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

Volume 14, Issue 49: December 4, 2012

  1. Another Case for Reforming Social Security and Medicare
  2. Will Europe Survive?
  3. Is Benghazi a Distraction?
  4. Sugar Tariffs Are Not Sweet for Consumers
  5. New Blog Posts
  6. Selected News Alerts


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New Video: John C. Goodman on Obamacare and Curing the Healthcare Crisis


1) Another Case for Reforming Social Security and Medicare

Will the impending “Fiscal Cliff” lead to meaningful entitlement reform? Something should. For years analysts have been warning about how demographic changes are creating an unfunded liability problem for Social Security and Medicare. But there’s also another reason for reforming these programs: They encourage able-bodied workers to leave the workforce prematurely, when society would benefit from their continued participation, as Independent Institute Research Fellow John C. Goodman explains in his latest piece for Forbes.

Consider Social Security. More people are choosing to take reduced benefits and retire before they reach the full retirement age of 67. Those who delay retirement—up to age 70—receive a larger benefit than normal, but the way the government calculates the benefit encourages early retirement. This is partly because Uncle Sam determines the amount of benefits by using a discount rate that reflects its own (exceptionally low) borrowing cost, rather than using the interest rates that ordinary people face.

Medicare as currently structured also discourages work and subsidizes retirement. Under the Affordable Care Act, Goodman explains, “a 64-year-old with a moderate income will pay only a portion of the cost of his private insurance, just as he will pay only a portion of his Medicare insurance cost when he turns 65.” Goodman suggests that Medicare and Social Security be reformed so that workers are not penalized for remaining in the workforce. “Bottom line: any reform of the system should give people better incentives to work and pay taxes rather than encouraging them not to work,” Goodman concludes.

Why Does the Federal Government Subsidize Retirement?, by John C. Goodman (Forbes, 11/28/12)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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2) Will Europe Survive?

Europe’s welfare states are in urgent need of reform: Government spending and regulation have progressively suffocated their economies. In the countries that make up the European Union, economic growth averaged 3.1 percent in the 1970s, 2.5 percent in the 1980s, 2.1 percent in the 1990s, and 1.4 percent over the past decade. In France, which is not nearly as troubled as Greece and Spain, government spending has doubled to 56 percent of GDP in the past two decades—a trend made possible with the complicity of the nation’s business leaders, according to Alvaro Vargas Llosa, Senior Fellow at the Independent Institute. But those elites are now singing a different tune: Nearly 100 French CEOs have urged socialist President Francois Holland to cut spending and payroll taxes and to lift the regulations that have made innovation and job creation too costly.

Resistance to reform is palpable: France’s 2013 budget proposes that top earners pay an income tax rate of 75 percent, and those earning annual incomes of 150,000 euros (about $191,000) pay a 45 percent rate. But some of the country’s top earners are now voting with their feet. Bernard Arnault, the richest man in France, has sought a Belgian passport, a move widely believed to indicate his intention to move across the border.

“What we are seeing in France, as elsewhere in Europe, is the collapse of the welfare state,” Vargas Llosa writes. “The complaining business executives have no one to blame but themselves. For decades, the business elite supported the welfare state unflinchingly…. Those elites have finally panicked—and rightly so. They realize this cannot go on. They can see that their businesses are becoming less competitive by the day (with a few notable exceptions) and that the government has created an environment in which every effort to modernize and innovate meets entrenched resistance.”

France: Rebellion of the CEOs, by Alvaro Vargas Llosa (Fox News, 11/17/12)

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

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3) Is Benghazi a Distraction?

Congressional attention on last September’s attack on the U.S. consulate in Benghazi, Libya, is misplaced, according to Ivan Eland, Senior Fellow at the Independent Institute and Director of the Center on Peace and Liberty. Even if the White House willfully painted a false picture of the nature of the attacks in order to deceive voters before the presidential election—as some critics in Congress suggest—this still wouldn’t justify the inordinate attention accorded to the issue. Presidential candidates have long attempted to deceive voters, and fixating on “who knew and when” about the Benghazi attack does nothing to improve diplomatic security. Moreover, the Benghazi distraction diverts the media spotlight from a more important issue: Obama’s unconstitutional expansion of what used to be called the War on Terror.

The congressional resolution that gave the president authority to use military force against those who aided the 9/11 terrorists was limited: It did not allow Bush and his successors to pursue militant groups who were not involved in those attacks. Yet Obama has initiated a drone war against militants in Yemen and Somalia who were not originally planning or abetting attacks against the United States. Obama’s unconstitutional drone war has created new enemies. “Since the United States escalated its strikes against [al-Qaeda in the Arabian Peninsula], the group has attempted to attack the United States three times, including using the underwear bomber to attempt to blow up a U.S.-bound flight to Detroit,” Eland writes.

The White House has also played with fire by going after al-Shabab in Somalia. This group hasn’t attacked the United States, but if it decides to do so, Eland argues, it may attempt to draw on the significant numbers of Somali-American fighters, many from Minneapolis, who have gone to fight in Somalia. Much more could be said, but the unconstitutional drone war should be sufficient grounds for refocusing criticisms of Obama’s foreign policy on more important problems.

Forget Benghazi and Focus on What Matters, by Ivan Eland (11/29/12)

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

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4) Sugar Tariffs Are Not Sweet for Consumers

Last week, congressman Tom Rooney (R-Florida) defended the U.S. sugar tariff in the Daily Caller. Unfortunately for him, Independent Institute Research Fellow Art Carden was quick to publish a full-scale rebuttal. Rather than a “no-cost policy,” as Rooney called it, the sugar tariff is a sweet policy for domestic sugar suppliers but sour for the rest of us.

Like any tariff, Carden explains, the levy on sugar imports to the United States (1) transfers money from consumers to domestic producers, (2) transfers money from consumers to the government, (3) wastes scarce resources by promoting lobbying, and (4) leads to a dead-weight loss for society as a whole, because the gains to those who benefit are smaller than the losses for everyone else.

This analysis should sound familiar because, as Carden writes, “Sugar protectionism is (literally) a textbook example of a policy that wastes resources.” Even Carden’s first-year economics students ably identified the fallacies in Rooney’s argument—special pleading that should have been put to rest when French economist Frederic Bastiat penned his famous essay “What Is Seen and What Is Not Seen” more than a century and a half ago. Bastiat’s economic insights enabled him to formulate an enduring truth that protectionists should take to heart: “To use force is not to produce, but to destroy.… If to use force were to produce, France would be much richer than she is.”

Sugar Tariffs Are Sweet for Special Interests, Sour for the Rest of Us, by Art Carden (The Daily Caller, 12/3/12)

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5) New Blog Posts

From The Beacon:

Union Backs Teacher Bar Exam
Vicki Alger (12/3/12)

Marxist Ties of the Chicago Teachers Union Exposed
Vicki Alger (12/3/12)

Reforming the Tort System, Part 2: Freeing the Doctor
John C. Goodman (12/3/12)

Morsi’s Power Grab
Alvaro Vargas Llosa (12/1/12)

The Fiscal Cliff
Randall Holcombe (11/30/12)

I, Pencil: The Movie
Carl Close (11/29/12)

The Proper Focus of Immigration Reform
Anthony Gregory (11/29/12)

Robert Reich to Dems: Hold the Middle Class Hostage
Mary Theroux (11/28/12)

Setback for the Surveillance State in San Antonio Schools
Vicki Alger (11/28/12)

Reforming the Tort System, Part 1: Freeing the Patient
John C. Goodman (11/28/12)

Carbon Taxes
Randall Holcombe (11/27/12)

Crisis and Leviathan, 25th Anniversary Edition
Carl Close (11/27/12)

From MyGovCost News & Blog:

When Shrinkage Means Expansion
K. Lloyd Billingsley (12/3/12)

Bring Back the Bowles-Simpson Debt Plan?
Craig Eyermann (12/1/12)

How Will the Fiscal Cliff Really Affect Defense?
Craig Eyermann (11/28/12)

Government Waste and Government Unions
K. Lloyd Billingsley (11/28/12)

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

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6) Selected News Alerts

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