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Volume 12, Issue 6: February 8, 2010
- The Real Cause of the Financial Meltdown
- To End the Deficits, Slash the U.S. "Security" Budget
- Congress Ponders Another Predatory Tax Hike
- Flawed Data Distorts Climate Trends, Singer Argues
- This Week in The Beacon
On September 18, 2008, the financial world was thrown out of orbit. Credit markets froze; banks hoarded cash; corporations slashed their lending; and the value of U.S.-originated mortgage-backed securities plunged. Why did credit tighten so drastically? The short answer is that trust—the indispensable glue of financial markets—evaporated.
Financial markets had relied on several tools to foster trust, including credit ratings, accounting standards, and credit-default swaps, but those tools broke under regulatory pressure to aggressively expand homeownership and other government policies, argues economist Bruce Yandle (Clemson Univ.) in the cover article of the winter 2010 issue of The Independent Review.
Consider credit ratings. Commercial credit-rating agencies were supposed to provide credible risk assessments of mortgage-backed securities. A conflict of interest arose, however, as the agencies (a government-protected cartel) began to advise issuers on how to structure those securities. As interest rates rose and borrowers defaulted, the value of the securities plunged—as did confidence in the credit ratings. Yandle’s fascinating study of the credit-market collapse helps fill in the gaps left by other analysts. The Lighthouse highly recommends it!
“Lost Trust: The Real Cause of the Financial Meltdown,” by Bruce Yandle (The Independent Review, Winter 2010)
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Anatomy of a Train Wreck: Causes of the Mortgage Meltdown, by Stan J. Liebowitz (10/3/08)
Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell
President Obama’s proposed budget would cut the federal deficit to 8.3 percent of GDP in Fiscal Year 2011, down from the gargantuan 10.6 percent for the current year. Although still high by historical standards, that proportion could fall even more if the economy improves and if more political upheavals like the one in the senate race in Massachusetts occur, according to Ivan Eland, director of the Independent Institute’s Center on Peace and Liberty.
If that were to happen, Eland argues, the President might become the “deficit-reduction Democrat” that Clinton turned out to be—a fiscal antidote to the big-spending ways of his predecessor. Of course, Obama’s bailouts to the auto companies and others make it more difficult for him to achieve that status. But the possibility is real. However, for Obama to make meaningful progress of deficit reduction, he must slash the estimated $1 trillion that makes up the entire U.S. security budget, Eland argues.
Cuts of the size needed to make a lasting improvement would require Obama (and future administrations) to scale back U.S. military interventionism around the globe, according to Eland. The United States, Eland writes, “should dramatically retract its defense perimeter, thus cutting the U.S. security budget by half and saving more than $500 billion a year. Of course, doing this will not cut even half the annual $1.3 trillion deficit. But it is a start on throwing dirt back in the cavernous budget hole.”
“The U.S. Can No Longer Afford Its Empire,” by Ivan Eland (2/3/10) Spanish Translation
Putting “Defense” Back into U.S. Defense Policy, by Ivan Eland
The Empire Has No Clothes: U.S. Foreign Policy Exposed, by Ivan Eland
Partitioning for Peace: An Exit Strategy for Iraq, by Ivan Eland
Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty, by Ivan Eland
The federal government’s insatiable urge for tax revenue has led to the introduction of legislation to jack up federal excise taxes on pipe tobacco. The tax hike would be dramatic—an additional $25 per pound of tobacco, an increase of 775 percent above the current level.
The reason behind the bill is not to lengthen the lives of pipe smokers or to reduce harm caused by second-hand smoke, according to Independent Institute Senior Fellow William F. Shughart II. Rather, it is simply a matter of political expediency: desperate for tax revenue to fund projects critical to their re-election prospect, lawmakers target groups with little political clout.
“That mindset unleashes the nanny state to run amok,” writes Shughart, editor of Taxing Choice: The Predatory Politics of Fiscal Discrimination. Lawmakers would do well, he argues, to consider the unfairness of “raising revenue from any group that cannot marshal effective political opposition to it.”
“Put a New Tax in Your Pipe and Smoke It,” by William F. Shughart II (Herald Times Reporter, 2/5/10) Spanish Translation
Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II
The importance of making temperature data available to all climate researchers, not just those with a particular agenda, was a major theme that emerged from last year’s Climategate scandal. Data introduced into reports by the Intergovernmental Panel on Climate Change warrant a major reassessment, according to atmospheric physicist and Independent Institute Research Fellow S. Fred Singer. “Both the satellite results and the proxy data tell us that the claimed rise of surface temperature between 1979 and 1997, shown by IPCC, is probably much smaller or non-existent,” he writes in a recent op-ed.
From 1970 to 2000, more than half of the world’s weather stations were closed, most of them from rural areas but also from higher latitudes and altitudes that tended to show a lower warming trend or none at all. This drastic change in the sampling data helped create a fictitious warming trend, Singer argues.
Moreover, warming trends derived from surface data are not consistent with data taken from weather satellites, according to Singer, the former founding Director of the U.S. Weather Satellite Service. “The troposphere trends (between 1979 and 1995) were close to zero or even slightly negative,” writes Singer. “This disparity is just the reverse of what one would expect from [greenhouse] models—namely a positive (warming) troposphere trend up to twice as large as the surface trend.”
“Junkscience: Climate Distortion of Temperature Data,” by S. Fred Singer (1/27/10) Spanish Translation
Hot Talk, Cold Science: Global Warming’s Unfinished Business, by S. Fred Singer
Visit the Independent Institute’s Spanish-language blog, El Independent. Below are the past week’s offerings from our English-language blog, The Beacon.
- “Audi’s Super Bowl Ad: ‘The Green Police,’” by David Theroux (2/8/10)
- “The Moral Corruption of Militarism,” by Anthony Gregory (2/8/10)
- “The Lynch-mob Mentality in the ‘War on Terror,’” by David Theroux (2/6/10)
- “Obama’s Tax-and-Spend Bender,” by David Theroux (2/3/10)
- “Expanding the Drug War,” by Anthony Gregory (2/3/10)
- “Harmful Tax Practices: Harmful to Whom?” by Randall Holcombe (2/2/10)
- “Kauffman Economic Outlook,” by Peter Klein (2/2/10)
