The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 13, Issue 29: July 19, 2011

1. The Debt-Ceiling Dilemma
2. White House Discourages Domestic Energy Production
3. U.S. Presidents and the Decision to Fight
4. What Price Controls Say
5. New Blog Posts

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What would happen if Congress and President Obama failed to resolve the debt-ceiling crisis before August 2, when the federal government is slated to hit its borrowing limit? Writing in The Beacon, Independent Institute Research Fellow Peter Klein suggests that American history can offer a few lessons. In the early 1840s, eight U.S. states and one territory defaulted on their obligations. Although bond yields rose, they didn’t reach catastrophic levels. Most of those states eventually restructured and repaid their debts. Granted, those were states that defaulted and not the federal government. But it’s worth recalling that the states were sovereign with respect to their issuance of debt: their creditors—most of whom were from other states and countries—could not appeal to the federal government for legal redress. Independent Institute Research Emily Skarbek also dissents from the common idea that a default this August would spell certain economic catastrophe.

“The fact is: If the debt limit isn’t raised, the Treasury will be forced to reduce spending in other areas to meet its obligations,” Skarbek writes in the Daily Caller. “The government would not go belly up—some services would be cut back or discontinued. But the Treasury would continue to collect some $175 billion per month—enough to meet the government’s most pressing obligations and service the debt.”

Skarbek urges the federal government to tackle the debt crisis by slashing federal spending and selling off government assets such as federally owned land, millions of acres of which could be sold for oil and gas exploration. And Robert Higgs argues in The Beacon that the impasse could be resolved simply by cutting federal spending to a level equal to Uncle Sam’s roughly $2.6 trillion in revenue. Such a reduction would return federal expenditures to the amounts spent in fiscal years 2002 and 2003.

Debt or Default: A False Choice, by Emily Skarbek (The Daily Caller, 7/14/11)

An Easy Solution to the Government’s Debt-Ceiling Impasse, by Robert Higgs (The Beacon, 7/14/11)

Sovereign States Default, Repudiate; Sun Still Rises, by Peter Klein (The Beacon, 7/13/11)

How to Cut the 2011 Federal Budget by 2/3 and Have a $1.3 Trillion Surplus, by David Theroux (2/11/11)

MyGovCost.org Government Cost Calculator

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Is President Obama making the United States too dependent on energy from dubious foreign countries? William F. Shughart II, senior fellow at the Independent Institute and professor of public choice at Utah State University, worries that this is one consequence of the administration’s having thwarted domestic energy producers in the Gulf of Mexico, reneged on promises to open parts of Alaska and the Eastern and Western seaboards to oil drilling, and stalled the development of natural gas discovered recently in Pennsylvania and neighboring states.

Proposed new energy taxes would worsen the problem, Shughart argues in the Washington Times. “The president and his congressional allies are pushing for $61 billion in new energy taxes, a proposal that if it passes will add to pain at the pump, raise utility bills and increase the cost of doing business nationwide,” he writes.

Policies that discourage domestic energy production also happen to worsen the public debt, Shughart explains. The $41 billion spent on energy imports in May enriched the coffers of foreign governments, “many of which are hostile to U.S. interests, unstable politically, or both,” he writes. The United States has more proven reserves of coal, oil, and natural gas than any other country, and U.S. energy sources could meet much more of the domestic demand if federal policies did not stand in the way, Shughart concludes.

Obama Undermines Hope for Energy Independence, by William F. Shughart II (The Washington Times, 7/4/11)

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

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In his contribution to the summer issue of The Independent Review, Robert Higgs raises a question of vital importance: Why have U.S. presidents led the American people into a host of bloody and costly wars against foreign powers that did not pose an existential threat to the nation?

The answer, Higgs suggests, can be illuminated by noting that presidents possess a unique interest in becoming viewed as “great” national leaders, even if this goal conflicts with the general interests of ordinary Americans. (Higgs uses a simple but very helpful box diagram to compare war’s payoffs to U.S. leaders and the American public.)

“Presidents may profit greatly by initiating war against less-than-existential or completely spurious threats,” Higgs writes. “If they avoid wars against less-than-existential threats, they get little or no credit for doing so, and they sacrifice the enhanced powers, public acclaim, and historians’ credit for greatness that victory in such a war may bring. Worse, their political opponents may blame them for not going to war.”

To Fight or Not to Fight: War’s Payoffs to U.S. Leaders and to the American People, by Robert Higgs (The Independent Review, Summer 2011)

Subscribe to The Independent Review. Get two complimentary issues when you purchase your subscription online!

Event: A Gala for Liberty, with Mario Vargas Llosa, Lech Walesa, and Robert Higgs (San Francisco, California, 11/15/11)

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Some actions should be taken, it is sometimes said, for their symbolic value: they make a statement about the kind of society we live in. Unfortunately, when that action is the imposition of price controls, the real message conveyed is the action’s supporters don’t understand the basics of supply and demand, Independent Institute Research Fellow Art Carden explains in a recent column at Forbes.com.

By driving a wedge between supply and demand, price controls create shortages. Advocating price controls is therefore akin to drunk driving. Writes Carden: “If you’re advocating price controls and don’t understand what the laws of supply and demand have to say about your proposal, your aren’t courageous or compassionate. You’re dangerous.”

Price control advocates may feel satisfaction from championing restrictions they believe help people at a time of crisis, but the advocates are self-deluded. Price controls harm the people they are usually intended to help, they undermine the social cooperation that a free-market price system facilitates, and they appeal to a superficial sense of public beneficence. “People who advocate price controls and other interventions often do so because they want to send a message about the kind of society we live in,” Carden writes. “In light of how price controls create shortages, though, I don’t think the messages are the ones people want to send. Or receive.”

Price Controls Make a Statement about Society, by Art Carden (Forbes.com, 7/8/11)

College students, learn more about the price system at
The Challenge of Liberty Summer Seminars
When: August 1-5
Where: Notre Dame de Namur University, Belmont, Calif.

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From The Beacon:

From MyGovCost News & Blog:

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

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