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  • Author: Julio Garin, Robert Lester, Eric Sims
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting.
  • Topic: Economics, Human Welfare, Markets, GDP
  • Political Geography: Global Focus
  • Author: Joshua R. Hendrickson, David Beckworth
  • Publication Date: 06-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Over the last few years, the Federal Reserve has conducted a series of large scale asset purchases. Given the Federal Reserve’s dual mandate, the objective of this policy has been to generate an increase in real economic activity while maintaining a low, stable rate of inflation. The effectiveness of large scale asset purchases and the ability of the central bank to achieve a particular target has been subject to debate. The monetary transmission mechanism is of primary importance for understanding the effects of both the recent large scale asset purchases and of monetary policy more generally. The purpose of this paper is to propose a monetary transmission mechanism and to present empirical support for this mechanism. In particular, this paper suggests that monetary policy is transmitted through changes in the growth rate of transaction assets through both a direct and indirect effect. First, an increase in the growth rate of the monetary base, whether through lump sum transfers or open market operations, generates a real balance effect that increases real economic activity. Second, the indirect effect is through bank lending. Since bank loans are often a function of nominal income, expansionary monetary policy increases bank lending. Since economics agents are forward-looking and the the effects of monetary policy are persistent, monetary policy is transmitted through the expected future time path of the growth of transaction assets and nominal income. This characteristic is especially important in light of the policy recommendations of Sumner (2011, 2012) and Woodford (2012), in which the central bank attaches an explicit target for the level of nominal income to large-scale asset purchases.1
  • Topic: Economics, Markets, Monetary Policy, Federal Reserve
  • Political Geography: Global Focus
  • Author: Therese M. Vaughan, Mark A. Calabria
  • Publication Date: 05-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: Global Focus
  • 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, Markets
  • Author: Leighton Ku, Brian Bruen
  • Publication Date: 02-2013
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Claims are sometimes made that immigrants use public benefits, such as Medicaid, the Supplemental Nutrition Assistance Program, or the Temporary Assistance for Needy Families programs, more often than those who are born in the United States. This report provides analyses, using the most recent data from the Census Bureau, that counter these claims. In reality, low-income non-citizen immigrants, including adults and children, are generally less likely to receive public benefits than those who are native-born. Moreover, when non-citizen immigrants receive benefits, the value of benefits they receive is usually lower than the value of benefits received by those born in the United States. The combination of lower average utilization and smaller average benefits indicates that the overall cost of public benefits is substantially less for low-income non-citizen immigrants than for comparable native-born adults and children. The report also explains that the lower use of public benefits by non-citizen immigrants is not surprising, since federal rules restrict immigrants' eligibility for these public benefit programs.
  • Topic: Economics, Health, Humanitarian Aid, Markets, Immigration
  • Political Geography: United States
  • Author: William F. Shughart II, Diana W. Thomas
  • Publication Date: 10-2013
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: During his presidential campaign, Sen. Barack Obama criticized sharply the lax anti-trust law enforcement record of the George W. Bush administration. Subsequently, his first assistant attorney general for antitrust even went so far as to suggest that the Great Recession was, at least in part, caused by federal antitrust policy failures during the previous eight years. This paper sets out to investigate how and in what ways antitrust enforcement has changed since President Obama took office in 2009. We review four recent antitrust cases and the behavioral remedies that were imposed on the defendants in those matters in detail. We find that the Obama administration has been significantly more active in enforcing the antitrust laws with respect to proposed mergers than his two predecessors in the White House had been. In addition, the Federal Trade Commission, together with the Department of Justice, withdrew a thoughtful report on the enforcement of Section 2 of the Sherman Act and issued new merger guidelines and a new merger policy remedy guide, all of which have moved antitrust law enforcement away from traditional structural remedies in favor of very intrusive behavioral remedies in an unprecedented fashion. That policy shift has further transformed antitrust law enforcers into regulatory agencies, a mission for which they are not well-suited, resulting in the Department of Justice and Federal Trade Commission being more vulnerable to rent seeking.
  • Topic: Economics, International Trade and Finance, Markets, Governance, Law Enforcement
  • Author: Brink Lindsey
  • Publication Date: 10-2013
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: For over a century, the trend line for the long-term growth of the U.S. economy has held remarkably steady. Notwithstanding huge changes over time in economic, social, and political conditions, growth in real gross domestic product (GDP) per capita has fluctuated fairly closely around an average annual rate of approximately 2 percent. Looking ahead, however, there are strong reasons for doubting that this historic norm can be maintained.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Financial Crisis, Governance
  • Political Geography: United States
  • Author: Michael Tanner
  • Publication Date: 02-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Opponents of allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts have long pointed to the supposed riskiness of private investment. The volatility of private capital markets over the past several years, and especially recent declines in the stock market, have seemed to bolster their argument.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: United States
  • Author: Thomas L. Hogan
  • Publication Date: 06-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Privately issued money can benefit consumers in many ways, particularly in the areas of value stability and product variety. Decentralized currency production can benefit consumers by reducing inflation and increasing economic stability. Unlike a central bank, competing private banks must attract customers by providing innovative products, restricting the quantity of notes issued, and limiting the riskiness of their investing activities. Although the Federal Reserve currently has a de facto monopoly on the provision of currency in the United States, this was not always the case. Throughout most of U.S. history, private banks issued their own banknotes as currency. This practice continues today in a few countries and could be reinstituted in the United States with minimal changes to the banking system.
  • Topic: Economics, Government, Markets, Monetary Policy
  • Political Geography: United States
  • Author: Morris A. Davis
  • Publication Date: 05-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: For decades U.S. housing policy has focused on promoting homeownership. In this study, I show that the set of policies designed to further homeownership has been ineffective and expensive and that homeownership as a public policy goal is not well supported.
  • Topic: Economics, Government, Markets, Urbanization
  • Political Geography: United States
  • Author: Patric H. Hendershott, Kevin Villani
  • Publication Date: 03-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The current narrative regarding the 2008 systemic financial system collapse is that numerous seemingly unrelated events occurred in unregulated or underregulated markets, requiring widespread bailouts of actors across the financial spectrum, from mortgage borrowers to investors in money market funds. The Financial Crisis Inquiry Commission, created by the U.S. Congress to investigate the causes of the crisis, promotes this politically convenient narrative, and the 2010 Dodd-Frank Act operationalizes it by completing the progressive extension of federal protection and regulation of banking and finance that began in the 1930s so that it now covers virtually all financial activities, including hedge funds and proprietary trading. The Dodd-Frank Act further charges the newly created Financial Stability Oversight Council, made up of politicians, bureaucrats, and university professors, with preventing a subsequent systemic crisis.
  • Topic: Economics, Government, Markets, Global Recession, Financial Crisis
  • Political Geography: United States
  • Author: Mark A. Calabria, Emily McClintock Ekins
  • Publication Date: 08-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: During the financial crisis of 2008, the financial markets would have been better served if the credit rating agency industry had been more competitive. We present evidence that suggests the Securities and Exchange Commission's designation of Nationally Recognized Statistical Rating Organizations (NRSROs) inadvertently created a de facto oligopoly, which primarily propped up three firms: Moody's, S, and Fitch. We also explain the rationale behind the NRSRO designation given to credit rating agencies (CRAs) and demonstrate that it was not intended to be an oligopolistic mechanism or to reduce investor due diligence, but rather was intended to protect consumers. Although CRAs were indirectly constrained by their reputation among investors, the lack of competition allowed for greater market complacency. Government regulatory use of credit ratings inflated the market demand for NRSRO ratings, despite the decreasing informational value of credit ratings. It is unlikely that this sort of regulatory framework could result in anything except misaligned incentives among economic actors and distorted market information that provides inaccurate signals to investors and other financial actors. Given the importance of our capital infrastructure and the power of credit rating agencies in our financial markets, and despite the good intentions of the uses of the NRSRO designation, it is not worth the cost and should be abolished. Regulators should work to eliminate regulatory reliance on credit ratings for financial safety and soundness. These regulatory reforms will, in turn, reduce CRA oligopolistic power and the artificial demand for their ratings.
  • Topic: Economics, Markets, Financial Crisis, Governance
  • Political Geography: United States
  • Author: Tad DeHaven
  • Publication Date: 07-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Rising federal spending and huge deficits are pushing the nation toward a financial and economic crisis. Policymakers should find and eliminate wasteful, damaging, and unneeded programs in the federal budget. One good way to save money would be to cut subsidies to businesses. Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.
  • Topic: Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: United States
  • Author: Steve H. Hanke, Nicholas Krus
  • Publication Date: 08-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This chapter supplies, for the first time, a table that contains all 56 episodes of hyperinflation, including several which had previously gone unreported. The Hyperinflation Table is compiled in a systematic and uniform way. Most importantly, it meets the replicability test. It utilizes clean and consistent inflation metrics, indicates the start and end dates of each episode, identifies the month of peak hyperinflation, and signifies the currency that was in circulation, as well as the method used to calculate inflation rates.
  • Topic: Economics, Globalization, International Trade and Finance, Markets, Monetary Policy, Financial Crisis
  • Author: Jagadeesh Gokhale
  • Publication Date: 11-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Official federal budget accounts are constructed exclusively in terms of current cash flows – receipts from taxes and fees and outlays on purchases and transfers. But cash-flows do not reveal economically relevant information about who benefits and who loses from government policies. Cash flows also do not reveal how changes in government's policies redistribute resources within and across generations, including reducing the tax burden on today's generations and increasing it on future ones. Because most government transact ions are targeted by age and gender, the federal government can bring about large resource transfers across generations. Intergenerational resource transfers will grow larger as the composition of budget receipts and expenditures changes with relatively faster growth of age-and-gender-related social insurance program. Intergenerational redistributions across generations through federal government operations could substantially affect different generations' economic expectations and choices and exert powerful long-term effects on economic outcomes.
  • Topic: Economics, Government, Health, Human Welfare, Markets, Monetary Policy
  • Political Geography: United States
  • Author: Gerald P. O'Driscoll Jr.
  • Publication Date: 10-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Advocates of central bank reform must examine why central banks emerged and what forces sustain them. They did not arise in an institutional vacuum, and will not be reformed in an institutional vacuum. The historical origins of central banks explain how they came into existence. The forces sustaining and feeding their growth may differ from those explaining their origin.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy, Governance
  • Political Geography: United States
  • Author: Alan Reynolds
  • Publication Date: 10-2012
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This paper confirms recent studies which find little or no sustained increase in the inequality of disposable income for the U.S. population as a whole over the past 20 years, even though estimates of the top 1 percent's share of pretax, pretransfer (market) income spiked upward in 1986-88, 1997-2000 and 2003-2007.
  • Topic: Economics, Government, Markets, Social Stratification
  • Political Geography: United States
  • Author: Jagadeesh Gokhale
  • Publication Date: 01-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Unless repeal attempts succeed, the Patient Protection and Affordable Care Act of 2010 (ObamaCare) promises to increase state government obligations on account of Medicaid by expanding Medicaid eligibility and introducing an individual health insurance mandate for all US citizens and legal permanent residents. Once ObamaCare becomes fully effective in 2014, the cost of newly eligible Medicaid enrollees will be almost fully covered by the federal government through 2019, with federal financial support expected to be extended thereafter. But ObamaCare provides states with zero additional federal financial support for new enrollees among those eligible for Medicaid under the old laws. That makes increased state Medicaid costs from higher enrollments by "old-eligibles" virtually certain as they enroll into Medicaid to comply with the mandate to purchase health insurance. This study estimates and compares potential increases in Medicaid costs from ObamaCare for the five most populous states: California, Florida, Illinois, New York, and Texas.
  • Topic: Government, Health, Markets, Health Care Policy
  • Political Geography: United States, New York, California, Florida
  • Author: Kevin Dowd, Martin Hutchinson, Jimi Hinchliffe, Simon Ashby
  • Publication Date: 07-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The Basel regime is an international system of capital adequacy regulation designed to strengthen banks' financial health and the safety and soundness of the financial system as a whole. It originated with the 1988 Basel Accord, now known as Basel I, and was then overhauled. Basel II had still not been implemented in the United States when the financial crisis struck, and in the wake of the banking system collapse, regulators rushed out Basel III.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy, Governance
  • Political Geography: United States
  • Author: Randal O'Toole
  • Publication Date: 06-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The debate over President Obama's fantastically expensive high-speed rail program has obscured the resurgence of a directly competing mode of transportation: intercity buses. Entrepreneurial immigrants from China and recently privatized British transportation companies have developed a new model for intercity bus operations that provides travelers with faster service at dramatically reduced fares.
  • Topic: Economics, Markets, Infrastructure, Governance
  • Political Geography: United States, China
  • Author: Vance Fried
  • Publication Date: 06-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Undergraduate education is a highly profitable business for nonprofit colleges and universities. They do not show profits on their books, but instead take their profits in the form of spending on some combination of research, graduate education, low-demand majors, low faculty teaching loads, excess compensation, and featherbedding. The industry's high profits come at the expense of students and taxpayer.
  • Topic: Economics, Education, Markets, Privatization, Governance
  • Author: Andrew J. Coulson
  • Publication Date: 06-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The central problem confronting education systems around the world is not that we lack models of excellence; it is our inability to routinely replicate those models. In other fields, we take for granted an endless cycle of innovation and productivity growth that continually makes products and services better, more affordable, or both. That cycle has not manifested itself in education. Brilliant teachers and high-performing schools can be found in every state and nation, but, like floating candles, they flicker in isolation, failing to touch off a larger blaze.
  • Topic: Economics, Education, Markets
  • Author: Randal O'Toole
  • Publication Date: 05-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Tax-increment financing (TIF) is an increasingly popular way for cities to promote economic development. TIF works by allowing cities to use the property, sales, and other taxes collected from new developments—taxes that would otherwise go to schools, libraries, fire departments, and other urban services—to subsidize those same developments.
  • Topic: Economics, Markets, Monetary Policy, Governance
  • Author: David Reiss
  • Publication Date: 04-2011
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit driven, but as government-sponsored enterprises (GSEs) they also have a government-mandated mission to provide liquidity and stability to the U.S. mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy.
  • Topic: Economics, Markets, Privatization, Financial Crisis, Governance
  • Political Geography: United States
  • Author: Paul H. Rubin
  • Publication Date: 06-2011
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Markets, tort law, and regulation are alternative methods of achieving safety. Of these, the market is the most powerful, but it is often ignored in policy discussions. I show that both for the United States over time and for the world as a whole, higher incomes are associated with lower accidental death rates, and I discuss some examples of markets creating safety. Markets may fail if there are third-party effects or if there are information problems. Classic tort law is a reasonable (although expensive) way to handle third-party effects for strangers, as in the case of auto accidents. In theory, regulation could solve information problems, but in practice many regulations overreach because of different information problems—consumers are unaware of unapproved alternatives. A particularly difficult information problem arises in the case of what I call “ambiguous goods”— goods that reduce some risks but increase others (for example, medical care and malpractice.) Product liability focuses on these goods; over half of the litigation groups of the American Association for Justice are for ambiguous goods.
  • Topic: Markets
  • Political Geography: United States
  • Author: Mark A. Calabria
  • Publication Date: 03-2011
  • Content Type: Policy Brief
  • Institution: The Cato Institute
  • Abstract: The recent financial crisis was characterized by losses in nearly every type of investment vehicle. Yet no product has attracted as much attention as the subprime mortgage.
  • Topic: Economics, Government, Markets, Financial Crisis
  • Political Geography: United States
  • Author: Steven Horwitz
  • Publication Date: 09-2011
  • Content Type: Policy Brief
  • Institution: The Cato Institute
  • Abstract: Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation-all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington ... we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."
  • Topic: Economics, Markets, Political Economy, Financial Crisis, Governance
  • Political Geography: United States, Washington
  • Author: Randal O'Toole
  • Publication Date: 03-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Over the past four decades, American cities have spent close to $100 billion constructing rail transit systems, and many billions more operating those systems. The agencies that spend taxpayer dollars building these lines almost invariably call them successful even when they go an average of 40 percent over budget and, in many cases, carry an insignificant number of riders. The people who rarely or never ride these lines but still have to pay for them should ask, “How do you define success?"
  • Topic: Government, Markets, Infrastructure
  • Political Geography: America
  • Author: Craig Pirrong
  • Publication Date: 07-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: In the aftermath of the financial crisis, attention has turned to reducing systemic risk in the derivatives markets. Much of this attention has focused on counterparty risk in the over-the counter market, where trades are bilaterally executed between dealers and derivative purchasers. One proposal for addressing such counterparty risk is to mandate the trading of derivatives over a centralized clearinghouse. This paper lays out the advantages and risks to a mandated clearing requirement, showing how, in some instances, such a mandate can actually increase systemic risk and result in more financial bailouts.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Author: Stephen J. Schulhofer, David Friedman
  • Publication Date: 09-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Criminal defense systems are in a state of perpetual crisis, routinely described as “scandalous.” Public defender offices around the country face crushing caseloads that necessarily compromise the quality of the legal representation they provide. The inadequacy of existing methods for serving the indigent is widely acknowledged, and President Obama has recently taken steps to give the problem a higher priority on the national agenda.
  • Topic: Defense Policy, Markets, Law, Prisons/Penal Systems
  • Author: Christopher J. Conover
  • Publication Date: 10-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: A well-established principle of public finance holds that taxes impose costs on society beyond the amount of revenue government collects. Estimates vary depending on the type of tax, but the “marginal excess burden” of federal taxes most likely ranges from 14 to 52 cents per dollar of tax revenue, averaging about 44 cents for all federal taxes.
  • Topic: Economics, Government, Markets
  • Political Geography: United States
  • Author: Chris Edwards
  • Publication Date: 09-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: State governments have had to make tough budget choices in recent years. Tax revenues have stagnated as a result of the poor economy, and that has prompted governors to take a variety of fiscal actions to close large budget gaps. Some governors have cut spending to balance their budgets, while others have pursued large tax increases.
  • Topic: Economics, Government, Markets, Monetary Policy
  • Political Geography: America
  • Author: George A. Selgin, Lawrence H. White, William D. Lastrapes
  • Publication Date: 11-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: As the one-hundredth anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation's experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we find the following: (1) The Fed's full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed's establishment. (2) While the Fed's performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.
  • Topic: Civil Society, Government, Markets
  • Political Geography: United States
  • Author: Andrew J. Coulson
  • Publication Date: 10-2010
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: School voucher and education tax credit programs have proliferated in the United States over the past two decades. Advocates have argued that they will enable families to become active consumers in a free and competitive education marketplace, but some fear that these programs may in fact bring with them a heavy regulatory burden that could stifle market forces. Until now, there has been no systematic, empirical investigation of that concern. The present paper aims to shed light on the issue by quantifying the regulations imposed on private schools both within and outside school choice programs, and then analyzing them with descriptive statistics and regression analyses. The results are tested for robustness to alternative ways of quantifying private school regulation, and to alternative regression models, and the question of causality is addressed. The study concludes that vouchers, but not tax credits, impose a substantial and statistically significant additional regulatory burden on participating private schools.
  • Topic: Education, Government, Markets
  • Political Geography: United States
  • Author: James M. Buchanan
  • Publication Date: 06-2010
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The market will not work effectively with monetary anarchy. Politicization is not an effective alternative. We must commence meaningful dialogue with acceptance of these elementary verities. Far too much has been said and written in elaboration of the first statement, which too often is taken to be equivalent to the assertion that "capitalism" or "the market" has failed. Admittedly claims for market efficacy without qualifiers can be found. But economists should know that anarchy can only generate disorder rather than its opposite.
  • Topic: Markets, Monetary Policy
  • Political Geography: United States
  • Author: Eswar Prasad
  • Publication Date: 06-2010
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In early 2009, the world economy seemed to be headed into an irreversible decline. But a strong dose of stimulative monetary and fiscal policies—perhaps with an assist from the natural resilience of the market economy—seem to have done the trick in stabilizing the financial system and setting the stage for global recovery. Flows of private capital to emerging markets have revived and world trade has begun to rise back to levels seen before the crisis hit. Consumer and business confidence are back on the rise.
  • Topic: Markets, Monetary Policy
  • Author: Laurence Copeland
  • Publication Date: 09-2010
  • Content Type: Policy Brief
  • Institution: The Cato Institute
  • Abstract: In response to the recent financial crisis, many governments chose to ban or restrict short sales, hoping to mitigate the impact of the stock market downturn. Stock markets function as a continuous election, held to determine the allocation of resources with buyers voting for and sellers voting against investment in particular stocks. Banning short selling is akin to disenfranchising the "no" voter, thereby creating a distortion in the resource allocation process. Ban-induced price distortions damage the integrity of stock prices among investors and potentially cause stocks to expand beyond what is optimal for the firms and the economy.
  • Topic: Economics, Markets, Global Recession, Financial Crisis
  • Political Geography: Washington
  • Author: Ted Galen Carpenter
  • Publication Date: 02-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: While U.S. leaders have focused on actual or illusory security threats in distant regions, there is a troubling security problem brewing much closer to home. Violence in Mexico, mostly related to the trade in illegal drugs, has risen sharply in recent years and shows signs of becoming even worse. That violence involves turf fights among the various drug-trafficking organizations as they seek to control access to the lucrative U.S. market. To an increasing extent, the violence also entails fighting between drug traffickers and Mexican military and police forces.
  • Topic: Security, Markets
  • Political Geography: United States, Mexico
  • Author: John H. Cochrane
  • Publication Date: 02-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: None of us has health insurance, really. If you develop a long-term condition such as heart disease or cancer, and if you then lose your job or are divorced, you can lose your health insurance. You now have a preexisting condition, and insurance will be enormously expensive—if it's available at all. Free markets can solve this problem, and provide life-long, portable health security, while enhancing consumer choice and competition. “Heath-status insurance” is the key. If you are diagnosed with a long-term, expensive condition, a health-status insurance policy will give you the resources to pay higher medical insurance premiums. Health-status insurance covers the risk of premium reclassification, just as medical insurance covers the risk of medical expenses. With health-status insurance, you can always obtain medical insurance, no matter how sick you get, with no change in out-of-pocket costs.
  • Topic: Economics, Health, Markets, Privatization
  • Political Geography: United States
  • Author: Jagadeesh Gokhale
  • Publication Date: 03-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This Policy Analysis explains the antecedents of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve's actions to prop up the financial sector. It argues that recovery from the financial crisis is likely to be slow with or without the government's bailout actions. An oil price spike and a wealth shock in housing initiated the financial crisis. Declines in stock values are intensifying that shock, threatening to deepen the current recession as U.S. consumers and investors cut their expenditures. An offsetting wealth injection from additional risk-bearing investors could initiate a quicker recovery. Thus, supporters of government intervention justify the bailout's debt-financed fund injections—in essence, they want to compel future taxpayers to join the group of today's risk bearing investors.
  • Topic: Economics, Globalization, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Randal O'Toole
  • Publication Date: 10-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Everyone agrees that the recent financial crisis started with the deflation of the housing bubble. But what caused the bubble? Answering this question is important both for identifying the best short-term policies and for fixing the credit crisis, as well as for developing long-term policies aimed at preventing another crisis in the future.
  • Topic: Economics, Markets, Financial Crisis
  • Political Geography: United States, California, Georgia
  • Author: Michael Tanner
  • Publication Date: 09-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Although neither the House nor the Senate passed a health care bill by President Obama's August deadline, various pieces of legislation have made it through committee, and they provide a concrete basis for analyzing what the proposed health care reform would and would not do. Looking at the various bills that are moving on Capitol Hill, we can determine the following: Contrary to the Obama administration's repeated assurances, millions of Americans who are happy with their current health insurance will not be able to keep it. As many as 89.5 million people may be dumped into a government-run plan. Some Americans may find themselves forced into a new insurance plan that no longer includes their current doctor. Americans will pay more than $820 billion in additional taxes over the next 10 years, and could see their insurance premiums rise as much as 95 percent. The current health care bills will increase the budget deficit by at least $239 billion over the next 10 years, and far more in the years beyond that. If the new health care entitlement were subject to the same 75-year actuarial standards as Social Security or Medicare, its unfunded liabilities would exceed $9.2 trillion. While the bills contain no direct provisions for rationing care, they nonetheless increase the likelihood of government rationing and interference with how doctors practice medicine. Contrary to assertions of some opponents, the bills contain no provision for euthanasia or mandatory end-of-life counseling. The bills' provisions on abortion coverage are far murkier.
  • Topic: Government, Health, Human Welfare, Markets
  • Political Geography: United States, America
  • Author: Jagadeesh Gokhale, Peter Van Doren
  • Publication Date: 10-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust—and the subsequent financial crisis and recession—would have been averted. In this paper, we investigate those claims and dispute them. We are skeptical that economists can detect bubbles in real time through technical means with any degree of unanimity. Even if they could, we doubt the Fed would have altered its policy in the early 21st century, and we suspect that political leaders would have exerted considerable pressure to maintain that policy. Concerning regulation, we find that the banking reform of the late 1990s had little effect on the housing boom and bust, and that the many reform ideas currently proposed would have done little or nothing to avert the crisis.
  • Topic: Economics, Government, Markets, Financial Crisis
  • Political Geography: United States
  • Author: Michael F. Cannon
  • Publication Date: 10-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: In March 2009, President Barack Obama said, “If there is a way of getting this done where we're driving down costs and people are getting health insurance at an affordable rate, and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I'd be happy to do it that way.” This paper explains how letting workers control their health care dollars and tearing down regulatory barriers to competition would control costs, expand choice, improve health care quality, and make health coverage more secure.
  • Topic: Economics, Health, Markets
  • Political Geography: United States
  • Author: Tad DeHaven
  • Publication Date: 11-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The U.S. Department of Housing and Urban Development has long been plagued by scandals, mismanagement, and policy failures. Most recently, HUD's subsidies and failed oversight of Fannie Mae and Freddie Mac helped to inflate the housing bubble, which ultimately burst and cascaded into a major financial crisis.
  • Topic: Development, Economics, Markets, Financial Crisis
  • Political Geography: United States
  • Author: Glen Whitman, Raymond Raad
  • Publication Date: 11-2009
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The health care issues commonly considered most important today — controlling costs and covering the uninsured — arguably should be regarded as secondary to innovation, inasmuch as a medical treatment must first be invented before its costs can be reduced and its use extended to everyone. To date, however, none of the most influential international comparisons have examined the contributions of various countries to the many advances that have improved the productivity of medicine over time. We hope this paper can help fill that void.
  • Topic: Health, Human Welfare, Markets
  • Political Geography: America
  • Author: Jeffrey A. Miron
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: At the end of September 2007, the U.S. economy had experienced 24 consecutive quarters of positive GDP growth, at an average annual rate of 2.73 percent. The S 500 Index stood at roughly 1,500, having rebounded over 600 points from its low point in 2003. Unemployment was below 5 percent, and inflation was low and stable.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Anna J. Schwartz
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I begin by describing the factors that contributed to the financial market crisis of 2008. I end by proposing policies that could have prevented the baleful effects that produced the crisis.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization, Financial Crisis
  • Political Geography: United States
  • Author: Allan H. Meltzer
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I am going to make several unrelated points, and then I am going to discuss how we got into this financial crisis and some needed changes to reduce the risk of future crises.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization, Financial Crisis
  • Political Geography: United States
  • Author: Donald L. Kohn
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: We are in the midst of a global financial crisis that is now weighing heavily on economies around the world. Although the outlook remains extremely uncertain, both the fragility of the financial system and the weakness in real activity seem likely to persist for a while. To promote maximum sustainable economic growth and price stability, the Federal Reserve has responded to this crisis by easing monetary policy markedly, and we have greatly expanded our liquidity facilities to keep credit flowing when private lenders have become reluctant or unable to do so. Other central banks have also cut policy rates significantly and expanded their lending. In addition, the federal government and governments around the world have taken extraordinary actions to strengthen financial systems to preserve the ability of households and businesses to borrow and spend.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States