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The Lighthouse is the weekly email newsletter of the Independent Institute.
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Volume 14, Issue 8: February 21, 2012

  1. The New Greek Bailout Myth
  2. Provocations and the Push for War
  3. Misplaced Priorities Not New to U.S. Defense Policy
  4. Regulating Sugar Wouldn’t Be Sweet
  5. New Blog Posts

1) The New Greek Bailout Myth

On Monday euro-zone finance ministers announced plans to provide Greece with 130 billion euros in debt relief, the second bailout for the financially strapped country since 2010. The package will come just in time. Athens’s recent austerity measures were insufficient to avoid defaulting on the bonds that are supposed to be paid off in March. In fact, the notion that Greece could have avoided default was no less fanciful than the fantastic myths of Hellenic times, according to Alvaro Vargas Llosa, a senior fellow at the Independent Institute.

The bailout may stop the spread of one myth, but it perpetuates another: the false assumption that bailouts have no harmful consequences. It’s a myth that policymakers for the European Central Bank seem to believe, given the alarming rate at which the bank has printed money for the past several months. “Since July, its balance has risen 38 percent, which is precisely what happens when central banks crate fictitious currency,” Vargas Llosa writes in his latest column at Forbes.com.

Instead of sovereign-debt bailouts, euro zone officials should consider an alternative: default and bankruptcy. These mechanisms can rid an economy of the excesses that would otherwise remain and prevent a sustainable recovery. “Throughout history, there have been nearly 100 sovereign defaults in Europe. Those defaults—followed by devaluations that reflected the real value of the currency—facilitated the process of winnowing out the chaff,” Vargas Llosa continues. “It is time that Greece (really, the European Union) understood this. Let the consequences for Greece be what they may. They will not be worse than prolonging the crisis ad infinitum.”

The Grand Myth About Greek Solvency, by Alvaro Vargas Llosa (Forbes.com, 2/15/12)

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

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2) Provocations and the Push for War

The United States and Israel appear to be conducting a covert war against Iran to hinder its alleged nuclear weapons program—cloak and dagger operations that may include launching computer worms, sabotaging factories, and assassinating nuclear scientists. For its part, Tehran seems to have taken the bait and retaliated—with attempts to kill Saudi Arabia’s ambassador in the United States and car-bomb Israeli embassy personnel in India and Georgia. If hostilities turn from covert operations to open warfare, it wouldn’t be the first time that deceptions and provocations played a critical role in the run-up to war, according to Ivan Eland, director of the Independent Institute’s Center on Peace & Liberty.

When democracies prepare for war, it’s not uncommon for them to use tactics of provocation and deception in order to help drum up public support. President James Polk, for example, took several provocative actions before the Mexican-American war, including blockading the Rio Grande and falsely claiming that the Mexican government had killed U.S. troops on American soil. Decades later, false claims that the Spanish government was responsible for an explosion on board the USS Maine helped drum up public hysteria that led to the Spanish-American War. Similar mischief—although that word sounds almost benign—was at work in the run-up to the U.S. wars in Vietnam, Grenada, Iraq, and elsewhere, Eland argues.

“Thus, given America’s rich history of goading its foes into warfare, watch closely for continued Israeli and U.S. attempts to provoke Iranian countermeasures, which then could be used to help justify a future military attack,” Eland concludes.

Provocations Against Iran Follow a Rich Tradition, by Ivan Eland (2/15/12)

No War for Oil: U.S. Dependency and the Middle East, by Ivan Eland

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

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3) Misplaced Priorities Not New to U.S. Defense Policy

Last month the Pentagon published “Sustaining U.S. Global Leadership: Priorities for 21st Century Defense,” a slim document that purports to summarize the “challenging global security environment” and the “primary missions of the U.S. armed forces.” But rather than incorporate lessons from past mistakes, the memo is basically “a rehash of America’s long-standing policies of worldwide power projection and global intervention,” according to Independent Institute Senior Fellow Charles V. Peña.

In his latest piece for The National Interest, Peña describes several flaws of the report. These include its (1) excessively broad conception of national interest; (2) vagueness about the kinds of foreign aggression that require U.S. response; (3) exaggeration of the terrorism threat; (4) unrealistic assumption that the new strategic guidelines can somehow lead to less military spending; and (5) incompatibility with the goal of shrinking the defense establishment.

“If we aren’t going to reduce military capacity, it’s hard to see how we will end up spending less,” Pena writes. Even after reducing the army by 80,000 troops below its recent peak and cutting the Marine Corp by 20,000 troops, “the numbers will still be greater than they were on 9/11,” he continues. Obama’s defense budget therefore is best viewed as “the status quo masquerading as change.”

Five Reasons the Defense Budget Won’t Change, by Charles V. Peña (The National Interest, 2/10/12)

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4) Regulating Sugar Wouldn’t Be Sweet

Writing in Nature, researchers at the University of California, San Francisco, recently called for governments to control sugar and other food sweeteners just as they’ve controlled alcohol and tobacco. Although their reasoning sounds plausible at a superficial level, there are several reasons that regulating sweeteners would be a bad idea, not the least of which is the hidden cost of government restrictions, according to Independent Institute Research Fellow Art Carden.

Consider the cost of enforcing restrictions on booze and cigarettes. “Enforcing taxes and regulations on alcohol and tobacco requires real resources,” Carden writes. “The police officer trying to bust a convenience store for selling tobacco to minors isn’t trying to solve a murder or a robbery. The metal that goes into the guns being toted by ATF agents is metal that isn’t being used to make cars or build bridges. And so on. Do we really want grocery store employees and police officers wasting time and energy making sure that everyone is carded for buying Pepsi?”

To the extent that diabetes and other sugar-related illnesses impose costs on other people, via the cost-shifting mechanisms of the U.S. healthcare system, it’s the healthcare system that we must reform, Carden suggests. “People who die of alcohol-, tobacco-, or sugar-related illnesses might burden government health resources, but this is an artifact of the ways government health resources subsidize bad health choices and socialize individual risks.... If other people will pay my medical bills for me, I have weaker incentives to make good health decisions.”

Should We Regulate Sugar Like Alcohol or Tobacco?, by Art Carden (Forbes.com, 2/2/12)

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

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language blog here.

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