Secrecy: The American Experience.

U.S. intelligence operatives first became aware of an American with "possible communist tendencies" in the fall of 1951. At the time the suspect was working in a low-level civilian position at a U.S. Air Force base in England. He was once observed to be reading the Daily Worker. He was known to frequent London's Unity theater, run by communists. It specialized in vaudeville skits of a pinkish cast. A report was quietly tucked into the suspect's FBI file: "Moynihan was either a communist or a communist sympathizer."

Now the suspect has filed a report on U.S. intelligence services. He is giving them failing grades for matters that go well beyond the misspelling of his name. For the suspect was Sen. Daniel Patrick Moynihan, scholar, writer, politician, and, as long-term member of the Senate Intelligence Committee, a man with a ringside seat on the slow unveiling of the troubling performance record of the $28-billion-a-year U.S. intelligence establishment during the Cold War.

In his book, Sen. Moynihan asks you to consider this: In 1950 nearly every thinking American was caught up in a dispute over whether Alger Hiss, a State Department official, was a Communist spy. The politics of the Hiss case paralyzed the Democrats and reinvigorated the Republicans, who found a young congressman, Richard M. Nixon, eager to probe the case.

Was Hiss guilty? It would have been a godsend for President Harry S. Truman if he had had an agency that could give him a definitive answer. As a matter of fact, he had one. The Army's Signals Intelligence Service had quietly broken a Soviet diplomatic code and found messages implicating Hiss. But Gen. Omar Bradley, then chairman of the Joint Chiefs of Staff, had determined that the matter was too secret to give to his commander-in-chief.

Presumably intelligence officials convinced Bradley that providing the information to the White House might, somehow, reveal the breaking of the code. But they needn't have worried. The code-breaking project, called Venona, had been tipped to the Kremlin four years earlier by a Soviet spy who had infiltrated it. The upshot: While the Kremlin knew about Venona, the president and the American people were kept in the dark until 1995 when the National Security Agency released the files.

Moynihan argues that the case shows the "essence" of the misfit existence of the intelligence establishment in Washington, how it had its analytical capability numbed and dumbed by politically correct "group think," and how its nuggets of knowledge were debased by a bureaucracy that sometimes determined that its needs were more important than the president's.

Knowledge is power, and Moynihan shows how the CIA and other intelligence agencies generated it and used it during the Cold War to present annual, hair-curling revelations to Congress about how the Soviet economy was growing so rapidly that it would overtake the United States by the late 1990s. This finding, according to Moynihan, was the result of an amazing amount of analytical work. The secret analysis of the Soviet economy by the U.S. government and its contractors "may be the largest single project in the social science research ever undertaken"

And its conclusion was dead wrong. Part of the problem, according to Moynihan, was that too many pieces of the puzzle were kept from analysts by higher levels of secrecy. Another part of the problem was that, right or wrong, the answer projecting the Soviet economic colossus as a growing beast was right for the agencies' budgets. Moynihan's book is a refreshing antidote to the academic mush and axe-grinding left-wing criticism that make up much of what is a thin literature on the effectiveness of U.S. intelligence agencies. He uses the new evidence to suggest that there is much fertile ground for research. Among the Cold War documents beginning to pour out, he suggests, there may be more support for what amounts to Moynihan's Law: As U.S. intelligence budgets went up, "the overall quality of American intelligence may well have declined over time"

His is a book that gives rise to interesting questions. As the nation stumbles into a multipolar world and tests its policies in regions that went almost totally unanalyzed during the Cold War, does the existence of huge agencies and their huge stockpiles of secrets help or hurt? Might cuts in the $28-billion-a-year overall budget actually improve U.S. intelligence? If so, what should be cut?

To be sure, the book illustrates that intelligence and counterintelligence are not empty crafts. The Venona tapes show that Soviet spying was extensive and effective, hardly the plot trumped up by conservative forces in the U.S. government that many suspected at the time. Even during times of high alert, it is not easy to protect against the theft of secrets that can prove damaging to the U.S. We are by far the most open, inviting target for spies on the planet, and Moynihan provides a laundry list of what has been lost: the Norden bomb site, designs of the first nuclear weapons, the cracking of Soviet codes, and the lives of key U.S. agents in the Soviet Union who were fingered by Aldrich Ames.

One weakness, he suggests, is that the shroud of secrecy is way too big, covering matters far beyond these crown jewels. U.S. pilots found they were unable to see weather reports during the Gulf War because they lacked the necessary security clearances. In 1996, Moynihan notes, the number of officials with power to create secrets declined, but the total number of actions declaring information to be classified rose by 62 percent.

It seems time to prune some branches from the huge intelligence tree. But can the government do that? This is one of the troubling questions left bobbing in the wake of a powerful and timely book.

JOHN J. FIALKA is a reporter for The Wall Street Journal and the author of War By Other Means: Economic Espionage in America.