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The Lighthouse


The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 17, Issue 30: August 4, 2015

  1. Robert Higgs and the Economic Case against GDP
  2. Why Clinton and Krugman Are Wrong on Wage Policy
  3. Obamacare’s Chief Legal Advocate: John Roberts
  4. Prop 13: Defending Property Owners from Onerous Tax Hikes
  5. New Blog Posts
  6. Selected News Alerts



1) Robert Higgs and the Economic Case against GDP

“There are three kinds of lies: lies, damned lies, and statistics,” Mark Twain quipped in a manuscript of musings published after his death. If he was correct—if statistics deceive (or can deceive) more than they reveal—then what should we make of one of the biggest statistics of all: gross domestic product (GDP)? The question is critical because few statistics grab the attention of financial journalists, professional economists, and Federal Reserve policymakers as much as the one purported to measure the market value of a nation’s annual final output.

Unfortunately, all the attention on GDP is misplaced, according to Independent Institute Senior Fellow Robert Higgs, whose book Taking a Stand: Reflections on Life, Liberty, and the Economy was published last week. Writing in the Summer 2015 issue of The Independent Review, Higgs argues that GDP is a poor measure of total production and economic welfare because it is based on several dubious assumptions. Perhaps the worst problem is its inclusion of government spending and unsold government “services.” How can market prices be assigned legitimately to phenomena outside the realm of actual market transactions?

As Higgs notes, critics such as Nobel laureate economist Simon Kuznets raised this question and others when national income accounting was first debated, but they eventually moved on and let officials at the U.S. Commerce Department have their way. GDP and its variants have been with us ever since. “In any event, it is difficult to believe that this statistical measure is the sort of raw material with which a defensible science can be conducted,” Higgs writes. “As one looks upon what passes for empirical analysis in macroeconomics, the first impression that comes to mind is not the loveliness of GDP, but the ugliness of GIGO—garbage in, garbage out.”

Gross Domestic Product—an Index of Economic Welfare or a Meaningless Metric?, by Robert Higgs (The Independent Review, Summer 2015)

Taking a Stand: Reflections on Life, Liberty, and the Economy, by Robert Higgs

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2) Why Clinton and Krugman Are Wrong on Wage Policy

At a recent speech in New York City, Hillary Clinton unveiled the key economic themes of her presidential campaign, including policies she says will give a boost to lagging wage rates. In reality, Clinton’s policies would fail because they are at odds with a basic principle of economics: wages paid in a competitive marketplace are determined by the value of a worker’s contribution to the employer’s final output. In a recent column at Forbes, Independent Institute Senior Fellow John C. Goodman explain why this matters.

“A firm that pays workers more than they are worth cannot survive because it cannot match the prices and the rate of return to investors of its rivals,” Goodman writes. “A firm that pays workers less than what they are worth, cannot survive because it will not be able to retain its employees. Competition in the marketplace tends to determine wages; there is a definite logic to what people are paid; and it has nothing to do with miserliness or generosity.”

In the same piece and for the same reason, Goodman also calls out Paul Krugman, who in a recent New York Times column lauded Hillary Clinton for her call to raise the minimum wage. “There was a time when Krugman dismissed rhetoric like Clinton’s as economic quackery,” Goodman writes. “These days he’s trying to sell the same snake oil as the politicians.”

Can Everyone’s Wage Be Above Average? Krugman and Clinton Are Wrong John C. Goodman (Forbes, 7/20/15)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

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

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3) Obamacare’s Chief Legal Advocate: John Roberts

Supreme Court Chief Justice John Roberts may wish that history will remember him for exercising judicial restraint. More likely, however, he will be remembered for practicing judicial activism, thanks to the two majority decisions he wrote upholding the Affordable Care Act. In both cases, NFIB v. Sibelius and King v. Burwell, Roberts tied himself in semantic knots, arguing that President Obama’s healthcare legislation doesn’t really mean what it states in plain language—all so that the Chief Justice could give the false impression that he was putting legal principle above political partisanship.

“He claims he is leaving the issue of health care reform to the nation’s elected representatives,” writes Independent Institute Research Fellow William J. Watkins Jr. “Not true. Instead, unelected justices have picked up the legislative mantle and rewritten the ACA to make a penalty a tax and state exchanges to mean state and federal exchanges.”

The Chief Justice’s troubled legacy is therefore intertwined with Obama’s. One difference, however, is that Roberts went against principles he claimed to uphold. “Rather than being above politics,” Watkins continues, “this amounts to participating in politics to ensure an outcome desired by the president and the minority party in the Congress. This is certainly not judicial restraint, but an activism worthy of the Warren Court at the height of its power.”

John Roberts and Barack Obama: Partners in Legacy, by William J. Watkins Jr. (The Daily Caller, 7/22/15)

Obamacare: Chief Justice Roberts’s Political Dodge, by John S. Hoff (The Independent Review, Summer 2013)

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4) Prop 13: Defending Property Owners from Onerous Tax Hikes

In 1978, California voters passed Proposition 13, a ballot measure that slashed property taxes to 1975 levels and capped their annual growth to 2 percent except when a property is sold. “Prop 13” was designed to save homeowners from the ravages of inflation, which was driving up property taxes as the price of houses soared, and it succeeded. Nevertheless, some politicos have floated the idea of striking down the measure—an idea that Independent Institute Policy Fellow K. Lloyd Billingsley staunchly opposes.

One of the latest attacks comes from Nathan Gardels of the Berggruen Institute, an international group whose official mission is to foster innovation in governance. According to Billingsley, Gardels overlooks perhaps the most important reason for preserving the measure. “Proposition 13,” Billingsley writes, “prevents the state from inflicting punitive property taxes on all Californians. It is one of the few measures actually to limit the power of government.”

For this reason, it is exceptionally fitting that the official title of Proposition 13 is the People’s Initiative to Limit Property Taxation, rather than, say, the Old Retirees Fighting Inflation Initiative. In a state in which paying tribute to the taxman has come to seem almost as frequent as inhaling, Prop 13 protects homeowners—current and future—from the grasping hands of politicians and bureaucrats.

A Surge Against Proposition 13, by K. Lloyd Billingsley (Fox&Hounds, 7/22/15)

Taxation, Forced Labor, and Theft, by Edward Feser (The Independent Review, Fall 2000)

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5) New Blog Posts

From The Beacon:

Government Failure Compounds Denial in Abortion Policy
Mary Theroux (8/3/15)

FreedomFest Recap: Why Obamacare Stifles Healthcare Innovation
Lawrence J. McQuillan (8/3/15)

Ai Weiwei Goes to London
Alvaro Vargas Llosa (8/3/15)

New Evidence that Obamacare Is Working?
John R. Graham (8/3/15)

Atlas Shrugs
Randall Holcombe (8/1/15)

Tennessee’s Fracking Controversy
William Shughart (8/1/15)

Still Won’t Stand with Rand
Abigail Hall (8/1/15)

Health Spending Growth Moderate in Second Quarter (Maybe)
John R. Graham (7/31/15)

Janet Napolitano Makes History as University of California Pension Reformer
Lawrence J. McQuillan (7/30/15)

Medicaid’s Poverty Trap Illustrated
John R. Graham (7/30/15)

Remembering Alexis de Tocqueville—and Civil Society in Early America
Jonathan Matt (7/29/15)

Love Gov: “Too Real”?
Mary Theroux (7/29/15)

Patent Reform Is Not a Left Wing Thing
William Watkins (7/28/15)

From MyGovCost News & Blog:

Puerto Rico Defaults
Craig Eyermann (8/4/15)

When Government Builds a Business
Craig Eyermann (7/31/15)

Government No-Cut Contract Hurts Taxpayers
K. Lloyd Billingsley (7/30/15)

Fed Official: U.S. Should Borrow More
Craig Eyermann (7/27/15)

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

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6) Selected News Alerts

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  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org