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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 12, Issue 4: January 25, 2010

  1. Haiti and the Broken Window Fallacy
  2. Do Government Jobs Crowd Out Private-Sector Jobs?
  3. Iraqi Candidate Ban May Signal Future Civil Strife
  4. Will Chile's Sebastian Pinera Lead Latin America?
  5. This Week in The Beacon

1) Haiti and the Broken Window Fallacy

Although the destruction wrought by Haiti’s earthquake has yet to be tallied up, some commentators have virtually hailed the disaster for rendering a golden opportunity to jumpstart the impoverished country’s economic development. This sentiment, however, is merely wishful thinking that commits the age-old “broken window” fallacy that French economist Frederic Bastiat refuted in the 19th century, according to Independent Institute Senior Fellow William F. Shughart II.

The economic system as a whole derives no benefit—there is no “silver lining”—from the destruction of lives and property. That’s because the economic resources that would go toward reconstruction are no longer available for other uses. The total wealth in society is reduced precisely to the extent that lives, buildings, equipment and other resources have been destroyed, and no amount of development assistance can offset that loss. In addition, given that corruption and waste generally accompany relief efforts, “donors therefore can expect fewer benefits for Haiti than they thought they were paying for,” writes Shughart.

“It is absurd to say that the earthquake will be good for Haiti’s economy,” Shughart continues. “If that were true, why did the world await natural disaster? If Haiti needed an economic boost, we should have carpet-bombed it years ago. The plain fact is that disasters make everyone permanently poorer by the values of the lives and property they destroy. Earthquakes have no silver linings.”

“Earthquakes and Economic Development,” by William F. Shughart II (1/21/10) Spanish Translation

2010 John M. Templeton Fellowships Essay Contest. This year’s topic pertains to a quotation by Frederic Bastiat. 1st Prize: $10,000 (Junior Faculty Division); $2,500 (College Student Division). Deadline: May 3, 2010

Making Poor Nations Rich, edited by Benjamin Powell

Lessons from the Poor, edited by Alvaro Vargas Llosa

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2) Do Government Jobs Crowd Out Private-Sector Jobs?

Taxpayers and the unemployed hoped that Washington would enact policies that promoted economic growth, but much of the Obama “stimulus” spending has instead gone toward ensuring that state and local government workers don’t lose their jobs.

Private employment fell by 5.6 million jobs since the recession began, but over the past year government employment has remained essentially constant at 22.5 million, according to Independent Institute Senior Fellow Robert Higgs.

“This situation bears an eerie resemblance to the employment situation during the Great Depression,” writes Higgs. Millions of workers were added to government payrolls during the New Deal, but private nonfarm hours worked fell sharply from 1929 to 1932 and did not return to 1929 levels until 1941.

“Keynesians like to suppose that whenever the government undertakes new spending to augment the ranks of its employees a multiplier effect will result, causing private economic activity and employment to follow the same upward course,” Higgs continues. “The jobs data tell a different story.”

“The Disappearing Private-Sector Jobs,” by Robert Higgs (Investor’s Business Daily, 1/20/10)

“A Revealing Window on the U.S. Economy in Depression and War: Hours Worked, 1929–1950,” by Robert Higgs (The Independent Review, Winter 2010)

Depression, War, and Cold War: Challenging the Myths of Prosperity and Depression, by Robert Higgs

Neither Liberty nor Safety: Fear, Ideology, and the Growth of Government, by Robert Higgs

Video: Robert Higgs on the Second Lost Decade (“Freedom Watch w/Judge Napolitano,” FoxNews.com, 1/13/10)

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3) Iraqi Candidate Ban May Signal Future Civil Strife

An election commission in Iraq—co-directed by Ahmed Chalabi—has disqualified more than 500 candidates for the parliamentary elections scheduled for March. Although the ban surprises many outside observers, Independent Institute Senior Fellow Ivan Eland says it was no surprise to those who grasp that Iraq remains a society deeply fractured along ethno-sectarian lines. Moreover, Eland writes, “this kangaroo commission’s decision could have dramatic consequences,” including re-igniting a Sunni insurgency or a Shi’ite-Sunni civil war.

“The disbarment of candidates for the election is a canary in the coal mine and dramatically highlights the threat that renewed violence poses to Obama’s laudable plan to withdraw U.S. forces from Iraq by the end of next year,” Eland continues.

Eland argues that the ban imposed by the Iraqi Accountability and Justice Commission harms the coalition of the Iraqiya party but helps both the mixed Shi’ite-Sunni alliance of Prime Minister Nouri al-Maliki and the Shi’ite coalition headed by Ahmed Chalabi—a suspected Iranian agent some say duped the Bush administration into invading Iraq—and Commission co-director Ali Faisal al-Lami, who had been detained for terrorism.

“The Next Crisis for Obama?” by Ivan Eland (1/20/10) Spanish Translation

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

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

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

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4) Will Chile's Sebastian Pinera Lead Latin America?

Last week Chilean voters elected billionaire businessman Sebastian Pinera to the nation’s highest office. In his latest column, Independent Institute Senior Fellow Alvaro Vargas Llosa examines the implications of the election results for the rest of Latin America—in the form of an open letter to President-elect Pinera.

Pinera, long an advocate for holding human rights violators accountable, is Latin America’s best bet for resisting the lure of concentrated power—historically, the Achilles’ heel of the political leadership in the region. “At a time when the remnants of the authoritarian left are cannibalizing liberal democracy in certain countries, your vision of the region as a dictator-free zone of enterprise and rule of law is salutary,” writes Vargas Llosa. Pinera’s appeal to young Chileans who look beyond the Allende-Pinoche paradigms is further reason for hope.

Progress, of course, is never guaranteed, especially in a region where political winds can change direction quickly. Several constraints will hold back Pinera, including a powerful left-wing opposition, a right-wing party uncomfortable with his liberal attitudes toward divorce and other social issues, and legal arrangements that give Chile’s military a large stake in the country’s copper wealth. “But it has been a long time since anything coming out of Latin American politics has been so encouraging,” continues Vargas Llosa. “Please, don’t let the cause of freedom down.”

“Open Letter to Sebastian Pinera,” by Alvaro Vargas Llosa (1/20/10) Spanish Translation

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

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

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

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5) This Week in The Beacon

Visit the Independent Institute’s Spanish-language blog, El Independent. Below are the past week’s offerings from our English-language blog, The Beacon.

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