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  • Author: Jeffrey A. Miron
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: At the end of September 2007, the U.S. economy had experienced 24 consecutive quarters of positive GDP growth, at an average annual rate of 2.73 percent. The S 500 Index stood at roughly 1,500, having rebounded over 600 points from its low point in 2003. Unemployment was below 5 percent, and inflation was low and stable.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Anna J. Schwartz
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I begin by describing the factors that contributed to the financial market crisis of 2008. I end by proposing policies that could have prevented the baleful effects that produced the crisis.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization, Financial Crisis
  • Political Geography: United States
  • Author: Allan H. Meltzer
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: I am going to make several unrelated points, and then I am going to discuss how we got into this financial crisis and some needed changes to reduce the risk of future crises.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization, Financial Crisis
  • Political Geography: United States
  • Author: Donald L. Kohn
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: We are in the midst of a global financial crisis that is now weighing heavily on economies around the world. Although the outlook remains extremely uncertain, both the fragility of the financial system and the weakness in real activity seem likely to persist for a while. To promote maximum sustainable economic growth and price stability, the Federal Reserve has responded to this crisis by easing monetary policy markedly, and we have greatly expanded our liquidity facilities to keep credit flowing when private lenders have become reluctant or unable to do so. Other central banks have also cut policy rates significantly and expanded their lending. In addition, the federal government and governments around the world have taken extraordinary actions to strengthen financial systems to preserve the ability of households and businesses to borrow and spend.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Otmar Issing
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Beyond dealing with the immediate problems, any crisis raises questions of why and how we got there and what lessons should be drawn to avoid a repetition of past developments—without laying the ground for a new disaster. This line of inquiry also applies to the current crisis in financial markets. Even during the heaviest turbulence a discussion has started on obvious deficits in the system of regulation and supervision and on badly needed improvements. In this article, I concentrate on monetary policy but that does not mean regulatory measures are irrelevant in this context, quite the opposite.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Jeffrey M. Lacker
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The current financial crisis undoubtedly will inspire a great deal of research in the years ahead, and it may take some time before anything like a professional consensus emerges on causes and consequences. After all, it took several decades to document the causes of the Great Depression, and recent research continues to provide new perspectives. Nonetheless, I believe the central questions that are likely to occupy researchers are plainly in view, and some tentative lessons have emerged already. And in any event, legislators are not likely to await the fruits of future scholarship.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization, Financial Crisis
  • Political Geography: United States
  • Author: Charles W. Calomiris
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Financial innovations often respond to regulation by sidestepping regulatory restrictions that would otherwise limit activities in which people wish to engage. Securitization of loans (e.g., credit card receivables, or subprime residential mortgages) is often portrayed, correctly, as having arisen in part as a means of “arbitraging” regulatory capital requirements by booking assets off the balance sheets of regulated banks. Originators of the loans were able to maintain lower equity capital against those loans than they otherwise would have needed to maintain if the loans had been placed on their balance sheet.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Bert Ely
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The current global financial crisis is the worst economic crisis since the Great Depression, with no end in sight. Already, much political finger pointing has occurred, with most of those fingers pointed at supposedly greedy bankers, investors, and hedge-fund managers as well as the financial deregulation of recent decades. Governments everywhere are rushing to enact new regulatory protections to pre- vent another crisis of this magnitude. Yet if history is any guide, these new regulations will set up the global economy for yet another financial crisis, perhaps worse than the present one, or create regulatory straitjackets that will greatly impede economic growth.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Lawrence H. White
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The U.S. housing bubble and the fallout from its bursting are not the results of a laissez-faire monetary and financial system. They happened in an unanchored government fiat monetary system with a restricted financial system.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Wolfgang Münchau
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Should we worry about moral hazard while the house is burning? The discussion about economic policy is full of biblical metaphors, the language of water and floods, and of fire extinction during crises. Metaphors, even when not mixed, are often obstacles to the clarity of thought. That is clearly the case with the metaphor of moral hazard in trying to understand the current financial crisis. Instead of focusing on moral hazard, I prefer to use the concept of policy sustainability to argue that sustainable monetary, fiscal, and regulatory policies are essential for lasting prosperity.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Andrew A. Samwick
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Cato Institute is the ideal place to draw lessons from the sub- prime crisis. The organization's mission focuses on the interaction of public policies with free markets and limited government. Even the most ardent believer in free markets must fully understand that individual liberty implies neither the nonexistence nor the indifference of government to economic affairs. Individuals live in freedom and peace when public policies are crafted in accordance with well-established rules and implemented with an eye toward effectiveness, not expansion. In the halls of government, we need sobriety and vigilance rather than apathy or empire building.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Kevin Dowd
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: There is no denying that the current financial crisis has delivered a major seismic shock to the policy landscape. In country after country, we see governments panicked into knee-jerk responses and throwing their policy manuals overboard: bailouts and nationalizations on an unprecedented scale, fiscal prudence thrown to the winds, and the return of no-holds-barred Keynesianism. Lurid stories of the excesses of “free” competition—of greedy bankers walking away with hundreds of millions whilst taxpayers bail their institutions out, of competitive pressure to pay stratospheric bonuses and the like—are grist to the mill of those who tell us that “free markets have failed” and that what we need now is bigger government. To quote just one writer out of many others saying much the same, “the pendulum will swing—and should swing—towards an enhanced role for government in saving the market system from its excesses and inadequacies” (Summers 2008). Free markets have been tried and failed, so the argument goes, now we need more regulation and more active macroeconomic management.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Gerald P. O'Driscoll Jr.
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: We remain in an economic crisis and financial crisis, one that Gary Gorton has named “The Panic of 2007” (Gorton 2008). The thesis of this article is that monetary policy has played a pivotal role. Under Alan Greenspan and now Ben Bernanke, the Fed has conducted monetary policy so as to foster moral hazard among investors, notably in housing (O'Driscoll 2008a). More generally, the crisis is the product of a “perfect storm” of misguided policy. Policies to encourage affordable housing fostered the growth of subprime lending and complex financial products to finance that lending. Regardless of the desirability of the social goal, the financial super- structure depended on housing prices never falling. Housing prices do fall sometimes, and did so decisively beginning in 2007 (Gorton 2008: 50).
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States, Europe, New Zealand
  • Author: Roger W. Garrison
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In the era that has come to be known as the “Great Moderation” (dating from the mid-1980s), the Federal Reserve's policy committee (the Federal Open Market Committee or FOMC) pursued what has to be called a “learning-by-doing” strategy. The data that counted as relevant feedback—the unemployment rate and the inflation rate—seemed all along to be suggesting that the Fed was doing the right things. Even when the Fed lowered the Fed funds target to 1 per- cent in June 2003 and held it there for nearly a year, the economy appeared to be on an even keel and U.S. interest rates were in line with those in other countries. The historically low interest rates were attributed not to excessive monetary ease in the United States but to a worldwide increase in savings.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: William Poole
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Most of the world today is concentrating not on the way forward after the crisis, but the way out of the crisis. This concentration brings the very real danger that steps taken now will cause problems later. The most obvious danger, perhaps, is that enormous government spending, here and abroad, will increase outstanding debt to a degree that will increase temptation to attempt to finance government budget deficits through inflation. Moral hazard is the less obvious, but perhaps more serious, problem we will face.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Christopher J. Coyne
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Christopher Coyne's book seeks to contribute to an understanding of the “precise mechanisms and contexts that contribute to or prevent” successful efforts to “export liberal democracy” by means of “military occupation and reconstruction” (p. 7). Even if this were the only accomplishment of this fine book, it would represent one of the most important contributions to the field of political economy in recent decades. However, Coyne does more. He draws from economics to produce a full-fledged framework for analyzing the economic, political, and social effects of all reconstruction efforts. He also questions the long-standing view that reconstruction requires, or even benefits from, a suspension of the principles of liberty, free association, and free market.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Robert L. Bradley Jr.
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Robert L. Bradley Jr., for many years had to balance loyalty to his employer, Enron, with his belief in Austrian economics. With the collapse of Enron came the opportunity to resolve the conflict in favor of Austrian economics. Bradley chose to undertake the slow development that would produce a definitive study rather than an instant bestseller. He ultimately decided to produce a three-volume treatment. The first of these, the book under review here, deals with two overriding conceptual issues relevant to the Enron collapse and their implications to Enron and earlier debacles. The first is what is the essence of free-market economics and whether the Enron experience undermines the case for free markets. The other is the invalidity of resource pessimism. Later volumes will deal with similar problems such as the Insull holding-company collapse in the Great Depression and then a concluding volume on Enron itself.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States
  • Author: Tony Leon
  • Publication Date: 01-2009
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: On the Contrary is a seamless combination of a memoir of an influential South African politician and a well-researched modern history of his country. The author was the leader of the liberal Democratic Alliance, the leader of the opposition in Parliament.
  • Topic: Democratization, Economics, International Trade and Finance, Markets, Privatization
  • Political Geography: United States, South Africa