The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 15, Issue 9: February 26, 2013

1. Minimum Wage Laws: The Folly Continues
2. Immigration Reform Should Accommodate a Dynamic Economy
3. Obamacare’s Sales Tax Hikes
4. Calling the Bluff of Pentagon Propagandists
5. New Blog Posts
6. Selected News Alerts

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The Independent Review: Subscribe or renew today and get a free copy of the 25th Anniversary Edition of Crisis and Levithan: Critical Episodes in the Growth of American Government, by Robert Higgs.

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Independent Institute Senior Fellow Benjamin Powell came down with a queasy feeling of déjà vu after hearing the President propose an increase in the federal minimum wage: “President Obama’s call for a $9 an hour federal minimum wage in his State of the Union Address makes me feel a bit like Bill Murray’s character in Groundhog Day,” the economist writes in the Huffington Post. “The only difference is that instead of reliving the same day again and again, I have to keep reliving the same bad idea proposed by yet another politician.”

Basic economic theory predicts that imposing a wage rate above market levels will induce unemployment among lower-skilled workers, and most empirical studies over the past twenty years have corroborated this prediction. David Card and Alan Krueger’s famous 1997 book, which found little-to-no evidence that minimum wage laws raise unemployment, was an outlier, not the norm; a more reliable book on the topic is the one by David Neumark and William Wascher. The federal minimum wage hasn’t led to massive unemployment recently, Powell explains, because it has not been raised for so long. “More than 98 percent of full-time hourly employees already earn more than the federal minimum wage,” he writes.

Powell notes that the proposed 24 percent increase in the minimum wage would disproportionately harm young workers. “Six of the 10 states with the highest teen unemployment rates have state minimum wage mandates higher than the federal requirement,” he continues. “Only Washington state has a minimum wage above $9 an hour, and about 30 percent of its teens are unemployed.” For those who need to see an extreme example in order to grasp the folly, Powell notes that when the federal minimum wage was first enacted, in 1938, it was especially bad for unemployment in Puerto Rico, where it also applied. Many workers on the island territory had been earning only 3 to 4 cents, compared to an average of 62.5 cents across the United States.

Minimum Wage Merry Go Round, by Benjamin Powell (The Huffington Post, 2/21/13)

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

Video: How to Create a Job, Not Just Work, by Benjamin Powell

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The White House and Senate proposals to reform immigration take steps in the right direction, but their inflexibility will cause problems years later. The proposals emphasize conditional legalization, enhanced border patrols, and employer sanctions. Among other shortcomings, they fail to account for the changing needs of future employers, according to Independent Institute Senior Fellow Alvaro Vargas Llosa.

Employers’ future needs are impossible to predict, of course, but this is why harsh immigration restrictions are so detrimental to the U.S. economy, Vargas Llosa explains. Employers need the freedom to hire workers of all skill levels, but contrary to popular belief, hiring immigrants does not imperil the employment of native workers. In 2008, for example, undocumented foreigners made up 10 percent of Arizona’s workforce, but unemployment was only 4 percent. When the economy stalled, so did the inflow of immigrants. “The principal reason was not border-control enhancement but the downturn in the economy,” Vargas Llosa writes.

In addition to dispelling various economic myths surrounding immigration, Vargas Llosa’s op-ed also addresses cultural myths. “Undocumented workers today show similar acculturation patterns to those in the past,” he writes. “As a general rule, assimilation is strong among the second generation and complete by the third.” Vargas Llosa also notes that the proportion of single-parent households is far lower for undocumented immigrants than for citizens. “Lawmakers should heed these realities when they put together the new immigration law, creating a system that makes it easy for immigrants of various skill levels to enter according to the needs of the economy.”

Immigration Reform Must Look Beyond Today, by Alvaro Vargas Llosa (Bloomberg, 2/19/13)

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

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Not including the mandatory purchase of health insurance, the Affordable Care Act creates twenty-one new taxes on healthcare, costing taxpayers an estimated $675 billion over the next ten years. A bipartisan move is now afoot in the House of Representatives to abolish one of them—a sales tax on insurance policies that is expected to raise $101.7 billion. In a recent op-ed in Forbes, Independent Institute Communications Director Lindsay M. Boyd called this sales tax hike “larger than all the other industry-specific taxes combined.”

Independent Institute Research Fellow John C. Goodman favors striking down the sales tax, but he laments that “this is only one example of many middle income taxes buried in Obamacare.” Perhaps one reason that the Affordable Care Act is saturated with tax increases is that its opponents were too focused on promoting their own alternative reforms and failed to work together to publicize the existence and harm of the tax hikes.

“Overall, think tanks on the right have a habit of ignoring each other,” Goodman writes in his latest piece for RightSideNews. “Often, they don’t even footnote each other.” He attributes this to different visions of how healthcare should be reformed—including a difference in their visions for the health-insurance industry. “In my ideal world,” he continues, “health insurance companies would have a shrinking role—eventually becoming no more active than a garden variety life insurance company.” Getting back to the sales taxes reported by Boyd, one benefit of Goodman’s approach would be lower costs for the consumer: not only would prices fall because consumers would be more conscious of what they spend on healthcare, but the tax collector wouldn’t have so many pricey insurance policies to tax!

The Unsung, But Massive Obamacare Sales Tax Increase That Is On the Way, by Lindsay M. Boyd (Forbes, 2/18/13)

Conservative Think Tanks on Health Care, by John C. Goodman (RightSideNews, 2/18/13)

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

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Propagandists for Big Government—including shills for the continuation of military pork—are working overtime to defeat a reduction of $85 billion in federal spending that is scheduled to begin on March 1. There are a few things you should know about the much demonized “sequester,” according to Independent Institute Senior Fellow Ivan Eland.

First, defense spending will continue to rise, because in Washington, DC, “spending cuts” almost always mean only a slowdown in the growth rate of spending, not an absolute cut in dollars spent. Second, like budget bureaucrats throughout the government, those in the military try to scare everyone with horror stories about the disastrous consequences of the sequester. The Navy, Army, Air Force, and Coast Guard, for example, have warned about forthcoming reductions in “essential” training and readiness, should the sequester take effect as scheduled, and the Transportation Security Administration has warned of longer lines at airport security checkpoints.

In fact, the nation’s defense capabilities could easily absorb significant reductions in absolute spending. Also, TSA could streamline the lines at airports, Eland argues. “In reality, the minor defense cuts of the sequester should only be a down payment on the security spending reductions needed to convert an offensively oriented empire into a defensively oriented republic,” Eland concludes. The proper response to Pentagon propagandists, in other words, is to call their bluff and raise them.

‘Widespread Pain’ of the Sequester Not So Draconian, by Ivan Eland (2/19/13)

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

Putting “Defense” Back into U.S. Defense Policy: Rethinking U.S. Security in the Post-Cold War World, by Ivan Eland

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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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