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The Lighthouse


The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 18: May 2, 2017

  1. Federal Shutdown Theater
  2. Waiting for Tax Reform
  3. Respecting Markets Means Honoring Each Other
  4. Venezuela at the Crossroads
  5. Independent Updates


1) Federal Shutdown Theater

On Friday, Congress passed a short-term continuing resolution, good through May 5, that prevents a shutdown of the U.S. government that would have ensued owing to the expiration of a previous continuing resolution. On Sunday night, the lawmakers passed a $1 trillion government-funding bill that will delay a potential “shutdown” even further—until September. These mini-dramas persist in large part because of claims that disaster would occur if federal funding stalled. If politicians weren’t politicians, however, they might see that federal shutdowns have been mild affairs—far less consequential than the spending measures that have helped push the national debt to nearly $20 trillion.

Since 1976, the federal government has been shut down 18 times, but the consequences were far from catastrophic, according to Independent Institute Research Fellow Craig Eyermann. As he explains in an op-ed for the Daily Caller, when the last one occurred, in 2013, 20 percent of the federal workforce stayed home, but Social Security checks still went out. True, the national park system was closed (and park volunteers were turned away) and approval for federally subsidized mortgages came to a stop. But the stock market went up, and economic growth registered impressive gains. One-fifth of federal employees were hardly missed.

It doesn’t take much imagination to ask: If these bureaucrats have such little impact, might we discover that other federal workers and spending are worth cutting out? “After all,” Eyermann writes, “if we can have twenty percent of the federal government shut down and nobody is more than mildly inconvenienced, perhaps we can all do with at least that much less federal government across the board. That’s certainly something we can learn from having experienced so many previous episodes of Federal Government Shutdown Theater.”

Another Farce of Government-Shutdown Theater, by Craig Eyermann (The Daily Caller, 4/28/17)

Love Gov: From First Date to Mandate– Award-winning video series from Independent Institute

Liquidating Federal Assets: A Promising Tool for Ending the U.S. Debt Crisis, by William F. Shughart II and Carl P. Close (Revised 4/12/17)

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2) Waiting for Tax Reform

The White House last week released its long-awaited tax-reform proposal—its one-page version. The Lighthouse will have more to say about this as it’s fleshed out and debated in the weeks ahead. For now we will offer two very different assessments. Before we do, however, it’s worth noting a couple points. First, tax reform—any tax reform—will create winners and losers. The political battle over tax reform is therefore bound to be ferocious. Second, other things being equal, those who have much to lose under tax reform may fight more effectively than those who would stand to gain much, owing to a bias toward loss-aversion compared to gain-seeking. In other words, the odds are good that any tax-reform legislation that lands on the president’s desk will be much less ambitious than the proposal just offered by Team Trump.

On to the (preliminary) assessments. Independent Institute Research Fellow Randall Holcombe argues in The Beacon that Trump’s tax plan is, in general, a move in the right direction. Its reduction of the corporate income-tax rate, from 35 percent to 15 percent, would, he believes, help keep U.S.-based corporations from moving abroad (through so-called inversions) and encourage them to keep more of their revenues in the United States. Also, personal income tax rates would fall and the standard deduction would double—a gain for taxpayers. Tax deductions for charitable contributions and mortgage interest would stay—Holcombe argues in a separate Beacon post that this is an unfair concession to homeowners and the real-estate lobby. The estate tax would die. All of this adds up to a big plus, in Holcombe’s eyes. “If it’s a choice between the current tax code and one that implements these recommended changes, we’d be better off taking Trump’s tax package,” Holcombe writes.

In contrast, Independent Institute Policy Fellow K. Lloyd Billingsley sees not light but darkness—the darkness from a window of opportunity closing shut. The Trump plan doesn’t offer a flat tax. It keeps the tax code’s progressivity, he notes at MyGovCost News & Blog. President Trump himself offers no moral challenge to progressive taxation. Nor does he voice an objection to tax withholding. And despite calls from congressional allies, Trump hasn’t replaced IRS chief John Koskinen—who, it turns out, had helped engineer one of Trump’s first big real-estate deals. “This kind of cronyism is typical of Washington,” Billingsley writes. “Like other presidents, Donald Trump talks a good game on reform, but he’s essentially an establishment man. His tax plan tinkers with a ponderous code, and the president is content to leave basic injustices in place.”

Trump’s Tax Plan: A Move in the Right Direction, by Randall Holcombe (The Beacon, 4/27/17)

Interest Groups and Tax Reform, by Randall Holcombe (The Beacon, 5/1/17)

Trump Tax Plan Ignores Basic Injustice, by K. Lloyd Billingsley (MyGovNews & Blog, 4/27/17)

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

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3) Respecting Markets Means Honoring Each Other

The market system—voluntary exchange, free-market prices, private property rights—is robust and self-correcting. Its public image, however, is fragile. Markets coordinate and harmonize a practically countless number of economic plans held by anyone who buys, sells, hires, works, or invests. But markets often get no respect. Markets have been deemed “exploitative,” “monopolistic,” “cutthroat,” “alienating”—the critics don’t lack creativity in offering complaints. Their lack of creativity is revealed in their list of remedies, which is typically limited to one overarching approach: government intervention. Independent Institute Research Fellow Gary M. Galles examines the disconnect between what free markets do and what advocates of government intervention say they do.

The complaints are far more applicable to government actions and their consequences, Galles explains in an op-ed for Investor’s Business Daily. Are markets “dog-eat-dog”? On the contrary. “Given that real incomes and the sustainable population of the earth both accelerated only after the idea of respecting individuals’ property rights and the Industrial Revolution began to take hold, such views are preposterous,” he writes.

Markets are a positive-sum game, which makes intuitive sense, given that market interactions are voluntary. Government intervention, in contrast, represents not cooperation but coercion. “It is the most powerful and pervasive violator of our rights, not a source of utopian solutions to problems of social cooperation,” Galles continues. “Indeed, other things aren’t equal when government actions displace voluntary ones—they are far worse.”

Disparaging Free Markets—Despite Their Superior Results, by Gary M. Galles (Investor’s Business Daily, 4/19/17)

Democracy for Realists: Why Elections Do Not Produce Responsive Government, by Christopher H. Achen and Larry M. Bartels. Reviewed by Tim Cox (The Independent Review, Spring 2017)

Beyond Politics: The Roots of Government Failure, by Randy T Simmons

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4) Venezuela at the Crossroads

Venezuela, whose government is among the worst violators of markets (certainly in the Western Hemisphere), is in shambles. No friend of economic liberties, its president, Nicolás Maduro, is also no friend of civil liberties, explains Independent Institute Senior Fellow Alvaro Vargas Llosa.

Here’s the short version. Maduro’s Supreme Court sycophants tried to take over the opposition-led legislature. The effort has backfired: Protestors have taken to the streets, making their anger with the president crystal clear. Maduro’s anger is also plainly visible: His efforts to quash the demonstrators have been brutal. Whether liberty will ultimately prevail depends on whether Maduro’s adversaries remain unified.

Vargas Llosa writes: “Some polls indicated the people were losing faith in the opposition altogether (not surprising, given that three-quarters of them are telling pollsters they want Maduro to go). The government’s faux pas, however, has accelerated the healing process and the opposition is re-united in the streets, shoulder to shoulder with Venezuelans desperate to force Maduro’s fall. We don’t know if they will succeed. But what they are seeking is the only solution to a crisis that has lasted too long.”

Fate of Venezuela Hinges on Unity of Opposition, by Alvaro Vargas Llosa (Las Vegas Sun, 4/26/17)

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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5) Independent Updates

The Beacon: New Blog Posts
MyGovCost: New Blog Posts
Featured Video
News Alert

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