The Independent Institute and Editor of Other Financial Institutions

VOLUME 19, NUMBER 4 winter 2010 Economic Troubles and the Growth of Government by Robert Higgs* he current recession to a head in late September 2008 proved to be the Tand, especially, the re- catalyst for an accelerated decline in real GDP and lated financial panic in the rise in the rate of unemployment. The so-called fall of 2008 have given rise credit crunch in the fall to an extraordinary surge in of 2008 prompted the the U.S. government’s size, Fed, the Treasury, and scope, and power. As I write, the Congress to take a the financial panic has subsided, but series of extraordinary the recession, already the longest actions in quick suc- since the 1930s, seems likely to con- cession. tinue for a long time. Even when it has In September 2008, passed, however, the government will the Federal Reserve Sys- certainly retain much tem (“the Fed”) took of the augmentation control of the insurance it has gained recently. giant American International Group Hence, this crisis will (AIG), and the Federal Housing Fi- prove to be the occasion nance Authority took over the huge for another episode of government-sponsored enterprises the ratchet effect in the Fannie Mae and Freddie Mac, secondary lending growth of government. institutions that held or insured more than half of According to the Na- the total value of U.S. residential mortgages. On tional Bureau of Eco- October 3, the president signed the Emergency nomic Research, the recession began early in Economic Stabilization Act, which, among other 2008, but the decline became severe only in the things, created the Troubled Assets Relief Program latter part of the year. The financial panic that came (TARP), authorizing as much as $700 billion for the purchase of so-called troubled assets, primar- * Robert Higgs is Senior Fellow in Political Econ- ily mortgage-related securities, held by banks and omy at the Independent Institute and editor of other financial institutions. Instead of making The Independent Review. the authorized purchases, however, the Treasury used the TARP to inject funds into the banks by purchasing their preferred shares. In this way, IN THIS ISSUE the government acquired an ownership interest “Economic Troubles” by Dr. Robert Higgs ...... 1 in nearly 600 commercial banks. President’s Letter...... 2 Meanwhile, the Fed made a series of unprec- The Independent Review...... 3 edented types of asset purchases and loans, loan Independent Institute in the News...... 4 guarantees, and asset swaps, and provided other Policy Reports Seek Insurance Deregulation ...... 5 forms of assistance to securities dealers, money- Student Programs Spark Spirit of Liberty...... 6 market mutual funds, Fannie Mae, Freddie Mac, Independent Institute Launches New Center ...... 7 the Federal Home Loan Banks, Citigroup, four- Help Us Advance the Future of Liberty ...... 8 (continued on page 7) 2 The INDEPENDENT

President’s Letter EXECUTIVE STAFF DAVID J. THEROUX, Founder and President Culture and Liberty MARY L. G. THEROUX, Vice President MARTIN BUERGER, Vice President & Chief Operating Officer ALEXANDER TABARROK, Ph.D., Research Director If we present man with a BRUCE L. BENSON, Ph.D., Senior Fellow “ IVAN ELAND, Ph.D., Senior Fellow ROBERT HIGGS, Ph.D., Senior Fellow concept of man which is not ROBERT H. NELSON, Ph.D., Senior Fellow CHARLES V. PEÑA, Senior Fellow true, we may well corrupt WILLIAM F. SHUGHART II, Ph.D. Senior Fellow ALVARO VARGAS LLOSA, Senior Fellow him. . . . The gas chambers of RICHARD K. VEDDER, Ph.D., Senior Fellow CARL P. CLOSE, Academic Affairs Director GAIL SAARI, Publications Director Auschwitz were the ultimate JULIANNA JELINEK, Development Director ROY M. CARLISLE, Marketing and Sales Director consequence of the theory WENDY HONETT, Publicity Director ROLAND DE BEQUE, Production Manager that man is nothing but the BOARD OF DIRECTORS product of heredity and environment—or, as the gilbert i. collins, Private Equity Manager PHILIP HANNER, Of Counsel, Botto Law Group Nazis liked to say, of ‘Blood and Soil.’ I am abso- PETER A. HOWLEY, Chairman, Howley Management Group Isabella S. johnson, President, The Curran Foundation lutely convinced that the gas chambers . . . were W. Dieter Tede, President, Hopper Creek Winery David J. Theroux, Founder and President, The Independent Institute Mary L. G. Theroux, former Chairman, Garvey International ultimately prepared not in some Ministry or other SALLY von behren, Businesswoman in Berlin, but rather at the desks and in the lecture BOARD OF ADVISORS herman belz halls of nihilistic scientists and philosophers.” Emeritus Professor of History, University of Maryland Thomas Borcherding —Viktor E. Frankl, Holocaust survivor; Professor Professor of Economics, Claremont Graduate School Boudewijn Bouckaert Professor of Law, University of Ghent, Belgium of Neurology, University of Vienna James M. Buchanan Nobel Laureate in Economic Science, George Mason University ALLAN C. CARLSON A grassroots movement is sweeping the U.S., President, Howard Center for Family, Religion, and Society ROBERT D. COOTER involving millions of people rediscovering the Herman F. Selvin Professor of Law, University of California, Berkeley Robert W. Crandall Senior Fellow, Brookings Institution principles of liberty. This cultural awakening is RICHARD A. EPSTEIN James Parker Hall Distinguished Service Professor of Law, University of Chicago A. ERNEST FITZGERALD challenging the bailouts, debt, wars, violations of the Author, The High Priests of Waste and The Pentagonists B. Delworth Gardner Bill of Rights, economic decline, and socialization of Emeritus Professor of Economics, Brigham Young University George Gilder economic and social life. Senior Fellow, Discovery Institute Nathan Glazer Professor of Education and Social Structure, Emeritus, Harvard University Yet Washington power grabs are in a frenzy, WILLIAM M. H. HAMMETT Former President, Manhattan Institute Ronald Hamowy pushing to control the well-being of every American. Emeritus Professor of History, University of Alberta, Canada STEVE H. HANKE Based on a moral relativism that views individuals Professor of Applied Economics, Johns Hopkins University JAMES J. HECKMAN as mere raw material to be manipulated, most intel- Nobel Laureate in Economic Science, University of Chicago H. ROBERT HELLER Director, Sonic Automotive lectual “elites” have long derided the cultural tradi- wendy kaminer Contributing Editor, The Atlantic Monthly LAWRENCE A. KUDLOW tions of individual liberty and responsibility, private Chief Executive Officer, Kudlow & Company JOHN R. MacARTHUR property, and free markets. Such “elites” believe that Publisher, Harper’s Magazine DEIRdre N. McCloskey people should be controlled and socialized to solve Distinguished Professor of Liberal Arts and Sciences, Univ. of Illinois at Chicago J. Huston McCulloch Professor of Economics and Finance, Ohio State University every problem. And with a true-believing Barack Forrest McDonald Distinguished University Research Professor of History, University of Alabama Thomas Gale Moore Obama as President, the rush is on to impose every Senior Fellow, Hoover Institution Charles Murray type of long-sought collectivism. W. H. Brady Scholar, American Enterprise Institute Michael Novak Although the folly of statism is becoming more Jewett Scholar in Religion and Public Policy, American Enterprise Institute JUNE E. O’NEILL Director, Center for the Study of Business and Government, Baruch College and more apparent to many Americans, few un- Charles E. Phelps Provost Emeritus Professor of Political Science and Economics, University of Rochester Paul Craig Roberts derstand the nature of and solution to this cultural Chairman, Institute of Political Economy Nathan Rosenberg malaise and the threat it poses. As a result, we have Fairleigh S. Dickinson, Jr. Emeritus Professor of Economics, Stanford University PAUL H. RUBIN launched the Center on Culture and Civil Society (p. Samuel Candler Dobbs Professor of Economics and Law, Emory University BRUCE M. RUSSETT Dean Acheson Professor of International Relations, Yale University 7) to produce a new integrated understanding of the Pascal Salin Professor of Economics, University of Paris, France VERNON L. SMITH foundations of free societies. Senior Fellow Robert Nobel Laureate in Economic Science, George Mason University Pablo T. Spiller Nelson’s new book, The New Holy Wars, builds on the Professor of Business and Public Policy, University of California, Berkeley Joel H. Spring work of Jonathan Bean’s Race and Liberty in America, Professor of Education, State University of New York, Old Westbury Richard L. Stroup Adjunct Professor of Economics, North Carolina State University Robert Higgs’s Depression, War, and Cold War (p. 1), Thomas S. Szasz Emeritus Professor of Psychiatry, State University of New York, Syracuse and other Institute publications. Robert D. Tollison Professor of Economics and BB&T Senior Fellow, Clemson University Arnold S. Trebach Because we cannot let a new Dark Age of collectiv- Professor Emeritus of Criminal Justice, American University GORDON TULLOCK ism take hold, we invite you to join as an Indepen- University Professor of Law and Economics, George Mason University GORE VIDAL Author, Burr, Lincoln, 1876, The Golden Age, and other books dent Associate Member. With your tax-deductible Richard E. Wagner Hobart R. Harris Professor of Economics, George Mason University membership, you can receive a FREE copy of Race Paul H. Weaver Author, News and the Culture of Lying and The Suicidal Corporation Walter E. Williams and Liberty in America, along with other publica- Distinguished Professor of Economics, George Mason University Charles Wolfe, Jr. tions, including our journal edited by Dr. Higgs, The Senior Economist and Fellow, International Economics, RAND Corporation Independent Review (p. 3), plus other benefits (see THE INDEPENDENT (ISSN 1047-7969): newsletter of the Independent Institute. Copyright ©2009, The Independent Institute, 100 Swan Way, Oakland, CA attached envelope). 94621-1428 • 510-632-1366 • Fax: 510-568-6040 • [email protected] www.independent.org. The INDEPENDENT 3

The Independent Review Carbon Taxes • Nationalizing Private Life • Food Safety

ere we feature highlights of the Fall 2009 in reprisal or for spying, accidental killing, and Hissue of The Independent Review, the Inde- starvation. pendent Institute’s quarterly journal. The war also took a heavy toll on its survivors The Case Against a Carbon Tax and on European civilization itself, explains Austin College historian T. Hunt Tooley (“Some Costs of Climate change proposals debated in Wash- the Great War: Nationalizing Private Life”). ington, D.C., have centered around so-called For three centuries, individualism and con- cap-and-trade legislation, but many economists stitutionalism had spread across Europe, but in and scientists favor a carbon tax to curb the car- the years just prior to the war, Europeans increas- bon dioxide emissions believed to cause global ingly defined themselves by national and class warming. The case for a carbon tax, however, is membership. The war accelerated this collectivist weaker than they assume, according to Robert backlash. P. Murphy, an economist for the Institute for Energy Research (“Rolling the DICE: William Nordhaus’s Dubious Case for a Carbon Tax”). The most influential economic model used to calculate an “optimal” carbon tax—developed by William Nordhaus of Yale University—is deeply flawed, Murphy argues. Among other problems, it employs questionable estimates of (1) future concentrations of carbon dioxide, (2) temperature increases associated with those concentrations, and (3) economic costs associated with those estimated temperature increases. Why is this a problem? A change in any one of those inputs would yield a vastly dif- ferent “optimal” carbon tax—and the model employs scores of dubious inputs. Recall the old computer-programming adage: Garbage in, garbage out. But even if the models were perfected, political pressures would likely prevent a carbon tax from working as advertised, according to Murphy. The Independent Review, Fall 2009 How then should we manage risks that might arise from climate change? Murphy Governments of the belligerent nations led the recommends the removal of legal and regula- way. They heavily intervened in civilians’ economic tory obstacles that keep people from effectively activities and curtailed civil liberties. adjusting to change. To carry out their illiberal policies, governments “Rather than depending on conjectural fostered new attitudes about private property and models and the good faith of politicians,” writes private life itself. Statist propaganda flourished. By Murphy, “economists should instead consider weakening property rights, governments down- the ability of markets to generate wealth to ease graded the autonomy of individuals and families. the adaptation process.” Private life was in effect nationalized. See www.independent.org/publications/tir/ “The upshot of the Great War was a sea change article.asp?a=751. in all relations of the individual to the state and therefore a sea change in all relations between World War I and the and among individuals, families, churches, and Nationalization of Private Life nonstate groups,” writes Tooley. More than 10 million soldiers are believed to The nationalization of private life, Tooley con- have been killed in World War I. Civilian deaths tends, did not end with the signing of the Treaty of are harder to determine, but many millions died Versailles but continues to the present day. of mass murder, forced migration, execution (continued on page 6) 4 The INDEPENDENT

The Independent Institute in the News • Center on Entrepreneurial Innovation: Senior • Center on Law and Justice: Research Fellow Fellow William F. Shughart II discussed the Jonathan Bean provided commentary on the Pittsburgh meeting of the G-20 on Radio Free 46th anniversary of Dr. King’s “Dream” speech Europe and wrote on the U.S. Postal Service for for San Gabriel Valley Tribune, Fort Worth Star- Sacramento Bee, Denver Post, and Minneapolis Telegram, Times Union, Athens Banner-Herald, Star Tribune. His op-ed on taxing soda appeared and Tallahassee.com, and on the Supreme in Washington Examiner, News & Observer, and Court’s Ricci v. DeStefano decision for the Provi- Providence Journal. He also provided an article dence Journal. Broadcast interviews included on California’s budget crisis for San Francisco the “Mike Siegel Show,” Voice of America’s Examiner. Research Director Alexander Tabar- “Hip Hop Connection,” and “Urban Journal.” Reviews of his book Race and Liberty in America appeared in Southern Illinoisan, Birmingham Times, and on Reason.com and NationalReview. com. Research Fellow Stephen P. Halbrook was quoted by Honolulu Star-Bulletin on Justice Sotomayor’s confirmation. • Center on Peace and Liberty: Director Ivan Eland wrote commentary on U.S. oil policy for Pittsburgh Tribune-Review and Manistee News Independent Institute Senior Fellow Alvaro Vargas Advocate. Broadcast interviews included Russia Llosa on CNN en Español. Today, Press TV, and Radio Free Europe. Baron’s rok was interviewed on “Health Law & Politics” and Reference & Research Book News reviewed his regarding organ donation shortages. His blog books Recarving Rushmore and Partitioning for was recommended by Wall Street Journal. Re- Peace, respectively. Senior Fellow Robert Higgs search Fellow Dominick T. Armentano shared his opinion on health insurance in Naples Daily News and Austin Business Journal. Economic His- tory Review, Business History, and Books & Cul- ture reviewed Good Money by Research Fellow George Selgin. Research Fellow Stan J. Liebow- itz covered the mortgage crisis for Wall Street Journal. Research Fellow Gabriel Roth discussed private road financing in a letter to Washington Times. He was quoted by Washington Examiner Independent Institute Senior Fellow Charles Peña and his article on transportation funding ap- on CTV. peared in Wall Street Journal. Research Fellow opined on economic stimulus for Investor’s Busi- Benjamin Powell wrote for NationalReview.com ness Daily and on government expansion for The on Deutsche Bank and the mortgage crisis. Freeman. His op-ed on the Federal Reserve was The Institute’s participation in the Out of the syndicated by McClatchy-Tribune News Service. Storm ’09 conference was mentioned in New He also discussed the economic recession on Orleans’s Times-Picayune. BBC World Service radio, and his book Depres- • Center on Global Prosperity : Senior Fellow sion, War, and Cold War was reviewed by Ref- Alvaro Vargas Llosa continued to write his in- erence & Research Book News. Research Analyst ternationally syndicated weekly column for the Anthony Gregory provided commentary for Washington Post Writers Group. He was inter- Christian Science Monitor on the constitutional- viewed by CNN en Español on the Honduras ity of a nationalized health care system. Senior military coup and was quoted by Orange County Fellow Charles Peña wrote on U.S. intervention Register, Americas Quarterly, and Washington in Pakistan for FoxNews.com and was quoted by Times. Research Fellow William Ratliff supplied Palm Beach Post on ignition interlocks. He also op-eds on the Honduras coup to Miami Herald, appeared on CTV and Al Jazeera to speak on Los Angeles Times, and Forbes.com. U.S. foreign policy.• The INDEPENDENT 5 Policy Reports Seek Insurance Deregulation urricanes, severe storms, and devastating when disaster strikes again. Hfloods wreak havoc in the southeastern Market-determined insurance premiums, coastal United States and elsewhere. The total Born and Klimaszewski-Blettner conclude, ulti- economic damage done by Hurricane Katrina in mately protect consumers against future losses. Louisiana and Mississippi, for example, may have In contrast, restricting the flexibility of insurers to exceeded $150 billion, with insurers losing an es- adjust premiums in light of changing conditions timated $45 billion. ultimately harms consumers. What changes in public policy would best Insurance is regulated at the state level, and mitigate the damage from natural disasters? How because regulations differ by state, the growing can states reform insurance regulation to enable complexity of regulation makes it costly for insur- devastated communities to recover more quickly? ers to operate in multiple states. The second report From September 30 to October 2, a distin- in the series, written guished group of insurance experts convened in by Robert Klein and New Orleans to examine these questions at the Martin Grace (both second annual “Out of the Storm” conference, of Georgia State Uni- sponsored by the Independent Institute and the versity), examines Competitive Enterprise Institute, in cooperation regulatory alterna- with the Louisiana and South Caro- tives to the state- lina Departments of Insurance and based status quo. other organizations. An optional fed- The Independent Institute was eral charter, first represented by three Research Fel- proposed in 2007 lows. Patricia Born (Florida State and favored by many Univ.) and Jeffrey insurers, would allow insurers to Pompe (Francis choose federal regulation, thereby ex- Ma r i o n U n i v. ) empting them from state oversight. discussed lessons Klein and Grace note that federal Florida can learn regulation would not necessarily be from the experienc- less onerous than state regulation es of Louisiana and nor immune to interest-group pressures. South Carolina, and A second option, proposed in 2004, is to create Lawrence Powell federal standards for state regulation. Although this (Univ. of Arkansas) approach would avoid the potential pitfalls of full- discussed the future blown federal regulation, monitoring and enforcing of reinsurance— the standards could prove difficult, Klein and Grace i.e., insurance for insurance companies. argue. By retaining regulation by the states, gains The conference enabled the Independent In- in efficiency would be limited. stitute to introduce policymakers and the public In the third report, Lawrence Powell examines to its new series of policy reports about property insurance scoring—the use of credit information and casualty insurance regulation. The first re- in insurance underwriting and pricing. Insurance port, by Born and Barbara Klimaszewski-Blettner scores are powerful and accurate predictors of (Munich School of Management), examines the losses for automobile insurers, according to Pow- consequences of price regulations imposed after ell. Their low cost would reduce the overall cost of natural disasters. providing insurance. Although caps on insurance premiums are in- “When insurers use insurance scores to im- tended to help customers, they can backfire badly, prove the accuracy of predicted losses, it benefits the authors argue. If, for example, an insurer can- individuals and society,” writes Powell. “It increases not maintain solvency by adjusting premiums, it the equity or fairness in insurance pricing out- will exit the market, leaving property owners with comes because, on average, premiums are more fewer insurers to choose from. Policymakers may closely related to consumers’ risk of loss.” respond by making it hard for insurers to exit, but A report by Eli Lehrer (Competitive Enterprise ultimately this type of a regulatory “chain reaction” Institute) examines federal roadblocks to the de- exposes taxpayers and consumers to greater risks (continued on page 7) 6 The INDEPENDENT Student Programs Spark the Spirit of Liberty ctober 17, 2009 marked the 30th anniversa- ton Fellowship Essay Contest for college students Ory of the formal creation of the U.S. Depart- and young faculty; the Independent Institute’s ment of Education (ED). Over the past 30 years, Summer Seminars on Liberty, Economy, and millions of dollars have been pumped through Society for high school and college students; our the system all in the name of our children’s well- year-round Student Internships program; and our being and future success. Unfortunately, prob- program of textbook course adoptions for high lems increasingly ravage the system and today’s schools and colleges. Each component encourages students hardly seem better off than they were educational excellence among up-and-coming all those years ago. While we can’t dismantle the generations by examining the nature and rel- ED, the Independent Institute is committed to evance of the entrepreneurial spirit and liberty. providing opportunities for students to achieve Whether it’s over the course of their intern- personal success, and just as importantly, to ex- ship, or through attending one of our Summer posing them to the ethical and economic prin- Seminars, each student is personally challenged ciples of liberty and free markets. to understand the dynamic process of markets The student programs at the Institute consist and technological innovation, without regard of four parts: the prestigious Sir John M. Temple- to prevailing popular or political biases, trends or phobias. As a result, our students are able to The Challenge of Liberty 2010 Summer Seminars for Students explore important areas that might otherwise be ignored, including questions normally considered “out-of-the-box,” but which might well be crucial to their understanding in order to get at real an- Session I: June 14 –18 • Session II: August 9–13 • Monday through Friday • 9 am to 4 pm Seminar Schedule

Monday: What is a Market Economy? What is liberty? What are natural rights and natural law? Where do they come from? Which ideas gave birth to freedom and progress? swers and lasting solutions. In the end, students TueSd a y : What Role Should Government Play in the Economy? What is the “invisible hand” of the market economy? Why did central planning fail in Soviet bloc countries? How do poor nations become rich? WedneSday : What Role Does Competition Play in Free Societies? What is an entrepreneur? walk away with an appreciation for individual Is competition wasteful? What is a monopoly? What causes monopoly?

ThurSday : What Are the Solutions for High Housing Costs, Expensive Health Care, and Crime? Are these and other issues like pollution and traffic congestion caused by markets or government failure?

F r i day: What Causes the Business Cycle of Boom and Bust? What is inflation? What’s a Bull or responsibility and free-market processes, and Bear Market? What causes recessions? Unemployment?

See in today’s increasingly statist environment, this 100 Swan Way, Oakland, CA 94621-1428 reverse 510-632-1366 • 510-568-6040 Fax • www.independent.org (continued on page 8)

The Independent Review: Nationalizing Private Life • Food Safety Regulation (continued from page 3)

See www.independent.org/publications/tir/ar- are subject to a process of selection. Government ticle.asp?a=749. agencies play a dominant role in the selection process, Yasuda contends. Ideology and U.S. Food Safety Regulation His argument is as subtle as it is intriguing: Although the budgets of federal food-safety Tax-funded information programs tend to out- regulators have increased in recent decades, you last privately funded ones; ideologies that attach couldn’t tell by looking at the number of food- themselves to government agencies therefore born illness outbreaks and cases reported in the have higher survival rates in the psychological and United States. socioeconomic environments in which ideological Why, in the absence of success, have politi- selection takes place. cians and the public approved more resources for How well does Yasuda’s theory conform to the regulators? The simple answer is: ideological reality? Splendidly. As predicted, federal agencies change. But why did an ideology that values greater (mainly the USDA and FDA) provide a larger and funding for ineffective programs gain traction? growing share of the public information about The process of ideological change had long food safety. Also, the agencies increasingly work defied systematic analysis, but we can learn with academia, which provides theoretical justifi- much about it by applying concepts borrowed cation for agencies that fund academic research. from biological evolution, according to Tomohide Government bureaus are the major selective Yasuda, from the University of Massachusetts, agent in the competitive environment for ideas Boston (“The Application of Darwinism to Ideo- about food-safety policy, and they favor a pro- logical Change, with a Case Study of Food-Safety regulatory ideology. Yasuda’s theory of ideological Regulation”). change helps explain why. Like living organisms, ideologies come in va- See www.independent.org/publications/tir/ar- rieties, pass certain traits to their offshoots, and ticle.asp?a=750.• The INDEPENDENT 7 Independent Institute Launches New Center he Independent Institute is pleased to an- “It is in Man’s power to treat himself as a nounce its new Center on Culture and Civil T mere ‘natural object’ and his judgments of Society. The Center will work to advance new value as raw material for scientific manipula- research, bridge and cross- tion to alter at will. . . . The real objection is fertilize such work among that if man chooses to treat himself as raw disciplines, and help foster material, raw material he will be: not raw an integrated intellectual and material to be manipulated, as he fondly cultural renaissance that will imagined, by himself, but by mere appetite, challenge the pervasive para- that is, mere Nature, in the person of his digms of reductionism and de-humanized Conditioners. . . . A dogmatic Robert H. Nelson determinism with a new un- belief in objective value is necessary to the derstanding both of the timeless truths that con- very idea of a rule which is not tyranny or an nect liberty with the natural and social sciences. obedience which is not slavery.” As part of this new program, the Independent — C. S. Lewis, Author, The Abolition of Man Institute has welcomed Robert H. Nelson to the Institute as a Senior Fellow. Nelson is also Profes- Holy Wars: Economic Religion Versus Environmental sor of Public Policy at the University of Maryland, Religion in Contemporary America (Pennsylvania and the author of the Center’s new book, The New State University Press).•

Robert Higgs: Economic Troubles and the Growth of Government (continued from page 1) teen foreign central banks, and buyers of certain raising the U.S. government’s spending from 21 asset-backed securities based on consumer and percent of GDP to 26 percent. They also increased small-business loans. As a result, the monetary the budget deficit by 246 percent, to approximately base of the United States increased by more than $1.6 trillion. Public debt held by the public rose 100 percent between August 2008 and January from $5.8 trillion to $7.6 trillion during the course 2009. of fiscal year 2009, a 31 percent increase. These After Barack Obama became president, Con- spending and borrowing surges will certainly have gress passed the American Recovery and Reinvest- very long-lasting consequences. ment Act, authorizing a variety of federal spending Although these consequences are now in large increases and some tax reductions over the period part unavoidable, amelioration of their harm, as from 2009 to 2019. According to estimates by well as the prevention of similar government ac- the Congressional Budget Office, the combined tions in a later crisis, requires a renewed commit- amount of these spending increases and tax cuts ment to liberty and a heightened understanding comes to $787 billion over the ten-year period. of its attainment and preservation. Toward these These actions, among others, caused federal ends, the Independent Institute continues to work outlays to jump by 24 percent in fiscal year 2009, relentlessly.•

Policy Reports Seek Insurance Deregulation (continued from page 5) velopment of private flood insurance. Legislation Other authors in the series include Martin Eling passed in the 1930s and ’40s, he explains, set the (U. of St. Gallen), Joan Schmit (U. of Wisconsin), stage for periodic interventions that have made Jeffrey Pompe and James Rinehart (both of Francis private flood insurance more difficult to provide. Marion Univ.), Tyler Leverty (U. of Iowa), David “America ended up with a system of political Eckles (U. of Georgia), Stephen Pociask (TeleNomic insurance that has placed an enormous burden on Research), and Andrew Morriss (U. of Illinois). the Treasury and created a moral hazard,” Lehrer See www.independent.org/publications/policy_ writes. reports/insurance_reports.asp.• 8 The INDEPENDENT Help Us Advance the Future of Liberty t’s that time of year again; can you believe it? But we can only continue to do so with your IHolidays are nearly in full swing and 2009 help! Despite the serious effects the economic is coming to a close, and what a year it’s been! downturn has had on some of our members, we While liberty is undoubtedly under siege, 2009 continue to expand and do more with less. We are has also seen a tremendous growth in outreach truly entrepreneurial in all we do! But we know for our ideals of freedom, as more people grow that our ability to grow in the coming year will tired of the rhetoric and partisan plays for in- rely heavily on our nearest and most committed creased government power. friends—friends like you. Looking to the future we can be sure of one Before the year comes to a close, we ask you to thing: ideas matter. They shape and form the prin- join with us and offer your support by making a ciples on which all policy is written. Who better to donation today. With your help, we have the daily supply such a foundation than the Independent opportunity to reach many millions of people with Institute? As Senior Fellow Robert Higgs shares the message and principles of liberty, never more on page 1, every day the Independent Institute needed than now. continues its relentless push on the issues that For further information on giving to the Indepen- matter most—the economy, healthcare, foreign dent Institute, please contact JuliAnna Jelinek, policy, civil and economic rights. We look forward Development Director (510-632-1366) or visit to continuing this important work. www.independent.org/membership.•

Student Programs Spark Spirit (continued from page 6) couldn’t be more necessary to our country and our children’s future success. If you, or a student you know, would like to learn more about the Independent Institute’s student programs, please contact Carl Close, Academic Affairs Director, at cclose@independent.org or visit http://www.independent.org/ The Challenge of Liberty Summer Seminars students.• provide students with the opportunity to learn the economic and ethical principles of free societies. Connect With Us On Facebook and Twitter PAID KENT, OH KENT, PERMIT #15 PERMIT US POSTAGE www.facebook.com/independentinstitute NON-PROFIT ORG NON-PROFIT

www.twitter.com/IndependentInst

Subscribe Free! The Lighthouse Stay abreast of the latest social and economic issues in the weekly email newsletter of the Independent Institute. • Insightful analysis and commentary • New publications • Upcoming events / special announcements • Current media programs Subscribe today by visiting www.independent.org 100 Swan Way 100 Swan California 94621-1428 Oakland,