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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 14, Issue 48: November 27, 2012

1. Crisis and Leviathan, 25th Anniversary Edition
2. Fannie Mae Still Poses Huge Risks to Taxpayers
3. Gaza and the War of 1812
4. Federal Court Strikes Down Seattle’s Ban on Yellow Pages
5. New Blog Posts
6. Selected News Alerts

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The Independent Institute is delighted to announce the publication of the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Independent Institute Senior Fellow Robert Higgs. First published in 1987, this classic work introduced to the reading public the notion that national crises—the Great Depression, the two World Wars, the Cold War, and sundry lesser “crises,” real or imagined—are the sparks that have driven the growth of Big Government since the turn of the twentieth century.

An early turning point, Higgs explains, came during the Progressive Era, when the nation’s intellectuals and many business leaders began to favor federal activism. This ideological change enabled unprecedented government activism when the United States entered World War I, including the federal takeover of shipping, price controls, and the draft. Although the government scaled down after the war, precedents had been set. When the Great Depression hit, collectivist sentiments and institutions were reactivated. Decades later, many programs and agencies begun during the New Deal remain in place.

Federal activism during World War II was even more severe. Although much of the administrative apparatus of control was dismantled soon after the war ended, a host of legacies remained, including government-financed plants and equipment, a voracious federal income tax system, a massive foreign aid program, and a money-hungry military-industrial complex. Most important, the notion of a “peacetime Constitution” was lost, and the prevailing ideology moved decisively toward acceptance of a larger role for government in the economy.

As Higgs shows, each crisis led to a host of new federal programs, activities, and functions that left legacies—including greater acceptance of bigger government—that endured long after each crisis passed. The result was not only a higher baseline for further growth, but also a government more intrusive in the lives of ordinary citizens and more resistant to meaningful reform.

Crisis and Leviathan: Critical Episodes in the Growth of American Government (25th Anniversary Edition), by Robert Higgs

Crisis and Leviathan by Senior Fellow Robert Higgs recommended at Power Line

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When is the reported downsizing of a government-sponsored enterprise not really downsizing? When the enterprise in question is Fannie Mae, the nation’s largest purchaser of home mortgages and the recipient of more than $100 billion in bailout money. Last August the U.S. Treasury Department issued a press release that suggested the enterprise was on the path to meeting its goal of slashing its mortgage holdings. Forbes magazine even called the announcement “Obama’s Victory Lap.” In reality, Fannie Mae and its smaller cousin Freddie Mac have made little progress in reducing risk to taxpayers, according to Vern McKinley, author of Financing Failure: A Century of Bailouts.

By the end of 2011, Fannie was supposed to hold no more than $729 billion worth of mortgages, but its loan portfolio—comprised mostly of home loans that it guarantees rather than “owned” mortgages—is valued at $2.9 trillion. Also, the agency has been on a hiring spree since falling under federal conservatorship in 2008: It has 1,200 more employees than it had four years ago.

“These facts expose the Treasury announcement as misleading at best, and confirm that the wind-down mission has not been accomplished,” McKinley writes in the Wall Street Journal. “Certainly, the efforts to date don’t deserve a victory lap, although Freddie Mac has made modest progress, which is more than can be said for Fannie. If Treasury wants to trumpet shrinkage, Fannie and Freddie need to downsize their entire mortgage portfolio, owned and guaranteed, and scale back their army of employees. Then, perhaps, a victory lap might be appropriate.”

The Fannie Mae ‘Wind Down’ That Isn’t, by Vern McKinley (The Wall Street Journal, 11/20/12)

Financing Failure: A Century of Bailouts, by Vern McKinley

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Look to the past for help in understanding the present. Israel’s recent response to Gaza bears resemblance to one of the first major foreign-policy crises of the United States: the War of 1812. If this claim sounds like a stretch, it may be due partly to less familiarity with U.S. history, according to Ivan Eland, Senior Fellow at the Independent Institute and Director of the Center on Peace and Liberty.

The official reason for both conflagrations is that they were purely military responses to aggression. But political considerations seem to have played an important role in the timing of those responses, Eland argues. Britain had been interfering with U.S. maritime trade for years before the War of 1812, but President James Madison’s need to win the support of congressional war hawks before the upcoming elections made military retaliation against the Brits a political priority for him. Similarly, Gaza had been firing rockets on southern Israel for months before Tel Aviv retaliated. With Israel scheduled to hold elections in two months, Israeli Prime Minister Benjamin Netanyahu’s decision to launch an offensive against Gaza may have been timed to improve his prospects for re-election. Eland cites a recent poll by the Israeli newspaper Haaretz that found an 84 percent approval rating for the war on Gaza and an 55 percent approval rating for Netanyahu—“a substantial hike from his prior numbers,” Eland writes.

Despite the ceasefire, lasting peace between Gaza and Israel seems unlikely, Eland argues. “Because Hamas is believed to have 10,000 rockets and, so far, has fired only about 1,000 of them, the group will probably be launching them long after this war is over,” he writes. “Netanyahu could better devote his time to reaching a comprehensive peace with them. He may not be as lucky in war as James Madison.”

How Israel’s Response in Gaza Is Like the War of 1812, by Ivan Eland (11/26/12)

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

Gaza and America, by Anthony Gregory (The Beacon, 11/21/12)

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Free speech scored an important victory last month when a federal court struck down a Seattle ordinance that banned the distribution of Yellow Pages phone books in the city unless the publisher met certain requirements. Ostensibly aimed at raising revenue to fund the recycling and disposal of discarded phone books, the ordinance amounted an invalid claim that constitutional protections do not apply to commercial speech.

“The First Amendment does not make protection contingent on the perceived value of certain speech,” Ninth Circuit Court Judge Richard R. Clifton wrote in his opinion. Independent Institute Research Fellow William J. Watkins, Jr., concurs with the court’s decision.

Had the court upheld Seattle’s ordinance “the door would have been opened for great censorship,” Watkins writes in an op-ed for the Daily Caller. “Editors of sundry publications would be tempted to reduce criticism of city government for fear that new regulations would be aimed at their commercial components. Under Seattle’s reasoning, successful publications with high advertising content could have been put at risk.”

First Amendment Scores Major Victory in Seattle, by William J. Watkins, Jr. (The Daily Caller, 11/20/12)

Freedom of Speech: Constitutional Protection Reconsidered, by James A. Montanye (The Independent Review, Winter 1999)

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From The Beacon:

From MyGovCost News & Blog:

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

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