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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 13, Issue 19: April 19, 2011

  1. Tax Day: Retrospect and Prospect
  2. The 150th Anniversary of the Outbreak of the U.S. Civil War
  3. The Fed as the U.S. Economy’s New Central Planner
  4. Peru’s Election Results Look Discouraging
  5. New Blog Posts

1) Tax Day: Retrospect and Prospect

What will federal spending cost you from now until the day you die? The Government Cost Calculator at MyGovCost.org was created to answer that question. The Independent Institute’s Emily C. Skarbek, director of the project, notes in a new op-ed for the Philadelphia Inquirer, that if you’re 37 years old, have a college degree, and earn $45,565 annually, then you’ll owe more than $420,000 in federal taxes (assuming current tax rates and a lifespan of 80 years). “If invested over the next 43 years, that money could be worth much more than $1 million,” she writes. (Writing at Forbes.com, Independent Institute Research Fellow Art Carden goes beyond the question of whether taxes are too high: he asks readers to consider alternatives to coercive taxation itself.)

Are taxes high enough to usher in a successful movement for meaningful reform? The jury is still out, but history offers a fascinating example. During the Great Depression as unemployment soared and property values plummeted, taxes practically doubled—from 1929 to 1932 they rose to 21.1 percent of national income. One result was the blossoming of more than 3,000 tax-protest groups across the United States, as Independent Institute Research Fellow David T. Beito explains in a new op-ed for the Wall Street Journal.

The tax protests led to reform—sort of. By the middle of the 1930s, the tax groups “achieved property tax relief, mainly due to the imposition of new post-Prohibition ‘sin’ taxes, mostly on alcohol. But relief was only short term.... Progressive ‘good government’ reformers brilliantly found ways to channel lingering tax-revolt sentiment into relatively harmless proposals to make government more ‘efficient’ rather than cutting it down.” That may be a lesson today’s Tea Party should keep in mind.

“The Forgotten Tax Revolt of the 1930s,” by David T. Beito (Wall Street Journal, 4/15/11)

“Grasping Budget’s Billions and Trillions,” by Emily C. Skarbek (Philadelphia Inquirer, 4/14/11)

“No Taxation,” by Art Carden (Forbes.com, 4/14/11)

MyGovCost.org

The Voluntary City, edited by David T. Beito, Peter Gordon, and Alexander T. Tabarrok

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2) The 150th Anniversary of the Outbreak of the U.S. Civil War

April 12 marked the 150th anniversary of the outbreak of the American Civil War, when Confederates fired on U.S. troops holding Fort Sumter, in the Charleston, South Carolina, harbor. Although people routinely succumb to the temptation to reduce the cause of the war to a single factor (e.g., to the slavery issue or to “states’ rights”), the cause was more complex. Independent Institute Research Fellow Joseph R. Stromberg discusses one causal factor that often gets short shrift in public discourse (although he cites many historians who support his analysis): interest groups with material, rather than ideological, stakes in promoting the war.

Antislavery, Stromberg writes, “was one of many themes generally serving as the stalking horse for more practical causes.” The Republican Party Platform of 1860, for example, focused less on antislavery grievances than on proposals designed to benefit northeastern financial and manufacturing interests and Midwestern and western farmers—policies that would have become harder to implement if southern states were allowed to secede. Lest he overgeneralize, Stromberg hastens to add that northern trading and manufacturing interests that bought from the suppliers of southern cotton—“the petroleum of the mid-nineteenth century,” as he puts it—were aware that they would face severe disruptions if war broke out.

In a post on The Beacon, Independent Institute Research Editor Anthony Gregory argues that April 12, 1861, also marks the date of the federal government’s repudiation of the Founders’ vision of the American republic and the birth of Big Government. “The war ushered in federal conscription, income taxes, new departments and agencies, and the final victory of the Hamiltonians over the Jeffersonians.... Slavery could have been ended peacefully, to be sure, but ending slavery was not Lincoln’s motivation in waging the war—throughout which this purely evil institution was protected by the federal government in the Union states that practiced it, and during which slaves liberated from captivity by U.S. generals were sent back to their Southern ‘masters.’”

“Civil War and the American Political Economy,” by Joseph R. Stromberg (The Freeman, April 2011)

“The Regime’s 150th Birthday,” by Anthony Gregory (The Beacon, 4/12/11)

“The Real Abraham Lincoln: A Debate,” an Independent Policy Forum featuring Harry V. Jaffa and Thomas J. DiLorenzo (5/7/02)

“The Civil War: Liberty and American Leviathan,” an Independent Policy Forum featuring Henry E. Mayer and Jeffrey Rogers Hummel (11/14/99)

"The Bloody Hinge of American History," by Robert Higgs (Liberty, May 1997)

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3) The Fed as the U.S. Economy’s New Central Planner

The Federal Reserve emerged from the financial crisis of 2007–2009 with new powers to allocate credit to specific firms, including non-bank institutions. This development in effect makes the central bank the U.S. economy’s central planner. But why did Fed Chairman Ben Bernanke lobby for the new lending powers, rather than rely on the Fed’s traditional tools? The answer goes back to his idiosyncratic views about the Great Depression, argues Jeffrey Rogers Hummel in the lead article in the Spring 2011 issue of The Independent Review.

Bernanke agrees with the late Milton Friedman that the Fed is largely to blame for the bank failures that led to the Depression, but he disagrees about the causal mechanism—and thus about the proper course for the Fed to have followed. Friedman, for example, believed the Fed could have prevented the contraction of the early 1930s by injecting enough money and credit into the banking system to keep the level of total spending in the economy (and the level of prices) unchanged, even if some important banks might still have failed. Bernanke, in contrast, has suggested that this course of action would not have sufficed: in addition to maintaining total spending, he thinks the Fed also should have kept credit flowing to the borrowers of important banks, even if those banks needed targeted bailouts to stay afloat.

Thus, the Fed’s new powers reflect the importance that Bernanke places on preserving existing channels of credit when key banks (and non-bank credit providers) face severe strain. According to Hummel, however, the Fed’s success in handling three potential financial crises since the late 1980s undermines the case for Bernanke’s brand of activism: the stock-market crash of October 1987, the public’s worries about Y2K, and the terrorist attacks of September 11, 2001. The Fed met each challenge without the use of targeted bailouts.

“Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner,” by Jeffrey Rogers Hummel (The Independent Review, Spring 2011)

Subscribe to The Independent Review. Special Internet Offer: Sign up online for a paid subscription of $28.95 and receive the next six issues for the price of four. A savings of 33% compared to the newsstand price. Available to new subscribers only, not renewals.

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4) Peru’s Election Results Look Discouraging

On April 10, Peru’s voters opted for a run-off election in June between two authoritarian candidates: Ollanta Humala, a nationalist former military officer, and Keiko Fujimori, a close collaborator of her father, the former dictator and current prison inmate Alberto Fujimori.

The recent election offered voters a few candidates who supported market-oriented democracy, but voters were split. The first-round victories for Humala and Fujimori are unfortunate, because each has supported policies that would reverse the economic and political progress that Peru has made in recent years, according to Independent Institute Senior Fellow Alvaro Vargas Llosa. Moreover, most voters may not mind: the prominent poling firm Latinobarometro has found that a slight majority of Peruvians favor authoritarian rule.

“Although Fujimori will have the support of the Peruvian establishment out of fear that Humala could become another Hugo Chavez, the former solider is more likely to prevail,” writes Vargas Llosa. If Humala wins, he alone will decide whether his regime will follow the path forged by Hugo Chavez of Venezuela, or the alternative one laid out by Lula de Silva, the more moderate former president of Brazil. If he opts for the former, Peru’s opposition will be swept aside; if instead he opts for moderate populism à la Lula, he would probably slow the rate of economic progress “but would not bring about an ideological dictatorship,” Vargas Llosa concludes.

“Peru: The Other Half,” by Alvaro Vargas Llosa (4/14/11)

Liberty for Latin America: How to Undo Five Hundred Years of Oppression, by Alvaro Vargas Llosa

The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa

Lessons from the Poor: Triumph of the Entrepreneurial Spirit, edited by Alvaro Vargas Llosa

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

The Independent Institute’s Spanish-language blog is available here.

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