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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 18, Issue 19: May 10, 2016

  1. F. A. Hayek versus Bureaucrats’ Conceit
  2. California’s Minimum-Wage Hike: Folly or Flim-flam?
  3. NSA Gives Spy Data to Local Police
  4. Two Education Ideas Worth Spreading
  5. New Blog Posts
  6. Selected News Alerts



1) F. A. Hayek versus Bureaucrats’ Conceit

The economist F. A. Hayek (1899–1992) was one of the most productive social scientists of the 20th century, making important contributions in business cycle theory, comparative economic systems, political philosophy, philosophy of science, and much more. His work remains relevant in the 21st century. Hayek was born in Vienna, 117 years ago on May 8, and Independent Institute Research Fellow Robert P. Murphy, author of a recent book about the work of Hayek’s greatest teacher, marked the occasion with an op-ed about the Austrian School economist.

“Perhaps the major theme running throughout Hayek’s career in formal economics concerned knowledge,” Murphy writes. Hayek’s insights about knowledge allowed him to reconceive the central task of economics, deepened our understanding about the role of prices in a market economy, and helped explain why socialist economies break down, despite the efforts of central planners. These contributions “built upon those of his mentor, Ludwig von Mises,” Murphy writes. “In the same way, Hayek’s work on business cycle theory—which was a major factor in his Nobel award [in 1974]—also elaborated the Misesian framework.”

Recessions and depressions, Hayek explained, result from unviable investments made during an unsustainable economic boom period—typically brought about by lax monetary policies of a central bank. “Coupled with his understanding of how market prices mobilize dispersed knowledge and guide production,” Murphy writes, “Hayek showed that artificially low interest rates could cause resources to flow into the wrong sectors.” The Hayek-Mises business cycle theory helps explain the Great Recession and the housing bubble that preceded it. It also invites us to ask: Is the Federal Reserve’s current low-interest-rate policy setting the stage for another economic bust? If so, it likely won’t be the last time that billions of dollars in private wealth are wiped out by misguided central planners.

What One Economist Knew, by Robert P. Murphy (American Thinker, 5/8/16)

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

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2) California’s Minimum-Wage Hike: Folly or Flim-flam?

California Gov. Jerry Brown’s signature on a new minimum wage law, which raises hourly rates from $10 to $15 by 2022, is destined to hurt low-skilled people at the periphery of the labor market. Employers have ways to deal with the new mandate. They can cut back on their employees’ hours, they can reduce their hiring, and some can automate, like stores with self-service scanners or restaurants with electronic kiosks. This is basic economics, not rocket science.

“While the magnitude of the effects may be disputed, virtually all credible studies show that increases in the minimum wage reduce the amount of work private employers are willing to offer, the total compensation workers receive, or both,” writes Independent Institute Research Director William F. Shughart II.

It’s hard to avoid attributing dark motives to labor leaders who led the push for the new wage law. The union-backed Labor Center at UC Berkeley published what Shughart calls a “strategically timed study” that assumes away any reductions in jobs or work hours caused by the minimum wage hike. Rather than the unintended consequences of wishful thinking, the inevitable employment disruptions look like a different kind of problem: collateral damage inflicted by special interests who are adept at public relations and backroom deal making, and willing to sacrifice those who would otherwise begin a heroic economic climb from the lowest rungs of the labor ladder.

California’s Dream World, by William F. Shughart, II (The Beacon, 5/4/16)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, by William F. Shughart II

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3) NSA Gives Spy Data to Local Police

The U.S. government’s big eye in the sky (or in cyberspace or at your phone company, or wherever its high-tech surveillance gadgets operate) isn’t used only to safeguard Americans from hostile nations or foreign terrorists. According to the Washington Post, the National Security Agency has been sharing its intelligence with state and local law enforcement. This news is yet another data point supporting the theory that the policies, methods, and tools the U.S. government has designed for use overseas against foreign targets often get repurposed for use in the United States against ordinary Americans, according to Independent Institute Research Fellow Abigail R. Hall Blanco.

“The NSA is a prime example of what can happen when the U.S. or other governments engage in foreign intervention,” Hall Blanco writes in The Beacon. “In one of our recent papers, my coauthor and I discuss the origins of national surveillance specifically. Looking at examples as far back as the Philippine-American War in the late 1800s, we find that tools developed initially to protect the supposed interests of U.S. citizens came to be used to transgress against the very people they were supposed to protect.”

Had Americans understood the Boomerang Theory of foreign intervention three years ago, Edward Snowden’s revelations of warrantless domestic surveillance programs would have come as less of a surprise. Unfortunately, although the theory may be gaining traction, it’s one thing to understand a problem and quite another for politicians to fix it.

NSA Spying: Another Foreign Intervention Come Home, by Abigail R. Hall Blanco (The Beacon, 5/6/16)

Perfecting Tyranny: Foreign Intervention as Experimentation in State Control, by Christopher J. Coyne and Abigail R. Hall (The Independent Review, Fall 2014)

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4) Two Education Ideas Worth Spreading

Schools are incubators for fads—and not just for children’s ever-changing tastes in music, fashion, or gizmos. Parents who’ve put two or more children through public schools have likely seen a few educational fads in the classroom—the two latest being Common Core and psychometric testing. Unlike these gimmicks, however, two genuine innovations, which are likely to improve a child’s academic success, are spreading in some parts of the country. In her latest piece, Independent Institute Research Fellow Vicki E. Alger, whose long-awaited book on the failures of the U.S. Department of Education comes out next month, discusses these innovations: tax-credit scholarships and educational savings accounts.

Tax-credit scholarships, Alger writes, give donors a state tax-credit for helping to fund non-profit scholarship organizations that provide financial assistance for children to attend private schools. Today, a quarter of a million students in 16 states benefit from such programs. The other bright spot on the educational landscape, the Educational Savings Account (ESA), has been adopted in fewer states than have tax-credit scholarships, but that could change quickly.

How do they work? ESAs are savings vehicles that parents can open for their child if they’ve removed him or her from a public school. The accounts receive the sum the government would have spent on the child’s schooling. (Some states skim off up to 10 percent to cover their program’s “overhead” and such.) Parents get a dedicated ESA debit card to pay for things like private school, online courses, home-schooling materials, special-education fees, and the like. Unspent money can be used for college. Here’s the best news: Arizona parents whose children have ESAs have reported 100 percent satisfaction, and more states are now considering enacting such programs.

The Latest Innovation in Education: Empowering Parents, by Vicki E. Alger (The Beacon, 5/8/16)

Failure: The Federal Misedukation of America’s Children, by Vicki E. Alger

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Wasteful Federal CFPB Will Hurt Consumers
K. Lloyd Billingsley (05/09/16)

Bailing Out the Wrong People
Craig Eyermann (05/07/16)

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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