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

Volume 15, Issue 14: April 2, 2013

  1. Have the Greens Gone Fracking Crazy?
  2. War Is the Health of the Welfare State
  3. What Gives Rise to “Crony Capitalism”?
  4. Remembering 1913
  5. New Blog Posts
  6. Selected News Alerts

The Independent Review: Subscribe or renew today and get a free copy of the 25th Anniversary Edition of Crisis and Levithan: Critical Episodes in the Growth of American Government, by Robert Higgs.


1) Have the Greens Gone Fracking Crazy?

Environmental activists have a new whipping boy: MIT physics and engineering professor Ernest Moniz, President Obama’s nominee to head the U.S. Department of Energy. The reason? Moniz is viewed as pro-natural gas and therefore as pro-fracking. Most of the environmental movement opposes fracking (a.k.a. hydraulic fracturing, a method used to help extract natural gas from shale deposits by injecting pressurized water in wells drilled deep underground), but this opposition is misplaced. According to Independent Institute Senior Fellow Robert H. Nelson, environmentalists should embrace the development of natural gas and fracking as we transition over the next several decades to wind, solar, geothermal and other non-carbon energy sources.

One of the main risks ascribed to hydraulic fracturing is that it can harm surface land and aquifers. In reality, fracking is performed so far underground (often at 5,000 feet below the surface), that some geologists think the risk to aquifers and surface land is zero. Fracking does have a dirty by-product—flowback water, which carries natural contaminants and man-made chemicals up to the surface—but steps are being taken to treat it properly. This is one reason why a 2011 report from the MIT Energy Initiative, a project directed by Moniz, notes that the environmental effects of shale development are “challenging but manageable.”

Why then are so many environmentalists still up in arms? Perhaps it’s the word “manageable” that troubles them. Its usage suggests that proper decision-making requires a consideration of potential rewards as well as potential risks, and that the risk-reward tradeoff should help guide our pursuits, including our development of natural resources for human ends. This notion is heretical to many apostles of environmental religion, of course, but surely it is the failure to adopt this approach that is folly. If activists were to win their battles against natural gas and fracking, they would have only themselves to blame for the continued use of a more troubling transitional energy source: the burning of coal. Thus, Nelson concludes that “the fracking controversy has become a very expensive distraction for our nation and the world.”

Ernest Moniz and Fracking Drive Environmentalists off of the Rails, by Robert H. Nelson (Forbes, 3/28/13)

The New Holy Wars: Economic Religion vs. Environmental Religion in Contemporary America, by Robert H. Nelson

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2) War Is the Health of the Welfare State

Bashful hawks have a slogan: “To ensure peace, prepare for war.” Budget hawks and fiscal conservatives could also adopt one: “To ensure financial peace, avoid war.” War making and empire building have put many prosperous nations on the road to ruin. Today, many developed countries suffer from what most people consider an entirely different problem: a costly welfare state that is emptying the public purse. But the fiscal problems of the entitlement society and those that arise from excessive military spending are often related.

In a recent article for The American Conservative, Independent Institute Senior Fellow Ivan Eland examines the U.S. experience, revealing important connections between the welfare state and the warfare state, and between the largest wars in American history and the growth of the tax system.

“Both taxes and spending as we know them today—Leviathan’s head and tail—spring from the welfare state,” Eland writes. “Traditional conservatives recognized that war is the primary cause of overweening government in human history; thus, they promoted peace. Since the rise of the neoconservatives, however, the right has forgotten this important lesson, which has to be relearned.”

From War to Welfare: How Taxes and Entitlements Begin with Militarism, by Ivan Eland (The American Conservative, 2/27/13)

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

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3) What Gives Rise to “Crony Capitalism”?

The term crony capitalism has appeared frequently in the popular press of late, but rarely has it been used—let alone defined—in the academic literature. Independent Institute Research Fellow Randall G. Holcombe offers a definition that is notable for its impartiality and conciseness. “Crony capitalism,” he writes in the Spring 2013 issue of The Independent Review, “is an economic system in which the profitability of business depends on political connections.”

Holcombe’s definition makes no claim about the causes, effects, or moral status of “crony capitalism.” But by cutting to the heart of the matter—by identifying the phenomenon’s fundamental difference from other economic systems—it opens new vistas. One eye-opening approach is to examine a broad range of cases in which political connections shape the profitability of business. Examples include rent-seeking, regulatory capture, political entrepreneurship, and interest-group politics.

The academic literature is rife with studies of these components of “crony capitalism,” but no comprehensive theory of the phenomenon has been offered yet—though Holcombe’s article makes important inroads. What would a valid theory reveal? One finding, he argues, would be that “crony capitalism” grows as the profitability of businesses comes to depend on how well businesses can secure subsidies, tax breaks, and regulations that work in their favor. “Crony capitalism,” in other words, is a by-product of big government.

Crony Capitalism: By-Product of Big Government, by Randall G. Holcombe (The Independent Review, Spring 2013)

The Independent Review (Spring 2013)

Special Offer: Subscribe or renew now and receive a free copy of the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Robert Higgs!

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4) Remembering 1913

This year marks the 100th anniversary of the end of a special time in U.S. history—a time before the federal income tax, the Federal Reserve, and a World War. Output was growing rapidly at about 4 percent per year, the unemployment rate was roughly 4.3 percent, and price inflation was unheard of. It wasn’t perfect—one could easily document numerous hardships and injustices to complain about—but for many it was the best of times.

“Never before had so much prosperity been attained by a comparably large population,” writes Independent Institute Senior Fellow Robert Higgs, “and never before had so many people enjoyed such spacious freedom to live their lives and go about their business as they chose in a context where voluntary transactions dominated economic affairs and governments were relatively inconsequential factors in the economy and society. Such was the garden in which the serpents of war would soon whisper in the ears of politicians and government officials, who shortly afterward would blast this auspicious scene to smithereens.”

Looking back, 1913 was a year of transition—one that signaled the start of a significantly different relationship between the federal government and the ordinary citizen. Higgs continues: “Gone forever was a world that, notwithstanding its many defects and crying needs, had been traveling a sure road to improvements and remedies largely within a nurturing spontaneous order. Henceforward, the intrusion of politics and governments into ever more aspects of social and economic life would poison the people’s public affairs and turn them away from creative activity and self-responsibility toward more and more political conflict, suppression of freedom, and plunder of one another.”

1913—The Final Days of the Old Regime in the United States, by Robert Higgs (The Beacon, 3/26/13)

Special Offer: Receive a free copy of Robert Higgs’s Crisis and Leviathan: Critical Episodes in the Growth of American Government, 25th Anniversary Edition, with your new or renewed subscription to The Independent Review!

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

GovGives.Con
K. Lloyd Billingsley (4/1/13)

Those Aren’t Easter Eggs...
Craig Eyermann (3/31/13)

How Government Punishes Savings
K. Lloyd Billingsley (3/29/13)

Gov$Grab.Con
K. Lloyd Billingsley (3/27/13)

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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