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Volume 8, Issue 3: January 16, 2006

  1. The Schwarzenegger Reversal
  2. TRIA: Insuring the Growth of Government
  3. Chile's Road Ahead
  4. Pakistan Bombing May Strengthen Al Qaeda, Eland Warns

1) The Schwarzenegger Reversal

California Gov. Arnold Schwarzenegger came to office in 2003 with the promise of cutting state spending. That was before the results of last November's special election prompted the governor's reversal -- a reversal whose worrisome fiscal implications are implied by his recent "State of the State" address.

"Far from cutting spending, Schwarzenegger now proposes increasing spending by more than $220 billion," writes Benjamin Powell, director of the Independent Institute's Center on Entrepreneurial Innovation, in a recent op-ed.

The outcome won't simply be greater voter skepticism toward the next politician who campaigns on a platform of spending reduction. It also means greater future sacrifice by California taxpayers, according to Powell: "California already has the worst bond rating of any state in the country. Piling on more debt will not help. The debt will eventually have to be repaid. And if our bond rating continues to deteriorate, California will be paying back debt at ever higher interest rates."

See "State of the State Despair," by Benjamin Powell (LOS ANGELES DAILY NEWS, 1/11/06)
"La Situación de un Estado de Desesperación"

Center on Entrepreneurial Innovation (Benjamin Powell, director)

THE VOLUNTARY CITY: Choice, Community, and Civil Society, ed. by David Beito, Peter Gordon, and Alexander Tabarrok


2) TRIA: Insuring the Growth of Government

The Terrorism Risk Insurance Act (TRIA), enacted three years ago as temporary emergency measure, has just been extended. TRIA makes the U.S. Treasury the world's largest reinsurer, reimbursing almost 90 percent of certified insured losses from acts of terrorism until total losses reach $100 billion in a year and footing the bill for the entire amount of losses beyond that threshold, as Senior Fellow Robert Higgs explains in a recent op-ed,

Free federal reinsurance, as former Texas Insurance Commissioner J. Robert Hunter has noted, crowds out private reinsurance and encourages primary insurers to take greater risks. Furthermore, the extension of the act "illustrates perfectly how crises operate as ratchets in the growth of government," writes Higgs.

"Precisely because the costs are spread thinly across all federal taxpayers, little opposition to the law's extension has emerged. It's the oldest trick in the book of special-interest politicking: concentrate the benefits and disperse the costs. Moreover, once a subsidy program has been created, we can be certain that vested interests in its perpetuation also will have been created, even though the crisis conditions originally offered as a justification may have long since disappeared. Although the general public knows nothing about TRIA, commercial property insurance is a big business, and the interested parties are delighted to have the government continue to provide free reinsurance, as their active lobbying for such continuation attests."

See "Terrorism Risk Insurance Act to Be Extended, Of Course," by Robert Higgs (EAST BAY BUSINESS TIMES, 12/16/05)
"La Ley del Seguro Contra el Riesgo de Terrorismo Será Extendida, Por Supuesto"

AGAINST LEVIATHAN: Government Power and a Free Society, by Robert Higgs

RESURGENCE OF THE WARFARE STATE: The Crisis Since 9/11, by Robert Higgs


3) Chile's Road Ahead

The election of Michelle Bachelet to Chile's highest office "will not alter the path that country has been following for a generation," writes Alvaro Vargas Llosa, director the Center on Global Prosperity at the Independent Institute, in a recent op-ed.

The main reason is the Chilean voters don't want to rock the boat. Chile has the fastest growing economy in Latin America. During the past decade its per capita GDP that has grown faster than that of the United States, pulling approximately one million Chileans out of poverty. Thus, Bachelet's platform of "change with continuity" hit just the right note with voters in yesterday's run-off election.

But for Chile's economic progress to continue (its per capita GDP is about $7,000), the country's leaders must enact fundamental tax, labor, and education reforms. "Because [these reforms] will mean rolling back the dead hand of the state, a consensus will be needed along the lines of the consensus that has accompanied other reforms," Vargas Llosa writes. "Without it, Chile will still shine by comparison with its neighbors, but in international terms will be middle of the table. The impressive results so far indicate there is no reason for Chileans to settle for middle of the table."

See "Chile's Road Ahead," by Alvaro Vargas Llosa (1/13/06)
"El rumbo de Chile"

To pre-order THE CHE GUEVARA MYTH AND THE FUTURE OF LIBERTY, by Alvaro Vargas Llosa (February 2006), see

LIBERTY FOR LATIN AMERICA: How to Undo Five-Hundred Years of State Oppression, by Alvaro Vargas Llosa

Center on Global Prosperity (Alvaro Vargas Llosa, director)

Spanish-language Blog:
El Independent: El Blog del Centro Para la Prosperidad Global de The Independent Institute


4) Pakistan Bombing May Strengthen Al Qaeda, Eland Warns

Although "capturing or killing the brains behind al Qaeda is an important goal," this weekend's botched attempt in Pakistan by the CIA to bomb Ayman Zawahiri -- al Qaeda's second-in-command -- "illustrates why the Bush administration's overly aggressive 'war on terror' actually motivates terrorists to attack the United States," writes Ivan Eland, director of the Independent Institute's Center on Peace & Liberty, in his latest op-ed. The bombing reportedly killed at least 18 civilians and has triggered anti-U.S. protests.

To improve U.S. security, President Bush should ratchet down the war on terror, Eland argues: "The United States should improve human intelligence and strike al Qaeda only when the information is bulletproof. More importantly, to reduce terrorists' motive for attacking the United States in the first place, the administration should quietly withdraw the unneeded land forces from Persian Gulf countries and its support for their authoritarian, venal rulers."

In an article last month for THE AMERICAN PROSPECT, Eland argues at length that al Qaeda targets the United States not because of hostility to American values but because of U.S. interventionism in the Middle East.

"Does attributing the primary cause of anti-U.S. terrorism to U.S. foreign policy and advocating military restraint overseas implicitly blame the victim for the attack and indicate that we should appease terrorists?" writes Eland. "Neither is the case. The terrorists' killing of innocent civilians is heinous, and the short-term U.S. policy should be to punish terrorist groups that attack the United States, whether apprehending their members by using intelligence and law enforcement methods or killing them with the quiet and surgical use of military force (to avoid inflaming anti-U.S. hatred as much as possible). Thus, a policy of swift punishment meted out to anti-U.S. terrorist groups, especially al-Qaeda, cannot be misconstrued as appeasement. But in the long-term, Americans must realize that although the terrorists are wrong for killing innocents, their own government bears some of the blame for creating the underlying grievances motivating terrorists to attack in the first place."

See "'War on Terror' Continues to Create Terrorists," by Ivan Eland (1/16/06)
"La 'Guerra contra el Terror' Sigue Creando Terroristas"

"It's What We Do," by Ivan Eland (AMERICAN PROSPECT, 1/06)

To purchase THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed, by Ivan Eland, see

To purchase PUTTING "DEFENSE" BACK IN U.S. DEFENSE POLICY, by Ivan Eland, see

Center on Peace & Liberty (Ivan Eland, director)


  • Catalyst
  • Beyond Homeless