The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 17, Issue 22: June 2, 2015

1. New Book Offers Plan to Resolve America’s Public Pension Crisis
2. Goodman: Senator’s Alternative to Obamacare Should Gain Traction
3. To Improve Railway Safety, Privatize Amtrak
4. Powell Advises Grads: Rethink College Spending
5. Free to Choose Cities: New Opportunities for Enterprise and Governance in Honduras and Beyond (San Francisco, June 8)
6. New Blog Posts
7. Selected News Alerts

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State and local governments across the United States are facing their worst financial crisis in years—a public-pension “tsunami” of epic proportions. Some, such as Detroit and Stockton, have already been forced to declare bankruptcy, but others, such as Los Angeles, Chicago, and the State of California, are still rushing toward the fiscal cliff. How did the public pension crisis begin? And what will it take to resolve it?

These are questions that economist and Independent Institute Senior Fellow Lawrence J. McQuillan answers in his new book, California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, a diagnosis and remedy praised by former mayors, federal budget directors and government economists, university professors, and other experts from across the political spectrum.

McQuillan offers a comprehensive solution that would resolve California’s pension problem in an equitable, responsible, and moral way that would preserve pension benefits already earned, allow government agencies to provide public employees with competitive defined-contribution pensions, and grant governments the flexibility they need to avoid making future generations pay for deals they didn’t make. Moreover, McQuillan’s solution can be applied anywhere in America that faces a similar problem—quite a feat, considering the prevalence and enormity of such disasters. Read it, share it, and urge your representatives to fix the problem sooner rather than later.

Praise for California Dreaming:

“Unfunded public pensions and healthcare are the greatest threats to government financial stability in our country. . . . Mounting debt will force the closing of public libraries, parks, and schools. Police and fire services will be cut, streets will be in disrepair, and we will find ourselves living in a Third World country. Lawrence McQuillan’s outstanding book California Dreaming spells out these disasters about to happen with perfect clarity.”
—Richard J. Riordan, former Mayor, City of Los Angeles, California

California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, by Lawrence J. McQuillan

Video: Lawrence McQuillan discusses his new book (Newsmax TV, 5/29/15)

Video: Opinion Journal: Defusing California’s Pension Bomb, featuring Lawrence McQuillan (Wall Street Journal TV, 5/28/15)

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If the Supreme Court decides King v. Burwell in favor of the plaintiff and against the Obama administration, federally operated Obamacare healthcare exchanges would hemorrhage and millions of people would stand to lose their coverage. To prepare for this contingency, freshman Senator Bill Cassidy of Louisiana has proposed legislation designed to address the problem. According to Independent Institute Senior Fellow John C. Goodman, the Cassidy health plan should appeal to liberals and conservatives alike.

Cassidy’s Patient Freedom Act would end Obamacare’s individual and employer mandates, but it would maintain catastrophic coverage for the uninsured and create incentives for the insured to maintain continuous coverage, so as to discourage people from gaming the system. Also, it would use Obamacare revenues to fund a universal tax credit that consumers could apply to insurance premiums and deposits to Health Savings Accounts. Low-income workers could assign their credits to their employer and join their company plan. These and other features make the Cassidy health bill a win-win solution that should appeal to people across the political spectrum, Goodman argues.

“It achieves the liberal objective of removing financial barriers to health insurance,” Goodman writes. “But it achieves that objective in a conservative way: people will be allowed to choose insurance that meets their needs and their family’s needs, rather than the needs of politicians and special interests. And it creates a tax subsidy that does not undermine labor market choices.”

Cassidy Health Plan: The Third Way, by John C. Goodman (The Hill, 5/22/15)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

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Last month’s train derailment in Philadelphia killed eight people and injured 200 others. Amtrak could be liable for up to $200 million—but not a penny more. That may sound like a fortune, but it’s little consolation to the families who lost a loved one. Nor is it large enough to make safety the top priority for the federally funded railway. Independent Institute Research Fellow Gabriel Roth, a former transportation economist for the World Bank, concludes that the right incentives could go a long way toward ensuring that train operators set their standards high.

No train operator invites lapses in safety, but one can’t help but wonder why privately owned and operated railroads usually have a superior safety record than those owned by or subsidized by government. The answer, according to Roth, is that private firms possess greater ability and willingness to operate safely and spend their funds wisely.

One advanced safety technology that trains are now adopting—Positive Train Control—was mandated in 2008 for Amtrak’s busy northeast corridor. Unfortunately, the railway lumbers under the burden of having to serve sparsely populated regions, which is a financial obstacle to its meeting the requirement, according to Roth. “Getting government out of the rail passenger business would free management to align service with passenger demand, and focus on quality and safety, rather than satisfying political constituencies,” he concludes.

Private Rail, Unlike Amtrak’s Monopoly, Must Emphasize Safety to Win Customers, by Gabriel Roth (Philadelphia Inquirer, 5/28/15)

Street Smart: Competition, Entrepreneurship, and the Future of Roads, edited by Gabriel Roth

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Three-and-a-half million college seniors earned their diplomas this year—and seven out of ten have amassed student loans averaging an astonishing $27,000! With unemployment rates running twice as high for 20 to 24 years olds in the American workforce than for older adults, many will be tempted to call spending on higher education an overinvestment. But such a verdict is an oversimplification wrapped in a misunderstanding. According to Independent Institute Senior Fellow Benjamin W. Powell, one problem with the way we often think about the “return” on educational expenditures is conceptual: much (most?) spending in higher education really isn’t investment, he argues, it’s consumption.

“College is not just an investment in human capital to improve future earnings,” Powell writes. “Often, it provides consumption goods, too.” Those fancy recreation centers, for example, don’t help most student athletes earn higher incomes. Nor do many academic degrees put students on a rewarding career path. While they undoubtedly provide value in the form of pleasure and cultural enrichment, it’s misleading to think of them as assets that earn a net return for students, their parents, or society at large. They are consumption goods—paid for with student debt as well as the help of taxpayer dollars.

Rather than lament an underperforming educational “investment” that’s hampered by huge debt burdens, students and their parents may wish to reinterpret the college experience—and to rethink some of their choices. They (and taxpayers) should also lobby the government to ease the regulatory burdens and fiscal uncertainties that make employers less willing and able to hire young grads.

Higher Education Is Not Just an Investment, by Benjamin W. Powell (Huffington Post, 5/22/2015)

The Academy in Crisis: The Political Economy of Higher Education, edited by John W. Sommer

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Has Honduras just enacted the boldest legislation of any nation in recent history, effectively opening a new frontier for individual liberty, entrepreneurship, innovation, economic well-being, and self-government throughout the Americas and globally?

Independent Institute, Lincoln Labs, and the Seasteading Institute are co-sponsoring an event on the evening of June 8 in San Francisco devoted to this exciting development. Independent Institute Senior Vice President Mary L. G. Theroux will join the discussion, with Ebal Díaz, Randolph Hencken, and Octavio Sánchez.

Event information.

Join the waiting list.

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From MyGovCost News & Blog:

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

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