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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 15, Issue 41: October 8, 2013

  1. Federal Shutdown Roundup
  2. Deficit Spending Pushes the U.S. Closer to Disaster
  3. Obamacare and the Race to the Bottom
  4. NSA Spying Scandal Exposes a Broken Federal System
  5. New Blog Posts
  6. Selected News Alerts

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.


1) Federal Shutdown Roundup

News reports typically attribute the partial federal shutdown solely to House Republican efforts to “defund” Obamacare—a constitutionally legitimate move that upsets what Independent Institute Research Fellow Angelo Codevilla calls the “ruling class” mindset that permeates the GOP Establishment every bit as much the White House and its allies in Congress. But the shutdown also has a less reported cause: the attempt by President Obama and the Senate Democrats to erase spending cuts mandated by the bipartisan 2011 Budget Control Act.

The Democrats’ audacious “no negotiation” strategy for dealing with House Republicans who oppose reneging on the budget deal “remains the biggest obstacle to an early end of the government shutdown and a meaningful resolution of the soon-to-come debt ceiling crisis,” writes Independent Institute Research Fellow Craig Eyermann. In another in his series of highly illuminating charts at MyGovCost.org, Eyermann shows the worrisome trajectory of U.S. total federal spending per household—a path shaped like a tilted hockey stick that has pointed straight up ever since President Obama secured a “temporary” surge in recession relief and entitlements as part of the stimulus package. Excessive federal spending—a problem with bipartisan origins—is the underlying problem, and the partial shutdown is only the latest symptom.

The “shutdown,” such as it is, has all the hallmarks of political theater. Some 815,293 civilian employees, almost half of them with the Defense Department, have been furloughed. Defense Secretary Chuck Hagel says he will recall nearly all of the 400,000 defense workers who were sent home, many of them equipment maintenance personnel who seemed exempt from furloughs under the recently signed “Pay Our Military Act.” The fact that they were sent home in the first place suggests to Eyermann that the Administration was playing politics with its furlough policies, an effort to inflict apparent harm (from the standpoint of national defense) that it could wrongly blame on the House Republicans. The House is also eager to score political points by playing the role of “savior,” Independent Institute Research Fellow Randall Holcombe notes, having passed a bill last Friday that would give furloughed workers retroactive pay for time not worked. It would be nice if all sides would ask the public for guidance about which federal workers and programs should be suspended or eliminated. But that’s wishful thinking, of course, because as Independent Institute Research Fellow Anthony Gregory writes, “What is essential to the political class is so often non-essential for anyone else.”

Not So Non-Essential Government Workers, by Craig Eyermann (MyGovCost, 10/7/13)

What the Partial Federal Government Shutdown Is All About, by Craig Eyermann (MyGovCost, 10/2/13)

The Shutdown Is Upon Us, by Anthony Gregory (The Beacon, 10/1/13)

Retroactive Pay for Furloughed Government Workers?, by Randall Holcombe (The Beacon, 10/6/13)

Republicans for Obamacare?, by Angelo Codevilla (Library of Law and Liberty, 9/29/13)

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2) Deficit Spending Pushes the U.S. Closer to Disaster

In a well-publicized recent speech, President Obama lamented the $35,000 burden in student debt that will burden the average college graduate from the Class of 2013. He should also have noted their even more worrisome share of the national debt—more than $145,000 per taxpayer. With the U.S. government predicted to hit the $16.7 trillion debt limit later this month, the “red menace” of deficit spending and mounting federal debt is easily among the worst U.S. economic policy disasters of the past one hundred years, according Independent Institute Research Fellow Burton A. Abrams, author of The Terrible 10: A Century of Economic Folly.

“The reason we all should be concerned about the mounting debt is because there’s no end in sight,” Abrams writes in an op-ed published in the Fresno Bee and elsewhere. “The recent reduction in the budget deficit is no cause for celebration, as it is only temporary.”

The United States should be grateful that China and other countries continue to purchase U.S. Treasury securities. Investing in U.S. debt is sensible only because the fiscal house of so many other countries is in even worse shape. Whereas U.S. net public debt in 2009 was 58.9 percent of GDP, the United Kingdom’s debt is 76.5 percent of its GDP and Japan’s is 226 percent of GDP. U.S. policymakers must get federal spending under control or risk making the country an economic basket case overloaded with too much debt to enable much private investment in job growth and wealth creation. Notes Abrams, “The U.S. Office of Management and Budget has forecast that in the year 2017 interest payments of the public debt will exceed the cost of Medicare.”

The New Red Menace: Deficit Spending, by Burton A. Abrams (The Fresno Bee, 9/24/13)

The Terrible 10: A Century of Economic Folly, by Burton A. Abrams

MyGovCost.org – Home of the Government Cost Calculator

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3) Obamacare and the Race to the Bottom

With the healthcare insurance exchange rollout last week, it’s time to take stock of the ways that Obamacare will fail patients, a task Independent Institute Senior Fellow John C. Goodman undertakes in his latest piece at Forbes. One major flaw of the healthcare law, he argues, is that it prohibits insurers from charging cost-based premiums and will thereby give insurers strong incentives to attract healthy customers and avoid the sick.

Goodman notes that a typical California plan would require patients to make a small copayment for medical services that are often discretionary and yet charge them up to 20 percent for a “nondiscretionary” hospital visit—a potentially huge sum for a moderate-income family. “Clearly this plan will be attractive to people who don’t plan to enter a hospital and unattractive to people for whom a hospital stay is likely,” he writes.

Goodman also notes that insurers now have strong incentives to offer low-premium plans with access to the relatively small number of doctors willing to receive reduced compensation. “As a result, we are getting a race to the bottom on access—with private plans in the exchanges looking increasingly like Medicaid, just as they do in Massachusetts,” Goodman continues. “The Obama administration doesn’t seem to be bothered by this development. In fact they have been touting the fact that the premiums have been lower than expected, even though the reason is that the networks are narrower and skimpier than expected.”

Obamacare’s Insurance Exchanges Will Foster a Race to the Healthcare Bottom, by John C. Goodman (Forbes, 9/25/13)

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

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4) NSA Spying Scandal Exposes a Broken Federal System

The nation’s Founders believed they had created a system of checks and balances that would prevent overreach by any one branch of the federal government. The NSA spying scandal, brought to light by former contractor Edward Snowden, shows that this system is badly broken, according to Independent Institute Senior Fellow Ivan Eland. No branch of the federal government—not the executive, the judiciary, or the legislative—can reliably hold the others to account for exceeding their constitutional authority.

“The larger problem here is that all three branches of the federal government often approve of unconstitutional violations of American citizens’ rights,” Eland writes. The Foreign Intelligence Surveillance Court, for example, gives the appearance of preventing overreaches of government spying, but such appearances are an illusion.

What’s need, Eland suggests, are measures that would give state governments the power to curb federal abuses of power. “The entire system might need to be reformed, but that is unlikely.” If you can think of viable alternatives, please let us know!

NSA Spying Scandal May Indicate U.S. Checks and Balances System Is Broken, by Ivan Eland (The Huffington Post, 10/1/13)

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

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Not So Non-Essential Government Workers
Craig Eyermann (10/7/13)

Dateline Beijing
Burt Abrams (10/6/13)

The Annual Federal Spending Free-for-All, Part 2
Craig Eyermann (10/5/13)

Cigarette Tax Hike a Smokin’ Deal for Smugglers
K. Lloyd Billingsley (10/4/13)

What the Partial Federal Government Shutdown Is All About
Craig Eyermann (10/2/13)

SEC Surge Serves No Purpose
K. Lloyd Billingsley (10/2/13)

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

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6) Selected News Alerts

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