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The Lighthouse


The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 38: September 19, 2017

  1. Bad Policies Make Hurricane Disasters Worse
  2. Constitution Day Blues
  3. How to Take Down Venezuela’s Dictatorship
  4. The Russian Revolution and Its Legacy
  5. Independent Updates


1) Bad Policies Make Hurricane Disasters Worse

Natural disasters, it’s often said, bring out the best in people. Unfortunately, the very same people who act as Good Samaritans during times of crisis often advocate government policies that unintentionally make such disasters worse. In the case of Hurricanes Harvey and Irma, the counterproductive policies include National Flood Insurance and laws against “price gouging.”

Most people intuitively grasp that lowering the cost of certain behaviors encourages more of it—a phenomenon called “moral hazard”—but they often fail to grasp the scope and power of such inducements. National Flood Insurance, which subsidizes flood insurance premiums, has had a profoundly undesirable effect: it has encouraged construction in flood-prone Houston, whose population has increased 23 percent since the massive flooding caused by tropical storm Allison in 2001. “Congress should get rid of [National Flood Insurance],” write Independent Institute Senior Fellow Benjamin Powell and Berry College economist Phillip Magness in an op-ed at CNBC.com. “It encourages bad choices, which produce bad results.”

Laws against so-called price gouging are another well-meaning disaster policy with disastrous consequences. A price is a signal wrapped up in an incentive (as one economics textbook eloquently put it). Thus, when Florida’s attorney general Pam Bondi announced that sellers who hiked prices of useful goods during Irma would face a fine of $1,000 per violation, she was disrupting the signals and incentives that would have communicated the relative importance and scarcity of those goods, encouraged their conservation, and helped bring forth additional supplies. In other words, she encouraged shortages. “Keeping prices low is pointless if there’s nothing left to buy,” write Independent Institute Research Fellow Abigail R. Hall and University of Tampa economist Michael Coon in an op-ed in Florida’s Sun-Sentinel. Such price controls, they conclude, “harm the very people they are intended to help.”

Here’s the Best Way to Limit the Risk of ‘Widespread’ Hurricane Damage, by Benjamin Powell and Phillip W. Magness (CNBC.com, 9/11/17)

Anti Price Gouging Laws Don’t Benefit Consumers, by Abigail R. Hall and Michael Coon (Sun-Sentinel, 9/7/17)

Watery Marauders: How the Federal Government Obstructed the Development of Private Flood Insurance, by Eli Lehrer (10/19/09)

Risky Business: Insurance Markets and Regulation, edited by Lawrence S. Powell

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2) Constitution Day Blues

If Constitution Day—September 17—passed by with little fanfare, the reason may be that the nation’s 230-year-old charter is having too many “senior moments” for people to feel at ease with it. Has it lost its youthful vigor? Consider some evidence: Presidents and Congress have long claimed powers not enumerated in the U.S. Constitution; the Supreme Court, which is supposed to curb government overreach, routinely settles issues formerly considered the realm of state courts; and the national debt—another health indicator of the checks and balances that were meant to ensure federal restraint and accountability—just broke $20 trillion.

If the Constitution’s precarious state has got you down, you may wish to consider raising a toast to its forerunner, the Articles of Confederation. That document was truer to the spirit of 1776, argues Independent Institute Research Fellow William J. Watkins Jr., in a piece for The Beacon (hear his new podcast interview here and see his April talk about how to bridge today’s political divide here). Under the Articles of Confederation, the states practiced radical self-rule; except in the realm of foreign policy, which was reserved for the national government, the states were sovereign. Congress could act on individuals only via the states. Congress under the Articles also had strict term limits, and it faced a supermajority requirement to borrow money. State courts were the final authority on all conflicts between individuals.

“Of course, the Articles were not perfect,” writes Watkins, who would have favored modest revisions to enable the Articles of Confederation to continue serving the people. Nevertheless, Americans who examine it will find much to celebrate. “In it,” he concludes, “they will find a plan of government that makes liberty the primary object of government and power serving as a mere satellite.”

National Idolatry and Constitution Day, by William J. Watkins Jr. (The Beacon, 9/17/17)

Crossroads of Liberty: Recovering the Anti-Federalist Values of America’s First Constitution, by William J. Watkins Jr.

Video: How Can We Build New Bridges to Liberty?, featuring William J. Watkins Jr. (4/5/17)

Audio: Watkins discusses Crossroads to Liberty on the Free Thoughts podcast, with Trevor Burrus and Aaron Powell (Libertarianism.org, 9/15/17)

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3) How to Take Down Venezuela’s Dictatorship

President Donald Trump has tough words for Hugo Chavez’s successor, Venezuelan president Nicolás Maduro, whose increasingly dictatorial regime has hijacked its institutions, imprisoned dissenters, and killed protesters while its economy has imploded from disastrous socialist policies: U.S. military intervention, Trump announced last month, is an option. Independent Institute Senior Fellow Alvaro Vargas Llosa, however, has a much different perspective: “The threat of military action only helps [Maduro’s] Chavista dictatorship and risks debilitating the wide-ranging anti-Chavista political front that has lately emerged in Latin America,” he writes in The National Interest.

Although U.S. military action would be counterproductive, private efforts could succeed in undermining Maduro. Here’s how to do it, according to Vargas Llosa. American businesses should boycott Venezuela’s state-owned enterprises, such as the oil and chemical company Citgo. Victims of uncompensated seizures of private assets should consider using American courts to go after Citgo’s bank accounts and possessions. In addition, American business should refuse to purchase Venezuelan government debt. The model to follow here is Credit Suisse, which prohibited trading in two of the nation’s bonds, rather than Goldman Sachs, which bought $2.8 billion worth last May.

“Anything that can be done by other countries at the civil-society level to help accelerate this will be welcomed by Latin Americans,” Vargas Llosa writes. “But the kind of talk recently coming out of Washington merely makes life more difficult for the opposition.”

Trump Should Go to War with Venezuela’s Coffers, Not Its Military, by Alvaro Vargas Llosa (The National Interest, 9/6/17)

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

Venezuelans Worldwide Vote Against Maduro’s Power Grab, by Gabriel Gasave and Carl P. Close (The Daily Caller, 8/1/17)

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4) The Russian Revolution and Its Legacy

This year marks the 100th anniversary of the Russian Revolution. The fall issue of The Independent Review explores the turmoil of 1917 and its consequences, from the mass murder it inspired to the economic and social devastation of Soviet communism, to the weaponization of sports in the battle for world influence. Robert Whaples introduces the symposium and offers a pithy observation: horrendous things occur when amoral leaders seize power and treat people as pawns to sacrifice for their masters’ ideologies.

Next, Paul R. Gregory explains that, contrary to the Marxist-Leninist dogma of historical determinism, the Bolshevik Party’s victory resulted from a series of coincidences and accidents that could have been otherwise. Although they crushed or co-opted the Russian anarchists, this was not for reasons inherent in anarchist theory, explains Peter C. Mentzel. Yuri N. Maltsev, who hails from Russia, explains that the Soviets targeted people of faith for ideological reasons, shooting or imprisoning almost all clergy and millions of believers of all religions and denominations by the beginning of the Second World War.

Along with its political tyranny, Soviet history is a record of economic deprivation, although western analysts failed to see this for decades, owing to the ideological and methodological blinders they wore, explains Peter Boettke. The Russian economy before and after the Soviet era was average by world standards, but the nation’s vast size enabled per capita output to rise back up to the world average following the Soviet collapse, explains Mark Harrison. Russia’s peasant classes after the Bolshevik takeover were more terrified by the Soviet Union’s forced urbanization and industrialization than by any horrors carried out by Lenin and Stalin, explains Jerry F. Hough. Dennis Coates closes the symposium with a fascinating article about the Soviet Union’s use of sports as a tool for international propaganda. As they say, one Marxist’s internal contradictions are another’s steroid-enabled gold medals.

The Independent Review: A Journal of Political Economy (Fall 2017)

Subscribe now and select your free book!

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5) Independent Updates

The Beacon: New Blog Posts

MyGovCost: New Blog Posts

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