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Volume 18, Issue 6: February 9, 2016

  1. Federal Reserve: Condemned to Repeat Mistakes
  2. Healthcare Reform We Should All Agree On
  3. Spain’s Political Impasse Threatens Economic Recovery and National Unity
  4. Challenge of Liberty Seminars Now Accepting Applications
  5. New Blog Posts
  6. Selected News Alerts

1) Federal Reserve: Condemned to Repeat Mistakes

“Those who cannot remember the past,” wrote George Santayana, “are condemned to repeat it.” Those who fail to learn from past mistakes (something different from merely remembering them) are similarly doomed. According to Independent Institute Research Fellow Scott Sumner, the maxim applies to policymakers at the Federal Reserve, except that the burden of their mistakes falls not on the policymakers, but on the public. Exhibit A, Sumner argues, is the parallel between the Fed’s monetary expansion during the Great Depression and the central bank’s “quantitative easing” (QE) program that began in 2008, under Fed Chair Ben Bernanke, and continued under his successor, Janet Yellen.

Author of the path-breaking new book The Midas Paradox (“A must read.”—Manuel H. Johnson II, former Vice Chairman, Federal Reserve System), Sumner views the Fed’s monetary expansions during the Great Depression and the Great Recession as too little, too late. “Just as in the 1930s, most people—even most economists—initially assumed that the stance of monetary policy was highly expansionary in the period after 2008,” Sumner writes in an op-ed for the Fiscal Times. “As in the 1930s, people focused too much on the inputs into monetary policy, such as interest rates and QE, and not enough on the output, inflation and nominal GDP growth.”

But the parallels between the two economic doldrums are not limited to monetary policies that were a day late and a dollar short. Both periods also saw calls for the government to artificially raise wage rates. In 1933, for example, President Roosevelt issued an executive order that pushed up hourly wage rates by 20 percent—effectively killing the economic recovery that had begun when the dollar was devalued months earlier. More recently, misguided activists and policymakers have called for large increases in the minimum wage. “If it were to be doubled to $15, as some progressives now advocate, the cost in jobs could be quite significant,” Sumner concludes.

Are Congress and the Fed Repeating the Mistakes of the Depression?, by Scott Sumner (The Fiscal Times, 2/4/16)

The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, by Scott Sumner

Boom and Bust Banking: The Causes and Cures of the Great Recession, edited by David Beckworth


2) Healthcare Reform We Should All Agree On

American healthcare is a political hornets’ nest: Every proposed reform has been opposed by either employers or unions or some other interest group. However, the presence of large inefficiencies in the healthcare system indicates that improvements could be made that would make both employers and employees better off. In his latest column at Forbes, Independent Institute Senior Fellow John C. Goodman, who has thought about healthcare policy longer than some pundits have been alive, proposes a policy alternative to do exactly that.

Titled “Let Employers Decide How Health Insurance Should Be Subsidized at Work,” Goodman’s piece calls for giving every employer (or union) a choice between two alternatives: “They can continue under the current tax regime, or they can have a dollar-for-dollar tax credit up to an amount equal to the average subsidy under the current system.... If the employer chooses the credit approach, the first $2,000 is tax free to the employer and any expenses beyond that must be made with after-tax dollars.”

Faced with such a choice, nearly every employer and union would opt for the tax credit alternative, whether the credit equals the current subsidy for a worker (and the worker’s family), exceeds the current subsidy, or is less than the current subsidy. This policy should not be particularly controversial, according to Goodman, because whereas Obamacare subsidizes private insurance through the health insurance exchanges, his proposed “fixed dollar tax credit” extends the idea to health insurance at work, something even some of Obama’s top healthcare advisors had proposed at one time or another. “Given the widespread support across the political spectrum, perhaps this is one type of health reform on which all sides can come together and agree,” Goodman concludes.

Let Employers Decide How Health Insurance Should Be Subsidized at Work, by John C. Goodman (Forbes, 1/25/16)

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

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


3) Spain’s Political Impasse Threatens Economic Recovery and National Unity

Spain’s new political gridlock—the outcome of elections in December that gave no party a solid victory—raises serious doubts about a nation that had recently pulled its economy out of the quagmire. What’s next for the land of Cervantes, tapas, and Xavi? Anything is possible, according to Independent Institute Senior Fellow Alvaro Vargas Llosa. In his latest op-ed in the Globe and Mail, Vargas Llosa looks at the causes and consequences of Spain’s predicament.

What happened? Spain had seen its fortune rising in recent years, with GDP growing in 2015 at a respectable rate of 3 percent, and unemployment falling by 8 percent on an annualized basis, thanks in part to the loosening of labor-market controls. Alas, this progress was not enough to ensure that voters would return political incumbents to office. Capitalizing on the public’s frustration with a series of corruption scandals, two political parties—the radical-left Podemos and and the center-right Citizens party—managed to weaken the hold of the governing Populist Party and the Socialists. What lies ahead?

The dismantling of Spain’s economic reforms is a strong possibility. This would be a tragic setback, returning the nation to the troubled status it once shared with Portugal, Ireland, and Greece. An even worse consequence would be a constitutional crisis, which could come about if nationalists in Catalonia gain traction in their campaign for independence (a possibility made more likely by their recent alliance with an extreme-left party). If this wasn’t enough cause for concern, a resurgent extreme-right movement also warrants concern. Needless to say, these uncertainties have created a poor climate for private investment and job growth. “When the range of options is that wide,” Vargas Llosa writes, “economic producers tend to take one step back and political hotheads one step forward.”

Spain’s Political Gridlock is No Recipe for Economic Growth, by Alvaro Vargas Llosa (The Globe and Mail, 2/5/16)

Global Crossings: Immigration, Civilization, and America, by Alvaro Vargas Llosa

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa


4) Challenge of Liberty Seminars Now Accepting Applications

Attention, College Students: Want to learn about freedom in a collegial setting with other young minds? Eager to learn how the world works—and how to make it better? If so, the Independent Institute’s Challenge of Liberty Seminars may be the most important educational event you will ever attend. This year we will hold two seminars:

  • June 20–24: Santa Clara, California
  • July 18–22: Colorado Springs, Colorado

This five-day program teaches college-aged students about the ethical and economic principles of free societies—truths that are immensely helpful for making sense of today’s world as well as for changing it.

Informative, inspiring, and fun, the Challenge of Liberty is an ideal way to:

  • Study free-market economics with leading professors
  • Discover the foundations of liberty in Western Civilization
  • Get valuable advice on your career in academia and beyond
  • Meet like-minded students from around the world

See our curriculum, last year’s faculty, and application. Scholarships are available and cover tuition, and room and board.

Apply by February 19 for a free copy of The Challenge of Liberty, edited by Robert Higgs and Carl P. Close.

Not eligible to attend? Sponsor a student!


6) Selected News Alerts

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  • Catalyst
  • Beyond Homeless