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

Volume 14, Issue 7: February 14, 2012

  1. The Dysfunctional Banking System
  2. The Freedom to Cross a Border
  3. Super PACs and Campaign Finance Law
  4. Democratization from Within and Without
  5. New Blog Posts

1) The Dysfunctional Banking System

Ever since the 2008 financial collapse, Americans have directed their anger at the banking system, identifying “systemic” problems with the finance industry and demanding wiser and more powerful regulators to curb the destructive effects of a sector allegedly characterized by excessive greed and irresponsibility. Yet little attention has fallen on the politicians and bureaucrats and their hand in making the banking system dysfunctional in the first place. In his appearance on MSNBC’s “The Dylan Ratigan Show,” Research Fellow Vern McKinley, author of Financing Failure: A Century of Bailouts, took aim at government’s role in facilitating the crisis.

“The big banks and the other banks are in two different universes,” McKinley argues. “The big banks have the support of the government [and] don’t have to pay for their failure because they just get bailed out.” Yet the common resentment toward large financial institutions is often missing in discussions of government-sponsored enterprises like Fannie Mae and Freddie Mac, which McKinley notes “haven’t been downsized at all.” The author argues they should be put into receivership so as to bring the “mortgage market back in balance.” Any painful dislocations this would cause have to be confronted, because as “we keep putting off the day of reckoning,” the economic damage only grows worse.

The regulators, for their part, “completely broke down” in their function as an “early-warning system,” both in predicting the spread of the sub-prime meltdown to the rest of the economy, and in their appraisal of such specific institutions as Bear Stearns, Wachovia, City Group, and Bank of America. Asked about the difficulty in obtaining the data for his book, McKinley sheds light on the continuing lack of transparency in the government’s relationship to the financial system: Documents deemed part of a “deliberative process” enjoy exemptions from the Freedom of Information Act, and so much of the paperwork that McKinley sought was either unavailable or redacted.

Video: Vern McKinley on a Dysfunctional Banking System
(MSNBC’s “The Dylan Ratigan Show,” 2-6-12)

Financing Fannie and Freddie’s Failures, by Vern McKinley (The Hill, 2-1-12)

Financing Failure: A Century of Bailouts, by Vern McKinley

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2) The Freedom to Cross a Border

National security crises and other perceived threats are often used to strip away liberties that we took for granted not so long ago. Before the September 11 attacks, crossing the Canadian-U.S. border was a routine undertaking for citizens of both countries. This has become a more arduous endeavor in recent years, often due to the flimsiest of pretexts. Research Fellow Wendy McElroy explores the topic in “The Freedom to Cross a Border,” an article in the Winter 2012 issue of The Independent Review.

“My American friend used to cross the Canadian–U.S. border northward with ease in order to visit our farm and his family members in Toronto,” writes McElroy. However, new procedures came into force a few years back by which police and court records on American citizens are freely and easily accessed by Canadian customs agents and vice versa.” Currently, Americans convicted of relatively minor offenses are barred from freely entering Canada: “A DUI is now one of the infractions that can cause a de facto iron curtain to fall across the Canadian–U.S. border, separating friends and family members. Other infractions include possession of marijuana (even if it was in the 1970s), possession of a medical-marijuana card, shoplifting, and an arrest for attending a peace rally.” Offenders are sometimes allowed to cross once they go through a “rehabilitation” process that might involve court records, ID, fees, and even documentation from the FBI.

The unseen cost of these restrictions is the drag it imposes on the economy. Yet the transaction costs levied on our personal lives are perhaps even more expensive in terms of our liberties: McElroy laments that “[g]overnment regulations are making the exercise of my rights so expensive in terms of additional fees, time, inconvenience, and sheer unpleasantness that these considerations are beginning to outweigh the actual cost of exercising my rights.”

The Freedom to Cross the Border, by Wendy McElroy (The Independent Review, Winter 2012)

Why Is Immigration Illegal Anyway? by Ben Powell (Birmingham News, November 20, 2012)

Special Internet Offer: Two Free Issues of The Independent Review When You Subscribe!

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3) Super PACs and Campaign Finance Law

When comedians Stephen Colbert and Jon Stewart set up a Super PAC to support Colbert’s satirical run for the presidency, they were appealing to a common public frustration with the influence of money in politics. However funny we find the prank, it raises serious questions about government corruption and freedom of speech, and whether stronger regulations are truly the antidote. Research editor Anthony Gregory, writing in the Huffington Post, suggests that there is something ironic in two comedians committing an act they presumably think should be illegal all to make a point.

“Presumably, Stewart and Colbert (and most left-leaning members of the media) find the campaign finance regulations concerning PACs to be far too lenient,” writes Gregory. “This implies that if the restrictions better reflected morality, the two comedians would be violating the law. Whereas most civil disobedience targets unjust laws that should not be on the books, these TV personalities are apparently acting out to promote what they think should be a law.”

Gregory argues that the reason few people want the comedians punished even as they call for strict regulations for real politicians is because everyone recognizes the danger of government power: “Perhaps the problem is not money in politics, but politics in money. If the government has such an influence over the economy, how can it help but be controlled by special interests looking for unfair advantages over the competition?” Gregory concludes that tougher campaign finance regulations have accompanied ever greater corruption in politics, largely because “[t]here is no way to divorce corruption from politics, since politics is a struggle over state power and we know that power corrupts. Giving government more control over elections is the exactly wrong approach.”

Colbert & Stewart Get Last Laughs on Super PAC, by Anthony Gregory (The Huffington Post, 2/8/11)

Public Opinion and Campaign Finance: Reformers Versus Reality, by David M. Primo (The Independent Review, Fall 2002)

Beyond Politics: The Roots of Government Failure (Revised and Updated Version) by Randy T. Simmons

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4) Democratization from Within and Without

For a century, American policymakers have championed an assertive role for the United States in advancing democracy abroad. Yet “despite George W. Bush’s and Barack Obama’s efforts to topple foreign dictators and use military power to forcefully impose democracy from without, democracy usually works better if it bubbles up from below by popular desire,” argues Independent Institute Senior Fellow Ivan Eland in a new op-ed. 

Eland lists three distinct examples in the last decade demonstrating the difficulties of coercive democratization. The effort to bring Western-style democracy to Iraq was complicated by the nation’s “long history of rival ethno-sectarian groups in conflict, Sunni dictators, and no culture of political compromise.” In Afghanistan, “opposition to the U.S.–installed government—by the Taliban—is even stronger [than such opposition in Iraq] and that government is seen by most Afghans as corrupt and ineffective.” This has led to a protracted counterinsurgency war and the Taliban still appears likely to rule “some or all of Afghanistan” in the future. Libya—President Obama’s nation-building project—“has many armed factions and no tradition of democracy” and “could easily lapse into tribal warfare.”

“On the other hand,” writes Eland, “the indigenous democratic revolutions in Tunisia and Egypt seem to be progressing. Tunisia recently had successful elections, and Egypt seated its new parliament and will hold a presidential election in June.” The pattern appears to be that when a nation undergoes major political reform or revolution through the military intervention of a foreign government, such developments are more tenuous than when they reflect fundamental change at home.

Democratization: Indigenous Beats Imported, by Ivan Eland (1/25/12)

No War for Oil: U.S. Dependence and the Middle East, by Ivan Eland. Available in paperback, cloth, or ebook.

Did the United States Create Democracy in Germany? by James L. Payne (The Independent Review, Fall 2006)

The Empire Has No Clothes: U.S. Foreign Policy Exposed (Updated Edition), by Ivan Eland.

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Previewing the New Obama Budget
Craig Eyermann (2/11/12)

The Great Greek Default
Emily Skarbek (2/7/12)

They Spent Taxpayer Money on What?!!
Stephanie Freedman (2/6/12)

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

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