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Newsletter of The Independent Institute Volume 20, Number 3 Fall 2010 Can We Finally Give Free Markets a Chance? by Mary L. G. Theroux* theory of “market failure” worse schools with fewer graduates, at a massively is widely touted as the higher cost. The Department of Defense’s failure cause of our current econom- to provide for the common defense resulted only in ic woes, despite the theory’s the addition of more bureaucracy in the form of the own failure and the inherent Department of Homeland shortcomings of its various in- Security. And, most recently, carnations, as revealed in the we have the inept response Independent Institute’s book, Market Failure or of the Environmental Pro- Success. Rather, systemic government tection Agency—tasked by failure is the far more consistent expla- law since 1994 to plan for nation for disasters such as the 2008 and be first responder to oil fi nancial crash, as detailed spills—and other federal in “Anatomy of a Train agencies to the BP blowout. Wreck: Causes of the Mort- And the list goes on. gage Meltdown”—a chap- Such continued acceptance of govern- ter in our recent book, ment failure must result from a false Housing America—which assumption that since government pro- shows the role of govern- vides a service now, government must be ment failure in creating the necessary for that service’s provision—i.e., these are fi nancial bubble that misdi- “public goods” that a market would not provide— rected resources into inher- or at least, not sufficiently—if government did not ently unsustainable activities. provide them. Indeed, we see such failure at nearly every Which brings us to the significance of the turn when we examine government operations: Independent Institute’s logo, the lighthouse, and thirty years of centralized, command-and-control the promise it is meant to convey. For, contrary to at the U.S. Department of Education has produced the long-accepted assumption that lighthouses— with services available to all regardless of their *Mary L. G. Theroux is Senior Vice President at paying—would be provided only if the government the Independent Institute. provided them, Nobel Prize-winning economist Ronald Coase revealed their actual history, show- ing that, when allowed, lighthouses were privately IN THIS ISSUE established and operated until the government took them over. Give Free Markets a Chance ......................................1 The stark fact is that markets have been fettered, President’s Letter ...................................................... 2 regulated, and stifled by government control for The Independent Review ........................................... 3 decades, with resultant handicapped abilities to Independent Institute in the News ..........................4 respond to our needs and desires. Research and topical commentary by the Institute’s array of New Book: Property Rights ....................................... 5 scholars provide sound, workable, market-based Independent Policy Forum ........................................ 5 answers for society’s concerns: Government Cost Calculator ....................................6 • Prior to government involvement, literacy and Why I Give: Sally S. Harris ........................................ 8 (continued on page 7) 2 The INDEPENDENT President’s Letter EXECUTIVE STAFF DAVID J. THEROUX, Founder and President MARY L. G. THEROUX, Senior Vice President “Regime Uncertainty” MARTIN BUERGER, Vice President & Chief Operating Officer ALEXANDER TABARROK, Ph.D., Research Director BRUCE L. BENSON, Ph.D., Senior Fellow he recession continues IVAN ELAND, Ph.D., Senior Fellow ROBERT HIGGS, Ph.D., Senior Fellow with official unemploy- ROBERT H. NELSON, Ph.D., Senior Fellow T CHARLES V. PEÑA, Senior Fellow WILLIAM F. SHUGHART II, Ph.D. Senior Fellow ment nearly 10% nationally, ALVARO VARGAS LLOSA, Senior Fellow RICHARD K. VEDDER, Ph.D., Senior Fellow reaching 12.3% in California, CARL P. CLOSE, Research Fellow, Academic Affairs Director EMILY C. SKARBEK, Research Fellow and Center Director ROY M. CARLISLE, Marketing and Sales Director and Treasury Secretary Timo- LINDSAY M. BOYD, Communications Director JULIANNA JELINEK, Development Director thy Geithner expects the job- GAIL SAARI, Publications Director ROLAND DE BEQUE, Production Manager less rate to increase further as BOARD OF DIRECTORS gilbert I. collins, Private Equity Manager private sector hiring weakens. JOHN HAGEL III, Co-Chairman, Center for the Edge, Deloitte & Touche USA, LLP SALLY S. HARRIS, Vice Chairman, Albert Schweitzer Fellowship Meanwhile, total federal debt has climbed to $13.4 PETER A. HOWLEY, Chairman, Howley Management Group PHILIP HUDNER, ESQ., Lawyer, Botto Law Group, LLC trillion with no end in sight as Washington politicos Isabella S. johnson, President, The Curran Foundation W. Dieter Tede, President, Hopper Creek Winery David J. Theroux, Founder and President, The Independent Institute push for even greater profligacy. Mary L. G. Theroux, Former Chairman, Garvey International According to the Washington Post: SALLY von behren, Businesswoman BOARD OF ADVISORS herman belZ “ [A]s analysts ponder the mystery of weak Professor of History, University of Maryland Thomas Borcherding private-sector hiring despite signs of economic Professor of Economics, Claremont Graduate School Boudewijn Bouckaert Professor of Law, University of Ghent, Belgium growth, it’s worth asking what role is played James M. Buchanan Nobel Laureate in Economic Science, George Mason University ALLAN C. CARLSON by government-induced uncertainty. With the President, Howard Center for Family, Religion, and Society ROBERT D. COOTER federal government promoting major changes in Herman F. Selvin Professor of Law, University of California, Berkeley Robert W. Crandall Senior Fellow, Brookings Institution health care, financial regulation and energy law, RICHARD A. EPSTEIN James Parker Hall Distinguished Service Professor of Law, University of Chicago A. ERNEST FITZGERALD it wouldn’t be surprising if some companies are Author, The High Priests of Waste and The Pentagonists B. Delworth Gardner more inclined to wait and see than they might Professor of Economics, Brigham Young University George Gilder Senior Fellow, Discovery Institute otherwise be. And that’s especially true when Nathan GlaZer Professor of Education and Sociology, Harvard University WILLIAM M. H. HAMMETT they look at looming American indebtedness Former President, Manhattan Institute Ronald Hamowy and the effect that could have on long-term Emeritus Professor of History, University of Alberta, Canada STEVE H. HANKE Professor of Applied Economics, Johns Hopkins University interest rates.” JAMES J. HECKMAN Nobel Laureate in Economic Science, University of Chicago H. ROBERT HELLER Exactly! And this profound insight, “regime un- President, International Payments Institute wendy kaminer certainty,” was first explained by Senior Fellow Robert Contributing Editor, The Atlantic Monthly LAWRENCE A. KUDLOW Chief Executive Officer, Kudlow & Company Higgs and then featured in his Institute book Depres- JOHN R. MacARTHUR Publisher, Harper’s Magazine sion, War, and Cold War. Just as FDR’s New Deal DEIRdre N. McCloskey Distinguished Professor of Liberal Arts and Sciences, Univ. of Illinois at Chicago J. Huston McCulloch prolonged and deepened the Great Depression, so Professor of Economics, Ohio State University Forrest McDonald Distinguished University Research Professor of History, University of Alabama too have George W. Bush’s TARP bailout and Barack Thomas Gale Moore Senior Fellow, Hoover Institution Obama’s “stimulus” hampered economic recovery. Charles Murray Senior Fellow, American Enterprise Institute Michael Novak Big Government is hardly better government. Jewett Chair in Religion and Public Policy, American Enterprise Institute JUNE E. O’NEILL Now, the stunning magnitude of the accumulated Director, Center for the Study of Business and Government, Baruch College Charles E. Phelps Provost and Professor of Political Science and Economics, University of Rochester U.S. fiscal insolvency is made vividly clear in our Paul Craig Roberts Chairman, Institute of Political Economy Nathan Rosenberg new Government Cost Calculator (MyGovCost.org, Fairleigh S. Dickinson, Jr. Professor of Economics, Stanford University Simon Rottenberg p. 6) that enables anyone to determine their share Professor of Economics, University of Massachusetts PAUL H. RUBIN Professor of Economics and Law, Emory University of the cost of major federal programs and what BRUCE M. RUSSETT Dean Acheson Professor of International Relations, Yale University Pascal Salin one’s share of those costs would have produced if Professor of Economics, University of Paris, France VERNON L. SMITH invested privately. Nobel Laureate in Economic Science, Chapman University Pablo T. Spiller We believe unique tools such as the Government Professor of Business and Public Policy, University of California, Berkeley Joel H. Spring Professor of Education, State University of New York, Old Westbury Cost Calculator can be immensely helpful in creating Richard L. Stroup Professor of Economics, Montana State University Thomas S. SZasZ the climate of opinion needed for major reform, and Emeritus Professor of Psychiatry, State University of New York, Syracuse Robert D. Tollison we invite you to join as an Independent Associate Professor of Economics and BB&T Senior Fellow, Clemson University Arnold S. Trebach Professor of Criminal Justice, American University Member. With your tax-deductible