The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 15, Issue 3: January 15, 2013

1. Newtown and the Bipartisan Police State
2. Picking America’s Next Defense Secretary
3. Paul Krugman’s $1 Trillion Coin?
4. World War II Didn’t End the Great Depression
5. New Blog Posts
6. Selected News Alerts

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Last month’s horrific school massacre in Newtown, Connecticut, has prompted impassioned discussion about the causes and cures for mass shootings in the United States. Although pundits have proposed numerous potential causal factors alleged to have contributed to the problem, Independent Institute Research Fellow Anthony Gregory notes one they seem to have ignored: the glorification not of make-believe violence via movies and video games, but of real violence conducted by the U.S. military and celebrated in our patriotic parades. Surely the militarization of American society has contributed at some level, Gregory argues.

Pundits and politicians have had no shortages of words on how to address gun violence, including proposals for greater psychiatric monitoring and the revival of involuntary commitment, armed guards at every school (proposed by both Sen. Barbara Boxer and NRA president Wayne LaPierre), and tighter gun laws. Of all the bad proposals, the worst are those that would disarm peaceful gun owners—proposals endorsed more by progressives than by conservatives.

“Much the way that conservatives led the charge toward fascism after 9/11, with liberals protesting a little at first only to seemingly accept the bulk of the surveillance state and anti-terror national security apparatus, I fear that today’s progressives are leading the stampede toward an even more totalitarian future, with the conservatives playing defense but caving, first on militarized schools, then on mental health despotism, then on victim disarmament,” Gregory writes. “The bipartisan police state commences, now that the left has gotten its own 9/11.”

Newtown and the Bipartisan Police State, by Anthony Gregory (The Beacon, 1/11/13)

The Founders’ Second Amendment: Origins of the Right to Bear Arms, by Stephen P. Halbrook

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Should Chuck Hagel become the next Secretary of Defense? If confirmed, the former senator from Nebraska would face enormous challenges, budgetary ones as well as foreign-policy challenges. The next defense secretary should be prepared to slash defense spending even for weapons systems that are popular with members of Congress. As Research Fellow Winslow T. Wheeler explains in an op-ed in Foreign Policy, new data released by the Air Force suggests that armed drones should be on the chopping block.

Drone problems come in two varieties: performance and cost. Regarding performance, drones are proven to be less accurate and carry smaller payloads than manned aircraft, resulting in the delivery of 1.4 weapons during a strike, about half that of manned aircraft. These reasons may be why the Air Force used manned aircraft in 88 percent of strike sorties in Afghanistan in 2011, and in 82 percent in the first ten months in 2012. Drones are also more expensive. The cost of the components of one Reaper come to about $120 million—more than twice the cost of a modern F-16 fighter jet and six times the cost of the original A-10. Also, the operating cost of drones is about four times greater than that of older aircraft.

Would Chuck Hagel stand up to the drone lobby? Based on his sparse legislative accomplishments, Wheeler doubts it. “A talker, not a doer, Senator Hagel, no matter how much I may admire his politics, is not the right person,” Wheeler writes in Foreign Policy. Wheeler’s thumbs-down for Hagel, he hastens to add, doesn’t amount to an endorsement of Pentagon officials Michelle Flournoy or Ashton Carter, who had earlier been talked about as possible nominees to head Defense. The next defense secretary, Wheeler also explains, will need the savvy and backbone to cut the taxpayers’ losses from unjustifiable weapons systems. None of the above seem to meet those qualifications.

Will Chuck Hagel Stand Up to the Drone Lobby?, by Winslow T. Wheeler (Foreign Policy, 1/7/13)

Split Decision on Obama’s National Security Nominees, by Ivan Eland (1/10/13)

No War for Oil: U.S. Dependency and the Middle East, by Ivan Eland

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In a recent piece in the New York Times, columnist and occasional economist Paul Krugman entertains a silly notion: have the U.S. Treasury circumvent the federal debt ceiling by minting a $1 trillion coin and depositing it at the Federal Reserve. Then Treasury could draw on it to pay the federal government’s bills. Debt-ceiling crisis averted! Such a gimmick, the Nobel laureate argues, would be silly but less destructive than what the House Republicans have done: threaten to allow Uncle Sam to default on federal I.O.U.s, possibly triggering a host of harmful consequences for the U.S. economy. But contrary to Krugman, the trillion-dollar coin gimmick wouldn’t be benign: it could bring about real harm to the economy, according to Independent Institute Senior Fellow Alvaro Vargas Llosa.

“Although I guess initially the coin would be a liability in the Fed’s balance sheet as would any deposit, it would gradually become also an asset either because the money paid into the market by the Treasury would end up as bank reserves at the central bank or because the money would be paid directly to the Fed in order to buy back debt,” Vargas Llosa writes. “The effect, either way, would be inflation.”

The trillion-dollar coin proposal is a silly and potentially destructive idea, but discussing it does offer a tangible benefit. It makes it easier to get a public hearing for promising ideas that the establishment has heretofore dismissed as too far out for consideration, “including the abolition of the Fed and the return of the gold standard,” Vargas Llosa writes. “So long live the Krugmans of this world!”

Krugman’s Coin, by Alvaro Vargas Llosa (The Beacon, 1/9/13)

Lessons from the Poor: Triumph of the Entrepreneurial Spirit, edited by Alvaro Vargas Llosa

Boom and Bust Banking: The Causes and Cures of the Great Recession, edited by David Beckworth

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The notion that the Second World War is responsible for ending the Great Depression has met growing skepticism among economic historians, thanks in no small part to the work of Independent Institute Senior Fellow Robert Higgs. In a series of articles, Higgs argues that the much-vaunted “wartime prosperity” is an illusion—a deceptive statistical artifact created by the government’s diversion of production toward the war effort and away from civilian uses; price controls that masked true costs; and a military draft that helped commandeer the labor of 12 million men at below-market wages. The private economy didn’t fully recover from the Depression, he explains, until after the war ended, when various controls were lifted, and labor and capital goods became available for civilian production.

Support for this view now comes from economists Steven Horwitz and Michael J. McPhillips, both from St. Lawrence University in upstate New York. In the winter issue of The Independent Review, Horwitz and McPhillips offer new evidence that ordinary Americans saw continued material deprivation and hardship, rather than rising living standards: qualitative evidence from letters, diaries, and newspapers of the war years.

Horwitz and McPhillips highlight the case of a series of newspapers ads by an electrical utility in northern New York that sold consumer appliances. Soon after U.S. entry into the war, the ads’ messages began to change. Increasingly they urged consumers to buy their wares before production was discontinued. Eventually, the company’s inventory was refitted or converted to scrap metal for war purposes, and consumers had to invest more in maintaining their appliances and searching for expensive spare parts on the black market. By then the company’s advertisements had “shifted to encouraging people to buy war bonds as the company became part of the war propaganda effort,” Horwitz and McPhillips write. Similar stories of growing scarcities and shortages could also be told about many other consumer non-durables during the war years. Old myths die hard, but Horwitz and McPhillips have hammered another nail in the coffin of a myth that should have died long ago.

The Reality of the Wartime Economy: More Historical Evidence on Whether World War II Ended the Great Depression, by Steven Horwitz and Michael J. McPhillips (The Independent Review, Winter 2013)

The Independent Review (Winter 2013)

Special offer: Subscribe or renew now and receive a free copy of Crisis and Leviathan: Critical Episodes in the Growth of American Government (25th Anniversary Edition), by Robert Higgs!

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