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

Volume 15, Issue 15: April 9, 2013

  1. Krugman’s Fallacy: What, Me Worry?
  2. Obamacare and Dishonest Budget Numbers
  3. Pentagon Pork Warrants Major Cuts in Military Spending
  4. Big Questions for the Falkland Islands
  5. New Blog Posts

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) Krugman’s Fallacy: What, Me Worry?

Paul Krugman has done it again. In a recent piece in the International Herald Tribune, the Nobel laureate manages to commit a long-discredited economic fallacy and display an ignorance of basic facts detrimental to his argument. He also manages to insult those concerned about the burgeoning public debt, which now stands at $148,000 per taxpayer. Don’t these rubes realize the debt represents only “money we owe to ourselves”? Krugman scoffs. But as economist and Independent Institute Research Fellow Burt Abrams, director of MyGovCost.org notes, the “we owe it to ourselves” cliché is an equivocation: taxpayers and bondholders are two different groups of people. Perhaps Krugman can ask Chinese and Japanese holders of U.S. debt for clarification.

Abrams notes that the Keynesian-inspired fallacy also encourages us to overlook the harmful consequences of excessive federal spending: the taxes that will be raised to service the debt will distort decision-making regarding employment, savings, and retirement. In addition, Abrams notes that Krugman overlooks the large U.S. trade deficits that have accompanied the growing public debt. “By Professor Krugman’s own criteria, our deficits have made us poorer,” he writes.

Krugman castigates those that he terms “Chicken Littles” for thinking that our record levels of public debt mean that the sky will soon be falling. Abrams offers a nuanced corrective. “The sky is unlikely to fall on America as it has on some other countries,” he writes. “But the damage from our bigger public debt and bigger government has been done. Expect slower growth and higher unemployment. That’s really how we’ve cheated America’s children.”

What, Me Worry?, by Burt Abrams (MyGovCost Blog 4/7/13)

MyGovCost.org—What Is Washington’s Spending Costing You?

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2) Obamacare and Dishonest Budget Numbers

The Affordable Care Act is at the center of the White House’s dishonest budget numbers, according to economist and Independent Institute Research Fellow John C. Goodman. Here’s how it works. In order to pay for the new benefits promised by Obamacare, major cuts are coming to Medicare—$716 billion in spending cuts over the next decade. But although Medicare spending will slow down significantly, growing only slightly faster than national income, other healthcare spending is likely to grow at twice the rate of national income, just as it has done for most of the past 40 years.

Medicare will undergo intense pressure. The latest report from the Medicare Trustees shows that doctors’ fees for Medicare patients will fall below the fees for Medicaid patients. Many hospitals will respond by dropping out of Medicare altogether. Medicare patients will fare worse than Medicaid patients.

The White House and its allies have talked about a “savings” in Medicare, but it’s really language that allows them to avoid making tough choices. “This is bait and switch,” Goodman writes. Add to this the fact that federal subsidies for private insurance will drop after 2018, and it becomes apparent that the White House’s budget projections are nothing more than a deceptive sleight-of-hand maneuver. “If you think any of this is politically sustainable,” Goodman continues, “I have a bridge in Brooklyn I want to sell you.”

Bait and Switch, by John C. Goodman (Townhall, 3/16/13)

The Coming Healthcare Cuts for Seniors and the Disabled, by John C. Goodman (The Beacon, 4/8/13)

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

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3) Pentagon Pork Warrants Major Cuts in Military Spending

More than most government agencies—far more—the U.S. Department of Defense (DoD) is the epitome of waste. The agency is so poorly managed that it can’t pass a financial audit. Yet despite its lack of efficiency and transparency, Congress seldom hesitates to increase its budget. One reason is that the Pentagon is beholden to powerful interest groups. And because they compete against each other intensely for special attention and funding, any talk of spending reductions (or, more accurately, smaller spending increases) leads to lots of off-stage intrigue, explains Independent Institute Senior Fellow Ivan Eland.

“Two very strong political groups among DoD’s constituencies are the military-industrial complex (weapons contractors) and armed forces personnel and retirees,” Eland writes. Remember the 50 percent rise in military spending since 9/11? A huge portion of that increase has gone toward military pay and benefits (especially healthcare), which now constitute one third of the Pentagon’s budget. Meanwhile, weapons systems have become pricier and their production often lags behind schedule. (See, for example, Independent Institute Research Fellow Winslow T. Wheeler’s recent piece for Time on the Marine F-35B jump jet.)

Both constituencies should see their funding reformed, Eland argues. Military pay and benefits, as well as the number of people in the armed forces, should be slashed. And opening up weapons contracting to genuine competition would result in greater efficiency and performance. “Yet none of this probably will happen,” Eland writes. “Instead, the coming battle for defense resources will tell us only who has the strongest lobby—military personnel or weapons contractors.”

Irresponsibility in the Department of Defense, by Ivan Eland (4/5/13)

Marine F-35 Jump-Jet PR: Caveataxpayer Emptor, by Winslow T. Wheeler (Time, 3/27/13)

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

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4) Big Questions for the Falkland Islands

Last month saw a historic election in the South Atlantic: Residents of the Falkland Islands voted on whether to maintain their official ties to the United Kingdom or to join Argentina. If there had been any doubt how the residents felt, March’s election has ended it: 1,513 voted in favor of staying with the UK; 3 voted against it. This event marked the end to the latest chapter in the long story of the dispute over the Falkland Islands, but according to Independent Institute Research Fellow William Ratliff, the issue is likely to re-emerge in the future.

One reason is the recent discovery of commercially viable hydrocarbon fields on the islands. Argentina is eager to get a piece of the action, by taking the matter to court if necessary. A more fundamental reason is that Argentina’s tempestuous political climate seems to encourage political grandstanding regarding what Argentines call the Malvinas, especially when doing so can distract voters from the country’s severe economic problems.

Ultimately, according to Ratliff, Argentina must stabilize its political and economic affairs if it is to succeed in swaying Falkland Islanders and the United Kingdom to agree to a new arrangement. “For their own good, as well as that of the Falklanders, they must break from their historical record of ups and downs, alternating between prosperity and crisis, which both are caused by and feed political demagoguery and extremism,” Ratliff writes. “That may be the greatest challenge of all.”

The Falklands: Small Islands, Big Questions, by William Ratliff (Defining Ideas, 3/27/13)

More by William Ratliff

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Federal Fisker Fiasco: Biden Backs a Loser
K. Lloyd Billingsley (4/8/13)

What, Me Worry?
Burt Abrams (4/7/13)

A Mind-Blowing Experience?
Craig Eyermann (4/6/13)

Negative Net Worth in the Golden State
K. Lloyd Billingsley (4/3/13)

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

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