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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 16, Issue 27: July 8, 2014

  1. Time to Abolish Corporate-Welfare Bank
  2. World War I’s Greatest Lesson
  3. World Cup Reveals Brazil’s Political Flaws
  4. More Unintended Consequences of Obamacare
  5. The Challenge of Liberty High School Seminar (July 14-18, Oakland)
  6. New Blog Posts
  7. Selected News Alerts


1) Time to Abolish Corporate-Welfare Bank

Last December, the Export-Import Bank boasted that its $694 million loan guarantee to an Australian mining company looking to purchase heavy equipment from U.S. manufacturers would “support 3,400 U.S. jobs across America.” Not so fast, said the United Steel Workers and the Iron Mining Association. The two groups complained that the bank’s subsidies actually threatened U.S. jobs. Such criticisms are likely to grow in the coming months, as Congress decides the fate of the Ex-Im Bank before its charter is set to expire on September 30. Independent Institute Research Director William F. Shughart II makes his position on the taxpayer-funded agency crystal clear in the title of his recent op-ed published in McClatchy newspapers across the country, “Let the Ex-Im Bank Fail.”

Created in 1934, the Export-Import Bank was one of President Franklin D. Roosevelt’s responses to the trade-strangling Smoot-Hawley tariff hike of 1930. Since then it’s become one of most notorious channels of corporate welfare. “The list of the bank’s largest clients includes global business behemoths like Boeing, John Deere, Ford Motor Co. and the giants Merck (in pharmaceuticals) and Bechtel (in engineering),” Shughart writes. In 2013, the Ex-Im Bank gave out about $27 billion in “loans, loan guarantees, and credit insurance to both domestic and foreign companies in order to promote exports of American goods overseas, bringing the bank’s total contingent liabilities to about $140 billion.”

Shughart reminds readers that there’s no such thing as a free lunch. The Ex-Im Bank puts American taxpayers at risk for any losses that occur whenever one of the export-financing deals it helps broker goes bad: “Because every dollar of the money obligated by the Ex-Im Bank is backed by the ‘full faith and credit’ of the federal government, the overburdened American taxpayer is on the hook if any borrower fails to repay,” he writes. Sound familiar? “Readers can be forgiven for thinking that this sounds a lot like the recent financial crisis, which was precipitated by now-insolvent Fannie Mae and Freddie Mac’s guarantees against default on the home loan portfolios of commercial banks and other mortgage lenders.”

Let the Ex-Im Bank Fail, by William F. Shughart II (Pittsburgh Tribune Review, 6/23/14; other papers on other dates)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart

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2) World War I’s Greatest Lesson

June 28 marked the 100th anniversary of the assassination of Archduke Franz Ferdinand, the spark that ignited World War I. The Great War, as it was called before World War II, was the most fundamental event of the 20th century—fundamental in that it contributed more than any other to future conflicts. Its progeny include the Bolsheviks’ successful power grab in Russia, the rise of Hitler and World War II, the Cold War, and the ongoing conflicts in the Middle East and beyond. Yet despite its central importance to modern history, few pundits have learned the lesson that the Great War teaches, according to Independent Institute Senior Fellow Ivan Eland.

So many historians—amateurs and professionals alike—have taken away a false lesson from World War II while ignoring a vital lesson from its bloody predecessor. Supposedly, British Prime Minister Neville Chamberlain could have stopped Hitler’s rise had he not appeased him in Munich in 1938, but this morality tale ignores the fact that Britain was militarily unprepared to thwart Hitler’s land grab, according to Eland. What the Great War teaches is that peace is precarious and should never be taken for granted. Yet most of the key nation-states in that conflict did exactly that. And ultimately, they miscalculated, each assuming that its counterparts on the other side would refrain from escalating a regional conflict into one of global proportions.

That lesson also reminds us of the prescience of the first generation of Americans, Eland explains: “The stark unintended consequences of World War I reaffirmed the founders’ inclination to stay out of wars on the other side of the world (especially those in Europe), to avoid entangling alliances, and to be suspicious of large standing armies.” Unfortunately, most Americans have only a superficial understanding of historical cause and effect. “Thus, their ill-informed nature allows politicians like Hillary Clinton, John McCain, and Dick Cheney to selectively mine history for lessons that will justify their often aggressive and ill-advised preferences for today’s U.S. overseas meddling,” Eland continues. “That is why remembering back far enough is really important.”

World War I, Rather Than World War II, Is Key for U.S. Foreign Policy, by Ivan Eland (The Huffington Post, 6/30/28)

Dick Cheney’s Outrageous Statements, by Ivan Eland (The Huffington Post, 6/23/14)

Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty, by Ivan Eland

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3) World Cup Reveals Brazil’s Political Flaws

As the 2014 FIFA World Cup has captivated soccer fans across the planet, so it has drawn the world’s eyes to the economic problems of its host country, including out-of-control public spending on unfinished sports facilities—waste brought on by lucrative political contributions from astute builders. Brazil might have weathered such excesses had the export boom it enjoyed in the mid 2000s continued. But that was then, and this is now. Thanks to low private investment, the country’s GDP is expected to grow a paltry 1.5 percent this year.

The root problem, according to Independent Institute Senior Fellow Alvaro Vargas Llosa, is a flaw in country’s political culture. “Private investment, typically a sign of confidence in a country’s economic future, is constrained today by a labyrinthine regulatory system, overlapping government structures, excessive government spending—amounting to some 40% of GDP—more than 60 different types of taxes, and a ‘crowding out’ of capital by [Brazil’s state-owned development bank] and other market-distorting lending institutions,” he writes in Investor’s Business Daily.

Brazil’s problems could also spell the political demise of President Dilma Rousseff, who is up for re-election in October. She faces a credible challenge from Aecio Neves, a moderately pro-market reformer who has drawn favorable ratings of 40 percent in opinion polls, but she must also fend off a challenge from Socialist Party rival Eduardo Campos, who could nibble away her lead. If Brazil wins its sixth World Cup, however, Rousseff will likely stay in office. Vargas Llosa scores with an impressive rhetorical shot in his concluding line: “For soccer fans like me, who want Brazil to become a first-world country, it’s an excruciating trade-off.”

The World Cup Exposes Brazil’s Long-Simmering Political Flaws, by Alvaro Vargas Llosa (Investor’s Business Daily, 6/30/14)

World Cup Soccer’s Real Top Rivals: Nationalism versus Globalism, by Gabriel Gasave (The Beacon, 6/13/14)

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4) More Unintended Consequences of Obamacare

Under Obamacare, insurers are prohibited from asking enrollees in the health insurance exchanges questions about their health status. This concession to “fairness” makes it harder for insurers to make sure that patients receive integrated care. It also makes it harder for insurers to calculate their premiums for the next open enrollment. But creative health insurers are seeking ways around the prohibition, explains Independent Institute Senior Fellow John C. Goodman.

In Pennsylvania, the nonprofit U.P.M.C., which owns a hospital and an insurance company, has developed sophisticated models to predict its customers’ healthcare utilization, based on data its mail-order shopping and Internet habits. Pole is another outfit that has devised models to help it determine who needs healthcare services—specifically pregnancy services. Medseek, a firm based in Alabama, has helped Michigan’s Trinity Health System identify prospective customers. As one New York Times reporter suggests, this development has an upside and a downside. For example, unscrupulous marketers may use predictive technology to promote unnecessary medical screening.

“In other words,” Goodman concludes, “the same technology that can enable an insurer to better manage the care of the sick could also be used to induce more spending on the part of the healthy and the wealthy.”

How Much Should Your Health Insurer Know About Your Health?, by John C. Goodman (Forbes, 6/30/14)

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

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5) The Challenge of Liberty High School Seminar (July 14-18, Oakland)

Each year our Challenge of Liberty Summer Seminars attract students eager to learn the foundations of a free and prosperous society. Past attendees tell us that the conference has been both educational and fun. Our third seminar of the season—our program for high-school students—runs from July 14 to 18 at our headquarters in Oakland, California. Students: space is limited, so hurry up and apply!

If you’re not eligible but you know a high-school student who would benefit from attending, please become our ambassador and forward this email.

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6) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

FATCA: A Surge of Seizure Fever
K. Lloyd Billingsley (7/7/14)

Obamacare’s Secret Taxpayer Bailout of Health Insurers
Craig Eyermann (7/6/14)

Grievances Against the King
Craig Eyermann (7/4/14)

Withhold Applause for Unhappy Anniversary
K. Lloyd Billingsley (7/2/14)

Berkeley Professor Warns of Bay Bridge Crack-up
K. Lloyd Billingsley (7/2/14)

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

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7) Selected News Alerts

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