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602. Greenspan's Monetary Policy in Retrospect
- Author:
- David R. Henderson and Jeffrey Hummel
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Is Alan Greenspan to blame for the current housing bubble and the ongoing financial crisis? A growing chorus charges the former Federal Reserve chairman with being an "inflationist" whose loose monetary policy caused or significantly contributed to our current economic troubles. However, although Greenspan's policies weren't perfect, his monetary policy was in fact tight, and his legacy is one of having overseen low and stable inflation and a striking dampening of the business cycle.
- Topic:
- Economics
- Political Geography:
- United States
603. How Did We Get into This Financial Mess?
- Author:
- Lawrence H. White
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- As policymakers confront the ongoing U.S. financial crisis, it is important to take a step back and understand its origins. Those who fault "deregulation," "unfettered capitalism," or "greed" would do well to look instead at flawed institutions and misguided policies. The expansion in risky mortgages to under qualified borrowers was encouraged by the federal government. The growth of "creative" nonprime lending followed Congress's strengthening of the Community Reinvestment Act, the Federal Housing Administration's loosening of down-payment standards, and the Department of Housing and Urban Development's pressuring lenders to extend mortgages to borrowers who previously would not have qualified.
- Topic:
- Economics and Government
- Political Geography:
- United States
604. Aggregate Supply-Driven Deflation and Its Implications for Macroeconomic Stability
- Author:
- David Beckworth
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Deflation is generally considered to be inconsistent with macroeconomic stability. Any sustained decline in the price level is widely believed to be associated with weak to negative economic growth, a lower bound of zero on the policy interest rate, and an increase in financial disintermediation. However, a number of recent studies examining both historical, cross-country experience with deflation and more recent developments find that these concerns are not necessarily associated with deflation (Selgin 1997, 1999; Cleveland Federal Reserve 1998; Stern 2003; Bordo and Redish 2004; Bordo, Lane, and Redish 2004; Bordo and Filardo 2005; Borio and Filardo 2004; Farrell 2004; King 2004; The Economist 2004, 2005; White 2006). They show that the deflationary experiences that shape the modern economic psyche, the Great Depression in the 1930s and Japan in the 1990s, are not truly representative of all deflation outcomes. These studies contend that a broader, historical perspective reveals a more nuanced view of deflation, one that requires taking seriously the possibility of both a malign deflation, a deflation originating from a collapse in aggregate demand, and a benign deflation, a deflation originating from an increase in aggregate supply.
- Political Geography:
- Japan
605. Sustained Economic Growth: Do Institutions Matter, and Which One Prevails?
- Author:
- Abdoul' Ganiou Mijiyawa
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In 1965, the growth rate of per capita GDP in Niger and Nigeria was 2.1 percent and 4.2 percent, respectively, and 2.9 percent in Botswana. From 1966 to 1969, however, Niger and Nigeria recorded a negative growth rate, while Botswana continued to experience a positive growth rate over the same period. In 1990, the growth rate of per capita GDP was 1 percent in Ghana and 5.2 percent in Nigeria. Yet, from 1991 to 1994, the growth rate was negative in Nigeria and positive in Ghana. Why does the trajectory of economic growth episodes differ among countries? In other words, why is economic growth more sustainable in some countries than in others?
- Topic:
- Economics
- Political Geography:
- Nigeria and Ghana
606. Censoring and Destroying Information in the Information Age
- Author:
- J. R. Clark and Dwight R. Lee
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Almost everyone knows the importance of information and communication to economic progress. The more information we have the more productive we can be, both individually and collectively. The easier it is for us to communicate our information to others and to receive their information, the more likely we will make production and consumption choices that serve the interests of all. No wonder people are so impressed with the recent breakthroughs in information and communication technology that have moved us into what has become known as the “information age.” Who could possibly condone, much less recommend, policies that destroy and distort valuable information by censoring its communication? Far more than you might think!
- Topic:
- Communications
607. State Fiscal Crises: Are Rapid Spending Increases to Blame?
- Author:
- Dean Stansel and David T. Mitchell
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- During recessions, state governments frequently face substantial midyear budget shortfalls. Numerous states are now experiencing such crises again. These fiscal crises are often blamed on the cyclical decline in revenue growth or reductions in federal aid. Others have suggested that enacting rapid spending increases during expansionary years—rather than using the revenue windfalls for tax cuts or increases in rainy day funds—may be an important contributing factor to those budget shortfalls. Using data from the 2001 recession, we find support for that “overspending” hypothesis. While neither the mere presence nor the size of a rainy day fund were significant predictors of fiscal stress, faster increases in spending are positively and significantly associated with fiscal stress. When rainy day funds work, it is the strength of their withdrawal rules that matter. These results have important implications for fiscal policy choices. States that restrain spending growth during expansionary years and implement strong rainy day fund withdrawal rules are likely to face less severe fiscal crises during recessions.
608. Small States: Not Handicapped and Under-Aided, but Advantaged and Over-Aided
- Author:
- Swaminathan S. Anklesaria Aiyar
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Small states have long been viewed by international organizations as a special category with special handicaps requiring special assistance. The United Nations has created an Office of the High Representative for the Least Developed Countries, Land locked Developing Countries, and Small Island Developing States. The very wording makes it clear that the UN regards small developing states that are landlocked or islands as being on par with the least developed countries. A very substantial academic literature has been devoted to small states, to which the World Bank and Common-wealth Secretariat have made contributions. They constituted a Joint Task Force that submitted a report in April 2000, Small States: Meeting Challenges in the Global Economy, proposing an agenda for assisting such states in various ways, including increasing foreign aid (World Bank 2000). This report was followed in 2005 by a review of progress on the 2000 agenda, Towards an Outward-Oriented Development Strategy for Small States(Briguglio, Persaud, and Stern 2005), henceforth referred to as the World Bank-Common-wealth review. This review also suggested increasing foreign aid. In2006, the Independent Evaluation Group (IEG 2006) of the World Bank produced an evaluation of World Bank assistance to small states. During that same year, the World Bank also commissioned four regional studies of small states, which formed the basis of a subsequent book, Small States, Smart Solutions(Favaro 2008).Finally, in 2008, the World Bank released The Growth Report, also known as the Spence Commission report, which devoted a special section to small states (World Bank 2008)
- Topic:
- United Nations
609. Parental Valuation of Charter Schools and Student Performance
- Author:
- James VanderHoff
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Students enrolled in charter schools increased by 81 percent from 2002 to 2007, and the number of charter schools increased by 52 percent. Nevertheless, many studies indicate students in charter schools do not score as highly on standard tests as students in traditional public schools. Do parents choose academically inferior schools for their children because other factors are more important? The significance of that question stems from the requirement of scholastically motivated parental choice for competition-induced improvement in public schools. Milton Friedman (1962) and other shave argued that parental choice would stimulate public schools to be more academically effective, because dissatisfied parents would move their children from inferior to superior schools, including public charter schools.
610. Cold Case Files: The Athenian Grain Merchants, 386 B.C.
- Author:
- Wayne R. Dunham
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Food price increases have always been politically sensitive. Price spikes like those that have occurred recently create the demand for action on the part of government to alleviate the problem. Yet, government intervention can often do more harm than good. This article examines one such example of a counterproductive response that occurred in 388 B.C. in Athens, Greece. In response to a negative supply shock to the grain market, regulators encouraged grain importers to form a buyers' cartel (monopsony), hoping that it would reduce retail prices by first lowering wholesale grain prices. In reality, the decrease in wholesale prices resulted in a decrease in the willingness of producers in other regions to supply grain to Athens, and retail grain prices increased substantially. Grain importers soon found themselves on trial for their lives in what is probably the earliest recorded antitrust trial. This article uses the information presented at that trial and other contemporary sources to evaluate the grain merchants' actions. More generally, it analyses the impact of a buyer's cartel or monopsony on prices and consumption.
- Topic:
- Food
- Political Geography:
- Greece
611. State Sanctions and the Decline in Welfare Caseloads
- Author:
- Michael J. New
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Much of the scholarship analyzing fluctuations in welfare caseloads focuses on such factors as the strength of the economy and the generosity of welfare benefits. However, with the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996, states obtained significantly more control over welfare policy. Despite this shift, there has been relatively little academic research on the role of state policy variation in welfare caseload fluctuations. This article provides solid evidence that strength of state sanctioning policies, which give caseworkers the ability to restrict the benefits of welfare recipients, has played a very significant role in recent welfare caseload declines. A comprehensive regression analysis of welfare caseloads from all 50 states from every year from 1996 to 2002, finds that strong state sanctioning policies are highly correlated with both large welfare caseload declines and low caseload levels.
612. Creating Financial Harmony: Lessons for China
- Author:
- James A. Dorn
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The current turmoil in global financial markets, which began with the U.S. subprime crisis in 2007, has shed a bad light on market liberalism. But it was the socialization of risk—not private free markets—that precipitated the crisis. Government sponsored enterprises (GSEs), not private enterprises, politicized investment decisions and overextended credit to high-risk households by buying up and guaranteeing subprime and Alt-A mortgages.
- Political Geography:
- China
613. Termites in the Trading System: How Preferential Agreements Undermine Free Trade by Jagdish Bhagwati
- Author:
- Daniel Griswold
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This may sound like a “man bites dog” story—“Leading free trade economist denounces free trade agreements!”—but it is not such a strange tale in the world of international economics. Since the pioneering work of Jacob Viner in the 1950s, economists have known that bilateral and regional trade agreements can actually reduce a nation's welfare by merely diverting trade rather than creating new trade. In his latest book, Jagdish Bhagwati of Columbia University makes a tough, passionate, and concise, if not airtight, argument that the proliferation of such agreements is fatally undermining the global effort to advance free trade.
614. The Swiss National Bank: 1907–2007 by Werner Abegg, Ernst Baltensperger, et al., contributors
- Author:
- Kurt Schuler
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The Swiss franc is the world's best-performing currency over the last century: it has lost only about 87 percent of its value in terms of gold, compared to 97 percent for the U.S. dollar and more than 99 percent for almost all other currencies. Switzerland's avoidance of wars, which is part policy and part lucky geography, has contributed to the relative stability of the franc. So have the conservative financial habits of its citizens, which have been reflected in the country's generally prudent government finances. But some credit undoubtedly belongs to the central bank, the Swiss National Bank. It has consistently pursued monetary policies that have produced low inflation, and has made few consequential errors since it was established in 1907. Its experience therefore should be of interest far beyond the borders of Switzerland. This centennial volume, by a constellation of 40 Swiss and foreign authors, is a history and an examination of issues in monetary policy the central bank has faced. It is typically Swiss in its occasionally ponderous thoroughness, pleasing design, and high quality.
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- France and Switzerland
615. Nudge: Improving Decisions about Health, Wealth, and Happiness
- Author:
- Ike Brannon
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- When it comes to social policy, inertia can be a bitch. While the sentiment may not seem all that profound, its gradual realization by economists and policymakers is beginning to have an impact on public policy. It has already wreaked havoc within the economics discipline.
- Topic:
- Economics and Health
616. Forgotten Continent: The Battle for Latin America's Soul
- Author:
- Juan Carlos Hidalgo
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- For most of this decade, Latin America has been neglected by the developed world. At least that is a recurring grievance from leaders and specialists in the region. The attention of rich countries has switched to terrorism in the Middle East and poverty in Africa, while pressing needs and conflicts remain unattended in Latin America.
- Topic:
- Terrorism
- Political Geography:
- Africa, Middle East, and Latin America
617. Heads in the Sand: How Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats by Matthew Yglesias
- Author:
- Brendan Rittenhouse Green
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Credit where credit is due: At 229 pages, Matthew Yglesias has written the world's longest blog post. The first of a generation of journalists who came to prominence through their personal weblogs, Yglesias now blogs professionally for the Center for American Progress. Heads in the Sand has all the virtues and flaws of the medium Yglesias helped pioneer. It tends toward bite-sized arguments and pith over substance, which leaves some of the chapters with a stapled-together feel. Heads in the Sand gives the impression of a Web journal read straight through, with an extremely thin set of foot-notes substituting for links. Nevertheless, the book is by and large excellent. It is full of wit and erudition, stringing together a series of incisive arguments about politics and foreign policy.
- Topic:
- Foreign Policy and Politics
- Political Geography:
- America
618. Is the Gold Standard Still the Gold Standard among Monetary Systems?
- Author:
- Lawrence H. White
- Publication Date:
- 02-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Critics have raised a number of theoretical and historical objections to the gold standard. Some have called the gold standard a “crazy” idea. The gold standard is not a flawless monetary system. Neither is the fiat money alternative. In light of historical evidence about the comparative magnitude of these flaws, however, the gold standard is a policy option that deserves serious consideration.
- Topic:
- Economics and Government
- Political Geography:
- United States
619. WHO's Fooling Who? The World Health Organization's Problematic Ranking of Health Care Systems
- Author:
- Glen Whitman
- Publication Date:
- 02-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The World Health Report 2000, prepared by the World Health Organization, presented performance rankings of 191 nations' health care systems. These rankings have been widely cited in public debates about health care, particularly by those interested in reforming the U.S. health care system to resemble more closely those of other countries. Michael Moore, for instance, famously stated in his film SiCKO that the United States placed only 37th in the WHO report. CNN.com, in verifying Moore's claim, noted that France and Canada both placed in the top 10.
- Topic:
- Health, Human Welfare, Humanitarian Aid, and International Organization
- Political Geography:
- United States
620. What to Do about Climate Change
- Author:
- Indur M. Goklany
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The state-of-the-art British-sponsored fasttrack assessment of the global impacts of climate change, a major input to the much-heralded Stern Review on the Economics of Climate Change, indicates that through the year 2100, the contribution of climate change to human health and environmental threats will generally be overshadowed by factors not related to climate change. Hence, climate change is unlikely to be the world's most important environmental problem of the 21st century.
- Topic:
- International Relations, Climate Change, Environment, and Globalization
- Political Geography:
- Britain
621. Learning the Right Lessons from Iraq
- Author:
- Harvey Sapolsky, Christopher Preble, and Benjamin Friedman
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Foreign policy experts and policy analysts are misreading the lessons of Iraq. The emerging conventional wisdom holds that success could have been achieved in Iraq with more troops, more cooperation among U.S. government agencies, and better counterinsurgency doctrine. To analysts who share these views, Iraq is not an example of what not to do but of how not to do it. Their policy proposals aim to reform the national security bureaucracy so that we will get it right the next time.
- Topic:
- International Relations and Oil
- Political Geography:
- United States, Iraq, and Middle East
622. Cracks in the Foundation: NATO's New Troubles
- Author:
- Stanley Kober
- Publication Date:
- 01-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The North Atlantic Treaty Organization is beginning to fracture. Its members, sharing the triumphalism that underpinned U.S. foreign policy after the Cold War, took on burdens that have proved more difficult than expected. Increasingly, they are failing to meet the challenges confronting them.
- Topic:
- International Relations, Defense Policy, NATO, and International Organization
- Political Geography:
- United States
623. Editor's Note
- Author:
- James A. Dorn
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This issue of the Cato Journal features articles that were first presented at the Cato Institute's 25th Annual Monetary Conference, November 14, 2007. The theme of that conference—Monetary Arrangements in the 21st Century—raises important questions about the types of monetary regimes that best protect the value and stability of money while promoting economic freedom.
624. The Fed's Road toward Greater Transparency
- Author:
- Ben S. Bernanke
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Montagu Norman, the governor of the Bank of England from 1921 to 1944, reputedly took as his personal motto, “Never explain, never excuse.” Norman's aphorism exemplified how he and many of his contemporaries viewed the making of monetary policy—as an arcane and esoteric art, best practiced out of public view. Many central bankers of Norman's time (and, indeed, well into the postwar period) believed that a certain mystique attached to their activities and that allowing the public a glimpse of the inner workings would only usurp the prerogatives of insiders and reduce, if not grievously damage, the effectiveness of policy.
625. Renminbi Exchange Rates and Relevant Institutional Factors
- Author:
- Yi Gang
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In recent years, China has experienced rapid social and economic development. Against this backdrop, growing pressure for renminbi appreciation emerged and China's trade surplus and foreign reserves increased rapidly. This article explains the development of the RMB exchange rate by examining productivity growth and institutional factors, such as the transformation of the foreign exchange rate system and legal reforms to strengthen the rule of law.
- Political Geography:
- China
626. The Future of the Renminbi and Its Impact on the Hong Kong Dollar
- Author:
- Eddie Yue and Dong He
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article outlines our thoughts on the following three issues. First, will the renminbi become an international currency in the foreseeable future? Second, what does the international use of the renminbi mean for Hong Kong? Third, should the Hong Kong dollar exchange rate be repegged to the renminbi?
627. The Costs and Implications of PBC Sterilization
- Author:
- John Greenwood
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Since China revalued its currency against the U.S. dollar by 2.1 percent in July 2005, from RMB 8.27 per US$ to RMB 8.11, the RMB has appreciated by a further 14 per cent percent to about RMB 6.97 per US$ (as of May 2008). On a trade-weighted basis, however, the currency has appreciated less than half this amount. Using J.P. Morgan's trade-weighted index (broad basis) for the RMB, the currency appreciated just 6.1 percent in nominal terms between August 2005 and May 2008. Although the currency has been very gradually appreciating, the flexibility promised by China's leaders has been more illusory than real, and, more importantly, the underlying international payment imbalances have continued to widen both in absolute terms and as a fraction of GDP.
- Political Geography:
- China
628. The Role of the Renminbi in the World Economy
- Author:
- Fred Hu
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- As China's economy has continued its remarkable expansion and gained an increasingly important role in the global economy, China's currency, the renminbi (RMB), has also captured growing attention from investors and policymakers around the world. In this article, I briefly discuss three significant issues concerning the renminbi—namely, the near-term direction of the exchange rate, the renminbi's convertibility in the medium term, and the currency's international role down the road in the future.
- Political Geography:
- China
629. Lessons from Monetary and Real Exchange Rate Economics
- Author:
- Arnold C. Harberger
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article is intended to be a sort of flyover, examining certain key aspects of monetary and real exchange rate economics from a convenient distance. In it I try to avoid getting into technicalities that are interesting mainly to specialists. I focus instead on essentials that are critical to a proper understanding of the economic processes involved, and on a few real-world examples that show the usefulness and relevance of our fundamental theoretical constructs.
630. Monetary Stability, Exchange Rate Regimes, and Capital Controls: What Have We Learned?
- Author:
- Miranda Xafa
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Few topics in macroeconomics are as contentious as capital account liberalization and exchange rate regimes. This article attempts to briefly summarize what we have learned through the turbulent 1990s and the relatively benign 2000s. It is obviously not intended to review the massive literature on these topics, only to distill the main policy conclusions—or at least what I think are the main policy conclusions.
631. The Case for Price Stability with a Flexible Exchange Rate in the New Neoclassical Synthesis
- Author:
- Marvin Goodfriend
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The New Neoclassical Synthesis is a natural starting point for the consideration of welfare-maximizing monetary arrangements in the international context. Alternatively known as the New Keynesian model, this consensus model of monetary policy deserves our attention because it embodies cumulative advances in theory and policy informed by decades of monetary experience from around the world. The consensus model with its prescription for price stability serves today as the foundation for thinking about monetary policy at central banks and universities worldwide.
632. Monetary Policy and the Legacy of Milton Friedman
- Author:
- Anna J. Schwartz
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- So many well-deserved tributes have been paid to the memory of Milton Friedman that I propose to pay him tribute in a special way by talking about my long association with him. Before I do so, I note his activities before the 1950s, when we started working together. For the record, Friedman was not a monetarist when our collaboration began.
633. Milton Friedman and the Euro
- Author:
- Antonio Martino
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Milton Friedman did not like the euro. In early 1999 I wrote to him mentioning my daughter Erika's thesis and, in a letter dated March 12, 1999, he wrote back: Erika's thesis on “The Euro and the Dollar” is one of the subjects I have been maintaining a real interest in. As you know, I am very negative about the euro and I am very doubtful about how it will work out. However, I am less pessimistic about it now than I was earlier simply because I never expected that the various countries would display the kind of discipline that was required in order to qualify for the euro. The convergence in inflation rates, interest rates, and so on was greater and more rapid than I would have expected.
634. Friedman: Float or Fix?
- Author:
- Steve H. Hanke
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- With the passing of Milton Friedman on November 16, 2006, we lost one of the great champions of free markets. Friedman's obituaries and commentaries on his life's work and enormous influence have invariably mentioned his advocacy of floating exchange rates, leaving the impression that he always favored floating rates. This was not the case.
635. Milton Friedman and the Case against Currency Monopoly
- Author:
- George Selgin
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- A longstanding tradition in economics, dating back at least to Adam Smith, looks askance at statutory monopolies, condemning almost all of them as unnecessary barriers to economic progress. Thanks largely to this tradition most of the monopolies present in Smith's day are no longer tolerated. The few exceptions are found mainly in less developed countries, where they remain a cause of impoverishment. Needless to say, economists have also generally opposed the monopolization by fiat of undertakings that were already at least somewhat competitive in Smith's day.
636. The Federal Reserve's Role in the Great Contraction and the Subprime Crisis
- Author:
- Richard H. Timberlake
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Milton Friedman liked to recall that his experience with the Great Depression as a young man living in New York had a major effect on his career decision to study economics. So, we can count at least one good thing that came out of that tragic, unnecessary experience.
- Political Geography:
- New York
637. Economic Development and the Role of Currency Undervaluation
- Author:
- Surjit S. Bhalla
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article is concerned with the determinants of economic growth, and, in particular, with the role of policy in directing the pattern of growth in developing economies. Over the years, economists and policymakers have focused primarily on fiscal and exchange rate policy. While the role of fiscal deficits is well understood, the same agreement does not hold with regard to exchange rate policy.
638. Book Review: Freedom from Want: American Liberalism and the Global Economy by Edward Gresser
- Author:
- Daniel Griswold
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Trade policy has become a partisan affair in Washington. Major trade bills in Congress typically pit pro-trade Republicans backed by big business against trade-skeptic Democrats aligned with labor unions. And as the two major parties arm themselves for the 2008 general election, trade policy promises to provide one of the sharper contrasts between them.
- Political Geography:
- Washington
639. Book Review: The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives by Stephen T. Ziliak and Deirdre N. McCloskey
- Author:
- Peter Van Doren
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- How do many scientific disciplines estimate and report results? Practitioners estimate regression models or conduct difference-of means tests through experiments. And they report which results are significant and which are not (i.e., different from zero with 95 percent confidence). In this important book, Ziliak and McCloskey have three objectives: to remind us that such research may be mindless, unscientific, and costly; to explicate the intellectual history of significance testing and the struggles among those professors who developed sampling and statistical testing; and to illustrate the correct way to conduct research and praise those few who report their research properly.
640. Book Review: My Grandfather's Son by Clarence Thomas; Supreme Discomfort: The Divided Soul of Clarence Thomas by Kevin Merida and Michael A. Fletcher
- Author:
- Ilya Shapiro
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Whatever you think of his politics or jurisprudence, Clarence Thomas is a remarkable man. Born into desperate poverty in the Jim Crow South and raised by his illiterate grandfather, he would graduate from (and be completely disillusioned by) Yale Law School while battling personal and political demons that would have felled lesser mortals many times over. Now on the Supreme Court bench for over 15 years, Justice Thomas has established himself as a force to be reckoned with, a strong voice who has accepted and transcended his unfortunate notoriety.
641. Book Review: Rumsfeld's Wars: The Arrogance of Power by Dale R. Herspring
- Author:
- Ionut Popescu
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Donald Rumsfeld will go down in history as one of the worst secretaries of defense since the end of World War II. This is the conclusion reached by Dale Herspring, a political science professor at the University of Kansas, in a new book transparently titled Rumsfeld's Wars: The Arrogance of Power. Without much effort to give the former secretary any benefit of the doubt, Herspring blames him directly for causing our military to become “demoralized” and “broken.”
642. Book Review: World War IV: The Long Struggle against Islamofascism by Norman Podhoretz
- Author:
- Christopher Preble
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- “9/11 constituted an open declaration of war on the United States and … the war into which it catapulted us was nothing less than another world war.” So says Norman Podhoretz in the opening passage of this alarmist, rambling screed. The enemy is Islamofascism, a “monster with two heads, one religious and the other secular.” This scourge, Podhoretz warns darkly, may be “even more dangerous and difficult to beat” than Nazi Germany or the Soviet Union.
- Political Geography:
- United States and Soviet Union
643. Executive Pay: Regulation vs. Market Competition
- Author:
- Ira T. Kay and Steven Van Putten
- Publication Date:
- 09-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The economic slowdown and the active political season are generating calls for imposing new regulations on executive pay. The presidential candidates of the two major parties have lashed out at what they perceive to be excessive pay for certain executives or for corporate executives in general.
- Topic:
- Economics, Government, and Markets
644. Markets vs. Monopolies in Education: A Global Review of the Evidence
- Author:
- Andrew J. Coulson
- Publication Date:
- 09-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Would large-scale, free-market reforms improve educational outcomes for American children? That question cannot be answered by looking at domestic evidence alone. Though innumerable “school choice” programs have been implemented around the United States, none has created a truly free and competitive education marketplace. Existing programs are too small, too restriction laden, or both. To understand how genuine market forces affect school performance, we must cast a wider net, surveying education systems from all over the globe. The present paper undertakes such a review, assessing the results of 25 years of international research comparing market and government provision of education, and explaining why these international experiences are relevant to the United States.
- Topic:
- Economics, Education, Government, and Markets
- Political Geography:
- United States
645. Global Imbalances, Tanking Dollar, and the IMF's Surveillance over Exchange Rate Policies
- Author:
- Sitikantha Pattanaik
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The exchange rate policies of the member countries of the International Monetary Fund could come under more intrusive scrutiny because of the June 15, 2007, decision of the IMF Executive Board on bilateral surveillance. This article highlights why the IMF decision cannot help in addressing the problem of global imbalances, even if it succeeds in delivering further appreciation of the exchange rates of surplus countries against the U.S. dollar. Moreover, there could be enormous challenges for effective implementation of the decision, which may further erode the credibility of the IMF. Even though disorderly correction of global imbalances remains a concern for every country, shifting the burden of adjustment entirely to surplus countries could have potentially damaging implications for international cooperation on global economic challenges. Past experiences of international cooperation to deal with global imbalances and currency misalignments suggest that countries rarely sacrifice their domestic economic priorities. Without appropriate macroeconomic adjustment measures, neither the high and growing U.S. current account deficit nor the savings glut of several surplus countries can be corrected solely by removing exchange rate misalignments.
- Political Geography:
- United States
646. Can Corruption Ever Improve an Economy?
- Author:
- Douglas A. Houston
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Many in the world of developmental economics believe that corruption, the circumvention of the rule of law for private gain, leads to nothing but woe for any nation's economy, under any circumstances. Transparency International makes the elimination of corruption their mission, and many large multinational firms today echo that goal by building ethical codes that prohibit employees from engaging in practices deemed corrupt, regardless of local attitudes and customs toward the practices. The World Bank makes curbing corruption a linchpin in their campaign to improve governance. Reasons given for blanket condemnation of corrupt behavior are often utilitarian: Corruption is expected to increase the economic costs of doing business by undermining the laws of the land; this, in turn, reduces productive activities and investments, with negative consequences unfolding for human development and economic growth.
- Topic:
- Corruption, Economics, and Government
647. Economic Freedom, Corruption, and Growth
- Author:
- Mushfiq us Swaleheen and Dean Stansel
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article adds to the empirical literature on the relationship between corruption and economic growth by incorporating the impact of economic freedom. We utilize an econometric model with two improvements on the previous literature: (1) our model accounts for the fact that economic growth, corruption, and investment are jointly determined, and (2) we include economic freedom explicitly as an explanatory variable. Using a panel of 60 countries, we find that for countries with low economic freedom (where individuals have limited economic choices), corruption reduces economic growth. However, in countries with high economic freedom, corruption is found to increase economic growth. Our results contradict the generally accepted view that corruption lowers the rate of growth. We use Osterfeld's (1992) distinction between expansive and restrictive corruption to explain our results. According to Osterfeld, corruption expands output if more bribes help the economy move toward greater free exchange. Thus, in economies where economic freedom is high, if bribing makes public officials less diligent in enforcing restrictions on firms' activities, output will increase. However, corruption will restrict output when bribes reduce competition and increase market rigidities. This outcome is more likely in countries where economic freedom is low due to widespread state ownership of assets (e.g., in China), monopolies and high tariff barriers granted to businesses owned by ruling elites and their cronies (e.g., the Philippines under Marcos and Indonesia under Suharto), and state-run marketing boards that are often the sole purchasers of agricultural products (e.g., in several African countries). An increase in corruption in these low economic freedom countries means even less competition and free exchange and leads to a fall in output. The policy implication of our finding is straightforward: The surest way to mitigate corruption and its adverse effects is to increase economic freedom.
- Political Geography:
- Africa
648. Government Behavior and Trust: The Case of China
- Author:
- Peihong Yang
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Social capital has become a critical term in the social sciences since Loury (1977) and Coleman's (1988) seminal studies. Coleman (1990) and Putnan, Leonardi, and Nanetti (1993) focus on the positive spillover effect of social capital. Fukuyama (1997) argues that only certain shared norms and values can be regarded as social capital. Putnan (2000), Ostrom (2000), and Bowles and Gintis (2002) highlight the network effect of social capital. All these studies demonstrate that trust is central to social capital.
- Political Geography:
- China
649. The Real Coase Theorems
- Author:
- Glenn Fox
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The “Coase theorem,” in one respect, is a triumph of social science scholarship. Web searches using “Coase theorem” as key words typically yield over 100,000 hits. Economists, legal scholars, environmentalists, and political scientists have written volumes on the theorem. Few ideas written by economists in the 20th century have been as widely debated. And the debating continues, 47 years after the publication of “The Problem of Social Cost” (Coase 1960), the essay recognized as the source of the ideas in question. There is only one problem: Ronald Coase maintains that the theorem that bears his name conveys an idea that is antithetical to the message that he intended.
650. Potential Gains from Trade in Dirty Industries: Revisiting Lawrence Summers' Memo
- Author:
- Jay Johnson, Gary Pecquet, and Leon Taylor
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Lawrence Summers has a long history of controversial statements. Well before his comments in 2005 as then-president of Harvard University about the underrepresentation of women on faculties for mathematics and science, Summers was the chief economist at the World Bank. In that position, he penned a memo to his colleagues in 1991 that was leaked to the public, drawing heated criticism. In 1999, when President Bill Clinton nominated Summers as Secretary of the Treasury, the controversy over Summers' memo was revived during his Senate confirmation hearings. Hundreds of articles were posted on the Internet at that time attempting to sway public opinion against Summers.
651. Economic Liberty and the Official Law Books in Colonial Massachusetts
- Author:
- Charles Edward Smith
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Hernando de Soto's The Mystery of Capital traces the essential developments of land registration and titling in 19th century U.S. history. But his chronology omits implementation of mid-17th century English legal reform initiatives in colonial Massachusetts concerning land registration, creditor-debtor law, and market regulations. Massachusetts's legislators were pursuing a reform agenda in an agrarian, semi-literate, and pre-contract society, conditions that are similar to many developing countries today. This article expands on de Soto's work by examining the vehicle that colonial Massachusetts utilized to communicate its ordinances and regulations: the official law books printed and distributed to colonists.
- Political Geography:
- United States
652. The Role of Fiscal and Political Institutions in Limiting the Size of State Government
- Author:
- Robert Krol
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In many states, tax and expenditure limits constrain government spending. All but one state have adopted balanced-budget rules. Some governors have the power to veto individual budget items (the so-called line-item veto). This article reviews the evidence linking fiscal and political institutions to state taxation, spending, and debt.
653. Do Spillover Benefits Create A Market Inefficiency in K-12 Public Education?
- Author:
- Kerry A. King
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In economics there is a well-established framework for determining whether government intervention into a market is justified. If we look from the perspective of economic efficiency, government intervention has the potential to improve the market outcome when a so-called market failure exists. As Bator (1958) suggests, certain categories of market failures such as public goods, externalities, and monopoly all contain certain properties that lead to an allocation of resources that is not Pareto-efficient—that is, does not equate marginal social benefits and costs.
654. The Future of the U.S. Postal Service
- Author:
- Robert Carbaugh
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Structural, legal, and financial constraints have brought the U.S. Postal Service (USPS) to the brink of breakdown in the past decade. Faced by declining business brought about by the e-mail revolution and competition from private express companies, the Postal Service has repeatedly requested assistance from the federal government. This culminated in December 2006 with the passage of the Postal Accountability and Enhancement Act, which introduces modest re-visions in the pricing and service policies of the Postal Service so as to make it a self-sustaining government corporation. But will it?
- Political Geography:
- United States
655. Book Review: The Age of Turbulence: Adventures in a New World
- Author:
- William Niskanen
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Alan Greenspan, for an $8 million advance, has written two books in one. The first 11 chapters are a personal memoir from his earliest child-hood memories through the end of 2006. The final 14 chapters are a series of lectures about the major recent changes in the United States and the world economy. The book is written in clear English, not Greenspan's occasional “Fedspeak,” and is a pleasure to read—the result of a productive collaboration with Peter Petre, who taught him to write in the first person as a participant rather than only as an observer of the many important events in the past several decades. This is important because Greenspan has a lot to say about the people and policies of six administrations from that of Richard Nixon to that of George W. Bush. And it is important for both economists and others to understand the major lessons from this period.
656. Book Review: A Farewell to Alms: A Brief History of the World
- Author:
- Jason Kuznicki
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The thesis of Gregory Clark's A Farewell to Alms is that, for most of human history and prehistory, there prevailed an essentially Malthusian social dynamic, one in which improvements in technology or wealth were turned almost immediately into increased population rather than in- creased individual wealth or technological innovation. Only calamities, such as the Black Death of the 14th century, could raise the average wealth of a society, and they did so by reducing the population.
657. Book Review: Enemies of Intelligence: Knowledge and Power in American National Security
- Author:
- Justin Logan
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- After the shocking intelligence failure of September 11 and the faulty estimate of Iraq's weapons of mass destruction, many observers are asking why such egregious mistakes happened, and what can be done to prevent repeat performances. Washington has never been short on proposed intelligence reforms. Daniel Patrick Moynihan proposed shuttering the CIA altogether while Gary Schmitt advocated giving Congress more raw intelligence. These and other proposals have varied a great deal in quality and feasibility.
- Political Geography:
- Iraq
658. What Can the United States Learn from the Nordic Model?
- Author:
- Daniel Mitchell
- Publication Date:
- 11-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Some policymakers in the United States and Europe argue that it is possible to enjoy economic growth and also have a large welfare state. These advocates for bigger government claim that the so- called Nordic Model offers the best of both worlds. This claim does not withstand scrutiny. Economic performance in Nordic nations is lagging, and excessive government is the most likely explanation. The public sector in Sweden, Denmark, Norway, Finland, and Iceland consumes, on average, more than 48 percent of economic output. Total government outlays in the United States, by contrast, are less than 37 percent of gross domes- tic product. Revenue comparisons are even more striking. Tax receipts average more than 45 per- cent of GDP in Nordic nations, a full 20 percent- age points higher than the aggregate tax burden in the United States.
- Topic:
- Economics and Government
- Political Geography:
- United States and Europe
659. Do You Know the Way to L.A.? San Jose Shows How to Turn an Urban Area into Los Angeles in Three Stressful Decades
- Author:
- Randal O'Tool
- Publication Date:
- 10-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- California cities have the least affordable housing and the most congested traffic in the nation. California's housing crisis results directly from several little-known state institutions, including local agency formation commissions (LAFCos), which regulate annexations and the formation of new cities and service districts; the California Environmental Quality Act, which imposes high costs on new developments; and a 1971 state planning law that effectively entitles any resident in the state to a say in how property owners in the state use their land. Cities such as San Jose have manipulated these institutions and laws with the goal of maximizing their tax revenues.
- Topic:
- Demographics, Environment, and Poverty
- Political Geography:
- United States
660. Taiwan's Defense Budget: How Taipei's Free Riding Risks War
- Author:
- Justin Logan and Ted Carpenter
- Publication Date:
- 09-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Taiwan spends far too little on its own defense, in large part because the Taiwanese believe the United States is their ultimate protector. The Taiwan legislature's six-year delay and severe down- sizing of a budget to pay for weapons systems that Washington has offered the island since 2001 is only one piece of evidence of Taiwan's free riding. Although Taiwan recently approved roughly US$300 million of the original budget of about $18 billion, the underlying problem remains: even with the new appropriation, Taiwan's overall investment in defense—approximately 2.6 percent of GDP—is woefully inadequate, given the ongoing tensions with mainland China. America is now in the unenviable position of having an implicit commitment to defend a fellow democracy that seems largely uninterested in defending itself.
- Topic:
- Conflict Prevention, Security, and Defense Policy
- Political Geography:
- United States and Asia
661. The Myth of the Rational Voter: Why Democracies Choose Bad Policies
- Author:
- Bryan Caplan
- Publication Date:
- 05-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- In theory, democracy is a bulwark against socially harmful policies. In practice, however, democracies frequently adopt and maintain policies that are damaging. How can this paradox be explained? The influence of special interests and voter ignorance are two leading explanations. I offer an alternative story of how and why democracy fails. The central idea is that voters are worse than ignorant; they are, in a word, irrational—and they vote accordingly. Despite their lack of knowledge, voters are not humble agnostics; instead, they confidently embrace a long list of misconceptions.
- Topic:
- Civil Society, Democratization, and Political Economy
- Political Geography:
- United States
662. In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?
- Author:
- Will Wilkinson
- Publication Date:
- 04-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- “Happiness research” studies the correlates of subjective well-being, generally through survey methods. A number of psychologists and social scientists have drawn upon this work recently to argue that the American model of relatively limited government and a dynamic market economy corrodes happiness, whereas Western European and Scandinavian-style social democracies pro- mote it. This paper argues that happiness research in fact poses no threat to the relatively libertarian ideals embodied in the U.S. socioeconomic system. Happiness research is seriously hampered by confusion and disagreement about the definition of its subject as well as the limitations inherent in current measurement techniques. In its present state happiness research cannot be relied on as an authoritative source for empirical information about happiness, which, in any case, is not a simple empirical phenomenon but a cultural and historical moving target. Yet, even if we accept the data of happiness research at face value, few of the alleged redistributive policy implications actually follow from the evidence. The data show that neither higher rates of government redistribution nor lower levels of income inequality make us happier, whereas high levels of economic freedom and high average incomes are among the strongest correlates of subjective well- being. Even if we table the damning charges of questionable science and bad moral philosophy, the American model still comes off a glowing success in terms of happiness.
- Topic:
- Economics, Markets, and Political Economy
- Political Geography:
- United States, America, and Europe
663. Energy Alarmism: The Myths That Make Americans Worry about Oil
- Author:
- Daryl Press
- Publication Date:
- 04-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Many Americans have lost confidence in their country's “energy security” over the past several years. Because the United States is a net oil importer, and a substantial one at that, concerns about energy security naturally raise foreign policy questions. Some foreign policy analysts fear that dwindling global oil reserves are increasingly concentrated in politically unstable regions, and they call for increased U.S. efforts to stabilize—or, alter-natively, democratize—the politically tumultuous oil-producing regions. Others allege that China is pursuing a strategy to “lock up” the world's remaining oil supplies through long-term purchase agreements and aggressive diplomacy, so they counsel that the United States outmaneuver Beijing in the “geopolitics of oil.” Finally, many analysts suggest that even the “normal” political disruptions that occasionally occur in oil-producing regions (e.g., occasional wars and revolutions) hurt Americans by disrupting supply and creating price spikes. U.S. military forces, those analysts claim, are needed to enhance peace and stability in crucial oil-producing regions, particularly the Persian Gulf.
- Topic:
- Security, Oil, and Political Economy
- Political Geography:
- United States and America
664. Escaping the Trap: Why the United States Must Leave Iraq
- Author:
- Ted Galen Carpenter
- Publication Date:
- 02-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The U.S. military occupation of Iraq has now lasted longer than U.S. involvement in World War II. Yet there is no end in sight to the mission. Staying in Iraq is a fatally flawed policy that has already cost more than 3,000 American lives and consumed more than $350 billion. The security situation in that country grows increasingly chaotic and bloody as evidence mounts that Iraq has descended into a sectarian civil war between Sunnis and Shiites. Approximately 120 Iraqis per day are perishing in political violence. That bloodshed is occurring in a country of barely 26 million people. A comparable rate of carnage in the United States would produce more than 1,400 fatalities per day.
- Topic:
- Security and War
- Political Geography:
- United States, Iraq, America, and Middle East
665. Why We Fight: How Public Schools Cause Social Conflict
- Author:
- Neal McCluskey
- Publication Date:
- 01-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- It is all too often assumed that public education as we typically think of it today—schooling provided and controlled by government—constitutes the “foundation of American democracy.” Such schooling, it is argued, has taken people of immensely varied ethnic, religious, and racial backgrounds and molded them into Americans who are both unified and free. Public schooling, it is assumed, has been the gentle flame beneath the great American melting pot.
- Topic:
- Conflict Resolution, Civil Society, Demographics, and Education
- Political Geography:
- America
666. Has U.S. Income Inequality Really Increased?
- Author:
- Alan Reynolds
- Publication Date:
- 01-2007
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- There are frequent complaints that U.S. income inequality has increased in recent decades. Estimates of rising inequality that are widely cited in the media are often based on federal income tax return data. Those data appear to show that the share of U.S. income going to the top 1 percent (those people with the highest incomes) has increased substantially since the 1970s.
- Topic:
- Demographics, Development, and Economics
- Political Geography:
- United States
667. Global Imbalances: A Source of Strength or Weakness?
- Author:
- Kristin J. Forbes
- Publication Date:
- 07-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Gross capital flows into the United States totaled $1.8 trillion in 2006. When combined with the $1.0 trillion the United States sent abroad, these net capital inflows funded the U.S. current account deficit of about $800 billion.1 The source of a large proportion of these capital inflows was developing economies—especially China and major oil exporters. Why are foreigners willing to invest such massive amounts of money in the U.S. economy? And perhaps even more surprising—why are countries with low levels of investment willing to send this relatively scarce resource to a capital-abundant economy instead of investing in their own countries? Understanding the motivation behind the millions of individual decisions that drive these capital inflows is critically important to understanding if this massive net transfer of capital into the United States reflects a strength or weakness of the global economy.
- Topic:
- Economy, Investment, and Capital
- Political Geography:
- Global Focus and United States of America
668. The Welfare Implications of Global Financial Flows
- Author:
- Eswar Prasad
- Publication Date:
- 07-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Any discussion of whether the global financial system has served the world well requires us to think about what it is that capital flows could achieve in the best of circumstances. The basic neoclassical model suggests that, with rising financial globalization, capital should flow from rich to poor countries, making people in both sets of countries better off by enabling a more efficient international allocation of capital from countries where capital is less productive to those where it ought to be more productive. In addition, financial flows should allow for more efficient sharing of risk across countries, thereby facilitating the smoothing of national consumption against countryspecific shocks to national output. These benefits are likely to be greater for developing countries as they have less capital and more volatile growth, implying that both the growth and risk sharing benefits would be larger for them.
- Topic:
- Economy, Welfare, Capital, and Financial Systems
- Political Geography:
- Global Focus
669. The Benefits and Risks of Financial Globalization
- Author:
- Peter B. Kenen
- Publication Date:
- 07-2007
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- It is by now almost impossible to conceive of a world without a global financial system. To be sure, large numbers of low-income developing countries have little access to that system. But most middle-income developing countries, even some that still have capital controls of one sort or another, are increasingly integrated into that system, and all of the major developed countries are fully integrated.
- Topic:
- Development, Economy, Integration, and Financial Globalization
- Political Geography:
- Global Focus
670. The Role of Monetary Policy in the Face of Crises
- Author:
- Anna J. Schwartz
- Publication Date:
- 07-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In this article I first review the Greenspan Fed’s record of providing liquidity in response to its perception of shocks the economy is facing. It assumed that the shocks were likely to generate financial crises. No financial crises, however, have occurred. Yet the Fed was dilatory in draining the market of unneeded liquidity. Failure to do so meant that monetary policy remained accommodative. I next discuss whether there is a connection between the Fed’s accommodative policy and the depreciation since 2002 of the exchange value of the dollar as well as the twin deficits and growing global imbalances. In that discussion I refer to the need to raise the national saving rate, in part by eliminating the budget deficit as well as projected deficits from the unfunded liabilities of Social Security and Medicare. Monetary policy, however, must be independent of fiscal policy. I conclude with some observations on the advisability of adoption by the Fed of inflation targeting.
- Topic:
- Monetary Policy, Federal Reserve, and Economy
- Political Geography:
- North America and United States of America
671. The Conquest of Worldwide Inflation: Currency Competition and Its Implications for Interest Rates and the Yield Curve
- Author:
- Randall S. Kroszner
- Publication Date:
- 07-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In the United States and in virtually every country around the world, inflation has declined, and in most countries dramatically so. In addition, the volatility of inflation and expectations of future inflation have also fallen significantly. I will call these changes experienced around the globe the conquest of worldwide inflation. I will begin by providing a few facts about the substantial improvement of inflation during roughly the past decade compared with the quarter century that preceded it. I will then try to understand why this remarkable decline in inflation has taken place. In particular, I argue that globalization, deregulation, and financial innovation, in part spurred by experiences of high inflation in the 1980s, have fostered currency competition that has led to improved central bank performance and, hence, the recent conquest of worldwide inflation. Friedrich Hayek (1976) had long ago advocated permitting greater competition among currencies, arguing that there would be a race to the top rather than a race to the bottom. Regardless of what one might think of Hayek’s policy proposals, technological change in a globalized and competitive marketplace, I believe, has increased competition among currencies issued by central banks.
- Topic:
- Economy, Inflation, Interest Rates, Currency, and Economic Competition
- Political Geography:
- Global Focus
672. Fair Trade Coffee Enthusiasts Should Confront Reality
- Author:
- Jeremy Weber
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- From university cafeterias to supermarkets in the developed world, people are buying Fair Trade (FT) coffee certified by the FLO-Cert, the certifying entity of Fairtrade Labelling Organizations International (FLO). The assumption is that such purchases will contribute to the welfare of marginalized producers in the developing world. While sales of FT coffee in Europe have stabilized, the North American and Japanese markets are growing rapidly. Total sales increased 40 percent from 2004 to 2005, to a total volume of 33,992 metric tons (MT) (FTO 2005). What is “Fair Trade”? According to FINE, the umbrella organization that comprises the four largest Fair Trade organizations (FLO, International Federation for Alternative Trade, Network of European World Shops, and the European Fair Trade Association), Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers—especially in the South [FINE 2001]. The FINE definition optimistically assumes that the trading partnerships and conditions promoted by Fair Trade necessarily “contribute to sustainable development.” It is true that the Fair Trade coffee system—the producers, exporters, importers, and retailers operating by the rules and standards of FLO—has improved living standards for many participating coffee growers (Bacon 2005, Raynolds 2004). Yet the system faces vexing issues such as a disconnect between promotional materials and reality, excess supply, and the marginalization of economically disadvantaged producers and groups. Those involved in Fair Trade coffee debates and governance must address these issues if Fair Trade is to be an effective mechanism for rural development in coffee producing regions.
- Topic:
- Development, Economy, Trade, Coffee, and Fair Trade
- Political Geography:
- Global Focus
673. The Columbian Exchange and the Reversal of Fortune
- Author:
- Thomas Grennes
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- It is difficult to think about modern American food without including hamburgers and hotdogs. It is also difficult to think about popular American history without cowboys mounted on horseback tending herds of cattle. However, before the arrival of Columbus in 1492 there were no cattle or pigs in America to provide beef and pork for hamburgers and hotdogs. There was no wheat to make hamburger and hotdog buns. There were no horses for cowboys or Indians to ride. The European settlers brought with them cattle, pigs, horses, wheat, and many other plants and animals that became the foundation for modern food and agriculture in the Western Hemisphere. It is also difficult to think about modern Mexican food without including rice, tacos filled with meat, refried beans in animal fat, cheese in enchiladas, and sugar, cinnamon, and milk in chocolate. However, Mexico in 1492 had none of these ingredients. The massive transplantation of plants and animals across the Atlantic Ocean in both directions has been called the Columbian Exchange (Crosby 1972). It has been described as the “greatest human intervention in nature since the invention of agriculture (Fernandez-Armesto 2002: 165), and it has had an enormous effect on the Americas and the entire world. The Columbian Exchange altered the kind of food Americans and Mexicans eat, the kind of agricultural products produced in both countries, and the entire pattern of world economic growth. This article will concentrate on the effects of the Columbian Exchange, but the exchange of plants and animals was part of a broader process of trade, migration, investment, colonization, and exchange of ideas that followed the voyages of discovery by Columbus and others. The same Old World plants and animals were introduced to the two regions that would become the United States and Mexico, but the effects in the two countries were substantially different.1 The United States was the poorer neighbor in 1492, but it became relatively richer. The purpose of this article is to show how differences in institutional development affected responses to the same opportunities. I shall concentrate on developments in the United States and Mexico, but the Canadian experience was similar to the U.S. response, and the response in the rest of Latin America was similar to the Mexican response (Cole et al. 2005).
- Topic:
- Migration, History, Food, Investment, Trade, and Columbian Exchange
- Political Geography:
- North America, Mexico, and United States of America
674. Remuneration vs. Reelection: A Senatorial Balancing Act
- Author:
- Jim F. Couch, Brett A. King, and Taylor P. Stevenson
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Unique events often give rise to other unique events. Such was the case of Hurricane Katrina—the costliest and most destructive natural disaster in U.S. history. The resulting casualties and staggering damage estimates from the savage storm in late August 2005, led the U.S. Senate to vote overwhelmingly (92 to 6) against a Senate pay raise. Most senators apparently felt that voters would not look kindly on a Senate pay raise given the devastation caused by Katrina. The Senate vote was largely symbolic because the House of Representatives was not going to take a vote on rescinding a pay raise for members of Congress. Thus, senators voting against the raise knew their votes would resonate well with voters but have no impact on the annual congressional pay raise sanctioned by law. Of the six senators who did vote for the pay raise, five—James Jeffords (I-Vt.), Daniel Inouye (D-Hawaii), Jeff Bingaman (D-N.M.), Richard Lugar (RInd.), and Kit Bond (R-Mo.)—were long-time incumbents whose seats were not threatened, and one—Paul Sarbanes (D-Md.)—was about to retire. Typically, votes cast by members of Congress are relatively easy to predict. The empirical analysis of congressional voting patterns suggests that measures of ideology and party affiliation play a decisive role in explaining overall voting behavior. A vote on congressional pay, however, is not typical. It creates a dilemma for lawmakers by pitting two margins of self-interest against each other: pecuniary gains and reelection. Senators are clearly made better off by not opposing annual pay raises—salaries have increased from $98,400 in 1990 to $165,200 in 2006. Yet, those increases are likely to irritate voters and could harm a senator’s chances for reelection. In this article, we examine those conflicts of interest and how they affect voting behavior in the case of senatorial pay raises. It is often reported that cooperation among politicians, or bipartisanship, is a thing of the past. However, our results suggest that at least in the case of the Senate, when it comes to an issue as controversial as a pay increase, senators are fully capable of cooperating. More vulnerable senators (in terms of their probability of reelection) are allowed to vote against a pay raise, knowing that those in a more secure position can vote for the increase. The more vulnerable senators likely compensate senators who take the unpopular position of voting in favor of the pay increase with favorable votes on future legislation.
- Topic:
- Elections, Domestic Politics, Ideology, and Voting Behavior
- Political Geography:
- North America and United States of America
675. The Effect of Judicial Selection Processes on Judicial Quality: The Role of Partisan Politics
- Author:
- Russell S. Sobel and Joshua C. Hall
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The quality of a state’s judicial system is an important determinant of economic growth and vitality. The decisions made within state judicial systems affect the degree to which private property rights are well-defined and enforced, which is an essential building block for entrepreneurial activity and economic growth. The key link between free-market institutions, such as secure property rights, and entrepreneurial activity has been demonstrated by Kreft and Sobel (2005) and Ovaska and Sobel (2005). Bad court decisions often infringe on the individual liberties and freedoms that are essential underpinnings for civil society and a well-functioning market economy (see Dorn 1985 and others in that special issue of the Cato Journal on this general topic). In addition, decisions made within state judicial systems also have important effects on the cost of doing business in a state. Poor liability rules reflected in state judicial decisions have been blamed for high medical malpractice rates, high workers’ compensation rates, and high automobile insurance rates in many states. Judicial decisions also impact the costliness of mandates and other regulations faced by businesses. Thus, it is clear that the judicial system is important for economic activity, and thus so is the selection mechanism that is used to determine the membership of state courts.
- Topic:
- Politics, Economic Growth, Judiciary, and Political Parties
- Political Geography:
- Global Focus
676. Global Imbalances: Do They Matter?
- Author:
- Miranda Xafa
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article reviews the recent literature on global imbalances and discusses the policy implications of the various theories that have been advanced to explain their unprecedented increase. Most of these theories fit the stylized facts, namely, the steady increase in the U.S. current account deficit, the shift to a surplus position of the developing countries, and the low nominal and real interest rates globally. The “low U.S. savings” theory—reflecting the increase in the fiscal deficit and in housing wealth—views the current account deficit as the result of fiscal and monetary policy decisions in the United States that need to be urgently reversed to prevent a crash landing. Other theories however, focusing on developments outside the United States, portfolio balance effects, or previously neglected benign factors, do not yield such a doomsday scenario. It is relevant to note that there is no historical precedent of disorderly exchange rate adjustment in industrial countries that keep inflation under control (Croke, Kamin, and Leduc 2005). Concerns over a disorderly unwinding of global imbalances therefore appear exaggerated. This view, prevalent among market participants and several prominent academics, has not been widely embraced by policymakers.
- Topic:
- Monetary Policy, Economy, Wealth, and Savings
- Political Geography:
- Global Focus and United States of America
677. Why the U.S. External Imbalance Matters
- Author:
- William R Cline
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Last year the U.S. current account deficit (mainly on trade but including capital income and transfers) reached almost 7 percent of GDP, or about twice as large a share as in 1987, the peak of the previous episode of large external imbalances and dollar overvaluation. A major reason is that from 1995 to 2002 the dollar rose by 28 percent against other currencies, after taking account of inflation and weighting by trade. A strong dollar made U.S. exports expensive and imports cheap, driving up the trade deficit after about a two-year reaction time. With large and persistent external deficits, the United States has swung from being the world’s largest creditor nation to its largest debtor, with net foreign liabilities now at about one-fourth of GDP. The dollar has corrected somewhat and is now about 13 percent lower on a trade-weighted basis than its average in 2002, based on the Federal Reserve’s broad real exchange rate index. Without that partial correction the trade deficit would now be even larger. It will likely require a decline of an additional 15 to 20 percent in the dollar to cut the current account deficit back to about 3 percent of GDP. That rate would be consistent with limiting net foreign liabilities to 50 percent of GDP in the long term. Exceeding that ceiling would seem imprudent for both the U.S. and global economies. It will be crucial that China, Japan, and much of the rest of Asia participate in realignment of their currencies against the dollar, because the decline of the dollar so far has been heavily concentrated against the euro and other industrial country currencies except for the Japanese yen. Dollar correction will also need to be accompanied by fiscal adjustment. Otherwise much of the competitive effect of the dollar adjustment would be offset by higher inflation and a dollar rebound from higher interest rates. Fundamentally the external deficit is the excess of resources used over resources produced, and with U.S. household saving near zero, the government cannot be a large net borrower without keeping the nation in large external deficit.
- Topic:
- Government, Finance, Economy, Currency, and Deficit
- Political Geography:
- North America and United States of America
678. Economic Freedom and Net Business Formation
- Author:
- Noel D. Campbell and Tammy M. Rogers
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Economic freedom indexes, especially the Fraser Institute/Cato Institute Economic Freedom of the World (EFW) index and the Heritage Foundation/Wall Street Journal Index of Economic Freedom, are becoming increasingly important as researchers seek to explore the link between economic freedom and prosperity. The consistent finding is that nations with more economic freedom—as indicated by security of property rights, free trade, limited government, low marginal tax rates, and so forth—enjoy higher per capita incomes and general living conditions compared with countries that are less free.1 In a less aggregated study, Karabegovic et al. (2003) find that differences in economic freedom across U.S. states and Canadian provinces are significantly and positively related to differences in the level and growth of economic activity across states and provinces. Various researchers have used the Economic Freedom of North America (EFNA) index, published by the Fraser Institute (Karabegovic, McMahon, and Mitchell 2005), to address questions of income differentials between states, income growth, and entrepreneurship.2 Scholars have also used the EFNA index to study migration. Ashby (2007), not surprisingly, finds that people tend to move from less free to more free areas.
- Topic:
- Migration, Economy, Business, Free Trade, and Freedom
- Political Geography:
- Global Focus
679. Stockholders and Stakeholders: The Battle for Control of the Corporation
- Author:
- Donna Card Charron
- Publication Date:
- 01-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The American corporation is in trouble not only because of various immoral executives, but also because it is a target of sustained attacks. For several decades, corporate revisionists have toiled to transform the corporation from private to public property. Were they to succeed, the tragedy of the commons would slowly sap the corporation of its vitality. My objective in exposing the battle for corporate control is to urge and encourage those committed to the preservation of this highly performing institution to place the issue more prominently on their agenda. To this end, I detail the evolution of the battle and assess the present state of affairs. In so doing, I describe and critique “stakeholder theory,” the revisionist’s chosen weapon for gaining control of the corporation. Stakeholder theory currently dominates textbooks and syllabi of courses in business management, human resource management, marketing, and public policy. It colors the decisions of many corporate executives. And it controls the thinking in the majority of business ethics centers. Aware of its reach, I adumbrate a strategy for reversing the destructive inroads of stakeholder theory.
- Topic:
- Business, Management, Corporations, and Stakeholders
- Political Geography:
- North America and United States of America
680. Cato Education Market Index Full Technical Report
- Author:
- Andrew J. Coulson
- Publication Date:
- 12-2006
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The index presented in this report attempts to measure how closely existing school systems resemble free markets and rates education policy proposals on how conducive they are to the rise of competitive marketplaces. We define an education market as a system that provides the freedom for producers and consumers to voluntarily associate with one another, as well as the incentives that encourage families to be diligent consumers and educators to innovate, control costs, and expand their services. It is a system in which schools can offer instruction in any subject, using any method, for which families are willing to pay.
- Topic:
- Development, Economics, Education, and Markets
681. The Cato Education Market Index
- Author:
- Andrew J. Coulson
- Publication Date:
- 12-2006
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The index presented in this report attempts to measure how closely existing school systems resemble free markets and rates education policy proposals on how conducive they are to the rise of competitive marketplaces. We define an education market as a system that provides the freedom for producers and consumers to voluntarily associate with one another, as well as the incentives that encourage families to be diligent consumers and educators to innovate, control costs, and expand their services. It is a system in which schools can offer instruction in any subject, using any method, for which families are willing to pay.
- Topic:
- Development, Economics, Education, and Markets
682. Effective Counterterrorism and the Limited Role of Predictive Data Mining
- Author:
- Jim Harper and Jeff Jonas
- Publication Date:
- 12-2006
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The terrorist attacks on September 11, 2001, spurred extraordinary efforts intended to protect America from the newly highlighted scourge of international terrorism. Among the efforts was the consideration and possible use of “data mining” as a way to discover planning and preparation for terrorism. Data mining is the process of searching data for previously unknown patterns and using those patterns to predict future outcomes.
- Topic:
- Conflict Prevention, International Relations, National Security, and Terrorism
- Political Geography:
- America
683. The Bottom Line on Iran: The Costs and Benefits of Preventive War versus Deterrence
- Author:
- Justin Logan
- Publication Date:
- 12-2006
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- It appears increasingly likely that the Bush administration's diplomatic approach to Iran will fail to prevent Iran from going nuclear and that the United States will have to decide whether to use military force to attempt to delay Iran's acquisition of a nuclear weapons capability. Some analysts have already been promoting air strikes against Iran, and the Bush administration has pointed out repeatedly that the military option is “on the table.” This paper examines the options available to the United States in the face of a prospective final diplomatic collapse.
- Topic:
- Conflict Prevention, Economics, and War
- Political Geography:
- United States, Iran, and Middle East
684. Foreign Aid and the Weakening of Democratic Accountability in Uganda
- Author:
- Andrew Mwenda
- Publication Date:
- 07-2006
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Africa is the world's poorest continent. Between 1974 and 2003, the per capita income in sub-Saharan Africa declined by 11 percent. Africa continues to trail the rest of the world on human development indicators including life expectancy; infant mortality; undernourishment; school enrollment; and the incidence of HIV/AIDS, malaria, and tuberculosis. The international aid lobby advocates more foreign aid and greater debt relief for Africa as solutions.
- Topic:
- International Relations, Security, and Humanitarian Aid
- Political Geography:
- Africa
685. Suicide Terrorism and Democracy: What We've Learned Since 9/11
- Author:
- Robert A. Pape
- Publication Date:
- 11-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Over the past two decades, terrorist organizations have increasingly relied on suicide attacks to achieve political objectives. The specific goal sought in almost all suicide terrorist campaigns in modern history is the same: to compel a democratic state to withdraw combat forces from territory prized by the terrorists. This holds true for al-Qaeda, the terrorist organization of greatest concern to most Americans. Al-Qaeda's efforts to mobilize people to kill Americans are driven principally by a simple strategic goal: to drive the United States and its Western allies from the Arabian Peninsula and other Muslim countries.
- Topic:
- International Relations, Security, and Terrorism
- Political Geography:
- United States, America, Arabia, and Arabian Peninsula
686. Iran's Nuclear Program: America's Policy Options
- Author:
- Ted Galen Carpenter
- Publication Date:
- 09-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Although it is possible that negotiations between the leading powers in the international community and Iran may produce a settlement to the vexing issue of Iran's nuclear program, it is more likely that those negotiations will fail. If that happens, U.S. policymakers face a set of highly imperfect options.
- Topic:
- International Relations, Security, and Nuclear Weapons
- Political Geography:
- United States, America, Iran, and Middle East
687. How Canada's Supreme Court Sparked a Patients' Rights Revolution
- Author:
- Jacques Chaoulli
- Publication Date:
- 05-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Early efforts by Western democracies to restrict freedom of contract were rationalized on the ground that such restrictions were necessary to prevent the suffering of ordinary citizens. People who oppose the freedom to opt out of state-run health insurance schemes turn that rationale on its head: they oppose freedom of contract even when it is necessary to prevent the suffering of ordinary citizens. A recent ruling by the Canadian Supreme Court has helped to restore that freedom and the right of patients to make their own medical decisions.
- Topic:
- International Relations, Foreign Policy, Government, and International Law
- Political Geography:
- Canada
688. Reappraising Nuclear Security Strategy
- Author:
- Rensselaer Lee
- Publication Date:
- 06-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The danger posed by Russia's inadequately secured stocks of nuclear weapons and fissile material is a major national security concern for the United States. Various cooperative U.S.-Russian programs aimed at securing nuclear material, weapons, and design intelligence have been mounted since the 1990s, but clever and determined adversaries may be able to circumvent or defeat the defenses that the United States and its partners are attempting to put in place. U.S. programs are by their nature reactive: they have long time horizons; they focus preeminently on the supply side of the problem; and they face serious technological limitations. Russia's imperfect commitment to nonproliferation also undermines the effectiveness of U.S. nonproliferation efforts.
- Topic:
- International Relations, Security, Foreign Policy, and Nuclear Weapons
- Political Geography:
- Russia, United States, Europe, and Asia
689. CATO Institute: Two Normal Countries: Rethinking the U.S.-Japan Strategic Relationship
- Author:
- Christopher Preble
- Publication Date:
- 04-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The U.S.-Japan strategic relationship, formalized during the depths of the Cold War and refined during the 1980s and 1990s, continues to undergo dramatic changes. Although Japan is economically capable and now seems politically motivated to assume full responsibility for defending itself from threats, it is legally constrained from doing so under the terms of the Japanese constitution, particularly Article 9. The path to defensive self-sufficiency is also impeded by Japan's continuing dependence on the United States embodied in the U.S.-Japan security alliance.
- Topic:
- International Relations and Diplomacy
- Political Geography:
- United States, Japan, Israel, East Asia, and Asia
690. CATO Institute: KidSave: Real Problem, Wrong Solution
- Author:
- Michael Tanner and Jagadeesh Gokhale
- Publication Date:
- 01-2006
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- There is growing bipartisan recognition that the pathway out of poverty is not through consumption but through saving and accumulation. That idea has led to a number of interesting and innovative experiments by state and local governments and by private charitable organizations and has helped fuel the drive for personal accounts as part of Social Security reform.
- Topic:
- Conflict Resolution, Security, Development, Economics, and Government
691. Independent Central Banks: New and Old
- Author:
- John H. Wood
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In the 1990s, several governments gave their central banks operational independence to pursue low inflation, and steps were taken to make the new monetary policy more credible by making it more transparent (Bernanke et al. 1999). The governor of the Reserve Bank of New Zealand is subject to dismissal if inflation is outside the assigned range. In the United Kingdom, if inflation misses the target by more than 1 percentage point, the governor must explain publicly why the divergence occurred and what steps the Bank of England is taking to deal with it. The new transparency “facilitates public understanding of monetary policy and increases the incentives for the central bank to pursue the announced goals of monetary policy” (Svensson 1999: 631–32). Accountability is increased, indeed made possible, by the choice of a unique objective, which implies “a stronger commitment to a systematic and rational optimizing monetary policy than other monetary policy regimes” (p. 608).
- Topic:
- Monetary Policy, Inflation, and Central Bank
- Political Geography:
- England and United States of America
692. Tobacco Control Programs and Tobacco Consumption
- Author:
- Michael L. Marlow
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The Centers for Disease Control and Prevention (CDC) believe that adequate funding of tobacco control programs by all 50 states would reduce the number of adults who smoke by promoting quitting, preventing young people from ever starting, reducing exposure to secondhand smoke, and eliminating disparities in tobacco use among population groups. CDC has established guidelines for comprehensive tobacco control programs, including recommended funding levels, in Best Practices for Comprehensive Tobacco Control Programs (CDC 1999; hereafter called Best Practices). Recommendations are based on best practices in nine program elements: community programs to reduce tobacco use, chronic disease programs to reduce the burden of tobacco-related diseases, school programs, enforcement, statewide programs, countermarketing, cessation programs, surveillance and evaluation, and administration and management. CDC recommends annual funding per capita to range from $7 to $20 in smaller states (population less than 3 million), $6–$17 in medium-sized states (population 3–7 million), and $5–$16 in larger states (population more than 7 million).
- Topic:
- Tobacco, Public Health, and Public Spending
- Political Geography:
- North America and United States of America
693. Does “Starve the Beast” Work?
- Author:
- Jerry H. Tempelman
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Starve-the-beast proponents believe that in order to tame the beast, one needs to starve it, with the beast being an obvious reference to Thomas Hobbes’s Leviathan depiction of an out-of-control state apparatus. The idea of tax reductions as a way to enforce discipline in government spending holds regardless of whether the nation is in the midst of an economic expansion or a recession. Following the recurrence of federal budget deficits that coincided with the enactment of federal tax cuts during 2001–2003, the starvethe-beast approach to fiscal policy that once was one of the underpinnings of the Reagan Revolution has become increasingly controversial. It is no longer mainly the political left that criticizes the starve-the-beast approach. Even some Republicans who once participated in the move to a smaller government during the Reagan presidency now criticize starve-the-beast thinking. Recently, William Niskanen (2005) has used statistical evidence to demonstrate that a decrease in taxes in a given year is followed by an increase in spending the next. Bruce Bartlett (2005) has proposed raising taxes, namely by introducing a value-added tax, presumably to prevent having to increase less efficient income taxes later.
- Topic:
- Budget, Economy, Tax Systems, and Fiscal Policy
- Political Geography:
- North America and United States of America
694. Limiting Government: The Failure of “Starve the Beast”
- Author:
- William A. Niskanen
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- For nearly 30 years, many Republicans have argued that the most effective way to control federal government spending is to “starve the beast” by reducing federal tax revenues. Moreover, two Nobel laureate economists, Milton Friedman and Gary Becker, have endorsed this argument. Friedman (2003) summarized this perspective as follows: How can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance. For governments, this means cutting taxes. Resulting deficits will be an effective—I would go so far as to say, the only effective—restraint on the spending propensities of the executive branch and the legislature. The public reaction will make that restraint effective. Becker and his colleagues Ed Lazear and Kevin Murphy (2003) described this effect as “the double benefit of tax cuts.” (Lazear is the recently appointed chairman of the Council of Economic Advisers.) This argument has been effective in unifying the Republican Party in favor of reducing federal taxes, but at the cost of undermining the more traditional Republican concern about fiscal responsibility.
- Topic:
- Government, Economy, Tax Systems, Fiscal Policy, and Public Spending
- Political Geography:
- North America and United States of America
695. Creating a Policy Environment for Entrepreneurs
- Author:
- Thomas A. Garrett and Howard J. Wall
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Entrepreneurship is often viewed as a catalyst for economic growth. Through innovation, hard work, and a willingness to accept financial risk, the entrepreneur takes advantage of previously undiscovered opportunities for arbitrage and profit (Kirzner 1997).1 This quest for profit, and the possibility of personal and financial failure, aid in ensuring that an economy’s resources are used efficiently. Successful entrepreneurs provide employment opportunities to others, generate innovation, spur economic growth, and contribute to state and local governments in the form of tax revenue (Gwartney, Holcombe, and Lawson 2004; Kreft and Sobel 2005). Because of this perception of the benefits generated by entrepreneurship, a large literature has focused on the factors that influence the decision of an individual to become an entrepreneur and the conditions under which entrepreneurship prospers.
- Topic:
- Finance, Entrepreneurship, Economic Growth, and Risk
- Political Geography:
- Global Focus
696. Economic Freedom and Development: New Calculations and Interpretations
- Author:
- Erich Weede
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- For some time there has been a debate about the effect of economic freedom on economic growth and development (Beach and Davis 1999: 10; de Haan and Siermann 1998; de Haan and Sturm 2000; Edwards 1998; Goldsmith 1997; Gwartney, Lawson, and Block 1996: 109; Knack and Keefer 1995; Pitlik 2002; Scully 1992; Torstensson 1994; Weede and Kämpf 2002). Although there is wide agreement about the stylized fact that economically free societies are richer than other societies, there is less agreement about the impact of economic freedom on growth rates. Some writers contend that the level of economic freedom affects growth, whereas others, in particular de Haan and his associates, dispute the robustness of this claim and find only a relationship between improvements in economic freedom and growth. The most recently published research on the effects of economic freedom on growth (Gwartney and Lawson 2004; Gwartney, Holcombe, and Lawson 2006) reaffirms that there are strong and beneficial effects of the level of economic freedom and of its improvement on growth rates. Looking at the published literature as well as at the work in progress by one of my doctoral students (Liu 2007), my impression is that there are two ways to strengthen the effects of the level of economic freedom on growth: first, choose a longer rather than shorter period of growth observation; second, and more important, use an average measure of the level of economic freedom rather than a single time point measure of economic freedom that refers only to the first year of growth observation. If one compares, say, de Haan and Sturm’s (2000) study with Gwartney, Holcombe, and Lawson’s (2006), then one finds that the former study uses a somewhat shorter period of growth observation, but both of them use the level of economic freedom at the beginning of the growth period to be explained.1 Whereas de Haan and Sturm (2000) find no significant and robust effect of the level of economic freedom on growth, Gwartney, Holcombe, and Lawson (2006) arrive at the opposite conclusion: The level of economic freedom does promote growth.2
- Topic:
- Economy, Economic Growth, Economic Development, and Freedom
- Political Geography:
- Global Focus
697. Regulation, Investment, and Growth across Countries
- Author:
- John W. Dawson
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Numerous studies have explored the relationship between economic freedom and long-run economic growth across countries.1 One particular aspect of economic freedom that has received relatively little attention in the empirical growth literature, however, is the extent of government regulation. Determining the impact of regulation on cross-country economic performance has been virtually impossible because of the inherent difficulties in measuring the scope of regulation across countries. While a few studies investigate various aspects of specific regulations, none are able to assess the importance of a comprehensive measure of regulation on long-run economic performance in a large sample of countries.
- Topic:
- Regulation, Economic Growth, and Investment
- Political Geography:
- Global Focus
698. The Case for Market‐Based Regulation
- Author:
- Gerald P. O'Driscoll Jr.
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In this article, we reconsider the rationale for government regulation of markets. We begin by identifying markets as governed not only by prices but also by evolved institutions, rules, and standards. We then analyze how this complex order regulates human behavior, discuss the case for adding a layer of government regulation to the market’s own regulatory system, and present a number of case studies to clarify the issues. Our focus is not on the familiar public choice criticism of government regulation—namely, that regulation is more about the pursuit of economic rents than protecting the so-called public interest. While that criticism is correct and we make reference to it where appropriate, the thrust of our argument is that market self-regulation is often superior to government regulation, which frequently is a solution in search of a problem.
- Topic:
- Government, Markets, Regulation, and Economy
- Political Geography:
- Global Focus
699. Science, Public Policy, and Global Warming: Rethinking the Market‐Liberal Position
- Author:
- Edwin G. Dolan
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- A survey of market-liberal or libertarian publications and websites finds a large and growing literature on the issue of global warming. Almost without exception, this literature conveys a comforting message: Our planet is in good health. The markets that regulate resource use are working well. The only real dangers come from ill-considered policy initiatives that, if implemented, would do more harm than good. It would seem that the message is well received by its audience—it is repeated, embellished, and applauded with little variation. In this article, I take a contrarian position, not so much with respect to the science of climate change as with respect to the arguments used by market liberals in support of their message of comfort and complacency. One problem area concerns the proper use of scientific evidence in reaching conclusions regarding public policy. It seems to me that market liberals are often reckless in the degree of certainty they professes regarding climatological hypotheses that are, in fact, still controversial and in early stages of development. A second problem concerns the use of cost-benefit analysis. Market-liberal writers are prone to make cost-benefit arguments regarding climate policy that they would never accept in other contexts. Third, the literature on global warming is often weakly rooted, if rooted at all, in the core principles of classical liberalism from which modern market liberalism has evolved. Instead, it is, for the most part, indistinguishable from what is said by conservatives. It might even be said that there is no market-liberal position on this issue—only an echo of arguments made by Republican patriots and the carbon lobby. In short, the whole issue of global warming policy, as viewed by market liberals, needs to be revisited. This can best be done by going back to some of the classical liberal sources, particularly Friedrich Hayek and John Locke, from which modern market-liberal thought is derived.
- Topic:
- Climate Change, Markets, Science and Technology, Public Policy, and Libertarianism
- Political Geography:
- Global Focus
700. U.S.-China Relations: The Case for Economic Liberalism
- Author:
- James A. Dorn
- Publication Date:
- 10-2006
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In its 2005 Report to Congress, the U.S.-China Economic and Security Review Commission—also known as the U.S.-China Commission (USCC)—recommended that China appreciate its currency, the renminbi (RMB), “by at least 25 percent against the U.S. dollar” or face “an immediate, across-the-board tariff on Chinese imports.” The commission argued that such an action could be justified under Article XXI of the World Trade Organization (WTO), “which allows members to take necessary actions to protect their national security.” The key idea behind the commission’s protectionist policy stance is that “China’s undervalued currency has contributed to a loss of U.S. manufacturing, which is a national security concern” (USCC 2005: 14).
- Topic:
- Bilateral Relations, Economy, Trade, and Liberalism
- Political Geography:
- China, Asia, North America, and United States of America