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Volume 17, Issue 35: September 1, 2015

  1. How the Federal Reserve Makes Stock Prices More Volatile
  2. Building Up Housing Prices
  3. How to Help Seniors with Healthcare and Save Taxpayer Money
  4. Airline Investigation Is Pie-in-the-Sky
  5. Job Opening: Director of Development
  6. New Blog Posts
  7. Selected News Alerts

1) How the Federal Reserve Makes Stock Prices More Volatile

America’s central bank claims to promote the safety and soundness of the U.S. financial system. The stock market’s recent volatility, however, is tied closely to the Federal Reserve’s policy of aggressive asset purchases and money creation that began in late 2008. As Independent Institute Research Fellow Robert P. Murphy explains in an op-ed for The Daily Caller, the S&P 500 Index has moved practically in lockstep with the explosive growth in the Fed’s balance sheet since it began its program of “Quantitative Easing” to deal with the financial crisis.

According to Murphy, however, the Fed’s unprecedented build-up in its total assets, and its companion policy of suppressing interest rates below their natural level, have created an unsustainable bubble in stock prices. As the Austrian School economist Ludwig von Mises first explained, such policies trick consumers and investors into acting as if the economy has generated savings to support plenty of new investments when in reality it hasn’t. This artificial boom in turn sets the stage for a market correction and an economic recession.

“The Fed’s actions—including virtually zero percent short-term interest rates for years on end—have simply sabotaged the market’s normal mechanisms,” Murphy writes. “The full bust that should have occurred in 2008 was merely pushed back, with the underlying malinvestments festering.” Mises explained why policymakers should resist the temptation to suppress interest rates, in books such as his treatise Human Action, a masterpiece that Murphy guides readers through in his new book, Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

Mises and the Market, by Robert P. Murphy (The Daily Caller, 8/26/15)

Choice: Cooperation, Enterprise, and Human Action, by Robert P. Murphy

Choice is blogged about at Patterico’s Pontifications


2) Building Up Housing Prices

Housing starts reached an eight-year high in July, and apartment construction is about as high as it’s been in 27 years. The new housing boom is welcome news to prospective homebuyers. But in some real-estate markets, such as uber-expensive San Francisco, the housing supply isn’t growing anywhere fast enough to reduce rents and home prices. Rents are so high in the City by the Bay that schools may not attract enough teachers to meet their hiring goals before students return to the classroom. The high cost of housing is the subject of Episode 4 of our satirical Love Gov video series, “House Poor.”

Numerous public policies make housing more expensive than it would be otherwise. Local governments, for example, use zoning restrictions to determine how many and where houses can be built, which reduces supply and thus raises home prices. Also, local governments sometimes mandate that some new housing be sold below-market, which increases the price of all other housing. The government also has various programs to enable home shoppers to purchase houses they couldn’t otherwise have bought. Along with helping to raise home prices, this “assistance” can saddle borrowers with unsustainable debt burdens—factors that help set the stage for a foreclosure crisis.

Housing policy is a mass of contradictions. The government wants to help people buy homes. But it also wants house prices to go up, because many homeowners consider their house an investment. As was shown with the bursting of the housing bubble in 2007, the clash of these goals can wreak havoc on entire communities as well as traumatize individual homebuyers who can’t keep up their mortgage payments. And now “Gov” is at it again, “helping” people buy homes they can ill afford. Maybe you can find some good deals if you wait for the next residential real-estate bust!

Video: Love Gov: From First Date to Mandate

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin W. Powell

Below-Market Housing Mandates as Takings: Measuring their Impact, by Edward J. López, Edward P. Stringham, and Thomas Means (Independent Policy Report, 11/9/07)


3) How to Help Seniors with Healthcare and Save Taxpayer Money

This summer the Obama administration took a bold step in making labor markets more dynamic and consumer prices lower: it issued a report by three departments that named occupational licensing requirements as an impediment to workers and consumers. Recognizing a problem, as they say, is the first step toward solving it. And although the federal government appears to have little direct involvement in creating these roadblocks to employment and promoters of job protectionism, the feds have at least two means at their disposal to provide workarounds for licensing in healthcare, according to Independent Institute Senior Fellow John R. Graham.

First we must note that convenient care clinics—walk-in clinics in drug stores, for example—are staffed by nurse practitioners, who possess limited authority to prescribe pharmaceuticals. In seven states, however, these healthcare professionals don’t have walk-in clinics to work at. Because Medicare pays convenience clinics 85 percent of the cost of a doctor, the public purse as well as consumers would benefit if consumers in those seven states could access such clinics.

Graham, however, has conceived of a way for consumers and the federal government to enjoy greater benefits from convenience clinics. “First, allow ‘site-neutral’ payment,” Graham writes. “Why pay more for a flu shot in a doctor’s office than at a convenient clinic? Second, encourage Medicare beneficiaries to take advantage of convenient clinics by sharing some of the savings with them. Many shots and preventive screenings are fully covered by Medicare with no copay or deductible. Offer the Medicare beneficiary a small financial bonus for getting them at a convenient clinic.”

Occupational Licensing and Health Spending, by John R. Graham (The Hill, 8/21/15)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

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


4) Airline Investigation Is Pie-in-the-Sky

The Obama administration has opened an antitrust investigation into one of the most competitive and least profitable industries in the United States: airlines. With its numerous economic challenges over the past fifteen years and historic razor-thin margins, the air travel industry has been going through a period of mergers and acquisitions. Consequently, the top four carriers serve 85 percent of domestic air travel. But as Independent Institute Research Fellow Abigail R. Hall and 2015 Summer Associate Student Programs Director Mark LaPrairie explain, industry concentration is not necessarily a good proxy for competition.

Due to their cost structures, firms in certain industries—natural monopolies—are able to produce efficiently by taking advantage of economies of scale. The result is that prices in these industries may be lower when there are fewer competitors than when there are many. “It follows from this logic that the mergers [the Department of Justice] cited as a breakdown of competition may actually be a good thing in the airline industry,” Hall and LaPrairie write.

This, along with the strong incentives for collusive cartels to break down, should cause the Obama administration to reconsider its antitrust investigation. “It’s easy to look at industries like the airlines and accuse them of the worst,” Hall and LaPrairie continue. “But before we assume that firms providing a valuable service to millions of people are being unfair, we must examine the facts. Otherwise, we all may wind up grounded.”

Airline Cartel on the Loose?, by Abigail R. Hall and Mark LaPrairie (Quad-Cities Times, 8/21/15)

Airline Deregulation Act of 1978, by William Shughart (The Beacon, 8/24/14)

What Caused Airline Deregulation: Economists or Economics?, by Gary McDonnell (The Independent Review, Winter 2015)

Jimmy Carter, Alfred Kahn, and Airline Deregulation: Anatomy of a Policy Success, by John Howard Brown (The Independent Review, Summer 2014)


5) Job Opening: Director of Development

Independent Institute is looking for an exceptional Development professional—one who understands and advocates the principles of individual liberty and free societies—to lead our fundraising program. For details, please visit our job description page.


6) New Blog Posts

Obama Is Half Right about Katrina
Mary Theroux (8/28/15)

Safe, Legal, and Rare, Part 2: Legal?
Mary Theroux (8/28/15)

Follow the Silk Road
Abigail Hall (8/27/15)

In Memoriam: Nathan Rosenberg (1927-2015)
Robert Higgs (8/26/15)

The Decline in R&D Efficiency in the Drug Industry
Lawrence J. McQuillan (8/25/15)

Aspirations and Policies
Randall Holcombe (8/25/15)

From MyGovCost News & Blog:

The Bureaucrat Who Hardly Ever Worked
Craig Eyermann (8/30/15)

Audit Tees Off on Statewide Waste
K. Lloyd Billingsley (8/28/15)

Government Tunnel Vision Versus Drought Solutions
K. Lloyd Billingsley (8/25/15)

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


7) Selected News Alerts


  • Catalyst
  • Beyond Homeless