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The Lighthouse

The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 51: December 12, 2017

  1. Pope Francis versus the Invisible Hand
  2. The Forthcoming Tax Overhaul—Sort Of
  3. U.S. Lags Ten Countries in Economic Freedom
  4. The War on Terror Continues
  5. Independent Updates


1) Pope Francis versus the Invisible Hand

Pope Francis recently advised global finance students in Lyon, France, to avoid “blindly obeying the invisible hand of the market,” urging them instead to promote and defend “growth in equality,” i.e., the social and economic betterment of the world’s most impoverished. Granted, no form of deference should be “blind.” Apart from that, however, the pope errs in framing the issue as one of free markets versus the poor. So argues Independent Institute Research Fellow Robert P. Murphy, in a recent piece at National Review.

Pope Francis “seems to be urging those entering the financial sector to ignore market signals and personal gain in order to better help the poor and downtrodden,” Murphy writes. “Yet Adam Smith’s point was that people who are pursuing personal gain—as long as their activity relies on exchanges that are consensual among all participants—end up unwittingly promoting the welfare of others.”

In a free market, Murphy argues, billionaires become billionaires only by giving the masses what they want or need. They can do this only by relying on market signals—leading indicators of future profits and losses—under conditions of voluntary exchange. Profits are not something to worship, Murphy agrees, but they are invaluable tools for helping to measure the degree to which businesses and entrepreneurs contribute to others’ well-being.

Pope Francis’s Bad Advice on Free Markets, by Robert P. Murphy (National Review, 12/8/17)

Pope Francis and the Caring Society, edited by Robert M. Whaples, foreword by Michael Novak

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2) The Forthcoming Tax Overhaul—Sort Of

The Senate and House are still ironing out their differences, but the basic contours of the largest federal tax reform since 1986 are clear. For individuals, tax reform “looks like some tinkering . . . not a major reform,” writes Independent Institute Research Fellow Randall Holcombe in The Beacon. “Rates will not change much, and the reform package will benefit some taxpayers and harm others.”

The biggest change to the individual tax code involves a major hike in the standard deduction, which will cause fewer taxpayers to itemize and makes it politically easier for Congress to eliminate itemized deductions. The real action, however, involves reforms to the corporate income tax.

To set the context, business investment has been flowing overseas for years. Cutting the tax rate on corporate income to 20 percent from 35 percent, along with other provisions to encourage domestic investment, should help reverse that trend. But these are only steps in the right direction; they won’t take us all the way to corporate-tax Nirvana. As Independent Institute Senior Fellow William F. Shughart II explains, “Because corporate income taxes are shifted to their owners, employees, suppliers and customers, one can make a principled argument for an income tax rate of zero for corporations.”

Tax Tinkering, by Randall Holcombe (The Beacon, 12/4/17)

Fundamental Principles of Income Tax Reform, by William Shughart (The Beacon, 12/7/17)

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3) U.S. Lags Ten Countries in Economic Freedom

The United States of America, formerly ranked #2 in the Fraser Institute’s annual Economic Freedom of the World Report, now finds itself in eleventh place in a field of 159 countries. This finding should alarm U.S. policymakers, explain Independent Institute Senior Fellow Lawrence J. McQuillan and Policy Researcher Lauren Tcheau, in an op-ed for Investor’s Business Daily.

The study looks at 42 indicators that fit under five broad categories: taxation and spending, property rights, sound money, international trade, and regulation. The top four counties—Hong Kong, Singapore, New Zealand, and Switzerland—“outperform or match the U.S. in 83% of the categories used to measure freedom in trade, open capital markets, and access to sound money,” McQuillan and Tcheau write.

Interestingly, the report finds that economic insecurity does not drive anti-immigrant, nativist populism. “Rather, anti-immigrant sentiment is primarily driven by high levels of social welfare spending and taxes, which reduce economic freedom and sets groups against each other,” McQuillan and Tcheau continue. “Conjuring scapegoats will not solve the underlying policy problems that make the U.S. less competitive. Indeed, new barriers to commerce will only make America poorer again.”

What America Can Learn from Hong Kong, and Even Mauritius, by Lawrence J. McQuillan and Lauren Tcheau (Investor’s Business Daily, 12/1/17)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell

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4) The War on Terror Continues

North Korea is guilty of many crimes, but whether it has committed international terrorism depends on the definition of ‘terrorism.’ On the one hand, Kim Jong-un’s missile threats have alarmed millions within striking range. On the other hand, Pyongyang hasn’t committed the textbook book version of terrorism—mass slaughter of foreign civilians for political leverage—since 1987, when the North Korean government ordered the bombing of a South Korean airliner. In his latest piece for the Huffington Post, Independent Institute Senior Fellow Ivan Eland discusses the significance of this and related developments.

Just as Barack Obama expanded George W. Bush’s “illegal and unending wars on terrorism in the developing world,” President Trump has granted authorization for even more government attacks on evil-doers across the globe, according to Eland. Trump’s declaration of North Korea as a terrorist state is part of an overall pattern. The White House has also, for example, stepped up the battle against Islamist militants in Somalia and Afghanistan—now targeting drug labs that fund Taliban insurgents in the latter country.

Unfortunately, much of the Trump administration’s counterterrorism policy is likely for naught. “The war on terror failed long ago during the George W. Bush administration,” Eland writes. “Expanding it both on paper and in the field may look tough, but it’s just doubling down on a dubiously counterproductive policy.”

The Ever-Expanding War on Terror, by Ivan Eland (Huffington Post, 11/28/17)

Eleven Presidents: Promises vs. Results in Achieving Limited Government, by Ivan Eland

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5) Independent Updates

The Beacon: New Blog Posts

MyGovCost: New Blog Posts

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