The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 18, Issue 9: March 1, 2016

1. Donald Trump Majored in Economics?
2. The Sanders Manifesto
3. Fed Officials Put the Stock Market on the Brink
4. Diversity, Good and Bad
5. New Blog Posts
6. Selected News Alerts

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Politicians routinely make economically uneducated promises they can’t keep, but “Donald Trump is turning this illiteracy into an art form,” writes Independent Institute Senior Fellow Benjamin W. Powell. In his latest op-ed, Powell takes Trump to task for promoting myths of trade protectionism, although any number of Trump’s policy recommendations would illustrate the point equally well.

The case for bilateral free trade is familiar to readers of The Lighthouse. So is the case for the second-best alternative: unilateral free trade. Let’s not dwell on these or even on the fact that the United States is manufacturing more goods today than ever before in its history. Instead, let’s note what it would take for U.S. companies to make their products entirely in the United States.

Consider the Boeing 787 jet airliner, a product sometimes touted as “Made in America.” It undergoes final assembly in Everett, Washington, but many of its components are made overseas. “The fuselage is made in Italy, the engines in the United Kingdom, passenger doors in France and the cargo doors in Sweden,” Powell writes. “Furthermore, the landing gear doors come from Canada and the wing tips are made in South Korea.” Trade restrictions designed to bring all that manufacturing to the United States, while maintaining high quality and low costs, would be destined to crash—and, economically or literally, perhaps taking down hapless airline passengers with it. Before air travelers ask for a refund (or their families launch a class-action lawsuit), perhaps Wharton should demand that Trump return his diploma—by air mail.

Trump’s Trade Claims Are Ignorant, by Benjamin W. Powell (Philadelphia Inquirer, 2/29/16)

The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy, edited by Benjamin W. Powell

Keep the Immigrants, Dump Trump’s Immigration Policies, by Abigail R. Hall Blanco (The Beacon, 2/24/16)

Populist Fascism and the Politics of Class Resentment, by Robert Higgs (The Beacon, 2/28/16)

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Bernie Sanders holds up Denmark as a model of what the United States could look like if he were elected to the Oval Office. The Denmark he describes, however, is a fairy tale, according to Independent Institute Senior Fellow John C. Goodman. The real Denmark doesn’t demonize the rich or penalize them with sky-high taxes, although it does impose a high tax on its middle class. And Denmark’s top estate tax rate is only 15 percent, compared to 40 percent in the United States.

Sanders also gets things wrong when it comes to ideological labels, Goodman argues. The Vermont senator calls himself a social democrat, but by northern European standards he’s further to the left. He views wealth as theft, he loathes competition, and he denounces the profit motive. “Social democrats in northern Europe have a different view,” Goodman writes. “One reason Denmark is so successful economically, despite its high taxes, is that it freely endorses deregulation, privatization, and letting markets do what only they can do well—allocate resources.”

Sanders-type sloganeering does, however, have a home where the reality matches the rhetoric. The worst include Venezuela under Chavez and Maduro, Cuba under Castro’s dictatorial thumb, North Korea under the mad clan that has oppressed Koreans for decades, China under Mao, and Stalin’s Soviet Union. Sanders’s rhetoric also has a home in the hearts of others who profess “barnyard Marxism,” as Goodman calls it. “Although she is not nearly as bad,” he writes, “Sanders has managed to pull Hillary Clinton in the direction of this same worldview.”

Bernie Sanders Is Not a Social Democrat; He’s a Marxist, by John C. Goodman (TownHall.com, 2/13/16)

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

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

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The Federal Reserve is caught between a rock and a hard place. Fed Chair Janet Yellen and her colleagues on the Federal Open Market Committee may wish to raise interest rates, but doing so runs the risk of slamming the stock market. In fact, when the market began to tank in early January, this was likely due to the Fed’s boosting the federal funds rate in late December—its first increase in years. The Fed’s predicament is one of its own making, according to Independent Institute Research Fellow Robert P. Murphy.

“Since early 2009, whenever the monetary base expanded (because of another round of ‘quantitative easing,’ or QE) the stock market surged, and whenever things leveled off, the markets began to turn around,” Murphy writes in an op-ed for The Hill. “Since the Fed’s rate hike in December, the Fed has reduced the monetary base by (temporarily) sucking reserves out of the system through ‘reverse repo’ operations.” The nation’s central bank has also raised the rate it pays commercial banks on their reserves.

But one need not delve into technical details to grasp the simple truth. Writes Murphy: “The Federal Reserve is trying to micromanage the economy, adding ‘stimulus’ here and raising rates there, in order to get it juuuust right and spur growth without causing too much price inflation. But Austrian-school economists teach us that this enterprise is foolhardy. The source of the boom-bust cycle is precisely this tinkering and planning by the central bankers.”

The Fed and the Stock Market, by Robert P. Murphy (The Hill, 2/22/16)

Choice: Cooperation, Enterprise, and Human Action, by Robert P. Murphy

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“Diversity”—a leading buzzword in college admissions offices and human resource departments—means different things to different people. When it means including those who see things differently to help make decisions, the results can benefit all. But when it means favoring members of some groups at the expense of others, it can be a source of tension, rather than a solution to social ills.

“Addressing diversity by imposing special treatment for some at others’ expense generates divisiveness and conflict rather than cooperation and mutual benefits,” writes Independent Institute Research Fellow Gary M. Galles.

Unfortunately, the distinction between these two views of diversity is often blurred. “Given how often the argument for diversity requirements is based on some past violation of some group’s rights, one would think this distinction would be stressed rather than overlooked.”

Bad Diversity versus Good Diversity, by Gary M. Galles (Orange County Register, 2/12/16)

How Diversity Policies Harm Women, by Abigail R. Hall Blanco (The Daily Caller, 7/15/15)

Book review: Will C. Heath reviews The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies, by Scott E. Page (The Independent Review, Summer 2008)

The Diversity Myth: Multiculturalism and Political Intolerance on Campus, by David O. Sacks and Peter A. Thiel

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6) Selected News Alerts

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