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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 11, Issue 42: October 19, 2009

  1. The Case Against the Minimum Wage
  2. Proposals for Afghanistan Ignore Crucial Facts
  3. The Demise of the Dollar?
  4. Young Scholars Illuminate Virtues for Freedom
  5. This Week in The Beacon

1) The Case Against the Minimum Wage

If history has repeated itself, last summer’s seventy-cent increase in the federal minimum wage destroyed about 300,000 jobs that would otherwise have been filled by teenagers and young adults with little to offer potential employers other than their readiness to work for entry-level wages. It’s a classic case of good intentions harming the intended beneficiaries, according to Art Carden, Adjunct Fellow at the Independent Institute.

As Carden explains on Forbes.com, the trade-off between jobs and the minimum wage isn’t rocket science—it’s simply an application of the law of demand: Other things equal, when prices (or wages) rise, buyers (or employers) purchase less of a good (or service). Employers that don’t hire fewer workers in response to hikes in the minimum wage may opt instead to reduce their workers’ hours or benefits or both. Raising the minimum wage during a recession is especially counterproductive for jobseekers.

Recent data published by the Bureau of Labor Statistics suggest that the trade-off is particularly pronounced for groups that historically have faced barriers in the labor market. Carden writes: “The change in the unemployment rate for all workers between July and August was 0.3 percentage points (from 9.4% to 9.7%) while the change in the unemployment rate for ‘Black or African American’ workers was double that—0.6 points (from 14.5% to 15.1%). For workers classified as ‘Hispanic or Latino Ethnicity,’ there was a 0.7 percentage point increase in the unemployment rate (from 12.3% to 13%).... Workers in these categories might be disproportionately affected by the economic downturn, but they are also disproportionately affected by the minimum wage increase.”

“Repeal the Minimum Wage,” by Art Carden (Forbes.com, 10/16/09)

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

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2) Proposals for Afghanistan Ignore Crucial Facts

American policymakers hold a false alternative about U.S. policy in Afghanistan. Whereas military leaders are calling for 40,000 more troops, others, such as Vice President Biden, are calling for maintaining existing troop levels but shifting troops more toward training Afghan security forces and conducting Special Forces raids against al-Qaeda. But according to Ivan Eland, director of the Independent Institute’s Center on Peace & Liberty, a few facts on the ground point in favor of a third alternative.

Before naming that alternative, Eland names those facts. First, al Qaeda can take refuge in any unstable country with a large population of Muslims. Second, U.S. nation-building efforts in Afghanistan have led to the Taliban’s resurgence. Third, Iraq’s recent stability is likely to wane when the United States stops buying the support of Sunni insurgent groups. Fourth, unpopular wars are not sustainable in a republic. Fifth, history is filled with conflicts in which lesser foes drove out a great power.

These facts support an approach entirely different from the two ideas currently under consideration, according to Eland. “The motto for counterinsurgency war should be either commit enough forces to win early or get out,” Eland writes in his latest op-ed. “After eight long years of a lackadaisical effort, another 40,000 committed this late won’t even lift the Obama administration out of the halfhearted category. The U.S. should cut its losses, withdraw from Afghanistan, and concentrate on pressuring al-Qaeda in Pakistan with a smaller military footprint—so as not to stir up more anti-U.S. Islamists than we are neutralizing.”

“Five Facts about Afghanistan,” by Ivan Eland (10/14/09)

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

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3) The Demise of the Dollar?

Ending the world’s dependence on the U.S. dollar may appeal to investors holding gold and silver as a hedge against inflation, but no other currency is likely to replace the greenback anytime soon. Independent Institute Senior Fellow Alvaro Vargas Llosa explains why in his latest syndicated column.

The dollar is rapidly losing its luster, according to Vargas Llosa. In recent years Republican and Democratic lawmakers alike have weakened it by running up a $1.4 trillion budget deficit and a national debt exceeding $12 trillion. Federal Reserve Board monetary policies have doubled the money supply. “No wonder the dollar has lost more than 10.3 percent of its value in the last six months and foreign central banks, during the second quarter of this year, placed only 37 percent of new reserves in dollars,” writes Vargas Llosa.

But no existing currency is sufficiently attractive to replace the dollar. Europe’s economies are moribund and its governments are heavily in debt. On the other side of the globe, Japan’s huge public debt and poor economic performance make holding the yen unattractive. And except in Hong Kong, China won’t let foreign investors purchase the stocks of companies headquartered there, a restriction that limits the international appeal of the yuan. With no credible alternative to the dollar, Vargas Llosa recommends that cautious investors “keep buying gold and silver—more silver than gold because central banks, those consummate manipulators, own 20 percent of the world’s gold and therefore have the power to stem its rise in the short term.”

“Are We Stuck with the Dollar?” by Alvaro Vargas Llosa (10/14/09) Spanish Translation

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

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

The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa

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4) Young Scholars Illuminate Virtues for Freedom

Ben Franklin said, “Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters.” We wondered how to apply that idea today, so for our 2009 Sir John M. Templeton Fellowships Essay Contest we asked young scholars: Which virtues contribute the most toward achieving freedom, and how can the institutions of civil society encourage the exercise of those virtues?

Here is some of what we heard.

“Civil institutions that advocate freedom from government power need to operate from an independent property base to ensure that they are not subject to the co-option of government. With such a base, these institutions can strengthen the virtues of independence and integrity by putting forward a radical and consistent vision of a free society. In doing so, they must maintain their own integrity, and refuse to compromise on the ultimate goal of a totally free society.”
Ben O’Neill, Lecturer in Statistics, University of South Wales at ADFA; 1st Prize ($10,000), Junior Faculty Division

“For liberal democracies to remain strong, the two most important virtues (because most easily lost) are pride and good judgment. Yet, while governments may impede their development, no liberal democracy can actively encourage them. This is because the content of what is prudent politically, of what one should be proud, are contested, partisan questions. To answer them authoritatively would be to abandon liberal democracy’s claim to toleration; state and party would become one.”
Ross Corbett, Assistant Professor of Political Science, North Illinois University; 2nd Prize ($5,000), Junior Faculty Division

“Instead of focusing on more traditional virtues such as justice and love, my analysis centers on virtues that are more relevant for supporting economic exchange and production. Trust, respect, and individual motivation encourage and support market activity and exchange favoring economic development, whereas obedience or collectivism leads to individuals not engaging in innovative, entrepreneurial activities.”
Claudia Williamson, Assistant Professor of Economics, Appalachian State University, and Postdoctoral Fellow at the Development Research Institute at New York University; 3rd Prize ($1,500), Junior Faculty Division

Read the complete essays.

The 2010 Sir John M. Templeton Fellowships Essay Contest will award $26,500 to winning college students and untenured college teachers. Read the essay topic and eligibility requirements.

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5) This Week in The Beacon

Here are the past week’s offers from our blog, The Beacon.

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