The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 15, Issue 4: January 22, 2013

1. Krugman’s Keynesian Ineptitude
2. U.S. Should Avoid Entanglement in Mali
3. Sugar Lawsuit May Sour Commercial Free Speech
4. Hugo Chavez and the Future of Venezuela
5. New Blog Posts
6. Selected News Alerts

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Urgent: The “Fiscal Cliff” tax legislation of January 2, 2013, reinstated a provision allowing individuals 70.5 or older to make charitable contributions, including donations to the Independent Institute, from their IRAs. The distribution must be made prior to January 31 in order to be deductible from 2012 taxes, and various requirements must be met. For more information, please see this briefing, and if you would like to further the mission of the Independent Institute with such a gift, please contact Sarah Galt at 510-632-1366, ext. 152, or [email protected].

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Paul Krugman, who as the public face of Keynesian economic policies is often criticized in The Lighthouse, has done it again. In a recent column in the New York Times, he argued that the U.S. economy has been very sluggish not because the federal government is spending too much, but because it has been spending too little. This time it’s Independent Institute Research Fellow John C. Goodman who takes Krugman to task.

In a recent piece in Forbes, Goodman argues that in order for federal spending to stimulate economy-wide growth, the value of the goods and services produced by that spending must exceed the sum of three components: (1) the cost of any output lost from diverting factors of production away from their pre-stimulus uses, (2) the value of “leisure time” lost from the employment of previously idle resources, and (3) the social costs of higher taxes to pay back the government loans used to finance federal stimulus spending. But it’s highly unlikely for federal spending to exceed that amount, he notes, in part because federal stimulus spending tends to fund wasteful pork-barrel projects, usually employs workers who are already employed, and costs tremendously in terms of higher future taxes.

Moreover, Krugman is wrong to suggest that the case for reining in federal spending is empirically weak: Goodman points to the success of government austerity in Canada, Ireland, the Netherlands, and Finland. Interestingly, way back in 1999 Krugman himself acknowledged that a round of government spending was not what ended the Great Depression. But if a fiscal stimulus fails to spark sustainable economic growth, what about a monetary stimulus? Isn’t the Federal Reserve’s expansion of money and credit since 2008 at least benign?

Friends of the Fed typically point to a “moderate and sustainable” rise in the Consumer Price Index as the sign that monetary expansion is doing no real harm, but according to Independent Institute Senior Fellow Robert Higgs, they’re looking at the wrong indicator. The Producer Price Index has been going crazy in recent years, rising by 58 percent between March 2009 and December 2012. “Such a violently variable, impossible-to-forecast price environment has necessarily brought about a greater volume of business mistakes and a heightened reluctance to embark on new enterprises and to make new long-term investments in existing firms,” Higgs writes in The Beacon. “For such paralyzing uncertainty, we have policy makers at the Fed and the federal government to thank.”

Monetary Policy and Heightened Price Volatility in Raw Materials Markets, by Robert Higgs (The Beacon, 1/19/13)

Can We Spend Ourselves from Recession to Prosperity?, by John C. Goodman (Forbes, 1/15/13)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

Crisis and Leviathan: Critical Episodes in the Growth of American Government (25th Anniversary Edition), by Robert Higgs

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France’s recent military campaign in Mali—airstrikes aimed at Islamist rebels who have conquered the north and are heading south toward its capital, Bamako—illustrate some pitfalls of Western military intervention. Mali’s rebels were lightly armed until the West armed Gaddafi’s opponents in Libya and much of that firepower fell into the hands of North African Islamists. In addition, France’s incursion could lead to blowback attacks in the West—as both France’s former foreign minister and U.S. officials had earlier warned. Perhaps most distressing of all, both the underlying causes and likely effects of France’s air campaign were predictable, Independent Institute Senior Fellow Ivan Eland suggests in his latest op-ed.

“In a replay of the war in Libya, with France forcing its hand, the United States has been forced to back its ally’s aggressive action and even provide help,” Eland writes. “At first, this assistance will likely be intelligence, transportation, and logistics, but the U.S. could very well get involved more deeply.”

Eland argues that the United States could get sucked into the morass because French air strikes and African ground forces are likely to fail. Given that U.S. intervention in Mali would harm American interests—and would risk igniting blowback terrorism against the United States—Eland urges U.S. policymakers to avoid getting involved. “It is not good that Islamists have taken over northern Mali, but it is not catastrophic for the West either,” Eland writes. “Unless provoked by Western intervention, the militants’ goals are likely to be locally oriented.”

An Ally Out of Control, by Ivan Eland (1/15/13)

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

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The sugar industry (which squeezes consumers by lobbying Uncle Sam for price supports and import restrictions) is suing the corn syrup industry (which receives taxpayer subsidies). Is this lawsuit worth caring about? In this case, yes. Big Sugar is invoking Section 43 of the Lanham Act of 1946, which contains provisions that prohibit false or misleading advertising. The problem, according to Big Sugar, is that Big Corn is falsely claiming that corn sugar is exactly like cane sugar. But the larger issue at stake here isn’t about the relative merits of one over the other—it’s about commercial free speech.

“Regardless of one’s views on the relative merits of corn syrup vs. cane sugar, Americans should be concerned about the effort to use the Lanham Act to silence commercial speech,” writes William J. Watkins, Jr., a research fellow at the Independent Institute. The 1946 law, he continues, “creates a perverse incentive for a commercial rival to attempt to stifle speech—and to use litigation as an anti-competitive weapon.”

Instead of dragging Big Corn through the legal system, Big Sugar should be relying on the court of public opinion. “So long as there is free entry into the advertising realm,” Watkins continues, “any company, organization or group of companies that finds a rival’s advertising claims to be questionable is free to disseminate information challenging those claims…. They can create ads of their own. They can mobilize allies in a grassroots effort…. In a free society, this is how consumers gather information and make informed decisions about what products to purchase.”

The Sugar-y Sweet Temptation of Anti-Competitive Lawsuits, by William J. Watkins, Jr. (Forbes, 1/18/13)

Reclaiming the American Revolution, by William J. Watkins, Jr.

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Hospitalized in Cuba for cancer, ailing strongman Hugo Chavez has sparked a behind-the-scenes power scramble in his native Venezuela. The reason for the drama is that political authority in Venezuela has little to do with formal rules of succession. It has everything to do with posturing and positioning, as Independent Institute Senior Fellow Alvaro Vargas Llosa explains in his latest op-ed.

The fist struggle is over the status of Chavez’s absence. If it is deemed to be permanent rather than temporary, the current administration will have a tougher time holding on to the reins of power. Chavez’s favored replacement, Nicolás Maduro, would then have a harder time defeating competitors such as the head of the National Assembly, Diosado Cabello, who helped Chavez in the 1992 coup attempt and in the 2002 reversal of an overthrow of Chavez. Cabello may be more popular with certain elements in the military, but Maduro has support from strong powerbrokers—including Cuba’s government.

No matter who wins the struggle, Venezuela’s next head of state will inherit a mess: Price inflation is running at 25 percent; economic growth was flat in 2012; government debt is 10 times as large as it was when Chavez came to power; and the nation suffers from the world’s fourth highest homicide rate. For these reasons, it’s possible that Maduro and Cabello will call a truce and present a united front against anti-government protestors—even if maintaining power requires deploying the military’s bullets on the streets of Caracas. “Whatever the case,” Vargas Llosa concludes, “the messy post-Chavez era has begun while the caudillo [strongman] nears judgment day in Havana.”

The Post-Chavez Era Has Already Begun, by Alvaro Vargas Llosa (The Globe and Mail, 1/10/13)

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa

The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa

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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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