The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 16, Issue 2: January 14, 2014

1. Fighting Poverty the Right Way
2. Inflation-Proof Your Assets, Janet Yellen Is Coming
3. Police Unions Feed Trend Toward Private Security
4. Why Patent Trolls Love East Texas
5. New Blog Posts
6. Selected News Alerts

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Fifty years after President Lyndon Johnson declared a “war on poverty,” the percentage of Americans living below the official poverty line is only slightly lower than in 1964. Progressive writer Sasha Abramsky urges President Obama to commemorate the anniversary by redoubling efforts to improve the lot of the poorest Americans in ways that avoid the problems that have plagued antipoverty programs since the 1960s. But as Independent Institute Communications Counsel K. Lloyd Billingsley notes in Forbes, Abramsky recommends paying for the War on Poverty Mark II via a host of tax hikes on upper-income taxpayers—essentially the same measures that helped make the original War on Poverty counterproductive by impeding economic growth and opportunity.

Interestingly, although the U.S. poverty rate today is close to what it was half a century ago, average family income has grown appreciably in recent decades, according to Independent Institute Senior Fellow John C. Goodman. How big is the increase? The Congressional Budget Office puts the increase in (inflation-adjusted) average family income at 62 percent. In a recent piece for Townhall, Goodman also makes other noteworthy claims about inequality today. He notes, for example, that poor households are much more likely than wealthy families to have only one adult parent. He also argues that income is not the best measure of a family’s economic well-being; consumption is a better measure. And consumption inequality in the United States is much less than income inequality.

The U.S. economy has not been as kind to the poorest members of society as it has been to middle- and upper-income families. How could it do better? Independent Institute Senior Vice President Mary L. G. Theroux suggests that we can make progress by reducing the scope and role of government in the economy. Countries that that have taken the route of economic liberalization and more open trade, she notes, have seen their poverty rates tumble 80 percent since 1976. “On this 50th anniversary of a failed domestic War on Poverty,” she writes, “let’s bring this global lesson home and hold up those responsible for prolonging economic stagnation in the U.S. and increasing the numbers dependent on government assistance as the true villains in the inequality play.”

50 Years Later, LBJ’s ‘War on Poverty’ Has Proven a Total Failure, by K. Lloyd Billingsley (Forbes, 1/10/14)

Five Myths About Inequality, by John C. Goodman (Townhall, 1/4/14)

U.S. War on Poverty Failed While Global Poverty Declined 80%: Economic Liberalization Begets Prosperity and Equality, by Mary L. G. Theroux (The Beacon, 1/8/14)

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Incoming Federal Reserve Chair Janet Yellen, who is scheduled to take over from Ben Bernanke on February 1, won her Senate confirmation battle last week with a vote of 56 to 26. Bad weather prevented several senators from casting their votes, the New York Times reported. Some researchers at the Independent Institute worry that Yellen will help unleash a storm of inflation in the coming years, as the Fed oversees the injection of up to $2.2 trillion in excess bank reserves into the economic system.

Yellen has said the threat of inflation concerns her less than the reality of the current unemployment rate. But Independent Institute Research Fellow Peter J. Boettke doubts that Yellen can juggle her priorities without dropping and breaking the economic recovery. “She will use the tools of monetary policy at her disposal in an attempt to paper over the destructive legacy of promissory politics,” he wrote in Investor’s Business Daily upon the announcement of her nomination last October.

And two months ago, J. Houston McCulloch, an Ohio State University Professor Emeritus and member of the Independent Institute Board of Advisors, posted a superb Q&A piece to The Beacon in the hope of guiding members of the Senate Banking Committee during Yellen’s confirmation hearing. He presented more than a dozen questions for them to ask—along with right and wrong answers—and predicted that Yellen would split the difference between them. But perhaps the most pointed criticism comes from Research Fellow Burt Abrams and Communications Counsel K. Lloyd Billingsley, who fear that Chairman Yellen may adopt the priorities of Nixon-era Fed Chairman Arthur Burns, who consciously pursued an illusory “pro-growth” monetary policy that got President Nixon reelected and caused massive price inflation beginning only a few months after the 1972 election. “Contrary to Obama’s new Fed boss, [a similar policy] would not bring benefits to all Americans,” Billingsley writes.

With Keynesian Yellen at Fed, Expect More of the Same, by Peter J. Boettke (Investor’s Business Daily, 10/30/13)

Questions—and Answers—for Janet Yellen, by J. Huston McCulloch (The Beacon, 11/4/13)

Barack Obama’s Nixonian Fed Pick, by Burton A. Abrams (The Daily Caller, 10/16/13)

The Oncoming Obama-Yellen Inflationary Cycle, by K. Lloyd Billingsley (MyGovCost.org, 1/9/14)

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Police officers in Oakland, Calif., have priced themselves out of a job. Not completely, of course—the city still devotes three-fourths of its budget to police and fire services—but with total compensation averaging almost $190,000 per year, including health and retirement benefits, city officials decided in 2010 to lay off 80 police officers. The police responded to this “staffing emergency” by announcing they would stop responding to 44 categories of crime, mostly property crimes. As Independent Institute Senior Fellow Lawrence J. McQuillan and Research Assistant Adriana N. Vazquez note, Oakland residents have their own response to the cutback in municipal policing: they’ve gone on a buying binge for private security.

The development has been great business for Bay Alarm, the leading private security firm in the area. But not everyone is pleased. “Critics say this trend creates haves and have-nots,” McQuillan and Vazquez write. “But private security makes everyone safer because of the deterrent effect. It also frees thinly stretched police resources to focus on higher-crime areas and more serious crimes, many of which are reported by the private patrols.”

As goes Oakland, so goes the nation. The private security industry is expected to grow nearly 20 percent by 2020—in large part because police unions have extracted more concessions in pay and benefits than municipalities can afford. In addition to the cost savings, consumers may even see better crime control. Write McQuillan and Vazquez, “As shown in the award-winning, Independent Institute book by Bruce Benson, To Serve and Protect: Privatization and Community in Criminal Justice, a private security company must provide high-quality service or it risks losing a contract.”

Rise of Private Security Is Citizen Response to Declining Police Service, by Lawrence J. McQuillan, Adriana Vazquez (Oakland Tribune, 1/11/14)

To Serve and Protect: Privatization and Community in Criminal Justice, by Bruce L. Benson

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Last year the American Tort Reform Foundation had the temerity to call the Eastern District of Texas a “Judicial Hellhole” for patent litigation. Believe it or not, a local newspaper considered those to be fightin’ words. The Longview News-Journal even devoted an entire editorial—415 words long—to rebutting the charge. But the charge sticks. When it comes to patent litigation, the district is the leading jurisdiction in the United States to file a patent lawsuit if you’re willing to say anything in order to win a multi-million dollar legal judgment against a technology company, as Independent Institute Research Fellow William J. Watkins, Jr., the author of a forthcoming book on the subject, Patent Trolls, explains in an op-ed in the News Journal.

“The Eastern District of Texas leads the United States in the number of patent cases, patent plaintiffs, and patent defendants,” Watkins writes. And he has the statistics to prove it. Nationwide, patent plaintiffs win 59 percent of the time; in Eastern Texas they win 78 percent of the time. Some of the worst offending plaintiffs—patent trolls who don’t make anything other than hundreds of millions of dollars from suing real producers—have even established their headquarters in this corner of the Lone Star State. Why? For starters, the district’s judges almost never toss out a lawsuit due to lack of merit. Also, cases go to trial quickly, and the court doesn’t allow the defendants sufficient time to make their best case against professional patent trolls.

“Our economy depends on innovation, but the specter of Eastern District litigation makes inventors think twice before devoting substantial funds to developing and bringing a new product or process to market,” Watkins writes. “The cost to our economy runs into the billions of dollars. It would be unfair to put all the blame on East Texas for predatory patent litigation. But given the facts, it’s a stretch to pretend nothing is amiss.”

Does East Texas Hold a Patent on Predatory Litigation?, by William J. Watkins Jr. (1/4/14)

Patent Trolls: Predatory Litigation and the Smothering of Innovation, by William J. Watkins, Jr.

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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