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Volume 17, Issue 49: December 8, 2015

1. The Midas Paradox: How Government Caused and Prolonged the Great Depression
2. Defeating Terrorists with Privateers
3. Paris and Climate Change: More Heat than Light
4. Latin America: Leaving the Left Behind?
5. New Blog Posts
6. Selected News Alerts

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The Great Depression was the most disastrous economic calamity of the past century, but no one had offered a convincing explanation for every twist and turn the economy took from 1929 to 1940—until now. Independent Institute research fellow and Bentley University economics professor Scott Sumner solves the mystery of the economy’s multiple ups and downs, and other puzzles that have befuddled economic historians and analysts, in The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, a path-breaking book destined to shape all future research on the topic.

Drawing on financial market data and contemporaneous news stories, Sumner (ranked 15th in Foreign Policy’s Top Global Thinkers of 2012) shows that the Depression is ultimately a story of horrendous policymaking—especially decisions related to monetary policy and wage rates. Gold hoarding by the world’s central banks brought on the Great Contraction (1929-33), and widespread fears of currency devaluation spooked the private sector into hoarding gold; the resulting drop in total spending helped drive thousands of firms out of business and raise unemployment to historic highs. Making matters worse, President Franklin Delano Roosevelt prevented the American economy from recovering quickly with his attempt to artificially raise hourly wage rates on five separate occasions. Sumner’s insightful narrative of these and related events—and his refutation of enduring historical and economic myths—makes The Midas Paradox must-reading for anyone who wants to understand how badly policymakers failed and how we can avoid repeating their mistakes.

More than a fresh contribution to the literature on the Great Depression, The Midas Paradox offers a powerful critique of modern monetary analysis—and identifies its harmful role in policymaking during the recent Great Recession. “We think we have advanced far beyond the [economic] prejudices of the 1930s,” Sumner writes, “but when a crisis hits we reflexively exhibit the same atavistic impulses as our ancestors. Even worse, we congratulate the Fed for avoiding the mistakes of the 1930s, even as it repeats many of those mistakes.”

The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, by Scott Sumner

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Privateers—private individuals or groups authorized by the government to fight on its behalf for a portion of the spoils—helped America win its independence from Britain. The U.S. Constitution authorizes Congress to utilize privateers (see the provision on “Letters of Marque and Reprisal” in Article I, Section 8), but not since the War of 1812 have lawmakers authorized any. Independent Institute Research Fellow William J. Watkins, Jr., calls for the reinstatement of privateering to take on terrorist groups like ISIS.

“Terrorists employ creative methods to inflict brutality and death, but the civilized world has not responded with an innovative response,” Watkins writes. “Allowing privateers would encourage such a response. Congress or private charities could reward entrepreneurs who hack terrorist communication networks, locate stashes of assets, or uncover terrorist cells hiding in our cities.”

Watkins notes that the private sector has long been used for investigations and security—sometimes even in a military context. But the use of letters of marque and reprisal—more broadly, the use of economic incentives—could provide decisive help in combatting terrorism, as long as privateers and other counter-terrorism agents are held liable for any misconduct. “Allowing more private security firms to deploy their equipment and know-how would go a long way toward putting terrorist groups on the dustbin of history,” Watkins writes. “It’s time that we let them.”

Let Modern Privateers Disrupt ISIS, by William J. Watkins, Jr. (The Daily Caller, 12/7/15)

The Rise, Fall, and Rise Again of Privateers, by Alexander T. Tabarrok (The Independent Review, Spring 2007)

Let Privateers Troll for Bin Laden, by Larry J. Sechrest (9/30/01)

Privateering and National Defense: Naval Warfare for Private Profit, by Larry J. Sechrest (9/1/01)

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Last month, astrophysicist and Independent Institute Research Fellow S. Fred Singer predicted that the Paris Climate Conference, which adjourns on Friday, would be a “big nothing-burger,” resulting in no meaningful multinational agreement to significantly reduce carbon emissions. (This sentiment is echoed, with additional insights, by Independent Institute Senior Fellow Alvaro Vargas Llosa in The Beacon.) Nevertheless, Singer lamented, despite the likely impasse the Obama administration would use the Paris summit to advance an agenda that would raise energy prices and slow U.S. economic growth. This is especially disheartening because, as Singer discusses in a new op-ed, Anthropogenic Climate Change (ACC) alarmists have fallen far short of meeting the burden of proof.

Climate change, Singer explains in two new op-eds, has been going on for millions of years—the result of volcanic eruptions, solar influences, and atmospheric-ocean oscillations. Climate change is to be expected. Logic demands, therefore, that ACC alarmists make a solid case for their claim that the burning of fossil fuels is increasing global temperatures at an alarming rate. As of yet, however, empirical data do not substantiate their claim, according to Singer. Although carbon dioxide concentrations have increased rapidly during the past 19 years, temperatures in the mid-troposphere have not. Singer cites four weather balloon datasets and two satellite datasets as part of his evidence. Moreover, Singer notes, there is no general agreement on why greenhouse models, which are scenario-driven rather than data-driven, diverge so much from the climate record.

If climate activists wish to rally around a worthy cause, Singer argues, climate cooling is a legitimate concern that warrants their immediate attention. Singer cites studies about cyclical climate cooling, evidence for extension of such cycles into the Holocene, and his own proposals for dealing with the global chill he is predicting. He writes: “The outlook appears promising—provided there is adequate preparation. However, the coming cold period will test the survivability of our technological civilization.”

The Burden of Proof on Climate Change, by S. Fred Singer (American Thinker, 11/30/15)

Surviving an Imminent Ice Age, by S. Fred Singer (American Thinker, 11/29/15)

The Paris Summit on Climate Change: Another Kyoto?, by Alvaro Vargas Llosa (The Beacon, 12/2/15)

Bill Gates On Climate Policy: More Hot Air, by William F. Shughart II (The Daily Caller, 11/14/15)

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The political tide is turning in Latin America. Recent electoral victories for opposition parties in Argentina and Venezuela demonstrate what had been evident in public opinion surveys: left-wing populism has lost its appeal. The trend can be seen throughout the region, according to Independent Institute Senior Fellow Alvaro Vargas Llosa.

“The great news, a decade and a half after [Venezuela’s Hugo] Chavez inaugurated this populist era south of the Rio Grande, is that people are saying basta—enough—to the demagoguery, abuse of power and economic diktats,” Vargas Llosa writes. Price controls, political cronyism, and nationalizations sent Argentina’s economy sputtering and Cristina Kirchner packing. Venezuela’s economy was too stifled to weather falling energy prices; the man who stifled it (and much else), Nicolás Maduro, Chavez’s successor, has been shown the door. Brazil’s protectionism, which has worsened the problems caused by declining commodity prices, is putting Dilma Rouseff on notice. Ecuador’s Rafael Correa, censured by public opinion, had to halt his effort to alter election rules. And so on.

Whether or not this wave of anti-populist, anti-leftist sentiment brings forth a new era of full-fledged economic liberalization and lasting political transparency, the consequences for Latin America will be pivotal. Vargas Llosa writes: “We are talking about a potentially epochal shift towards political and economic freedom and modernization in the Western Hemisphere, ten years after the Fourth Summit of the Americas buried plans for the free circulation of capital, goods, services and ideas from Alaska to Tierra del Fuego.”

Latin America Says ‘Adiós’ to the Populist Left, by Alvaro Vargas Llosa (The National Interest, 12/4/15)

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa

The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa

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6) Selected News Alerts

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