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

Volume 11, Issue 10: March 9, 2009

  1. U.S. Policymakers Should Avoid Japan’s Mistakes, Not Repeat Them
  2. A Prudent Alternative to Bank Nationalization
  3. Six Bad Economic Ideas
  4. EVENT: What President Obama Can Learn from His Predecessors (Oakland, Calif., 4/7/09)
  5. This Week in The Beacon

1) U.S. Policymakers Should Avoid Japan’s Mistakes, Not Repeat Them

In the 1990s, Japan tried to revive its moribund economy with deep cuts in interest rates, bank bailouts and nationalizations, and multiple fiscal stimulus packages—including a 1998 spending program that amounted to a whopping 8.5 percent of gross domestic product. Despite those drastic measures, however, the economy languished: the 1990s were Japan’s “lost decade.”

Economic policymakers in the United States have taken a cue from their Japanese counterparts, enacting similar policies but doing so more quickly. Unfortunately, it is the basic similarity of their approach that is cause for alarm, according to Benjamin Powell, a research fellow at the Independent Institute.

“Bank bailouts and fiscal stimulus bills don’t work because they strive to maintain the status quo,” writes Powell. “But the status quo is the problem and exactly what needs to be corrected.... To achieve long-term economic recovery, market forces, not political forces, need to direct capital and labor to their most productive uses.”

“Avoid Japan’s Mistakes,” by Benjamin Powell (Washington Times, 3/8/09)

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

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell

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2) A Prudent Alternative to Bank Nationalization

In his latest syndicated column, Independent Institute Senior Fellow Alvaro Vargas Llosa discusses an alternative approach to bailing out and nationalizing troubled banks. The title of his piece says it all: “Let Those Banks Fail!”

“Nationalization would compound the problems caused by the credit craze that led us to where we are, kick taxpayers in the stomach, and do in a convoluted way what the market would do swiftly,” he writes.

Allowing insolvent banks to fail need not disrupt credit markets permanently or significantly, Vargas Llosa explains. Federal and state authorities could encourage the chartering of new banks. Along with many of the nation’s surviving banks, they could take over the consumer loans, auto loans, and mortgage loans of the insolvent banks.

“Let Those Banks Fail!” by Alvaro Vargas Llosa (3/4/09) Spanish Translation

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

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3) Six Bad Economic Ideas

At least 95 percent of what public officials and pundits have said about the causes of and cures for the current economic recession has been appallingly bad, according to Independent Institute Senior Fellow Robert Higgs.

“I call this pseudo-intellectual mishmash vulgar Keynesianism,” writes Higgs in a new op-ed. The six worst mistakes of vulgar Keynesianism, Higgs explains, pertain to aggregation, relative prices, the rate of interest, capital and its structure, malinvestment and money pumping, and regime uncertainty. The logical fallacies, conceptual flaws, and inductive errors of vulgar Keynesianism have been identified many times over the decades—and yet they persist.

Writes Higgs: “It’s the same claptrap that has passed for economic wisdom in this country for more than fifty years and seems to have originated in the first edition of Paul Samuelson’s Economics (1948), the best-selling economics textbook of all time and the one from which a plurality of several generations of college students acquired whatever they knew about economic analysis. Long ago, this view seeped into educated discourse and writing in the news media and in politics and established itself as an orthodoxy.”

“Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy,” by Robert Higgs (3/5/09)

Depression, War, and Cold War, by Robert Higgs

Neither Liberty nor Safety, by Robert Higgs

Video: Robert Higgs on War, Taxes and Economic Crises (YouTube)

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4) EVENT: What President Obama Can Learn from His Predecessors (Oakland, Calif., 4/7/09)

Amid the current economic and financial crises, President Obama may do well to remember the men who have come before him. As we move toward his first 100 days in office, there is much that can be learned from George Washington, Martin Van Buren, Woodrow Wilson, Herbert Hoover, Franklin Delano Roosevelt, Bill Clinton, George W. Bush, and others.

Has the exercise of executive power protected civil liberties? Have attempts to occupy and “nation-build” in Muslim lands been successful? What about federal intervention in the economy?

Please join us as Ivan Eland, author of Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty and political scientist Andrew R. Rutten examine these issues and high-light the historical “dos” and “don’ts” of the Oval Office.

WHO:
Ivan Eland (Senior Fellow & Director, Center on Peace & Liberty; author, Recarving Rushmore)
Andrew R. Rutten (Department of Political Science, Stanford University; Associate Editor, The Independent Review)

WHEN:
Tuesday, April 7, 2009
Wine & Cheese Reception: 6:30 p.m.
Program: 7:00 p.m.

WHERE:
The Independent Institute
100 Swan Way
Oakland, Calif.
Map and Directions

Regular Admission: $15 (Institute Members: $10)
Special Admission: $35 (Members: $30) includes one copy of Recarving Rushmore (save 25%)
RSVP: events@independent.org or 510-632-1366

More details

Praise for Recarving Rushmore:

“In the intriguing book, Recarving Rushmore, Ivan Eland reassesses the record of all U.S. Presidents based on the constitutional principles that each swore to uphold. While conventional accounts glorify the flagrant misdeeds of the ‘Imperial Presidency,’ this insightful and crucial book provides an inspiring vision for both conservatives and liberals on the crucial need to rein in White House power and restore peace, prosperity and liberty.”
—Ron Paul, U.S. Congressman

Recarving Rushmore is colorful, entertaining, and profound. Ivan Eland shatters the grand illusion that great presidents are those who wage war or deprive people of their liberty, either here or abroad. The new ‘gold standard’ for measuring presidential performance, this book upends what we ‘know’ about ‘Great’ presidents and will challenge your view of political history, one president at a time.”
—Jonathan Bean, Professor of History, Southern Illinois University

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5) This Week in The Beacon

Here are the past week’s offerings from The Beacon, the web log of the Independent Institute:

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