THE LIGHTHOUSE
"Enlightening Ideas for Public Policy..."
VOL. 3, ISSUE 20
May 21, 2001

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IN THIS WEEK'S ISSUE:
1. The Pearl Harbor Deception
2. Challenging the FTC's Hostility to Mergers
3. "Will Encryption Protect Privacy and Make Government Obsolete?" --
David Friedman Transcript Now Online

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THE PEARL HARBOR DECEPTION

The creators of "Pearl Harbor" -- the new movie debuting Friday that
Hollywood insiders are calling "'Titanic' with fighter planes" --
have missed a vital aspect of Pearl Harbor history.

Although the movie's emphasis is on entertainment, not historical
enlightenment, during the film's production Jerry Bruckheimer, the
producer, made sure to consult Pearl Harbor survivors, historians,
and government officials. But one perspective he never took seriously
is one based on secret U.S. documents recently declassified under the
Freedom of Information Act.

"Overwhelming evidence contained in the May 2000 Freedom of
Information Act release," writes Robert B. Stinnett in the new
paperback edition of his book DAY OF DECEIT: The Truth About FDR and
Pearl Harbor, "reveals that by mid-November 1941, as Japanese naval
forces headed for Hawaii, America's radio cryptographers had solved
the principal Japanese naval codes and that Japan's top admirals went
on the Japanese naval airwaves and in a series of radio messages
disclosed that Pearl Harbor was the target of their raid."

"Based on these transmissions, President Roosevelt and General George
Marshall predicted war with Japan would begin the first week of
December. We would know even more about what FDR and his chief
advisors thought, but the Japanese radio messages remain incomplete,
still cloaked in American censorship.... By continuing to classify
Japanese naval intercepts and their communication decoding data as
'national defense secrets,' the National Security Agency (NSA) has
done a disservice to the excellent cryptographers and the radio
intelligence obtained by monitor stations operated by the United
States and her allies in 1941, as well as to history itself."

"Nevertheless," concludes Stinnett, "the major secrets of Pearl
Harbor are at last out in the open. After years of denial, the truth
is clear: we knew."

Unfortunately, this truth will not be coming soon to a theater near you.

See Robert B. Stinnett's op-ed, "December 7, 1941: A Setup from the Beginning"
http://www.independent.org/tii/lighthouse/LHLink3-20-1.html.

For a transcript of Mr. Stinnett's talk at the Independent Policy
Forum, "Pearl Harbor: Official Lies in an American War Tragedy?" see
http://www.independent.org/tii/lighthouse/LHLink3-20-2.html.

To hear it in RealAudio, go to
http://www.independent.org/tii/lighthouse/LHLink3-20-3.html.

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CHALLENGING THE FTC's HOSTILITY TO MERGERS

Although the Microsoft antitrust trial loomed largest in the public
consciousness, it was not the only important antitrust trial in
recent years. Another antitrust case -- the Federal Trade
Commission's successful challenge to the merger of two office-supply
"superstores" -- will have far-reaching effects, even if the
Microsoft case is ultimately thrown out on appeal.

The FTC prevented a proposed merger of Staples and Office Depot by
arguing that a merger would raise the price of office supplies,
citing evidence that office-supply prices were significantly higher
in cities with only one company operating office-supply superstores.

The defense accepted this evidence as true, but argued that higher
prices were explained by higher costs in one-firm markets. What they
didn't do, according to the judge, was to offer a unifying theory to
explain why one-firm markets might have higher costs. Economist Craig
M. Newmark offers such a theory, based on what economists call
"indivisibility rents," in a new Independent Institute working paper.

In essence, Newmark argues that the whole point of superstores is to
have a store large enough to minimize the costs of transportation,
advertising, and the like. In markets that can only support one
store, the market is often too small to minimize these costs. Hence,
the higher prices in these markets.

This theory, presented above in the sketchiest fashion, is consistent
with other evidence presented by the FTC. Markets having only two
office supply superstore chains were notably smaller than those with
three firms, suggesting that indivisibility was a factor.
Unfortunately, the FTC apparently didn't consider indivisibility in
its analysis.

"The indivisibility theory implies that the higher prices in one-firm
markets are not due to lack of competition; the merger should not
raise prices."

Consumers and their representatives, then, should let the FTC know
that a knee-jerk hostility to mergers isn't in the public interest.
Checking for indivisibility should be a staple of FTC analysis.

See "The Positive Correlation of Price and Concentration in Staples:
Market Power or Indivisibility?" by Craig M. Newmark, Independent
Institute Working Paper #31, at
http://www.independent.org/tii/lighthouse/LHLink3-20-4.html.

For more on antitrust see the Independent Institute Archive at
http://www.independent.org/tii/lighthouse/LHLink3-20-5.html.

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"WILL ENCRYPTION PROTECT PRIVACY AND MAKE GOVERNMENT OBSOLETE?" --
David Friedman Transcript Now Online

Someone once said that the move toward civilization coincided with
the move toward privacy.

New advances in information technology allow the possibility of
greater privacy, but they also make it easier for government
bureaucrats, criminals, and other unwanted intruders to snoop into
your private life. Will privacy-enhancing technology outpace
privacy-threatening technology? Will freedom and civilization thereby
advance? Or will the new technology strengthen the rule of Big
Brother?

Economist and legal scholar David D. Friedman addressed these and
related issues in his recent Independent Policy Forum talk, "Will
Encryption Protect Privacy and Make Government Obsolete?" -- a
transcription of which is now available on the Independent Institute
website.

Leery of predicting the future, Prof. Friedman said that he would not
forecast beyond 30 years -- after that, all bets are off. For the
coming three decades, however, he predicts that "public key
encryption," a young technology increasingly used in e-commerce, is
likely to promote privacy -- unless the government acts immediately
to control its use.

Rather than control what people do with personal information about
you, public key encryption lets you decide with whom you want to
share that information. With it, we can better ensure that financial
information, health records, and other information will only go to
those we deem are on a need-to-know basis.

Further, public key encryption -- along with e-mail re-mailers -- can
promote anonymity, making it increasingly possible for you to buy and
sell over the Internet without the taxman knowing about it. And
"anonymous" companies in cyberspace can easily build a solid
reputation needed to gain a loyal customer base. Thus we may soon
have an underground cyber-economy that rivals the size of underground
economy in the real world.

Public key encryption also acts as a virtual Second Amendment,
according to Friedman. Just as the Second Amendment to the U.S.
Constitution institutionalized the self-defense of the citizenry
against a federal tyranny, so public key encryption will
institutionalize the self-defense of the citizenry against government
propaganda. Americans (and citizens of other countries) will be
better armed with the truth. Information about government
encroachment will be easier to spread and thereby help keep it in
check.

For a transcript of David Friedman's talk, "Will Encryption Protect
Privacy and Make Government Obsolete?" see
http://www.independent.org/tii/lighthouse/LHLink3-20-6.html.

For more on privacy, see:

"Freedom of Speech, Information Privacy, and the Troubling
Implications of a Right to Stop People from Speaking About You" by
Eugene Volokh, Independent Institute Working Paper #14
http://www.independent.org/tii/lighthouse/LHLink3-20-7.html

"Watching You: Systematic Federal Surveillance of Ordinary Americans"
by Charlotte Twight (THE INDEPENDENT REVIEW, Fall 1999)
http://www.independent.org/tii/lighthouse/LHLink3-20-8.html

"Information Technology as a Universal Solvent for Removing State
Stains" by David R. Henderson (THE INDEPENDENT REVIEW, Spring 2000)
http://www.independent.org/tii/lighthouse/LHLink3-20-9.html

R.W. Bradford's review of PRIVACY IN THE INFORMATION AGE by Fred H.
Cate (THE INDEPENDENT REVIEW, Spring 1999)
http://www.independent.org/tii/lighthouse/LHLink3-20-10.html

"Cryptography versus Big Brother" and "Internet Encryption and the
Second Amendment," by Alex Tabarrok, research director of The
Independent Institute
http://www.independent.org/tii/lighthouse/LHLink3-20-11.html
http://www.independent.org/tii/lighthouse/LHLink3-20-12.html.

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