run effect was to extend the misery as auto workers coped with shrinking wages and investors found Chrysler to be less than fruitful.

Historians should not engage in speculation about counterfactual situations: so one may not confidently state what would have happened had the 1979 bailout not taken place.

However, the record shows numerous financial collapses and bankruptcies which ultimately led to new and larger business opportunities.

Opposing the doctrine of ‘creative destruction’ is the political notion that some enterprises are ‘too big to fail,’ meaning that they are too big to be allowed to fail.

This political approach argues that the government should intervene in the natural workings of marketplace to sustain large companies which might otherwise declare bankruptcy. Allegedly, this policy avoids a ‘domino effect’ or a ‘chain reaction’ of other business failures.

Both the administrations of George W. Bush and Barack Obama implemented this policy, despite purported differences between those two presidencies.

Two sectors received this attention: the financial industry and the automotive industry. General Motors Corporation and Chrysler Corporation received massive government support at a time when there was at least the possibility that they might have to declare bankruptcy.

Concerning the continuity of the two administrations in this policy, Paula Gardner, reporting Sandy Baruah’s analysis of Obama’s actions, wrote:

Politics also might enter the message. Baruah said, “He vastly underplays the role President Bush played in setting the stage. The U.S. auto industry would not have been saveable in 2009 if George W. Bush had not taken the action that he did.”

One must be careful not to confuse the “U.S. auto industry” with a collection of auto companies. One or two companies can go bankrupt, and in so doing, strengthen the industry. By “saving” a company, one can weaken the industry.

Had GM or Chrysler declared bankruptcy, it would not have been the loss of thousands of jobs. The physical facilities of those corporations would have been maintained, the companies would have been restructured or sold or broken up, and new owners would have happily invested, getting manufacturing equipment and buildings at a bargain price.

The result would have been an energized industry and a burst of economic activity.

The tension, then, lies between two competing and mutually exclusive economic doctrines: ‘creative destruction’ vs. ‘too big to fail.’

The question is whether to save a company at the expense of the economy, or to save the economy at the expense of a company.

The organic functioning of an economy includes as a regular feature the failure of businesses. That the businesses are large or small makes no difference. David Stockman, Director of the Office of Management and Budget from January 1981 to August 1985, reviews the recent history how individuals were willing to let the economy work its own course:

Certainly President Eisenhower’s treasury secretary and doughty opponent of Big Government, George Humphrey, would never have conflated the future of capitalism with the stock price of two or even two dozen Wall Street firms. Nor would President Kennedy’s treasury secretary, Douglas Dillon, have done so, even had his own family’s firm been imperiled. President Ford’s treasury secretary and fiery apostle of free market capitalism, Bill Simon, would have crushed any bailout proposal in a thunder of denunciation. Even President Reagan’s man at the Treasury Department, Don Regan, a Wall Street lifer who had build the modern Merrill Lynch, resisted the 1984 bailout of Continental Illinois until the very end.

Prosperity is the result of allowing individuals and businesses to trade freely, and allowing them to experience the consequences of those trades - for good or for ill. It is tempting to intervene, with the well-intentioned desire to alleviate the short-term financial turmoil brought about by bankruptcies.

But, in avoiding that short-term pain, one prevents the economy from maximizing its long-term gains. A worker might be spared a few months of unemployment, but he is now left to languish at wages lower than if he’d been laid off in bankruptcy and later rehired by a business which was more competitive than the original one.

Immigration: Legal vs. Illegal

Immigration is a central question for national and international politics during the end of the twentieth century and the beginning of the twenty-first.

In the United States, this question takes the form of analyzing the distinction between ‘legal’ and ‘illegal’ immigration. It is a question of law, and of knowing and deliberate violation of the law.

Legal immigrants are, by definition, welcome in the United States. They contribute to the economy and pay their prescribed taxes. They can eventually become full citizens.

Illegal immigrants are criminals, because they have understood the rules beforehand, and have chosen to break those rules. They pay fewer taxes and are therefore not fully supporting the system from which they draw significant social benefits.

The political controversies emerge when people use the word ‘immigrant’ without clearly stating whether they are referring to legal or illegal immigrants.

The example of California is instructive. In 1994, the state had between 1.3 and 2 million illegal immigrants. The exact number is, of course, difficult to determine, because illegal immigrants are constantly working to conceal the fact that they have violated the law.

In that year, California’s voters approved Proposition 187, which was designed to ensure that legal immigrants received social benefits, and to ensure that illegal immigrants did not take those benefits from the legal immigrants.

Because 1994 was a statewide election year, the voting on Proposition 187 was linked with the voting on candidates for various statewide offices. An editor for the University of Michigan’s Michigan Law Review writes:

In 1994, Governor Pete Wilson of California pulled off an amazing come-from-behind victory by tethering himself with titanium cords to Proposition 187, which prohibited illegal aliens from collecting public services. Wilson went from a catastrophic 15 percent job-approval rating to a landslide victory. Suddenly he was being touted as presidential material.

Unrelated the California’s Proposition 187, but related to the topic of immigration, journalist Martin Wolf, writing for the Financial Times, reports that

The share of immigrants in populations has jumped sharply. It is hard to argue that this has brought large economic, social and cultural benefits to the mass of the population.

Note that immigration itself is not harmful to national economies, but illegal immigration does serious damage. Legal immigration has beneficial effects, but illegal immigration is a major problem facing various world governments in the early twenty-first century.

Why the Government Wants You to Pay More for Your Groceries: Radical Distortions of Natural Market Forces

In mid-2015, Shandra Martinez reported about an ongoing legal action. A regional grocer, Meijer’s, was suspected of selling food at prices which the government deemed “too low.”

This seems, to say the least, counterintuitive, especially at a time when the national economy had been sluggish for several years. Is it such a bad thing for consumers to get a good deal on groceries?

To be sure, there have been well-intentioned arguments for minimum prices: to avoid, e.g., “dumping” by which a large retailer can drive smaller retailers out of the market, only to dramatically raise prices once the competition has been eliminated.

But if such a tactic ever worked, it would certainly not in a market as liquid and active as consumer groceries.

Yet the government practice of setting minimum prices for various retail items remains a widespread practice. Shandra Martinez writes:

Meijer's recent opening of two Wisconsin stores has led to a state investigation to determine if the Midwest retailer violated a Depression-era law that keeps products from being sold below cost.

Products reported to be priced too low range from 28-cents a pound bananas to a $1.99 gallon of milk.

From beverages to fuel, price controls set minimum prices for a wide range of products. When competition would drive prices lower, the government steps in to stop prices from dropping.

Arguments are made that this regulatory intervention protects various industries. If this were true, it would ironically be foreign industries receiving protection from American governments, because in many cases, the goods so regulated are imported.

The minimum prices, however, often fail to protect industries, and in fact prevent them from expanding. Lower prices would lead to increased production, higher employment, and more net income to the manufacturer.

Both from the perspective of common sense, and from the perspective of technical economics, government-mandated minimum prices for retail goods serve only to force the consumer to pay more. The practice of legislated minimum prices creates inefficiencies in which selected “crony” companies can generate abnormally high incomes enabled by government favoritism.

The removal of government price controls benefits consumers and producers alike, strengthening the overall economy.

Rising Wages, Sinking Families: the Paradoxes of Income

Despite economic “hard times” in the 1970s, when the U.S. economy was hit separately but simultaneously by inflation and by the Arab Oil Embargo, and in early 2010s, statistics still show long-term growth in real wages, as Charles Murray notes:

In the 1960 census, the mean annual earnings of white males ages 30 to 49 who were in working-class occupations (expressed in 2010 dollars) was $33,302. In 2010, the parallel figure from the Current Population Survey was $36,966 — more than $3,000 higher than the 1960 mean, using the identical definition of working-class occupations.

Alternatively, the same trend can be quantified as a rising standard of living. During that period, 1960 to 2010, the percentage of households possessing the following items increased: televisions, color televisions, microwave ovens, DVD (previously VCR) devices, cell phones, electric garage door openers, personal computers, smart phones, etc.

In any case, we can mark that fifty year period as a time of net economic gain: which means we can use this half-century as social specimen of what happens to a population when prosperity increases.

This occurred despite the decline of private-sector unions, globalization, and all the other changes in the labor market. What's more, this figure doesn't include additional income from the Earned Income Tax Credit, a benefit now enjoyed by those making the low end of working-class wages.

At one time, demographers often accepted the hypothesis that higher income rates led to higher marriage rates. Accordingly, they made few or no policy recommendations to directly increase the marriage rate. Instead, they assumed that improvements in the economy would automatically fix social problems like low marriage rates.

Perhaps, at some point in the past, that hypothesis was true. But, as Charles Murray points out, the last few decades have yielded numbers which have created great doubt about this conjecture:

If the pay level in 1960 represented a family wage, there was still a family wage in 2010. And yet, just 48% of working-class whites ages 30 to 49 were married in 2010, down from 84% in 1960.

If the hypothesis which linked rising wages to a rising marriage rate is not true, then the question arises about which causal relations, if any, exist between income levels and marriage rates. Additionally, the question arises about whether there are other factors, economic or noneconomic, which might determine marriage rates.

A second hypothesis had predicted that rising wages would cause rising participation in the labor force. Better wages, it was assumed, would lure more workers into the workplace. But this hypothesis also showed itself to be questionable.

What about the rising number of dropouts from the labor force? For seven of the 13 years from 1995 through 2007, the national unemployment rate was under 5% and went as high as 6% only once, in 2003. Working-class jobs were plentiful, and not at the minimum wage. During those years, the mean wage of white males ages 30 to 49 in working-class occupations was more than $18 an hour. Only 10% earned less than $10 an hour.

Contrast the average real wage in the period from 1995 to 2007 to the wage from 1960:

If changes in the availability of well-paying jobs determined dropout rates over the entire half-century from 1960 to 2010, we should have seen a reduction in dropouts during that long stretch of good years. But instead we saw an increase, from 8.9% of white males ages 30 to 49 in 1994 to 11.9% as of March 2008, before the financial meltdown.

In the face of the failure of these two hypotheses, statisticians, economists, and demographers had to explain why rising wages didn’t trigger an increase in workforce participation and an increase in the marriage rate.

If changes in the labor market don't explain the development of the new lower class, what does? My own explanation is no secret. In my 1984 book Losing Ground, I put the blame on our growing welfare state and the perverse incentives that it created. I also have argued that the increasing economic independence of women, who flooded into the labor market in the 1970s and 1980s, played an important role.

There are, however, alternatives to Charles Murray’s interpretations. The question is why rising wages didn’t have the anticipated social effects. But from a different perspective, perhaps the wages didn’t really rise.

Although Murray’s numbers, as quoted above, seem to indicate an increase in wages, his numbers also show an increase in single-parent households, whether through divorce or through illegitimacy. Unwed motherhood erodes the expanded purchasing power expected from nominally rising wages.

When parents do not live together with their children, the need arises to sustain two households. If mother and father do not live permanently in the same dwelling, then there is a need for two stoves, two refrigerators, two furnaces, two lawnmowers, etc.

This redundancy is very expensive, nearly doubling the cost of living. So if wages rise at the same time that single-parent families arise, then the latter number will to some extent counteract the former.

With more women in the workforce, single mothers were often able to maintain themselves financially. So the average standard of living across the population was able to sustain itself and even increase.

This increase in standard of living was, however, achieved very inefficiently, because for each working single mother, there was a corresponding male either working or potentially in the workforce. Had the two of them joined forces, the standard of living would have risen even faster, and with less work.

These inefficiencies arise when there are two parallel households when there should be one. Then net cost to individuals and to societies is significant.

Charles Murray examines the cultural factors behind the increase in single-parent households, whether through divorce or through unwed motherhood:

Simplifying somewhat, here’s my reading of the relevant causes: Whether because of support from the state or earned income, women became much better able to support a child without a husband over the period of 1960 to 2010. As women needed men less, the social status that working-class men enjoyed if they supported families began to disappear. The sexual revolution exacerbated the situation, making it easy for men to get sex without bothering to get married. In such circumstances, it is not surprising that male fecklessness bloomed, especially in the working class.

In the early twenty-first century, these cultural factors are powerful influences in society. Culture seems to trump economics, not the other way around:

I barely mentioned these causes in describing our new class divide because they don't make much of a difference any more. They have long since been overtaken by transformations in cultural norms. That is why the prolonged tight job market from 1995 to 2007 didn't stop working-class males from dropping out of the labor force, and it is why welfare reform in 1996 has failed to increase marriage rates among working-class females. No reform from the left or right that could be passed by today's Congress would turn these problems around.

The disclaimer needed when examining these trends is, of course, that we are dealing with averages and trends. There are exceptions: widowhood is, for example, almost never by choice.

Physical disability is another important exception.

But as percentages in the general population, these exceptions are small segments, and the general trends are not affected by them.

As single mothers have proven themselves more adept and creative at sustaining themselves and their children in single-parent households, the corresponding males, who are on average not supporting any children, find it easier to support themselves with little or no constructive economic activity.

Society has created a giant loophole, an easy way out, for men who father children, abandon them, and then live easily without contributing to the economy, to their children, or to the mother of their children. They are allowed to act irresponsibly.

The prerequisite for any eventual policy solution consists of a simple cultural change: It must once again be taken for granted that a male in the prime of life who isn't even looking for work is behaving badly. There can be exceptions for those who are genuinely unable to work or are house husbands. But reasonably healthy working-age males who aren’t working or even looking for work, who live off their girlfriends, families or the state, must once again be openly regarded by their fellow citizens as lazy, irresponsible and unmanly. Whatever their social class, they are, for want of a better word, bums.

The use of the word ‘responsible’ is central to Murray’s argument here. For many people, the word or the concept it represents need not be invoked: they are naturally inclined to contribute to their families and to society.

But there is a large enough segment of the population - and especially of the male population - which needs some external encouragement to seek and maintain employment, and to support their families, that it is necessary to provide structures which incentivize socially constructive economic behavior.