Wanniski’s book, The Way The World Works, documented his theory that the US Senate’s floor votes on the. Jude Wanniski’s masterpiece defined the policies at the heart of the Reagan economic boom that continues today and promises a coming century of global. Review: The Way the World Works (Gateway Contemporary). User Review – Prakhar Bindal – Goodreads. The best book on economics. Shows fatuity of.
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Skip to main content. Log In Sign Up. Reality in One Lesson: What is needed most of all at St. Jjde is a more accurate version of Socrates and the teacher’s or tutor’s responsibility to teach.
The idea that Socrates elicited opinions but did not offer them is simply incorrect, as anyone who reads Plato’s dialogues will discover. Every beginning philosophy teacher who pushes the image of “Socrates the questioner” is rightly embarrassed by the attentive student who points out that Socrates not only asks the most ques- tions, but gives the most answers.
Socrates even lectures from time to time. The dedicated tutors at St. John’s should tell the students what they know. In doing so, they can be confident that their opin- ions will not be eanniski to the young minds there. In an effort to prevent a cranky response to these reforms, Grant and Riesman state that experimenting wznniski have made larger claims and therefore may seem ridiculous in comparison to “more pedestrian institutions which see their work in unexalted terms and where the problems are pedantry and banality and boredom.
Such an institution may not be nude for the authors’ mill, but it does not follow that it is either banal or boring. There are fine colleges and universities in this country that refuse to engage in exalted self-profession, that refuse to claim more for themselves than is appropriate, and this can be to their credit.
Some institu- tions achieve the balance of intellectual coherence praised by the authors in their discussion of Santa Cruz. This is the institutional analogue to the story of the prodigal son.
Why is it that the prodigal son gets so much credit for leaving and then returning home, while his brother, who has the equanimity and character never to be tempted to leave their responsibilities, get none?
A colleague of mine, the Dean of Arts and Sciences. The Way Amazingly, it istheappropriate. Even more remarkable, this heroic effort is frequently successful-illuminating many of the mys- teries of history, from the decline of Rome to the stock market crash of and today’s global stagflation.
The book is deceptively easy to read, which may cause those who associate economic wisdom with impenetrable prose mistak- enly to interpret its clarity as a lack of depth. As his unsigned Wall Street Journal editorials attest, Wanniski is a master of illustration, and each piece of the political-economic model he propounds is carefully interwoven with folksy examples, then amply documented with rigorous historical evidence. Wanniski’s economic model is simply brilliant and brilliantly sim- ple.
The starting point is to examine the supply side of an economy -to ask what motivates people to add to the quantity and quality of marketed goods and services. The answer builds upon a broad definition of work as a complex combination of physical and in- tellectual effort. Most work is in the barter economymhousework, do-it-yourself projects, trading tasks with family or friends.
Smith the carpenter and Jones the plumber will exchange services with each other in the marketplace only “when it is easier to trade their work for somebody else’s in the public economy.
There are enormous efllciencies in specialization and additional gains from using money to expand the scope of possible exchanges within, and even beyond, national boundaries. But entering the public economy to specialize makes the transaction visible and therefore subject to government taxes, tariffs, and regulations.
When the government imposes too heavy a burden on transactions in the public economy, people drop back into the inefllcient private barter economy friends, “doqt-yourself,” and casual labor for cashor they substitute leisure for taxed income.
waay This brings us to the “wedge model,” attributed to Professor Ar- thur Laffer of the University of Southern California, which explains how a variety of taxes and regulations form a wedge between what employers pay for workers and what employees ultimately receive in after-tax income.
Reducing this wedge makes it cheaper for em- ployers to offer jobs and more lucrative for employees to accept and retain jobs.
A similar wedge between what business pays for capital and what suppliers of capital investors ultimately receive in after-tax income reduces savings, investment, and economic growth. According to Wanniski, the practice of taxing additions to income at sharply increasing rates-the progressive income tax-has a par- ticularly demoralizing effect on personal effort and specialization.
They use the stick to replace the carrot. Western countries, however, have tended to forget the stick and tax the carrot with policies that discourage work and subsidize non-work, with the predictable result that we are getting less effort and more “leisure. Between these extremes lies an optimal point “at which the electorate desires to be taxed.
The optimal tax rate can be very high during war time, but high rates at other times will normally generate wholesale tax evasion and a reversion to ineffi- cient, unspecialized barter.
A chapter on the Crash of meshes the theory with some truly original historical research. The stock market always reflects the best available information about the future course of the economy, Wan- niski argues, and therefore could not have been grossly overpriced at the peak.
The market’s fall must instead have reflected a previously unexpected increase in the political cost of doing busi- ness the “wedge”. Treasury Secretary Andrew Mellon emerges as the principal political hero of the book for slashing back the income-tax rates several times from through rates ranged from 4 percent to 73 percent in0.
The much-maligned Coo- lidge era provided five years of 3. If the Coolidge tax cuts were such a successful application of Wanniski’s model, what brought on the market’s crash? By sifting through newspapers of the day, Wanniski demonstrates beyond reasonable doubt that the stock market crash of ensued be- cause of the growing likelihood of passage of the Smoot-Hawley Tariff Act of A domestic tax is “a wedge between the trading of Jones and Smith.
The tariff is a wedge between the trading of Jones, a national, and Schmidt, a foreigner. The effects on commerce are precisely the same. The politics of the day liked employment but hated employers, a situa- tion that wasn’t really improved until another of the book’s heroes, President Kennedy, cut tariffs and slashed tax rates from a per- cent to percent range to a more moderate percent to per- cent rangewhile simultaneously reducing Federal spending and borrowing.
Wanniski goes too far, however, in denying that the collapse of the banking system and the related destruction of a third of the U.
WnOS of , us who ing 19th-century have labored under the accusation of employ- economics will enjoy Wanniski’s clever uses of 18th-century, classical economics to browbeat the current intel- lectual fashions. Marx is accused of a fixation on economic contraction, which requires “submerging individualism into collectivism, because it is the untrammeled individual who is viewed as driving the capitalist system toward overproduction, boom and bust.
The Way the World Works
Like the Marxist model, says Wanniski, the Keynesian model is primarily a rationale for redistributing income sharing misery during periods of economic decline. Keynesian theory rests uneasily on “bond illusion’-people’s presumed failure to recognize that an jde in government debt must require higher taxes in the future to repay or pay interest on that debt.
Deficit spending just replaces present taxes with future taxes, and people will not “work for bonds, under the illusion that they can be exchanged for real goods. Indeed, the “rational expectations” school of monetarism even goes further than Wanniski in denying illusion, since Wanniski remarks that “creditors suffer and debtors benefit by an unanticipated switch in coin by the government. The real problem, of course, is long-term contracts in a changing world. Imperfect foresight isn’t really a matter of illusion, as Wanniski suggests, any more than the stock market suffered illusion in worrld the news about tariffs changed so quickly.
In Wanniski’s model, it would apparently make no difference if there were a percent inflation one day and a percent defla- tion the next, except insofar as it distorted the tax structure. All prices and wages not only adjust to changing money growth, but do so evenly and instantaneously. Expectations are not only ra- tional, in the sense of incorporating each day’s best information, but also perfectly correct in anticipating future policy shifts.
This is a useful worlv for some purposes, notably in drawing atten- tion to the real factors that ultimately determine long-run economic growth, but it is not sufficiently precise to erase even temporary links between money, spending, and production. Kaldor has been a principal exponent of the notion that developing nations must impose draconian taxes in order to extract the “savings” to finance grandiose government “investments” uneconomic steel mills and other monuments.
Wanniski traces the Kaldor theme back to midth-century India, where British railroad builders plied their trade at the cost of an onerous debt burden on Indian taxpayers. Economic imperial- ism is thus nearly defined as “the exploitation of the underdeveloped world by pushing it beyond its capacity to develop, in the process burdening the masses of people in the Third World with indebted- ness and taxes.
In judee boom- ing Ivory Coast, marginal rates stop at Anyone can pick the most troubled economies out of an extensive list by simply looking at the steepest taxes.
CONOMICS what links inthe the two, real world is rarely according divorced from to Wanniski, is the politics, and eleetorate’s understanding of economics, which is acquired from childhood through dealings with others. Because each vote carries little weight, voters worpd no in- centive to be as well-informed about politically determined eco- nomic issues wofks they are about something that affects their interests directly such as the choice of employment or stereo components.
This political process has as its ultimate aim a solution to the basic eeonomie problem that for all time has confronted the global electorate, which is wway tension between income growth and income distribution No individual can possibly be as wise as the electorate, the consensus, in discerning the preferred tastes of all the individuals who compose the electorate People know what they want, and cannot be induced to want something else, but that is not to say that politicians are not some- times mistaken or misled about the electorate’s desires.
When poli- ticians lose touch with the people, the electorate is forced to find ways outside the normal political process to communicate with the politicians: Unfortunately, Wanniski fails here to differentiate adequately among kinds of political action, and is left therefore with a for- mulation that amounts to saying that what is not upheaval is eon- tentment.
These strained simplifications of political life are best illustrated by Wanniski’s curiously charitable view of the Soviet Union’s “dem- ocratic experiment. Wanniski’s economic lessons appropriately concentrate on the political barriers to trade-tariffs and taxes-that diminish the mar- ket’s efficiency in producing what is wanted.
His analogy between political and economic markets would be greatly improved if it were likewise explicitly acknowledged that there are particularly for- midable barriers to political “competition.
Those who overtax the people eventually lose power, one way or another. In this sense, the political model may help to explain how the electorate pushes, albeit glacially, toward responsive government. Production depends on the quantity and quality of work and capital, which, in turn, depend on the after-tax real rewards to productive effort and investment.
When the creation and spending of money outrun pro- duction, you just get inflation. Government debt is not a source of real wealth. If The Way the World Works did nothing more than push a handful of political entrepreneurs toward such fundamental realities, as it already may have done, it would rank among the most influential books since the ‘s. As a The word itself has become so debased that it has either been sup- planted by the cumbersome phrase “intergovernmental relations” or misleadingly applied to programs that are really disguised forms of centralization, like “fiscal federalism.
The bulk of it, consisting of dreary treatises on revenue shar- ing, shows almost no awareness of the 2,year history of this po- litical arrangement, let alone its evolution in 18th- and 19th-century America.
In fact, one might not even notice the poverty of this field, were it not for the work of two brilliant and much mourned scholars, Martin Diamond and Herbert Storing. In addition to the theoretical work of Diamond and Storing, we also owe a debt to the descriptive writings of Morton Grodzins and Daniel Elazar. They showed their students how much could be learned from the American constitu- tional debates that shaped modern federalism.
Yet the public under- standing of the concept has become so muddied that it threatens to distort whatever of their ideas reach a broader audience. This confusion inclines me to be harsher than I otherwise might be in judging a recent Twentieth Century Fund report by Peter Passell and Leonard Ross. The authors undertake to measure the federal system against the economist’s benchmarks of equity and efllciency.
Their creden- tials are as good as anybody’s.
The Way the World Works – Bishop of Hippo Wanniski – Google Books
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