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51. Immigration and State Institutions: Does Region of Origin Matter?

Author:
Meg Tuszynski and Dean Stansel
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Some immigration opponents claim that immigrants import bad institutions and policies from their country of origin into their new home country. We argue just the opposite—namely, that immigrants are more likely to self‐​select into countries with better institutions than those in their home countries. Researchers have examined this issue in both a cross‐​country and within‐​country context. Their findings have been mixed. Although others have found small or nonexistent impacts of immigrants on state institutions, those papers assume that all immigrants are the same. Our approach is unique in that it divides immigrant populations in a variety of ways. We build on the previous literature that examines the relationship between immigration and institutions at the state level, where there are smaller inherent differences in economic institutions (compared to differences across countries). We do so by incorporating the regional diversity of immigrant populations, examining whether immigrants’ countries of origin matter for economic outcomes in their new home country. Controlling for the diversity of immigrant populations in a way that previous researchers have not done improves our ability to assess immigration opponents’ claims that immigrants from economically worse‐​off countries hurt U.S. economic institutions. We find virtually no evidence of an economically and statistically significant relationship between the levels of immigration we have experienced in recent decades and a decline in economic institutions in the United States, regardless of the region or economic conditions of recent immigrants’ home countries. The limited statistically significant evidence we do find is mixed and small in magnitude. Thus, one of the key rationales used to call for immigration restrictions is not supported by our findings.
Topic:
Immigration, Institutions, and Macroeconomics
Political Geography:
North America, Global Focus, and United States of America

52. Financial Transactions Taxes: Inaccessible and Expensive

Author:
Diego Zuluaga
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Financial transactions taxes (FTTs) have become increasingly popular since the 2008 financial crisis. During the 2020 Democratic presidential primary race, FTTs featured prominently on the platforms of both moderate Michael Bloomberg and socialist Bernie Sanders. The likely nominee, Joe Biden, has also expressed support for an FTT, albeit without offering any details in his election platform.
Topic:
Financial Crisis, Finance, Domestic Politics, Tax Systems, and Transactions
Political Geography:
North America and United States of America

53. Lessons from the Swedish Experience with Negative Central Bank Rates

Author:
Fredrik N. G. Anderson and Lars Jonung
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Interest rates declined in the wake of the 2007–2009 global financial crisis. They remained low for most of the 2010s, only rising modestly toward the end of the decade. In some European countries, interest rates even became negative. While limited to a few countries initially, the likelihood of more central banks following suit is growing in the wake of the COVID-19 pandemic. Not least, the Federal Reserve System is under pressure to adopt a negative federal funds rate (Bernanke 2020; Lilley and Rogoff 2020).
Topic:
Monetary Policy, Interest Rates, and Central Bank
Political Geography:
Europe and Sweden

54. Perspectives on Balance Sheet and Credit Policies: A Tribute to Marvin Goodfriend

Author:
Esther L. George
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Iappreciate this opportunity to pay tribute to Marvin Goodfriend and his many contributions to the theory and practice of monetary policy. At the Kansas City Fed, we knew Marvin as a scholar and a good Federal Reserve colleague. Marvin also was a participant in a number of our Jackson Hole Economic Symposiums. As a Research Officer at the Richmond Fed, he attended the first symposium that we held in Jackson Hole, Wyoming, in 1982, where his work on “Discount Window Borrowing, Monetary Control, and the Post‐​October 6, 1979 Federal Reserve Operating Procedure” was widely cited.1 Thirty‐​four years later in 2016, as a professor at Carnegie Mellon, he presented a paper making the case for deeply negative interest rates as a policy tool that could breach the zero lower bound on nominal rates. He argued that “the zero interest bound encumbrance on monetary policy should be removed so that movements in the intertemporal terms of trade can be reflected fully in interest rate policy to sustain price stability and full employment with a minimum of inefficient and costly alternative policies” (Goodfriend 2016; 128; emphasis added).
Topic:
Monetary Policy, Finance, Interest Rates, and Credit
Political Geography:
Global Focus and United States of America

55. The 1948 German Currency and Economic Reform: Lessons for European Monetary Policy

Author:
Gunther Schnabl
Publication Date:
10-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Twenty years after the introduction of the euro, the European Monetary Union (EMU) is at its crossroads. Following the outbreak of the European financial and debt crisis in 2008, the European Central Bank (ECB) took comprehensive measures to stabilize the common currency. Interest rates were cut to and below zero and several asset purchase programs have inflated the ECB balance sheet (Riet 2018). Within the European System of Central Banks, large imbalances have emerged via the TARGET2 payments system, which can be seen as quasi-unconditional credit in favor of the southern euro area countries (Sinn 2018). While the ECB terminated its asset purchase program at the end of 2018 and is expected to increase interest rates in late 2019, financial instability is reemerging. Growing uncertainty about the fiscal discipline of the Italian government has triggered a significant increase in risk premiums on Italian government bonds. In particular, in Italy and Greece, but also in Germany, bad loans and assets remain stuck in the banking systems. In the face of the upcoming downswing, European banks do not seem ready for new financial turmoil. In this fragile environment, the future path of the EMU is uncertain. To enhance the stability of the EMU, a group of German and French economists has called for a common euro area budget, for a strengthening of the European Stability Mechanism as lender of last resort for euro area countries and banks, as well as for a common European deposit insurance scheme (Bénassy-Quéré et al. 2018). In response, 154 German economists have warned against transforming the EMU into what they call a “liablity union,” which systematically undermines market principles and wealth (Mayer et al. 2018). In 2018, a French-German initative to introduce a common euro area budget faced strong opposition from a group of northern European countries as well as from Italy, symbolizing the political deadlock concerning reforms of the EMU. This article explains the different views on the institutional setting of monetary policymaking in Europe from a historical perspective. It begins with a description of the economic and monetary order in postwar Germany. It then discusses the positive implications for the European integration process and the economic consequences of the transformation of postwar German monetary order. The final section offers some economic policy recommendations.
Topic:
Economics, History, Monetary Policy, Reform, European Union, Banks, and Currency
Political Geography:
Europe and Germany

56. Modern Monetary Theory: Cautionary Tales from Latin America

Author:
Sebastian Edwards
Publication Date:
10-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
dea has emerged in economic policy circles in the United States: “Modern Monetary Theory” (MMT). The central tenet of this view is that it is possible to use expansive monetary policy—money creation by the central bank (i.e., the Federal Reserve)—to finance large fiscal deficits, and create a “jobs guarantee” program that will ensure full employment and good jobs for everyone. This view is related to Abba Lerner’s (1943) “functional finance” idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts.
Topic:
Debt, Monetary Policy, Populism, Banks, Economic Policy, and Inflation
Political Geography:
Latin America

57. Assessing Global Financial Stability

Author:
Tobias Adrian
Publication Date:
06-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the decade since the global financial crisis, there has understandably been great concern about potential threats to global financial stability, and policymakers have wisely remained vigilant in watching for warning signs of possible economic risk. At the International Monetary Fund (IMF), we remain committed to providing our 189 member countries with farsighted analyses of trends in the financial markets, thus guiding them toward sound policy choices that help maintain economic stability.
Topic:
International Trade and Finance, Global Recession, Financial Crisis, Economy, Economic Growth, Risk, IMF, and Financial Stability
Political Geography:
Global Focus

58. Assessing President Trump’s Trade Priorities

Author:
Daniel Griswold
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
President Trump has delivered on his promise to shake up Washington, arguably nowhere more so than in the policy space of international trade. President Trump’s trade agenda has challenged more than seven decades of bipartisan policy commitment to seeking lower trade barriers at home and abroad through negotiated agreements. While President Trump pays lip service to pursuing free trade and eliminating tariffs, his trade policies so far have been marked by higher U.S. duties on a range of products, from washing machines to steel. Under Section 301 of the Trade Act of 1974, the administration has imposed duties on $250 billion of imports from China, with those duties set to escalate in 2019 absent an agreement with China. And under Section 232 of the Trade Expansion Act of 1962, the president is threatening to impose a 25 percent duty on imported automobiles in the name of national security. The Trump administration has renegotiated existing trade agreements with Canada, Mexico, and South Korea, but its modifications are as likely to restrict trade as expand it. One of the president’s first actions after assuming office was to withdraw the United States from the pending Trans-Pacific Partnership, which would have eliminated almost all duties with 11 trading partners around the Pacific Rim, including Japan.
Topic:
Economy, Tariffs, Trade, and Donald Trump
Political Geography:
North America and United States of America

59. U.S.-China Relations: The Way Forward

Author:
P. H. Yu
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
As confrontation looms over Washington and Beijing, it is critical to identify the true nature of this challenge from an international relations perspective before any attempt to devise a counter measure. Wrong presumptions or prejudicial interpretations may lead to dire consequences of unforeseeable magnitude. One past example would be the U.S. government’s belief that Iraq was developing weapons of mass destruction (WMDs) before the American invasion in 2003. A more current example would be the American nuclear anxiety on North Korea and how President Trump bypassed conventional American strategic thinking and circumvented hawkish threats of preemptive nuclear annihilation to resolve a “draconian crisis” via “smart diplomacy.” These examples may shed light on a pathway to resolution for the current U.S.-China trade conflict. The United States and China have ample experience of weathering a crisis on the brink of war, whether it was on the Korean Peninsula or in Indochina. China today remains on the U.S. sanctions list for certain high-tech products and military equipment. Both the Trump administration and Congress continue to criticize China regularly, ranging from human rights to religious rights, from the rule of law to the autocratic political system, from the state-owned banks to restrictive market access to foreign corporations, and from currency manipulation to unfair trade practices.
Topic:
International Relations, Bilateral Relations, Trade Wars, and Trade
Political Geography:
China, Asia, North America, and United States of America

60. China’s Future Development: Challenges and Opportunities

Author:
James A. Dorn
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
1978 has been erratic, with many interruptions along the way. The end result, however, has been eye opening: the Middle Kingdom has become the world’s largest trading nation, the second largest economy, and more than 500 million people have lifted themselves out of poverty as economic liberalization removed barriers to trade. One of the enduring lessons from China’s rise as an economic giant is that once people are given greater economic freedom, more autonomy, and stronger property rights, they will have a better chance of creating a harmonious and prosperous society (see Dorn 2019). Nevertheless, China faces major challenges to its future development. There is still no genuine rule of law that effectively limits the power of government, no independent judiciary to enforce the rights promised in the nation’s constitution, no free market for ideas that is essential for innovation and for avoiding major policy errors, no competitive political system that fosters a diversity of views, and a large state sector that stifles private initiative and breeds corruption. China’s slowing growth rate, its increasing debt burden, environmental problems, and the increasing tension in U.S.-China relations compound the challenges facing Beijing.
Topic:
Development, Economics, History, and Trade Liberalization
Political Geography:
China and Asia

61. Flawed Plan to Keep Out Welfare‐​Using Immigrants

Author:
David Bier
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Trump administration has proposed a new regulation that would greatly expand an old rule banning legal residence to immigrants deemed “likely to become a public charge”—that is, someone who the government has the responsibility to care for (USCIS 2018). The rule does not, nor could it, change eligibility for welfare programs for noncitizens in the United States. Instead, it requires applicants to prove that they are not likely, in the future, to become so dependent on welfare that they become a “public charge.” Therefore, the question regarding this regulation is not whether it is appropriate for noncitizens to become dependent on welfare, but whether the government will accurately predict their likelihood of doing so.
Topic:
Immigration, Welfare, and Donald Trump
Political Geography:
North America and United States of America

62. An Analysis of the PBOC’s New Mobile Payment Regulation

Author:
Andrew Liu
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In 2016 alone, China saw $9 trillion in mobile payments—in contrast to a comparably small $112 billion of mobile payments in the United States (Abkowitz 2018). The use of mobile payment systems such as Alipay and WeChat Pay are widespread in China, with users ranging from beggars to lenders to criminals. Previously, the mobile payments landscape was largely untouched and unregulated by the Chinese government because of its relative insignificance in the Chinese economy. However, with the explosive growth in mobile payment transactions, the People’s Bank of China (PBOC) implemented a new mobile payment regulation on June 30, 2018. Most notably, the government will require all mobile payments to be cleared through the PBOC, and hence, all mobile payment transactions will begin to touch the hands of the Chinese Communist Party (CCP) (Hersey 2017). The PBOC’s stated reasoning for implementing this regulation is to curb money laundering and fraud. While those are valid concerns, it is unlikely that there are not additional motivations for the new regulation. In this article, I analyze the effects this new regulation has had and will likely have on the various mobile payment system stakeholders, competitors, and users, and also uncover what underlying motives the PBOC has in implementing the regulation.
Topic:
Government, Regulation, Economy, Banks, and Chinese Communist Party (CCP)
Political Geography:
China and Asia

63. Assessing China’s Financial Reform: Changing Roles of the Repressive Financial Policies

Author:
Yiping Huang and Tingting Ge
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
When China began economic reform in 1978, it had only one financial institution, the People’s Bank of China (PBOC), which, at that time, served as both the central bank and a commercial bank and accounted for 93 percent of the country’s total financial assets. This was primarily because, in a centrally planned economy, transfer of funds was arranged by the state and there was little demand for financial intermediation. Once economic reform started, the authorities moved very quickly to establish a very large number of financial institutions and to create various financial markets. Forty years later, China is already an important player in the global financial system, including in the banking sector, direct investment, and bond and equity markets. However, government intervention in the financial system remains widespread and serious. The PBOC still guides commercial banks’ setting of deposit and lending rates through “window guidance,” although the final restriction on deposit rates was removed in 2015. Industry and other policies still play important roles influencing allocation of financial resources by banks and capital markets. The PBOC intervenes in the foreign exchange markets from time to time, through directly buying or selling foreign exchanges, setting the central parity, and determining the daily trading band. The regulators tightly manage cross-border capital flows, and the state still controls majority shares of most large financial institutions.
Topic:
Economics, Foreign Exchange, Reform, Financial Markets, and Banks
Political Geography:
China and Asia

64. American Constitutional Theory and History: Implications for European Constitutionalism

Author:
Roger Pilon
Publication Date:
10-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It is perhaps not impertinent to suggest that American constitutional theory and history, owing to the longevity of the document that is their subject, hold lessons for constitutionalism everywhere, but especially for European constitutionalism—the more recent and ever evolving treaties that serve as a “Constitutional Charter” for the European Union. An American constitutionalist looking east today, seeing everything from Brexit to Grexit plus the reactions in European capitals, must be struck by the tension in the EU between exclusion and inclusion in its many forms, including individualism and collectivism. Those themes underpin my discussion here. The issues surrounding them are universal. They are at the heart of the human condition.
Topic:
Markets, History, European Union, and Constitution
Political Geography:
Europe, North America, and United States of America

65. Some Thoughts on International Monetary Policy Coordination

Author:
Charles I. Plosser
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It is a pleasure to be back here at Cato and to be invited to speak once again at this annual conference. This is one of the premier ongoing monetary policy conferences, and the participants, both at the podium and in the audience, attest to its prominence. This is a session on international monetary arrangements, and there has already been an interesting discussion. I find myself in substantial agreement with the comments of John Taylor, so I do not wish to repeat his points. What I will try to do is put the rules-based approach to international monetary policy coordination in a context that I hope will help us understand some of the past failures so we might avoid them in the future. In many ways, I will simply be reminding us of some principles we all have known for some time, yet which we seem to forget all too frequently.
Topic:
International Cooperation, Monetary Policy, and Banks
Political Geography:
Global Focus

66. The Case for a New International Monetary System

Author:
Judy Shelton
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
How often do we hear references to the notion that we live in a rules-based global trading system? Addressing the World Economic Forum at Davos in January 2017, British Prime Minister Theresa May praised liberalism, free trade, and globalization as “the forces that underpin the rules-based international system that is key to our global prosperity and security” (Martin 2017). Chinese President Xi Jinping likewise extolled the virtues of a rules-based economic order at Davos, winning widespread praise for defending free trade and globalization (Fidler, Chen, and Wei 2017). But could someone please explain: What exactly are those rules? Because if we are going to invoke the sentimentality of Bretton Woods by suggesting that the world has remained true to its precepts, we are ignoring geopolitical reality. Moreover, we are denying the warped economic consequences of global trade conducted in the absence of orderly currency arrangements. We have not had a rules-based international monetary system since President Nixon ended the Bretton Woods agreement in August 1971. Today there are compelling reasons—political, economic, and strategic—for President Trump to initiate the establishment of a new international monetary system.
Topic:
Economics, International Cooperation, and Monetary Policy
Political Geography:
Global Focus

67. Toward a Rules‐​Based International Monetary System

Author:
John B. Taylor
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over the past few years I have been making the case for moving toward a more rules-based international monetary system (e.g., Taylor 2013, 2014, 2015, 2016a, 2016b, 2017). In fact, I made the case over 30 years ago in Taylor (1985), and the ideas go back over 30 years before that to Milton Friedman (1953). However, the case for such a system is now much stronger because the monetary system drifted away from a rules-based approach in the past dozen years and, as Paul Volcker (2014) reminds us, the absence of a rulesbased monetary system “has not been a great success.” To bring recent experience to bear on the case, we must recognize that central banks have been using two separate monetary policy instruments in recent years: the policy interest rate and the size of the balance sheet, in which reserve balances play a key role. Any international monetary modeling framework used to assess or to make recommendations about international monetary policy must include both instruments in each country, the policy for changing the instruments, and the effect of these changes on exchange rates. Using such a framework, I show that both policy instruments have deviated from rules-based policy in recent years. I then draw the policy implications for the international monetary system and suggest a way forward to implement the policy.
Topic:
International Cooperation, International Trade and Finance, Monetary Policy, and Central Bank
Political Geography:
Global Focus

68. Extending the Economic Freedom of the World Index to the Cold War Era

Author:
Ryan Murphy and Robert A. Lawson
Publication Date:
01-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article uses newly gathered and available data and autoregressive methods to create an economic freedom index for the 1950s and 1960s for up to 95 countries. The resulting index allows not only for a longer time series but also for a larger sample of countries than has been previously available.
Topic:
Economics, History, and Economic Growth
Political Geography:
Global Focus

69. Economic Freedom and Mass Migration: Evidence from Israel

Author:
Benjamen Powell
Publication Date:
10-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The economic case for free immigration is nearly identical to the case for free trade. They both rely on a greater division of labor based on comparative advantage to ensure that allowing the free movement of goods and services or the free movement of people results in greater global wealth. Estimates of the global gains that could be achieved by the global adoption of an open immigration policy are massive, ranging from 50 to 150 percent of world GDP (Clemens 2011). Even a migration of just 5 percent of the world’s poor to wealthier countries would boost world GDP by more than could be gained by completely eliminating all remaining trade barriers to goods, services, and capital flows (Clemens 2011).
Topic:
Economics and Immigration
Political Geography:
Middle East, Israel, and Palestine

70. China's Future and the Determining Role of the Market for Ideas

Author:
Ning Wang
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The ultimate success of China’s search for economic prosperity, cultural renaissance, and a “peaceful rise” depends, in large part, on whether a free market for ideas can reemerge and flourish in China. The concept of the “market for ideas” (sixian shichang) was first introduced to a Chinese audience by Ronald Coase and myself in How China Became Capitalist (Coase and Wang 2012, see also Coase 1974). It quickly won acceptance among academics and the media. China is the only leading economy where the production and communication of ideas remains under strict state control. Universities, the primary venue where new ideas are produced, are run by the state. Newspapers, radio and TV stations, and publishers are all controlled by the state; ideas unwelcome by the state have a hard time to see the light of day. Because the freedom to supply ideas, choose ideas, and criticize ideas is severely limited, the creativity of the Chinese people is underutilized and their innovative potential undertapped.
Topic:
Economics, History, and Freedom of Press
Political Geography:
China and Asia

71. Making Inroads: China's New Silk Road Initiative

Author:
Christine R. Guluzian
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
China’s New Silk Road initiative is a multistate commercial project as grandiose as it is ambitious. Comprised of an overland economic “belt” and a maritime transit component, it envisages the development of a trade network traversing numerous countries and continents. Major investments in infrastructure are to establish new commercial hubs along the route, linking regions together via railroads, ports, energy transit systems, and technology. A relatively novel concept introduced by China’s President Xi Jinping in 2013, several projects related to the New Silk Road initiative—also called “One Belt, One Road” (OBOR, or B&R)—are being planned, are under construction, or have been recently completed. The New Silk Road is a fluid concept in its formative stages: it encompasses a variety of projects and is all-inclusive in terms of countries welcomed to participate. For these reasons, it has been labeled an abstract or visionary project. However, those in the region can attest that the New Silk Road is a reality, backed by Chinese hard currency. Thus, while Washington continues to deliberate on an overarching policy toward Asia, Beijing is making inroads—literally and figuratively— across the region and beyond.
Topic:
Infrastructure, Soft Power, Belt and Road Initiative (BRI), and Trade
Political Geography:
China and Asia

72. The Japanese Experience with QE and QQE

Author:
John Greenwood
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article provides an overview of the three episodes of quantitative easing (QE) pursued by the Bank of Japan (BOJ) since 2001. It begins with a brief account of the initial reluctant shift to unorthodox policies under BOJ Governors Hayami and Fukui in 2001–06 (here designated QE1) and then covers the equally reluctant adoption of QE by Governor Shirakawa in 2010–13 (QE2). The article then turns to an account of the attempt since April 2013 by the BOJ under Governor Kuroda, designated “quantitative and qualitative easing” (QQE), to revive the economy and achieve a 2 percent inflation target. None of these attempts at QE has been successful in raising the broad money growth rate for M2 sustainably above the 2–3 percent per annum range where it has languished for the past 25 years. Consequently, Japan’s attempts at QE have all failed to raise the equilibrium level of Japanese nominal GDP by any material magnitude, and so far, attainment of the 2 percent inflation target under QQE has remained elusive. At the time of writing (October 2016), the Japanese economy therefore continues to grow at a low rate with periodic lapses into deflation. After discussing the case of Japan, the article compares the experience of the United States in 1929–33, when there was no QE, and the experience of 2008–14, when the Fed conducted QE over three periods. The comparison is deliberately focused on the quantitative aspects of the policy, not its interest rate effects. Finally, the article explains that there are two brands of QE, and that the failure of QE in Japan is fundamentally due to the choice of the wrong brand of QE. Given the type of QE that the Japanese authorities have chosen, the policy cannot be expected to succeed, except under limited conditions.1 If QE were to be implemented according to a different design, the prospects of success would be much greater. In brief, the primary reason for the failure of BOJ-style QE or QQE derives from the habitual tendency to buy securities from banks instead of from nonbank private-sector entities (such as nonbank financial firms, nonfinancial firms, households, or foreigners). While QE policy in Japan boosts the monetary base, it does not increase broad money. But it is broad money that drives nominal GDP, not the monetary base.
Topic:
History, Economy, Banks, and Central Bank
Political Geography:
Japan and Asia

73. The Making of a State: Transition in Montenegro

Author:
Igor Lukšic and Milorad Katnic
Publication Date:
10-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The first Montenegrin state started to take shape in the 8th century with the arrival of the Slavs and their mingling with the local population. Originally it was called Doclea, whose ruler received a royal insignia by the Pope Gregory VII in 1078 (Andrijaševi ´c and Rastoder 2006). Montenegro fell under the Ottomans in the late 15th century, but acted as a de facto independent state until formal recognition came at the Berlin Congress in 1878. Despite being on the victors’ side in the Balkan Wars and in World War I, it was annexed by Serbia and lost its sovereignty in 1918. After the Second World War it became a part of socialist Yugoslavia, where it remained until 1992. Montenegro’s political transition started in earnest after the Belgrade Agreement signed in March 2002. Montenegro held an independence referendum in 2006 and was subsequently admitted to the United Nations and other international organizations. Today Montenegro is engaged in accession talks with the European Union (EU).
Topic:
History, Elections, State, and Transition
Political Geography:
Europe and Montenegro

74. Rent Seeking and Entrepreneurship: Internet Startups in China

Author:
Tain-Jy Chen and Ying-Hua Ku
Publication Date:
10-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Against all odds, China has developed one of the most vibrant Internet industries in the world. According to Atomico (2015), which tracked venture capital (VC)-funded startups in the world, there were 156 Internet startups that had been founded in 2003–14 and that had become billion-dollar companies (based on market capitalization) by the end of 2014 after initial public offerings (IPOs). The United States leads the list with 86 companies, followed by China’s 30, and Sweden’s 5. All Chinese billion-dollar startups are consumer-related, while billion-dollar startups in other countries include business applications, games, and others. Similarly, the Wall Street Journal tracked unlisted VC-funded startups and identified 78 of them whose market valuation (measured by financing terms in the most recent round of funding) had exceeded one billion dollars in March 2015 (Table 1). The list includes startups in the Internet as well as other sectors. Again, the United States leads the list with 50 ventures, followed by China’s 8. All Chinese ventures are Internet-related, if Xiaomi, which tops the list of all startups and sells smartphones on the Internet, is also counted as an Internet company (Dow Jones Venture Source 2015). In short, Chinese startups are numerous, vigorous, and most successful in Internet-based consumer business.
Topic:
Science and Technology, Internet, Entrepreneurship, and Business
Political Geography:
China and Asia

75. The G20 and Global Governance

Author:
Stephen Kirchner
Publication Date:
10-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Group of 20 sees itself as “the premier forum for international economic cooperation” (G20 2009b). This article examines its evolution and performance, and member countries’ compliance with G20 summit commitments. The G20 evolved as a response to the shortcomings of its predecessor, the G7/8. Yet its creation allowed member countries to avoid confronting many of the problems that arose out of the earlier forum. The best defense of the G20 is that it is the only institution of its type, but it still consumes scarce political and diplomatic capital, sometimes to the detriment of the policy objectives to which it is notionally committed. In this article, I compare data on members’ compliance with G20 summit commitments to proxy measures of the quality of domestic policies and institutions. While the proxies predict G20 compliance, it turns out that G20 compliance has no power to predict subsequent changes in domestic policies and institutions. The main implication of this data is that international economic and political cooperation is a symptom, not a cause, of domestic policies and institutions. Improvement in domestic policies makes the best contribution to advancing the G20 agenda, but such improvements do not appear to depend on the G20 process.
Topic:
Economics, International Cooperation, Governance, and G20
Political Geography:
Global Focus

76. Rethinking the International Monetary System

Author:
John B. Taylor
Publication Date:
06-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In previous articles in the annual monetary issue of the Cato Journal, I drew on historical facts and economic theory to explain the benefits of rules-based monetary policy and why legislation could help the United States reap those benefits (Taylor 2011, 2013a). In this article, I discuss the international aspects of monetary policy, a subject often glossed over in modern debates about rules-based policy, at least compared with discussions about the classic rulesbased gold standard.
Topic:
Economics, International Cooperation, and Monetary Policy
Political Geography:
North America, Global Focus, and United States of America

77. Subnational Economic Freedom and Performance in the United States and Canada

Author:
Daniel L. Bennett
Publication Date:
01-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
During his illustrious career spanning more than half a century, Richard Vedder has tirelessly advocated for limited government and free enterprise. Much of his scholarship has focused on examining how fiscal and labor market policies consistent with the principles of economic freedom are associated with economic and social benefits such as stronger economic performance (Vedder 1981, 1990), lower unemployment (Vedder and Gallaway 1996, 1997), and poverty alleviation (Vedder and Gallaway 2002). Vedder has also examined the impact of government policy on income inequality (Vedder 2006; Vedder and Gallaway 1986, 1999; Vedder, Gallaway, and Sollars 1988), an area that he and I have collaborated to study (Bennett and Vedder 2013, 2015). Thus, Vedder’s scholarship has contributed to our understanding of the impact that economic freedom exerts on economic outcomes.
Topic:
Government, Income Inequality, Economy, and Free Trade
Political Geography:
Canada, North America, and United States of America

78. The Power of Ideas and Leadership in China's Transition to a Liberal Society

Author:
Weiying Zhang
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
History and casual observations suggest that ideas and leadership are the two most important forces in all institutional changes. However, they have been absent or downplayed in conventional economic analysis of institutional changes. Conventional economics has exclusively focused on the notion of “interest” in explaining almost everything, from consumers' choices to public choices to institutional changes. IN particular, institutional changes have been modeled as a game of interests between different groups (such as the ruling and the ruled), with the assumption that there is a well-defined mapping from interests into outcomes.
Topic:
Economics
Political Geography:
China

79. Political Capitalism

Author:
Randall G. Holcombe
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. The economic elite influence the government's economic policies to use regulation, government spending, and the design of the tax system to maintain their elite status in the economy. The political elite are then supported by the economic elite which helps the political elite maintain their status; an exchange relationship that benefits both the political and economic elite.
Topic:
Economics and War
Political Geography:
America

80. Thinking Ahead of the Next Big Crash

Author:
George C. Bitros
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the aftermath of the unprecedented 2008 financial crisis, researchers of macroeconomics, finance, and political economy are showing renewed interest in the old but very significant question: Are central banks in large reserve currency democracies—in particular, the U.S. Federal Reserve—prone to creating asset bubbles, and if so, how is it possible to prevent the misuse of the banks' discretionary powers?
Topic:
Political Economy
Political Geography:
United States and England

81. Income Inequality: Piketty and the Neo-Marxist Revival

Author:
Thomas H. Mayor
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Karl Marx formulated his ideas in the middle of the 19th century when much of Europe, particularly England, was well along in what is often referred to as the Industrial Revolution. The central Marxist idea was that those who had wealth would reap the benefit of this revolution and become ever more wealthy while those who lived from their labor alone would be relegated to a bare subsistence. In his view, capital accumulation and increases in productivity do not benefit those who work for a living. Allegedly, those who own the means of production (wealth) and supposedly perform no work, receive all the benefits.
Topic:
Government
Political Geography:
Europe and England

82. The Impact of Economic Inequality on Economic Freedom

Author:
Ryan H. Murphy
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Contemporary economic policy debates are dominated by concerns regarding the rise in inequality (Stiglitz 2012, Piketty 2014). Primarily, this has led to a focus in re-invigorating redistribution. For instance, Robert Shiller (2014) has recently argued for indexing top marginal tax rates to inequality and using the revenues to fund transfer payments. Secondarily, there are the longstanding objections to “neoliberalism” in general, which has encouraged globalization and the liberalization of markets. To the extent that liberal reforms have improved economic institutions, might today's inequality subsequently derail them?
Topic:
Economics and Markets

83. Welfare Economics and Second-Best Theory: Filling Imaginary Economic Boxes

Author:
Richard E. Wagner
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Since the beginnings of the efforts of economist to give their discipline scientific grounding, economists have thought their theoretical efforts had relevance for addressing significant public issues. While the classical economists generally supported what Adam Smith described as the “system of natural liberty,” those economists also weighed in on numerous issues of public discussion. The tenor and substance of those efforts is set forth wonderfully by Lion Robbins (1952) and Warren Samuels (1966). While the analytical default setting of those economists was to support the system of natural liberty, they also recognized the value of sound public policy in supporting that stem. The classical economists thought that there could be publicly beneficial activities that the system. The classical economists thought that there could be publicly beneficial activities that the system of natural liberty would be unlikely to do well in providing. They also thought that there were activities provided through commercial transactions that could wreak significant effects on bystanders to those transactions. The amount of education acquired within a society was one such candidate (West 1965), with the care of the poor being another (Himmelfarb 1983). IN such matters as these, the classical economists engaged in strenuous debate and discussion that served as a forerunner to the development of welfare economics during the 20th century.
Topic:
Government

84. The Rule of Nobody: Saving America from Dead Laws and Broken Government

Author:
Philip K. Howard
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Phillip Howard is a lawyer nationally known for his best-selling books and extensive commentary on the dysfunctions of the American legal and political systems and the adverse effects those dysfunctions have on individual behavior and the overall workings of society.
Topic:
Government
Political Geography:
America

85. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change

Author:
Edmund S. Phelps
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In his most recent tome, Edmund Phelps, the 2006 Nobel Laureate in Economic Science, addresses a topic crucial to successful national capitalist systems: the dynamics of the innovation process. Phelps develops his thesis around three main themes: In part one, he explains the development of the modern economies as they form the core of early—19th century societies in the West; in part two, he explores the lure of socialism and corporatism as competing systems to modern capitalism; and, in part three, he reviews post-1960s evidence of decline in dynamism in Western capitalist countries.
Topic:
Economics
Political Geography:
United States and Europe

86. Falling Behind? Boom, Bust, and the Global Race for Scientific Talent

Author:
Michael Teitelbaum
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In Washington, doomsday prophets tend to be effective motivational speakers. They successfully persuade the electorate that their cause is worthy and prompt Congress to take action. In his book Falling Behind? Boom, Bust, and the Global Race for Scientific Talent, Michael Teitelbaum takes on a particular brand of doomsday prophet: those who see impending shortages in the science and engineering workforce. Teitelbaum walks his readers through five postwar cycles of boom and bust in the science and engineering workforce, which eh argues have been driven to a large extend by political machinations set in motion by labor shortage claims (claims that have been almost universally rejected by economists studying the issue). The institutions that currently shape the science and engineering workforce are largely the product of policy responses to these booms and busts. As a result, Falling Behind? Is more than just a work of policy history. It is also a cogent analysis of contemporary R funding mechanisms, high-skill immigration policies, and PhD program structures.
Topic:
Government
Political Geography:
Washington and Soviet Union

87. Saving Congress from Itself: Emancipating the States Empowering Their People

Author:
James L. Buckley
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
“The United States faces two major problems today,” writes James L. Buckley: “runaway spending that threatens to bankrupt us and a Congress that appears unable to deal with long-term problems of any consequence.” Contributing significantly to both, he argues, are the more than 1,100 federal grants-in-aid programs Congress has enacted—federal grants to state and local governments, constituting 17 percent of the federal budget, the third-largest spending category after entitlements and defense, with costs that have risen from $24.1 billion in 1970 to $640.8 billion in fiscal 2015. His “modest proposal”? Do away with them entirely, thereby saving Congress from itself while emancipating the states and empowering their people. If that sounds like a program for revising constitutional federalism, it is.
Topic:
Government
Political Geography:
United States

88. The American Warfare State: The Domestic Politics of Military Spending

Author:
Rebecca U. Thorpe
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In The American Warfare State, Reecca Thrope attempts to answer what she calls “the fundamental puzzle” of American politics: “Why a nation founded on a severe distrust of standing armies and centralized power developed and maintained the most powerful military in history.”
Topic:
Economics
Political Geography:
America

89. Boom Towns: Restoring the Urban American Dream

Author:
Stephen J. K. Walters
Publication Date:
02-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The image of a boom town is commonly used to describe exceptional conditions through which a village suddenly becomes a city. Often such conditions are the discovery of mineral deposits that attracts industry and commerce. While in their booming condition, such towns are oases of societal flourishing relative to their preceding state. In Boom Towns, Stephen J.K. Walters, a professor of economics at Loyola University in Baltimore, explains that cities in general have the capacity perpetually to b forms of boom towns. Cities can serve as magnets to attract people and capital, thus promoting the human flourishing that has always been associated with cities at their best. It is different if cities are at their worst, as Walters explains in brining Jane Jacobs's Death and Life of Great American Cities into explanatory ambit. There are no natural obstacles to cities occupying the foreground of societal flourishing. There are obstacles to be sure, but these are man-made. Being man-made, they can also be overcome through human action, at least in principle even if doing so in practice might be difficult.
Topic:
Government
Political Geography:
America

90. Monetary Muddles

Author:
James A. Dorn
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The stability or instability of the market economy is an issue that has been all but ignored in macroeconomics for several decades. Within monetary economics, the distribution of income has been similarly ignored. The crisis of recent years tells us in no uncertain terms that we have to pay more attention to these two topics. Changes in financial regulation and in the conduct of monetary policy have not only played a very significant role in generating the financial crisis but have also been important in bringing about a large shift in the distribution of income over the last two or three decades

91. Money and Banking: A Constitutional Perspective

Author:
Walker F. Todd
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Banks either are or should be fiduciaries holding the public’s funds as a public trust. Those who want to participate in the risktaking aspects of banking are shareholders (or should be shareholders). If the government is called upon to share the risks of banking, especially the risks of investment banking, then it should be a shareholder. As Edward J. Kane puts it, “For investment banker’s risk, there should be investment banker’s reward for the taxpayers.” And once the government is a shareholder, it owes a public duty to restrain the egregious risk taking and excess executive compensation in which banks seem to have wanted to engage for the last 30 years or so.

92. Gold and Silver as Constitutional Alternative Currencies

Author:
Edwin Vieri Jr.
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In his Inaugural Address of 1933, Franklin D. Roosevelt warned his fellow Americans that “in our progress towards a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments, so that there will be an end to speculation with other people’s money; and there must be provision for an adequate but sound currency.” Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency—with the seizure of most Americans’ gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses in both public and private contracts (Vieira 2002:867–1235).

93. The Role of Gold in a Market-Based Monetary System

Author:
Jerry L. Jordan
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Fruitful consideration of the role of gold in a market-based monetary system must be preceded by an understanding of why gold is not part of our government-based monetary system. I have set out my view on that issue elsewhere (Jordan 2011) and will not repeat it here. People whose views on money I greatly respect still advocate restoring gold backing to the Federal Reserve-issued U.S. dollar. During the Hearings of the U.S. Gold Commission in 1981–82, several witnesses advocated restoration of some linkage between Federal Reserve-issued dollar notes and gold.

94. Law, Legislation, and the Gold Standard

Author:
George Selgin
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
More than a half century ago, in October 1961, Milton Friedman’s “Real and Pseudo Gold Standards” appeared in the Journal of Law and Economics. In that article, Friedman argued that versions of the gold standard erected after 1914, if not some earlier ones, were “pseudo” gold standards, differing from “real” ones in dispensing with actual gold coins and allowing monetary authorities to sterilize international gold movements, instead of letting those movements automatically regulate national money stocks. Such pseudo gold standards, Friedman argued, amounted to particularly dangerous instances of government price-fixing, and as such ought to be anathema to believers in free markets.

95. Fix What Broke: Building an Orderly and Ethical International Monetary System

Author:
Judy Shelton
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It has been more than six years since the global economy was put through the financial wringer and left hung out to dry. According to former Federal Reserve chairman Ben Bernanke, who presided over the debacle: “September and October of 2008 was the worst financial crisis in global history, including the Great Depression” (da Costa 2014). Given that Bernanke is a scholar on the global economic collapse of the 1930s, his assessment is particularly sobering. After all, a horrifying world war followed in its aftermath.

96. Transitioning Standards of Value in Fixed-Value Monetary Systems

Author:
Nathan Lewis
Publication Date:
07-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Historically, there have been two basic frameworks by which a government organizes its monetary affairs. One of these—the Soft Money approach—we are quite familiar with today: a process by which a committee of government bureaucrats manages a floating fiat currency of some sort, on a day-to-day and ad hoc basis. The other format—the Hard Money approach—is typified by the Rule of Law, which is some definite and unchanging framework by which the currency is managed. Consequently, there is no need or role for a day-to-day human discretionary element, except perhaps in some of the particulars of the system’s execution.

97. China's Political-Economic Institutions and Development

Author:
Chenggang Xu
Publication Date:
10-2015
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
After more than three decades of economic reform, China has transformed from being one of the poorest economies in the world to being the second-largest economy measured by nominal exchange rates, or the largest economy measured by purchasing power. As such, it is important to elucidate the determinants of China’s future development. This article will focus on China’s institutions. I argue that although the size of China’s economy is extremely important in terms of its impact on the global economy, it is misleading to ignore political and economic institutions. Indeed, forecasts based on extrapolating past trends could be erroneous (see Pritchett and Summers 2014). China was the largest economy in the world before the end of the 19th century but then lost ground to Western nations that established the rule of law and free trade. To understand China’s past and future development, one has to examine its institutions.
Topic:
Economics, Reform, and Global Political Economy
Political Geography:
China and Asia

98. The Coasean Framework of the New York City Watershed Agreement

Author:
Geoffrey Black, D. Allan Dalton, Samia Islam, and Aaron Batteen
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over 50 years ago, in "The Problem of Social Cost," Ronald Coase (1960) attempted to reorient the economics profession's treatment of externalities. He wanted to draw economists' attention away from the world of pure competition as a policy standard and investigate the consequences of transaction costs and property rights for the operation of markets. In 1991, he was awarded the Nobel prize in economics "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy" (Royal Swedish Academy of Sciences 1991). The Academy cited both his 1960 article and his 1937 article "The Nature of the Firm."
Topic:
Economics
Political Geography:
New York

99. Marginal Tax Rates and U.S. Growth: Flaws in the 2012 CRS Study

Author:
Jason E. Taylor and Jerry L. Taylor
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In September 2012, seven weeks before the presidential election—one in which top marginal tax rates were a major policy difference between the two major—party candidates-the Congressional Research Service (CRS) published a paper (Hungerford 2012) suggesting that there is no empirical evidence that top marginal tax rates impact U.S. economic growth. After all, top marginal tax rates were above 90 percent during the 1950s and early 1960s when the economy experienced rapid growth. Furthermore, marginal tax rate cuts in 2001 and 2003 were followed by the worst financial crisis since the Great Depression. The CRS study was widely reported in blogs, newspapers such as the New York Times, and The Atlantic magazine. It was portrayed as evidence refuting Republican candidate Mitt Romney's position that cutting the top marginal tax rate from 35 to 28 percent would spur economic growth and supporting Democratic President Barack Obama's position that top marginal tax rates could be raised to 39.6 percent with no cost to economic growth (Leonhart 2012, Thompson 2012).
Political Geography:
United States

100. State Fiscal Policies for Budget Stabilization and Economic Growth: A Dynamic Scoring Analysis

Author:
John Merrifield and Barry W. Poulson
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Economic downturns expose unsustainable fiscal practices. Widespread fiscal crises create opportunities to compare policy options that address especially adverse circumstances, especially progrowth fiscal constraints that can stabilize state budgets over the business cycle. Our policy option assessments depart from the normal practice of assessing rules and policies independently. Our premise is that the fiscal policy mix determines its outcomes. We include dynamic scoring to provide a richer view of the policy interactions.
Topic:
Economics
Political Geography:
California