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41. Understanding the Interventionist Impulse of the Modern Central Bank

Author:
Jeffrey M. Lacker
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The financial crisis of 2007 and 2008 was a watershed event for the Federal Reserve and other central banks. The extraordinary actions they took have been described, alternatively, as a natural extension of monetary policy to extreme circumstances or as a problematic exercise in credit allocation. I have expressed my view elsewhere that much of the Fed's response to the crisis falls in the latter category rather than the former (Lacker 2010). Rather than reargue that case, I want to take this opportunity to reflect on some of the institutional reasons behind the prevailing propensity of many modern central banks to intervene in credit markets.
Topic:
Financial Crisis
Political Geography:
United States

42. The Fed's Fatal Conceit

Author:
John A. Allison
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
I strongly believe that the recent financial crisis, ensuing recession, and slow recovery were primarily caused by government policy. The Federal Reserve made some very bad monetary decisions that created a bubble, i.e., a massive malinvestment. The bubble ended up being focused in the housing market largely because of government affordable housing policies—specifically, the actions of Freddie Mac and Fannie Mae, government-sponsored enterprises that would not exist in a free market. When Freddie and Fannie failed, they owed $5.5 trillion including $2 trillion in affordable housing (subprime) loans. It's true that a number of banks made serious mistakes, and I would have let them fail, but their mistakes were secondary and within the context of government policy.
Political Geography:
United States

43. Only a Crisis Will Bring Money Reform

Author:
George Melloan
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
“Well, if I had a nickel, I know what I would do. I'd spend it all on candy and give it all to you. . . . Cause that's how much I love you baby.” That wasn't a very generous proposition even in 1946, when country singer Eddy Arnold wrote those words. But at least a nickel would buy a good-sized Baby Ruth or Clark bar. Today? A jelly bean, perhaps?
Political Geography:
United States and United Kingdom

44. What Should a Central Bank (Not) Do?

Author:
Benn Steil
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The financial crisis that began unfurling in 2008 has led to the refashioning of the model central bank governor along the lines of Churchillian war leader, willing to try anything with the money he conjures to restore economic growth. This raises important questions as to what limits, if any, elected officials should impose on such aspiring great men, and what limits markets will ultimately impose on them if elected officials forbear. This article focuses on the second of these questions.
Political Geography:
United States

45. Gold and Government

Author:
Judy Shelton
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Something has gone terribly wrong with the world's monetary system. It's evident that some kind of fundamental reform needs to be implemented. The question is: Can governments be trusted to issue sound money, or is money too important to be left to the politicians?
Political Geography:
United States

46. From Constitutional to Fiat Money: The U.S. Experience

Author:
Richard H. Timberlake
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over the course of more than two centuries, the United States has had two monetary systems. The first was a gold-silver standard that was framed in its essentials by the U.S. Constitution. In practical terms, it said that any legal tender money created by the federal union or the states or the "people" had to be gold or silver coins, or redeemable in gold or silver coins of specified weight and fineness. Since both gold and silver were constitutional media, the country had a bimetallic standard that ultimately became a monometallic gold standard.
Political Geography:
United States

47. Why Monetary Freedom Matters

Author:
Ron Paul
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
I've thought about and have written about the Federal Reserve for a long time. I became fascinated with the monetary issue in the 1960s, having come across the Austrian economists, especially Hayek and Mises, and I was very impressed with August 15, 1971, because the predictions made in the 1960s came about. As a matter of fact, Henry Hazlitt made that prediction in 1944 when the Bretton Woods system was set up. He said it wouldn't work and it would fall apart—and it did—so that was a strong confirmation.
Political Geography:
United States and Australia

48. Where Is Private Note Issue Legal?

Author:
Kurt Schuler and William McBride
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
During the 18th and 19th centuries and for part of the 20th century, more than 60 countries had free banking. The major characteristics of free banking are competitive issue of notes (paper money) and deposits by commercial banks, low legal barriers to entry, little regulation unique to the industry, and no central control of reserves (the monetary base) within the national monetary system (Dowd 1992, White 1995). Among the countries that had a form of free banking was the United States. Even after the freest period of free banking ended, with the Civil War, banks continued to issue notes until the federal government effectively monopolized note issue in 1935.
Topic:
War
Political Geography:
United States

49. Making the Transition to a New Gold Standard

Author:
Lawrence H. White
Publication Date:
06-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Suppose for the sake of argument that we all agree to the following proposition: If we could change the monetary regime with zero switching cost, merely by snapping our fingers, we would prefer the United States to be on a gold standard. In the most general terms, a gold standard means a monetary system in which a standard mass (so many grams or ounces) of pure gold defines the unit of account, and standardized pieces of gold serve as the ultimate media of redemption. Currency notes, checks, and electronic funds transfers are all denominated in gold and are redeemable claims to gold. We then face the question: What would be the least costly way for the United States to make the transition to a new gold standard? We need to choose a low-cost method to ensure that the agreed benefits of being on the gold standard exceed the costs of switching over.
Political Geography:
United States

50. Decisionmaking, Risk, and Uncertainty: An Analysis of Climate Change Policy

Author:
Kruti Dholakia-Lehenbauer and Euel W. Elliott
Publication Date:
10-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article explores four questions. First, what theoretical frameworks help describe policy failure and success? Second, how might the decision that leads to failure or success be understood in terms of differing concepts of rationality and decisionmaking? Third, how does the discussion of risk and uncertainty as originally proposed by Frank Knight (1921) apply to a better understanding of both the first and second questions? Fourth, what is the relationship between serial and parallel processing and how are these administrative systems related to important aspects of the prior questions? Our chief contribution in this article is to show the ways in which these questions and their respective theoretical frameworks are interrelated as applied to one important contemporary policy question-climate change. We think our proposed integration of the various literatures offers important insights into the challenges policymakers face in deciding whether or not to adopt a particular policy.
Political Geography:
United States

51. The Behavior of the Labor Market between Schechter (1935) and Jones Laughlin (1937)

Author:
Todd C. Neumann, Jason E. Taylor, and Jerry L. Taylor
Publication Date:
10-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Recent research on the Great Depression emphasizes the role New Deal economic policy played in slowing recovery. Policies promoting cartels and higher wage rates during a time that the economy was experiencing unprecedented unemployment were likely to have created a negative supply shock that exacerbated economic depression rather than helped to alleviate it. Still, for 22 months between two important Supreme Court rulings, labor and product markets were relatively free of intervention. In A.L.A. Schechter Poultry Corp. v. United States (May 1935), the Court ruled that the National Industrial Recovery Act of 1933 (NIRA) was unconstitutional. In addition to setting up industry cartels, the NIRA had imposed relatively high minimum hourly wage rates and restrictions on work- weeks and required firms to recognize the right of labor to organize.
Topic:
International Political Economy
Political Geography:
United States

52. The Scope of Government in a Free Society

Author:
James A. Dorn
Publication Date:
10-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The purpose of this article is to delineate the legitimate functions of government in a free society. This exercise differs from determining the “optimal” size of government, which economists have estimated at 15 to 30 percent of gross domestic product. James Madison, the chief architect of the U.S. Constitution, was not primarily looking for an engine of economic growth; he was seeking an institutional design to limit the powers of government and protect individual rights. People would then be free to pursue their happiness and, in the process, create wealth.
Topic:
Government
Political Geography:
United States

53. Stochastic Optimal Control and the U.S. Financial Debt Crisis

Author:
Peter Clark
Publication Date:
10-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
At one point during the recent financial crisis the queen of England reportedly asked economists at the London School of Economics a seemingly straightforward question: “Why did academic economists fail to foresee the crisis?” This question can be broadened to include central banks, the International Monetary Fund, and technical specialists on Wall Street (“quants”). Jerome L. Stein, professor of economics (emeritus) and research professor in the Department of Applied Mathematics at Brown University, has written a timely book that provides a cogent and convincing answer to this question.
Political Geography:
United States

54. Limits of Monetary Policy in Theory and Practice

Author:
Vincent R. Reinhart and Carmen M. Reinhart
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Federal Reserve's conduct of monetary policy casts a spell over market participants, commentators, and academics. The pages of financial newspapers parse subtle differences among the comments of Fed officials and delve deeply into potentially multiple meanings of official statements. Academic discussions argue that the path of the policy rate may (as in Taylor 2009) or may not (as in Bernanke 2010, and Greenspan 2010) have fueled a home-price bubble in the United States.
Topic:
Monetary Policy
Political Geography:
United States

55. The Revived Bretton Woods System, Liquidity Creation, and Asset Price Bubbles

Author:
Harris Dellas and George S. Tavlas
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In this article, we argue that the present constellation of exchange rate arrangements among the major currencies has led to the creation of excessive global liquidity, which has contributed to asset price bubbles. Although the exchange rates of many of the major currencies—including the U.S. dollar, the euro, the yen, and the pound sterling—float against each other, the currencies of many Asian emerging market economies and oil-exporting economies are pegged to the dollar. Dooley, Folkerts-Landau, and Garber (2004a) labeled this system “Bretton Woods II” (BWII). The original Bretton Woods regime (BWI) lasted for about a quarter of a century. Dooley, Folkerts-Landau, and Garber (DFG) argue that the present regime, despite its large global imbalances, will also be sustainable.
Topic:
Oil
Political Geography:
United States

56. U.S. Decapitalization, Easy Money, and Asset Price Cycles

Author:
Kevin Dowd and Martin Hutchinson
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In Matthew 25: 14–30, Jesus recounts the Parable of the Talents, the story of how the master goes away and leaves each of three servants with sums of money to look after in his absence. He then returns and holds them to account. The first two have invested wisely and give the master a good return, and he rewards them. The third, however, is a wicked servant who couldn't be bothered even to put the money in the bank where it could earn interest. Instead, he simply buried the money and gave his master a zero return. He is punished and thrown into the darkness where there is weeping and wailing and gnashing of teeth.
Political Geography:
United States

57. Supply: A Tale of Two Bubbles

Author:
Mark A. Calabria
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
To the extent that monetary policy influences asset prices, it does so via the demand for assets, by changing the borrowing costs to purchase assets, or via supply, where movements in interest rates can make investment in assets look more or less attractive. Fiscal policy interventions can also contribute to bubbles by changing the cost of acquiring specific assets. Most discussions of asset bubbles, particularly those involving the role of monetary policy, focus on demandside factors. This article examines the role of supply-side factors in the recent booms in the U.S. housing market and dot-com stocks. The importance of supply constraints in each market is discussed. Policy implications are then presented.
Topic:
Monetary Policy
Political Geography:
United States

58. Incentive-Robust Financial Reform

Author:
Charles W. Calomiris
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Will Rogers, commenting on the Depression, famously quipped: “If stupidity got us into this mess, why can't it get us out?” Rogers's rhetorical question has an obvious answer: persistent stupidity fails to recognize prior errors and, therefore, does not correct them. For three decades, many financial economists have been arguing that there are deep flaws in the financial policies of the U.S. government that account for the systemic fragility of our financial system, especially the government's subsidization of risk in housing finance and its ineffective approach to prudential banking regulation. To avoid continuing to make the same mistakes, it would be helpful to reflect on the history of crises and government policy over the past three decades.
Political Geography:
United States

59. Preventing Bubbles: Regulation versus Monetary Policy

Author:
David Malpass
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over the years, there has been a lot to consider in the Federal Reserve's choices of monetary policy and their relationship to bubbles. My conclusion is that mistaken U.S. monetary policy, usually related to the Fed's indifference to the value of the dollar, has repeatedly caused harmful asset bubbles in the United States and abroad. Policy is again at risk with the Fed's imposition of near-zero interest rates and its decision to conduct large-scale asset purchases (termed “quantitative easing”). Regulatory policy has often been ineffective at identifying or addressing asset bubbles, especially those caused by Fed policy. The solution is a parallel track to improve monetary policy so that it provides a more stable dollar and fewer asset bubbles; and to strengthen regulatory policy so that it provides a more reliable base for growth-creating free markets.
Topic:
Monetary Policy
Political Geography:
United States

60. Peddling Protectionism: Smoot-Hawley and the Great Depression

Author:
Daniel Griswold
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Let me preface this review with a confession: As an advocate of free trade, I love to link the 1930 Smoot-Hawley tariff bill with the Great Depression at every opportunity. More than 80 years after its passage, the bill still evokes negative feelings about protectionism. After reading Douglas Irwin's Peddling Protectionism: Smoot- Hawley and the Great Depression, I can see I need to curb my enthusiasm. Irwin does not defend the bill, far from it. He concludes that it failed to achieve its objectives and that it did, in an incremental way, make the Great Depression worse. But in the careful language of the professional economist and historian that he is, Irwin documents in rich and often colorful detail that the most infamous trade bill in American history had less impact than either its advocates or its opponents understood at the time or understand today. Even so, the story of Smoot-Hawley offers valuable lessons for today as our politicians seek to craft U.S. trade policy in the 21st century. Irwin is superbly qualified to write the definitive history of what was officially the Trade Act of 1930. A professor of economics at Dartmouth College, he has authored Against the Tide: An Intellectual History of Free Trade (1996), and Free Trade under Fire (3rd ed., 2009).
Topic:
Economics
Political Geography:
United States