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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 13, Issue 40: October 4, 2011

  1. The Case Against Bailouts
  2. U.S. Hit List Jeopardizes Americans’ Rights to Due Process
  3. The Hidden Premise of Big, Intrusive Government
  4. Alabama’s Immigration Law Mixes Tragedy with Farce
  5. New Blog Posts

A Gala for Liberty: 25th Anniversary


Please join with us to celebrate The Independent Institute’s 25th Anniversary Dinner: A Gala for Liberty, November 15th, at the Ritz-Carlton in San Francisco. Honorees Lech Walesa, Mario Vargas Llosa, and Robert Higgs will be presented with the Alexis de Tocqueville Award as champions of individual liberty, entrepreneurship, personal responsibility, civic virtue, and the rule of law.


1) The Case Against Bailouts

Protesters have taken to Wall Street and elsewhere to register their disdain with “business as usual” in the face of high unemployment and a moribund economy. Those among them who wish to make sense of U.S. policies in response to the financial turmoil should turn to Independent Institute Research Fellow Vern McKinley.

A former analyst for the Federal Reserve, the FDIC, the RTC, and the OTS, who became fed up with the agencies’ bailouts of banks and other financial institutions, McKinley has pressed the agencies—without their cooperation—for internal memos that would show how they decided which firms to bail out and which not to bail out. The results of his investigations—which examine government policy during the financial turbulence of the 1930s and 1980s, as well as those of politicians and regulators during the recent episode—will be presented in his forthcoming book, Financing Failure: A Century of Bailouts, to be published by the Independent Institute this December.

In a recent interview on the Wall Street Journal’s website, McKinley explains the typical modus operandi of financial regulators during a crisis: panic. After they undertake a bailout, they typically provide an extremely vague statement that the bailout was necessary to deal effectively with “systemic risk” that the failure of the institution would have posed for the financial system. However, there is no strong connection between the numbers they toss out and their panicky responses. A better approach, McKinley argues, would be to allow insolvent institutions to fail (or to be taken over by competitors who don’t need a subsidy to do so). That would help foster better management overall in the financial sector and hasten new lending by financially strong competitors.

Video: Why Bail Out Banks? An Interview with Vern McKinley (WSJ Opinion Journal, 9/19/11)

Financing Failure: A Century of Bailouts, by Vern McKinley (Publication date: December 2011)

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2) U.S. Hit List Jeopardizes Americans’ Rights to Due Process

The targeted killing of Anwar al-Awlaki by a CIA-operated drone in Yemen last Friday raises troubling questions for the White House. In the wake of the 9/11 terrorist attacks, Congress passed a resolution that authorized military action against the perpetrators, but al-Awlaki—an American citizen who reportedly has called for violence against the United States and may or may not have taken part in terrorist operations—was not a member of the 9/11 plot and therefore doesn’t fall under the congressional resolution. According to Independent Institute Senior Fellow Ivan Eland, the executive order to kill al-Awlaki should worry all Americans because it was authorized without due process or oversight from other branches of government. This creates a dangerous precedent: “the rights of all Americans (and other persons) are in danger,” Eland writes in his latest op-ed.

“The courts clearly have a right to comment on this issue,” Eland continues. “They should prohibit the administration from having a secret kill list and require it to bring suspected terrorists to trial.”

The gross violations of justice in the U.S. criminal justice system suggest another reason for concern. Eland notes that 138 death row inmates have been exonerated since the mid-1970s. Writes Eland: “Given the government’s spotty record at identifying murderers, can we be confident that our president can competently identify terrorists and kill them—all the while in violation of the constitutional requirements of due process and checks and balances by other branches of government? Since many of the prisoners at Guantanamo weren’t guilty of any crime, let alone terrorism, the answer to the last question is a resounding ‘no.’”

A Double Standard for the Ultimate Penalty, by Ivan Eland (9/28/11)

Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty, by Ivan Eland

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3) The Hidden Premise of Big, Intrusive Government

In his commencement address to the University of Michigan in 2010, President Obama said, “We, the people, hold in our hands the power to choose our leaders and change our laws, and shape our own destiny.” The phrases were chosen to resonate with Americans across the political spectrum, but their precise meaning and implications are the subjects of controversy. Which activities may the state legitimately undertake in the name of “the people”? Is it morally acceptable, for example, for the state to require the people to purchase health insurance? These questions, economist Daniel B. Klein suggests, boil down to whether or not the claims of the state take precedence over an individual’s right to justly acquired property—an issue that separates progressives and social democrats, one the one hand, and conservatives and libertarians, on the other.

“For social democrats, the state is the overlord and the polity is its dominion,” Klein writes in “Against Overlordship,” the lead article in the fall 2011 issue of The Independent Review. In other words, many progressives and left-liberals view the relationship between the citizenry and the state the same way many people view the relationship between the tenant and the landlord, or between the hotel guest and the hotel owner: one is consenting to the rules simply by staying within the boundaries.

Today’s social democrats and progressives seldom discuss that core belief—the hidden premise of their political agenda—but their intellectual forerunners did, in the decades surrounding the turn of the twentieth century. Writers such as L. T. Hobhouse and Frank Sargent Hoffman clearly stated their case for the democratic state’s presumptive authority because they were in open rebellion against the prevailing view about the individual and private property, a view articulated by classical liberals such as Adam Smith and David Hume. The challenge to classical liberalism was not adequately met, and the result was an intellectual sea change that cleared the way for the expansion of intrusive government. “The words liberal, liberty, freedom, justice, contract, property, rights, equality, and equity were defiled and hijacked,” Klein continues. “All the changes in meanings come down to one linchpin: the shift from the individualist to the collectivist conception of ownership.”

Against Overlordship, by Daniel B. Klein (The Independent Review, Fall 2011)

More by Daniel B. Klein

Subscribe to The Independent Review.

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4) Alabama’s Immigration Law Mixes Tragedy with Farce

Last Wednesday, a federal judge upheld most of Alabama’s laws against illegal immigration, purportedly the strictest in the United States. In his latest column at Forbes.com, Independent Institute Research Fellow Art Carden argues that measures designed to enforce laws against illegal immigration—especially in Alabama—are solutions in search of a problem. Moreover, immigration restrictions create huge, often unseen problems for citizens and illegal workers alike. A paper published in the summer 2011 issue of the Journal of Economic Perspectives, for example, concluded that gains from reducing immigration barriers “are likely to be enormous, measured in tens of trillions of dollars.”

The farce of onerous barriers to the free movement of labor is worthy of parody. In fact, more than once has The Simpsons aimed its satirical arrows at anti-immigrant folly, Carden notes. Unfortunately, no one will be laughing if states with much larger immigrant communities than Alabama follow its lead.

“I fear that the institutional steps that would be required to completely stop illegal immigration would make the current excesses of the Transportation Security Administration look like child’s play,” Carden writes. Even if we grant the assumptions of immigrant opponents about the costs of immigration”—a rhetorical tactic that Carden concedes is an unwarranted concession—“it is by no means clear that Fortress USA would bear any resemblance to a ‘land of the free.’ ” And Independent Institute Senior Fellow Alvaro Vargas Llosa notes in a piece quoted last week in the Huffington Post, “Whenever there is a disconnect between the law and reality, reality finds ways of making the law irrelevant.”

I Love That Episode of The Simpsons! Oh Wait—You Were Talking about Real-Life Immigration Policy, by Art Carden (Forbes.com, 9/30/11)

E-Verify E-Viscerates Labor Market, by Alex Nowrasteh (Huffington Post, 9/23/11)

More on immigration policy

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

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Show Me the Money Continued...
Stephanie Freedman (9/30/11)

The Economic Playbook—What Works and What Doesn’t
Stephanie Freedman (9/29/11)

Washington: Structurally Unsound
Emily Skarbek (9/27/11)

The Independent Institute’s Spanish-language blog has surpassed 3 million page views! You can find it here.

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