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Volume 14, Issue 43: October 23, 2012

  1. Should Congress Avert the “Fiscal Cliff”?
  2. The Real Solution to Pre-Existing Conditions
  3. FDIC’s Sheila Bair: Bank Bailout Baroness
  4. Arming the Enemy
  5. New Blog Posts
  6. Selected News Alerts

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1) Should Congress Avert the “Fiscal Cliff”?

Warnings about the so-called fiscal cliff—the danger that the U.S. economy will fall into a recession again unless Congress quickly enacts stop-gap measures to prevent spending cuts and tax increases from going into effect automatically in January—misconstrue the nature of U.S. fiscal crisis. The long-term problem is worse than most people realize. Federal spending is so far out of control, according to Burton A. Abrams, director of, that no legislative “quick fix” can save us—or rather, no real solution with a likelihood of getting enacted is waiting on the horizon.

What may be politically feasible is a bill to increase federal indebtedness to manage a short-term deficit shortfall. That may sound viable in part because interest rates are currently very low. But when rates rise, as they are bound to do, federal budget makers would face even greater pressures to deal with an economy with too much debt and not enough private investment to maintain healthy economic growth.

“Despite the dire warnings of impending doom,” Abrams writes in The Washington Times, “it just might be that the Budget Control Act's fiscal cliff will better serve the long-run interests of the United States than a short-term congressional compromise that fails to get to the core of the problem. It's not a perfect solution, and it doesn't solve the long-term budget problem, but it's a start.”

Falling Off the Fiscal Cliff, by Burton A. Abrams (The Washington Times, 10/15/12)

What is Washington’s spending costing you? Find out at


2) The Real Solution to Pre-Existing Conditions

The problem of pre-existing conditions was prominent in arguments for the Affordable Care Act. However, as of July 31, 2012, only about 82,000 people have enrolled in the federal Pre-Existing Condition Insurance Plan, an interim program that will be dissolved in 2014, when insurance companies will be prohibited from charging premiums based on the health conditions of applicants. Like his rival, presidential contender Mitt Romney would also require insurers to ignore pre-existing conditions, at least for applicants who have been continuously insured for a certain period of time.

Both Obama’s and Romney’s policies on pre-existing conditions would create perverse incentives, according to Independent Institute Research Fellow John C. Goodman, writing in the Wall Street Journal. Healthy buyers would tend to underinsure. Many with expensive health problems would overinsure. And insurers would try to favor inexpensive healthy customers over costly unhealthy applicants. Romney’s plan differs somewhat – it creates risk pools, which must be structured carefully or encourage the healthy to remain uninsured. But Goodman argues that there’s a much better way to deal with the problem of pre-existing conditions: insure yourself against the possibility of becoming uninsurable.

“Under this approach,” Goodman writes, “policies would be guaranteed to be renewable and include the right to buy another policy in the future. If your health condition worsens, a new insurer would be free to charge you a higher premium. But the old insurer would pay the extra premium caused by the change in your health status.”

The Better Solution for ‘Pre-Existing Conditions,’ by John C. Goodman (The Wall Street Journal, 10/17/12)

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


3) FDIC’s Sheila Bair: Bank Bailout Baroness

Sheila Bair, former chairman of the Federal Deposit Insurance Corp., has just published a memoir of her years in the trenches, trying heroically to maintain the safety and soundness of the American financial system while minimizing losses to taxpayers. Bair laments the wave of huge bank bailouts that began in 2008, but in fact she understates her complicity in the federally funded giveaways to bank shareholders and managers. Banking expert and Independent Institute Research Fellow Vern P. McKinley, author of Financing Failure, found more than one case of rewriting history in Bair’s memoir.

Bair voted with the FDIC board to bail out Wachovia, Citigroup, and Bank of America. Regarding the first of these, her book fails to explain why she didn’t allow the two leading regulatory agencies—the Federal Reserve and the Office of the Comptroller of the Currency—to resolve Wachovia’s dilemma without recourse to bailout money. Citigroup even seemed eager and able to acquire it. In this case and in others, Bair’s agency undertook almost no analysis of how bank insolvencies would play out. Ultimately, Bair wasn’t an impediment to bailouts—she was an enabler that allowed bailouts to move forward.

The result wasn’t only that powerful banks raided the taxpayer cookie jar with the aid and blessing of bank regulators: Bair’s failings have made big banks even more dominant in the banking industry than they used to be. “As a result, the big banks are even bigger and just as vulnerable to the next crisis,” McKinley writes. “We will suffer from the long-term consequences of these snap decisions for decades to come.”

Sheila Bair’s Bailout Blame Game, by Vern P. McKinley (The Daily Caller, 10/19/12)

Financial Failure: A Century of Bailouts, by Vern P. McKinley


4) Arming the Enemy

Afghanistan’s fledgling military has been infiltrated. How significant is this development? Brace yourself for an alarming statistic: 15 percent of the foreign troops killed this year in Afghanistan are casualties of so-called “green-on-blue” attacks—Taliban infiltrators. A suicide bomber who killed two Americans and several Afghans has penetrated even the Afghan intelligence community.

The problem of infiltration, according to Independent Institute Senior Fellow Ivan Eland, should give pause to U.S. policymakers who would send more weapons to our ostensive allies in Afghanistan—or to supposedly anti-authoritarian opposition groups in Syria.

“Syrian Islamists are receiving the lion’s share of the small arms already sent,” Eland writes in his latest op-ed. “So much for U.S. intelligence’s ability to vet arms recipients during an anarchic civil war. All we need is radical Islamists with an ability to shoot down civilian airliners or use hand-held anti-tank weapons on buildings, energy facilities, or other key infrastructure.”

The Enemy Is Among Us, by Ivan Eland (10/16/12)

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


5) New Blog Posts

From The Beacon:

How Much Does Healthcare Spending Matter?
John C. Goodman (10/22/12)

On Acting Rationally in More Ways than One
Robert Higgs (10/21/12)

Claim that Unemployment Figures Were Cooked Not so "Ludicrous" After All?
Mary Theroux (10/19/12)

Randall Holcombe (10/19/12)

Can a Free Market in Healthcare Work?
John C. Goodman (10/17/12)

The Buck Stops Here
Randall Holcombe (10/16/12)

From MyGovCost News & Blog:

Fed Battery Boost a Bust
Lloyd Billingsley (10/22/12)

Justice Light as a Feather
Lloyd Billingsley (10/18/12)

The Growing Complexity of Medicare
Craig Eyermann (10/17/12)

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


6) Selected News Alerts

Vern McKinley on ‘District of Corruption: The Movie’

Robert Higgs cited on federal waste

Stephen Halbrook on the right to bear arms

Alex Tabarrok on Marriage, Kidneys, and the Nobel Prize

John C. Goodman on why healthcare is not free


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