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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 11, Issue 16: April 20, 2009

  1. Federal Spending Binge Risks Massive Stagflation
  2. Torture Memos and the Rule of Law
  3. Obama and the Summit of the Americas
  4. Templeton Fellowships Essay Contest Deadline Is May 1st
  5. This Week in The Beacon

1) Federal Spending Binge Risks Massive Stagflation

The Obama economic plan will transform the U.S. economy as significantly as did LBJ’s Great Society, if not FDR’s New Deal. According to the Congressional Budget Office, it will increase federal deficits by more than $1 trillion annually for the next decade. How exactly will it be paid for?

“The idea that the rich can pay for much of it through higher taxes is fantasy,” writes Richard Vedder, a senior fellow at Independent Institute, in a recent op-ed. “Until recently, the government never had borrowed $500 billion in a single year.”

Overseas purchasers of U.S. debt will be harder to find. Asian investors are troubled with their own faltering economies, and oil-rich Arab countries have been hit by falling oil prices. “To sell all the debt, interest rates likely will have to rise—perhaps substantially,” Vedder continues. “To deal with that problem, the Fed might agree to buy most of the debt, roughly equivalent to printing money, which almost always sets off inflation.”

In a related op-ed, Independent Institute Research Fellow Dominick Armentano exposes some of the theoretical flaws of the Obama bailouts (formerly known as the Bush bailouts). Bailing out large institutions, he explains, “weakens both the information and incentives necessary for efficient production.” Second, bailouts delay tough decisions by corporate managers regarding product development, employment, store closings, future investments, and even bankruptcy. Third, bailouts for unhealthy companies weaken the ability of healthy ones to compete effectively. In addition, bailouts often come with political strings that tie up efficient resource allocation and effective decision-making.

“Bailouts delay and distort this adjustment process and thus make the recovery longer and more difficult,” writes Armentano. Vedder is no less bleak in his assessment: “We have the prospects of high inflation and high unemployment—1970s-style stagflation on a bigger scale.”

“Obama’s Plan Is Debt Disaster,” by Richard K. Vedder (Columbus Dispatch, 4/7/09)

“Bailout Baloney,” by Dominick T. Armentano (St. Paul Pioneer Press, 4/7/09)

Out of Work: Unemployment and Government in Twentieth Century America, by Richard K. Vedder and Lowell Gallaway

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2) Torture Memos and the Rule of Law

Last week the Obama administration released its predecessor’s infamous torture memos—most of which had already found their way into the public domain—but the new administration hastened to add that it won’t prosecute those who wrote, signed, or implemented them. Further inquiry into the nominally authorized but illegal torture of combatants and terrorist suspects, Obama stated, would only divert energy from more important matters.

In his latest op-ed, Independent Institute Senior Fellow Ivan Eland offers a stern rebuke—not only of the torture policy approved by the Bush administration, but also of the “moving on” policy articulated by Obama. Illegal torture must be prosecuted because the rule of law is the most vital principle for a republic, he argues.

“If we don’t want illegal acts at any level of government to be repeated,” Eland writes, “they must be exposed, thoroughly investigated, and prosecuted—no matter who is implicated and how painful it is for the country.... Simply ‘moving on’ will not deter future U.S. officials from going back to torture when the political winds permit it.”

“Tortured Posturing on Harsh Interrogation Techniques,” by Ivan Eland (4/17/09)

Partitioning for Peace: An Exit Strategy for Iraq, by Ivan Eland

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

The Empire Has No Clothes: U.S. Foreign Policy Exposed, by Ivan Eland

Ivan Eland on C-SPAN2. Interview by Rep. Ron Paul.

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3) Obama and the Summit of the Americas

President Obama’s appearance at the 5th Summit of the Americas in Trinidad and Tobago last week will be best remembered for his pledge to relax tensions with Cuba, but his agenda for Brazil, while not as highly publicized, should not go overlooked.

Obama said he seeks to strengthen the “ethanol partnership” with Brazil and thereby to reduce foreign oil imports to the United States. The most effective way to do so, as Independent Institute Senior Fellow Alvaro Vargas Llosa notes in his latest syndicated column, would be for Obama to scrap the 54 percent tariff that makes ethanol imports from Brazil prohibitively expensive for the U.S. market. That would mean battling Iowa corn growers. But something even more powerful than the domestic ethanol lobby could also derail Obama’s goal of reduced oil imports: Brazil’s enormous Tupi oil field—the largest discovery in the past decade.

“Given the freeze in capital markets, Brazil will not be able to develop Tupi soon,” writes Vargas Llosa, “but the U.S. might end up buying oil from Brazil, perhaps replacing Venezuela as a source of 11 percent of its crude imports.” Such a move would of course weaken the leader who often identifies himself with Cuba’s leader: Hugo Chavez, whose authoritarian rule over Venezuelans has been underwritten by oil exports.

“The Summit of the Americas—Memo to Obama,” by Alvaro Vargas Llosa (4/15/09) Spanish Translation

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

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

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4) Templeton Fellowships Essay Contest Deadline Is May 1st

Six young scholars will share $21,500 in prize money after the winners of the 2009 Sir John M. Templeton Fellowships Essay Contest are announced this fall.

If you are an eligible college teacher or student, but you’ve somehow missed out on the many e-mails, Beacon posts, third-party mentions, and advertisements announcing the Independent Institute’s annual essay contest, you’re in luck. There’s still time to submit an essay, but the May 1st deadline is approaching quickly.

Here is this year’s topic:

    “Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.”
    —Benjamin Franklin
    Which virtues contribute the most toward achieving freedom, and how can the institutions of civil society encourage the exercise of those virtues?

Here is the prize money:

Junior Faculty Members (untenured, under 36 years old):

    First Prize: $10,000
    Second Prize: $5,000
    Third Prize: $1,500

College Student Division (under 36 years old):

    First Prize: $2,500
    Second Prize: $1,500
    Third prize: $1,000

In addition to the cash prizes, winners will receive assistance in getting their winning essay published, may receive additional travel funds to deliver their paper at a scholarly conference, and will receive a two-year subscription to The Independent Review.

More information

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5) This Week in The Beacon

Below are the past week’s offerings from The Beacon, the web log of the Independent Institute. Your comments are greatly appreciated.

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