Volume 15, Issue 4: January 22, 2013
- Krugmans Keynesian Ineptitude
- U.S. Should Avoid Entanglement in Mali
- Sugar Lawsuit May Sour Commercial Free Speech
- Hugo Chavez and the Future of Venezuela
- New Blog Posts
- Selected News Alerts
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1) Krugmans Keynesian Ineptitude
Paul Krugman, who as the public face of Keynesian economic policies is often criticized in The Lighthouse, has done it again. In a recent column in the New York Times, he argued that the U.S. economy has been very sluggish not because the federal government is spending too much, but because it has been spending too little. This time its Independent Institute Research Fellow John C. Goodman who takes Krugman to task.
In a recent piece in Forbes, Goodman argues that in order for federal spending to stimulate economy-wide growth, the value of the goods and services produced by that spending must exceed the sum of three components: (1) the cost of any output lost from diverting factors of production away from their pre-stimulus uses, (2) the value of leisure time lost from the employment of previously idle resources, and (3) the social costs of higher taxes to pay back the government loans used to finance federal stimulus spending. But its highly unlikely for federal spending to exceed that amount, he notes, in part because federal stimulus spending tends to fund wasteful pork-barrel projects, usually employs workers who are already employed, and costs tremendously in terms of higher future taxes.
Moreover, Krugman is wrong to suggest that the case for reining in federal spending is empirically weak: Goodman points to the success of government austerity in Canada, Ireland, the Netherlands, and Finland. Interestingly, way back in 1999 Krugman himself acknowledged that a round of government spending was not what ended the Great Depression. But if a fiscal stimulus fails to spark sustainable economic growth, what about a monetary stimulus? Isnt the Federal Reserves expansion of money and credit since 2008 at least benign?
Friends of the Fed typically point to a moderate and sustainable rise in the Consumer Price Index as the sign that monetary expansion is doing no real harm, but according to Independent Institute Senior Fellow Robert Higgs, theyre looking at the wrong indicator. The Producer Price Index has been going crazy in recent years, rising by 58 percent between March 2009 and December 2012. Such a violently variable, impossible-to-forecast price environment has necessarily brought about a greater volume of business mistakes and a heightened reluctance to embark on new enterprises and to make new long-term investments in existing firms, Higgs writes in The Beacon. For such paralyzing uncertainty, we have policy makers at the Fed and the federal government to thank.
Monetary Policy and Heightened Price Volatility in Raw Materials Markets, by Robert Higgs (The Beacon, 1/19/13)
Can We Spend Ourselves from Recession to Prosperity?, by John C. Goodman (Forbes, 1/15/13)
Priceless: Curing the Healthcare Crisis, by John C. Goodman
2) U.S. Should Avoid Entanglement in Mali
Frances recent military campaign in Maliairstrikes aimed at Islamist rebels who have conquered the north and are heading south toward its capital, Bamakoillustrate some pitfalls of Western military intervention. Malis rebels were lightly armed until the West armed Gaddafis opponents in Libya and much of that firepower fell into the hands of North African Islamists. In addition, Frances incursion could lead to blowback attacks in the Westas both Frances former foreign minister and U.S. officials had earlier warned. Perhaps most distressing of all, both the underlying causes and likely effects of Frances air campaign were predictable, Independent Institute Senior Fellow Ivan Eland suggests in his latest op-ed.
In a replay of the war in Libya, with France forcing its hand, the United States has been forced to back its allys aggressive action and even provide help, Eland writes. At first, this assistance will likely be intelligence, transportation, and logistics, but the U.S. could very well get involved more deeply.
Eland argues that the United States could get sucked into the morass because French air strikes and African ground forces are likely to fail. Given that U.S. intervention in Mali would harm American interestsand would risk igniting blowback terrorism against the United StatesEland urges U.S. policymakers to avoid getting involved. It is not good that Islamists have taken over northern Mali, but it is not catastrophic for the West either, Eland writes. Unless provoked by Western intervention, the militants goals are likely to be locally oriented.
An Ally Out of Control, by Ivan Eland (1/15/13)
No War for Oil: U.S. Dependency and the Middle East, by Ivan Eland
3) Sugar Lawsuit May Sour Commercial Free Speech
The sugar industry (which squeezes consumers by lobbying Uncle Sam for price supports and import restrictions) is suing the corn syrup industry (which receives taxpayer subsidies). Is this lawsuit worth caring about? In this case, yes. Big Sugar is invoking Section 43 of the Lanham Act of 1946, which contains provisions that prohibit false or misleading advertising. The problem, according to Big Sugar, is that Big Corn is falsely claiming that corn sugar is exactly like cane sugar. But the larger issue at stake here isnt about the relative merits of one over the otherits about commercial free speech.
Regardless of ones views on the relative merits of corn syrup vs. cane sugar, Americans should be concerned about the effort to use the Lanham Act to silence commercial speech, writes William J. Watkins, Jr., a research fellow at the Independent Institute. The 1946 law, he continues, creates a perverse incentive for a commercial rival to attempt to stifle speechand to use litigation as an anti-competitive weapon.
Instead of dragging Big Corn through the legal system, Big Sugar should be relying on the court of public opinion. So long as there is free entry into the advertising realm, Watkins continues, any company, organization or group of companies that finds a rivals advertising claims to be questionable is free to disseminate information challenging those claims . They can create ads of their own. They can mobilize allies in a grassroots effort . In a free society, this is how consumers gather information and make informed decisions about what products to purchase.
The Sugar-y Sweet Temptation of Anti-Competitive Lawsuits, by William J. Watkins, Jr. (Forbes, 1/18/13)
Reclaiming the American Revolution, by William J. Watkins, Jr.
4) Hugo Chavez and the Future of Venezuela
Hospitalized in Cuba for cancer, ailing strongman Hugo Chavez has sparked a behind-the-scenes power scramble in his native Venezuela. The reason for the drama is that political authority in Venezuela has little to do with formal rules of succession. It has everything to do with posturing and positioning, as Independent Institute Senior Fellow Alvaro Vargas Llosa explains in his latest op-ed.
The fist struggle is over the status of Chavezs absence. If it is deemed to be permanent rather than temporary, the current administration will have a tougher time holding on to the reins of power. Chavezs favored replacement, Nicolás Maduro, would then have a harder time defeating competitors such as the head of the National Assembly, Diosado Cabello, who helped Chavez in the 1992 coup attempt and in the 2002 reversal of an overthrow of Chavez. Cabello may be more popular with certain elements in the military, but Maduro has support from strong powerbrokersincluding Cubas government.
No matter who wins the struggle, Venezuelas next head of state will inherit a mess: Price inflation is running at 25 percent; economic growth was flat in 2012; government debt is 10 times as large as it was when Chavez came to power; and the nation suffers from the worlds fourth highest homicide rate. For these reasons, its possible that Maduro and Cabello will call a truce and present a united front against anti-government protestorseven if maintaining power requires deploying the militarys bullets on the streets of Caracas. Whatever the case, Vargas Llosa concludes, the messy post-Chavez era has begun while the caudillo [strongman] nears judgment day in Havana.
The Post-Chavez Era Has Already Begun, by Alvaro Vargas Llosa (The Globe and Mail, 1/10/13)
Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa
The Che Guevara Myth and the Future of Liberty, by Alvaro Vargas Llosa
5) New Blog Posts
From The Beacon:
Federal Government Debt Undermines the Programs It Finances
Randall Holcombe (1/21/13)
The Greatest Purveyor of Violence in the World
Anthony Gregory (1/21/13)
ACOs and the Nationalization of Healthcare
John C. Goodman (1/21/13)
The Best Tax Code Money Can Buy
Mary Theroux (1/21/13)
Monetary Policy and Heightened Price Volatility in Raw Materials Markets
Robert Higgs (1/19/13)
An Open Letter to Washington on the Debt Ceiling
Melancton Smith (1/18/13)
Dont Know Much About History: Colleges Teach U.S. History with Politics Left Out (Is that Good or Bad?)
Jonathan Bean (1/17/13)
Robert Higgs (1/17/13)
How Will Obamacare Affect Your Tax Bill?
John C. Goodman (1/16/13)
World War II Didnt End the Great Depression
Carl Close (1/15/13)
From MyGovCost News & Blog:
Im Forever Blowing Bubbles
Burt Abrams (1/21/13)
K. Lloyd Billingsley (1/21/13)
U.S. Treasury Secretary: The Size of the National Debt Is the Problem
Craig Eyermann (1/18/13)
Obamas Resounding No to Raising Debt Ceiling
Mary Theroux (1/17/13)
Disincentives to Work Have Slowed U.S. Economic Growth
Carl Close (1/16/13)
Big Brother Keeps Watching But Not Necessarily Protecting
K. Lloyd Billingsley (1/16/13)
Cap and Freeze
Craig Eyermann (1/15/13)
6) Selected News Alerts