The Lighthouse^®

---

The Lighthouse^® is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

---

Volume 16, Issue 30: July 29, 2014

1. Saving Refugees of the U.S.-led Drug War
2. Putin, Ukraine, and MH-17
3. U.S. Debt Outlook Worsens
4. Sweatshops: Misunderstood Paths Out of Poverty
5. New Blog Posts
6. Selected News Alerts

---

---

In 1939, the MS St. Louis set sail from Hamburg, Germany, with nearly 1,000 Jewish refugees seeking sanctuary from Hitler’s barbarism. They were denied refuge in Cuba, the United States, and Canada and were forced to return to Europe, where at least one-quarter are believed to have died in Nazi concentration camps. The tragedy of the “Voyage of the Damned” may have a parallel in the United States today. In recent months, tens of thousands of children have crossed the southern border to escape drug-gang violence that haunts Honduras, El Salvador, and Guatemala. If the U.S. government repatriates them, many may face a fate essentially similar to what had befallen the hapless passengers of the St. Louis. This is one reason that Independent Institute Senior Vice President Mary L. G. Theroux calls for the United States to greet them with open arms.

Another reason is that the drug violence in Central America is in large measure the result of the U.S. War on Drugs, a 40-year prohibition that has failed to reduce illicit drug consumption but has succeeded in creating enormous collateral damage both at home and abroad. Ending this futile crusade would save countless lives and billions of dollars. It would also end the problem of drug-war refugees showing up at America’s doorstep.

“Caring for these innocent victims of the U.S. War on Drugs is the only course that accords with professed American values of personal accountability, fiscal responsibility, and compassion,” Theroux writes in the Huffington Post. “Drug abuse can more effectively be addressed as have the use of tobacco and irresponsible use of alcohol: through education, treatment, and compassion. Turning away the innocent Central American victims of North American drug abusers only damns both.”

Voyage of the Damned War on Drugs, by Mary L. G. Theroux (The Huffington Post, 7/25/14)

The Drug War’s Ravages in Guatemala, by Robert Higgs (The Beacon, 5/8/11)

Drug War Crimes: The Consequences of Prohibition, by Jeffrey A. Miron

^Top

---

The downing of Malaysia Airlines Flight 17 (MH-17)—ostensibly by pro-Russia separatists in eastern Ukraine equipped with Russian surface-to-air missiles (although this hasn’t been proven)—has brought Russian Federation President Vladimir Putin stiff criticism from around the globe. In two recent op-eds, Independent Institute Senior Fellows William F. Shughart II and Ivan Eland offer new insights on Putin and the pressures he faces.

Shughart focuses on a major economic challenge facing Putin—the prospect of the European Union turning away from Russia to meet its energy needs. As Shughart notes, U.S. liquified natural gas is heading to Europe and even greater quantities are on the way, with the U.S. Department of Energy having approved the construction of seven LNG export terminals. The United States has also supplied shale technology to Poland and Great Britain and is contracting to do so with Lithuania, Romania, and several other eastern European nations. How is Moscow dealing with the loss of customers for Russian oil and gas? One tactic has been to sign a long-term contract to sell energy to China—although this covers only about one-fourth of the annual quantity that Russia sells to the Europeans. Another tactic has been for Russia’s intelligence agencies to help fund anti-fracking campaigns throughout Europe. “Putin can continue to funnel rubles to Europe’s environmental activist groups and hope to slow the spread of the shale revolution,” Shughart writes. “But Russian dominance of the European gas market is on borrowed time.”

Eland focuses on the geo-political challenge that an independent Ukraine poses for Putin’s Russia. When demonstrators in Kiev ousted a Ukrainian president friendly toward Moscow and turned to the West, Russia lost a protective buffer zone it had long treasured. It was a major national-security loss that followed a string of losses going back to the eastward expansion of the European Union and NATO. This helps explain what Eland calls “Russia’s unacceptable annexation of Crimea and military aid to the Russian separatists in [eastern Ukraine].” Putin likely didn’t wish to see a civilian jetliner shot down, having seen the international fallout from the Soviet Union shooting down Korean Airlines Flight 007 in 1983, but it’s easier to understand why he might have equipped the separatists once we look at history from the Russian government’s perspective. None of this is to absolve Moscow or the militant separatists—or to place blame entirely with Ukraine’s new leaders and their supporters. When the dogs of war are unleashed, there’s usually plenty of blame to go around.

America’s Hypocrisy on Ukraine, by Ivan Eland (The Huffington Post, 7/21/2014)

The KGB’s Successors and the ‘Greening’ of Europe, by William F. Shughart II (Forbes, 7/3/14)

^Top

---

On July 15, the Congressional Budget Office offered its latest long-term budget assessment. There’s good news and bad news. First, the bad news: Owing to slow economic growth, the debt-to-GDP ratio is expected to worsen. And the good news? The United States isn’t Greece—at least not until after 2050. That’s because the agency’s economists lack confidence in their ability to forecast revenues and expenditures past that year. As Independent Institute Research Fellow Craig Eyermann writes, “Although they expect that the growth rate of GDP would be progressively forced lower over time as a result, they do not know by how much.”

Who owns U.S. debt? U.S. individuals and institutions hold the largest share (29.2 percent), Social Security is number 2 (15.4 percent), and the Federal Reserve is number 3 (13.8 percent). The largest foreign holders of U.S. debt are the United Kingdom (13 percent) and China (8.2 percent). Interestingly, Russia began to reduce its holdings of U.S. debt in May—perhaps in anticipation of greater conflict with the United States?

Who is currently lending the United States the greatest amount of money? The answer: The Federal Reserve. “The Federal Reserve is displacing other entities that lend money to the U.S. government, who are seeing their share of debt issued by the U.S. government fall as the debt they hold matures,” writes Eyermann. “That allows the U.S. Treasury to roll over a portion of the existing national debt and borrow more money, in this case, from the Fed, which doesn’t show up as a net increase in the overall size of the national debt.”

Long-Term Budget Outlook Deteriorates, by Craig Eyermann (MyGovCost News & Blog 7/17/14)

Who Own’s America’s Debt?, by Craig Eyermann (MyGovCost News & Blog, 7/21/14)

^Top

---

The collapse of a garment factory in Bangladesh’s Rana Plaza last year killed more than 1,100 workers and reignited an international movement calling for the regulation of so-called sweatshops in the developing world. Unfortunately, the activists often try to promote better working conditions the wrong way because they overlook the harm that boycotts and costly regulations impose on factory workers. They also fail to recognize the positive role that low-wage factory jobs played in the West’s rise from poverty. “Poor countries today would be better served if anti-sweatshop scholars and activists had a better understanding of how the historical process played out in wealthy countries,” Independent Institute Senior Fellow Benjamin Powell writes in the Summer 2014 issue of The Independent Review.

Before workplace safety regulations were enacted, textile and apparel factories with poor working conditions were economic springboards to prosperity in what is now the developed world, Powell explains. Sweatshops contributed to economic development for about 100 years in the United States (and 30 to 60 years longer in Great Britain), but they eventually closed down largely because the progress they helped foster made them obsolete: by contributing to capital accumulation in the West, the sweatshops helped shift the demand for labor toward higher-productivity jobs. In addition, the rising prosperity meant that fewer and fewer workers were willing to take lower-wage jobs with less-desirable workplace conditions.

Other countries, particularly in East Asia, followed the path out of poverty pioneered by the West—a trail paved with low-wage factory jobs, property-rights enforcement, a market price system, and economic freedom. One difference, however, is that they often attained in only two generations the same general living standards that it took the United States and Great Britain several generations to reach. Sadly, activists who fail to heed this history lesson inadvertently act to hold down workers in the developing world struggling to make ends meet.

Meet the Old Sweatshops: Same as the New, by Benjamin Powell (The Independent Review, Summer 2014)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin W. Powell

The Independent Review: Please be sure to take advantage of our special offer of your choice of a FREE book when you renew or order a new subscription online.

^Top

---

From The Beacon:

From MyGovCost News & Blog:

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

^Top

---

^Top

---